Biden's global tax proposal faces setback after Ireland objects

Washington, United StatesUpdated: May 27, 2021, 06:05 PM IST

US President Joe Biden (file photo) Photograph:(AFP)

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The objection from Dublin's finance minister Paschal Donohoe on Tuesday carries weight because Ireland hosts an outsized number of technology and pharmaceutical firms

US President Joe Biden's push to get major economies to agree on a 15 per cent minimum tax rate for multinational corporations has hit turbulence after Ireland's finance minister expressed "significant reservations" about the plan.

The objection from Dublin's finance minister Paschal Donohoe on Tuesday carries weight because Ireland hosts an outsized number of technology and pharmaceutical firms that were attracted to the country for its lower tax rate. 

"We do have really significant reservations regarding a global minimum effective tax rate status at such a level that it means only certain countries, and certain size economies can benefit from that base -- we have a really significant concern about that," Donohoe told Sky News.

His objections come as finance ministers from the Group of Seven advanced nations are set to meet next week in London, where they could endorse the US proposal.

Biden's administration last week called for an agreement on the unified tax rate of a minimum of 15 per cent rate in negotiations with the Organization for Economic Cooperation and Development (OECD) and G20.

The European Union's top economies France and Germany said they would support a tax at that level, and the IMF's leader on Tuesday also offered her endorsement.

A person close to the G7 talks told AFP they expect a political agreement next week, though two other people with knowledge of the matter said member states may opt for a less definitive measure.

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Finance chiefs have characterized a minimum tax as necessary to stem competition between countries over who can offer multinationals the lowest rate. They say that "race to the bottom" saps revenues that could go to other government priorities.

For Biden, a global tax agreement also would help maintain US competitiveness, since he has proposed hiking domestic corporate taxes to pay for an infrastructure and jobs program with a price tag of around $2 trillion.

Treasury Secretary Janet Yellen will represent the United States at next week's meeting, and her deputy, Wally Adeyemo, told Reuters on Monday that he expects to see "a lot of unified support" for the plan from the G7 nations. 

French Finance Minister Bruno Le Maire last week called the 15 per cent proposal "a good compromise." 

IMF Managing Director Kristalina Georgieva said establishing a global minimum tax would be "a benefit," and something the Washington-based crisis lender has long supported.

"Why? Because when we have it, there is no race to the bottom and less tax avoidance," Georgieva said Tuesday during a conversation with The Washington Post. 

That means "more money in the public purse to invest in education and healthcare, and infrastructure, digitalization -- all the good things we recognize we have to invest more into."

However, she acknowledged the challenge in finding "the sweet spot" for the global economy between those priorities and the best rate for national governments, given some countries have relied on low tax rates to compete for revenue.

Ireland is among that group, and according to Sky News, Donohoe said it intends to hold its corporate tax rate at 12.5 per cent for a few more years.

Last month, Dublin's finance ministry released a projection saying it could lose two billion euros ($2.4 billion) each year in revenue starting in 2025 if a global minimum tax rate is enacted.