G7 nations set to back reform deal on international corporate tax

Momentum towards a major reform deal on international corporate tax could be set to accelerate, with G7 finance ministers to discuss backing an agreement at an online meeting on Friday. If agreement is reached on Friday – or at a subsequent meeting on June 4th/5th – it will be a strong signal to other OECD countries of support for a deal from the major players.

The 139 countries in the OECD are trying to agree a two-pronged reform package, including a recommended global minimum tax rate for big companies and a digital services tax to be applied to the sales of the biggest multinationals . The reform plan has major implications for Ireland, potentially affecting tax revenues and the ability to use a low tax rate to attract investment here.

The UK is chairing the G7 talks and, while its attitude on the minimum tax plan has not been clear, the Financial Times reported on Monday that the G7 is close to an agreement. As well as the UK, the G7 countries are the US, Japan, Germany, France, Italy and Canada.

A G7 agreement would have no formal standing in the OECD process, but it is being pushed for by the US, which believes it would help to get a wider deal concluded.

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Key priority

The Biden administration has made achieving a deal a key priority, giving the OECD talks a new impetus. Last week the US signalled that it was willing to agree a global minimum tax rate as low as 15 per cent. This is significantly below the 21 per cent global minimum it has proposed for the international earnings of US companies, as part of a package now being negotiated in Congress.

Minister for Finance Paschal Donohoe has signalled Ireland's support for the OECD process, but also his reservations on elements of it, arguing that smaller countries should be allowed to continue to compete for investment on the basis of tax.

For this reason, Ireland has particular reservations about the proposal for a global minimum tax rate, particularly if it was set at a high level.

How the US applies its own global minimum – the so-called Gilti rate – will also be important for Ireland. A key issue is whether minimum tax levels apply on a country-by-country basis – in other words imposing that level of tax on earnings in each state – or allow a company to “blend” profits from different jurisdictions.

President

The Minister, as president of the Eurogroup of finance ministers, will participate both in the online meeting of the G7 finance ministers on Friday and the physical meeting on June 4th/5th. However, any agreement on a statement on corporate tax will be among the G7 members themselves.

In a statement on Monday, the Department of Finance said the key decisions in the corporate tax reform process "have not yet been discussed at political level" by the 139 finance ministers at the OECD. The implementation timeframe and legal basis for agreement had still to be negotiated, it said.

The US made its offer of a minimum tax rate of at least 15 per cent last week to a steering group for the OECD talks in which representatives of 24 countries – not including Ireland – participate.