G7 tax deal: The questions hanging over Big Tech and Ireland

8 Jun 2021

Minister for Finance Paschal Donohoe, TD. Image: Julian Behal Photography

Seven of the world’s biggest economies have agreed on proposals tackling the way big tech companies are taxed – and Ireland is caught up in the middle.

Over the weekend, the G7 countries reached a landmark agreement on corporate tax reform, agreeing to a minimum rate. But the work in getting the deal across the line has just begun.

The proposals, if brought into force, would set a minimum tax rate of 15pc for corporations that is paid regardless of where the companies are based. The rate would make low-tax jurisdictions and tax havens less attractive and, in some cases, redundant.

The G7 have Big Tech squarely in their sights, aiming to bring the staggeringly high profits and low tax bills of Amazon, Google and others to heel.

Over the weekend, Facebook, Google, Amazon and Microsoft all welcomed the deal, saying they are in favour of harmonised tax reform. Google said it was hoping for a “balanced and durable” final agreement to come, while Facebook’s global affairs chief Nick Clegg tweeted that it was a “significant step” towards global tax stability.

“We want the international tax reform process to succeed and recognise this could mean Facebook paying more tax, and in different places,” Clegg said.

As ever, the devil will be in the details. Gabriel Zucman, an economics professor at UC Berkley and a fierce critic of tax havens, said the deal was “historic, inadequate and promising — yes all of that at the same time!”

He said that agreeing to a global minimum rate is historic but a 15pc rate remains far too low. However, it opens the door for some day reaching a 25pc minimum rate.

Reaching consensus

Getting seven of the world’s biggest economies on the same page is a challenge in itself, but only one part of the mission.

The agreement reached in London on Saturday (5 June) commanded many headlines about change afoot, but the proposals will be discussed again at the G20 meeting of finance ministers in July and will ultimately have to go through the OECD process and its 139 member countries.

But this agreement is notably different to previous chatter and debate about global tax reform, with the US and major European economies France, Germany and the UK all in sync.

The US had taken umbrage with France, for example, over its digital services tax on major US tech companies, while the EU has frequently attempted to thrash out a bloc-wide tech tax, drawing the ire of the US in the process.

With Joe Biden entering the White House at the beginning of this year, the mood has changed. Tax reform and ensuring the biggest players pay the biggest share is on the agenda for Biden and US Treasury Secretary Janet Yellen.

Now, Yellen has her work cut out for her in trying to sell this proposal back home. On Monday, a number of high-profile Republican senators said they would oppose the deal.

The end of 12.5pc?

Any changes to the global corporate tax playing field will have a profound effect on Ireland. The country’s 12.5pc corporate tax rate has been the bait that attracted so many corporations, most notably several tech giants, to Irish shores.

If adopted, the current proposals could see Ireland lose about €2.4bn in annual corporate tax intake.

Irish finance minister Paschal Donohoe attended the meetings in his capacity as Eurogroup president.

Speaking to reporters on the sidelines in London this weekend, Donohoe said the deal needs to ensure the protection of smaller countries and their economies.

“In the process that is to come, I’ll be making the case for legitimate tax competition inside certain boundaries and the role of small and medium-size economies in any international tax agreement,” he said.

There is still much to play for when the proposals arrive on the table at the OECD.

Whatever the outcome, Ireland’s vaunted 12.5pc and its ability to attract foreign direct investment will likely change in some shape or form.

A report from EY this week showed that Ireland ranked ninth out of 48 countries when it comes to attracting foreign direct investment.

The report found that the volume of FDI into Ireland dropped for the second consecutive year. The pandemic accounts for some of this loss and EY expects a rebound in 2021 before the year closes out. The pandemic has also driven the need for diverse supply chains so companies will still be looking for international outposts to shore up operations.

At the same time, large companies making international expansion decisions may be holding their cards close to their chests and eyeing the OECD talks before making any major investment decisions.

By the end of 2021, the global tax landscape could look very different.

Jonathan Keane is a freelance business and technology journalist based in Dublin