The New Proposed Global Tax Overhaul Puts Developing Countries In Dilemma

In a global shakeup, Ireland may have done the previously unthinkable by giving up its prized 12.5 per cent corporate tax rate. But it and other developed countries appear set to continue dividing the spoils of foreign direct investment.

On Friday, agreement on the first major overhaul of multinational tax rules in a generation was arrived at by 136 countries and steeps such as a global minimum rate of 15 per cent intended to discourage multinationals from booking profits in low-tax countries. find out more

Ireland’s withdrawal of opposition on the eve of the deal gave the negotiations a huge boost. However, many developing countries claim that their interests have been overlooked, and Oxfam has dubbed the agreement “a rich country stitch-u.”

“We will continue to compete with largely the same jurisdictions,” said Martin Shanahan, the head of IDA Ireland, the state investment agency that has managed to drawn in the likes of Apple, Facebook, and Pfizer to have their European headquarters in the country which has just 5 million people.

Adding future technology behemoths to that list will almost certainly pit them against Berlin and London. Switzerland and Singapore will be the toughest competitors in pharmaceuticals and medical devices.

Shanahan has also mentioned Spain and parts of Eastern Europe as becoming more competitive in recent years in the race for multinational investments, which account for one out of every six jobs in Ireland.

Many of those competitors have corporate tax rates far higher than Ireland’s current 12.5 percent and the upcoming global minimum of 15%. Dublin has long argued that attracting investment requires more than just low taxes, citing Ireland’s young, highly educated workforce and European Union membership as examples.

Sendoso, a U.S. online gifting platform, announced the opening of a new European headquarters in Dublin this week, claiming that corporate tax was a minor consideration and that the global agreement had no impact on Ireland’s strategic advantages as a location.

On Thursday, the head of Ireland’s National Treasury Management Agency said that when discussing its rapid hiring plans in Ireland, digital payments giant Stripe had never mentioned tax. The NTMA manages the Irish sovereign wealth fund, which invested in the US startup’s latest funding round in March. find out more

Low-tax countries, on the other hand, could have fared much worse.

The United States, which led the recent push for a deal, had demanded a minimum rate of 21pr cent, but the draft OECD agreement reached in July settled on “at least 15 per cent.”

Dublin fought hard to have the word “at least” removed. The government claimed that by succeeding, it had maintained the stable business environment needed to rival for investment.

“If we had a rate of ‘at least’ 15%, it would have created a lot of uncertainty about the attractiveness of our regime and that could have limited new investment and even a potential outflow of existing investment,” said Peter Vale, a tax partner at Grant Thornton in Ireland.

“We played a strong hand and I think it’s ended well.”

The proposal has pushed developing countries to choose between “something bad and something worse”, said Argentine Economy Minister Martin Guzman on Thursday. There was reluctance from Argentina in signing up to the previous version of the deal.

“It is shameful that the legitimate concerns of developing countries are being ignored while countries like low-tax Ireland are able to water down the already limited aspects of the deal,” Oxfam’s Tax Policy Lead Susana Ruiz said in a statement.

“The proposal for a fixed global rate of 15% will overwhelmingly benefit rich countries and increase inequality.”

(Adapted from Reuters.com)



Categories: Economy & Finance, Entrepreneurship, Geopolitics, Regulations & Legal, Strategy, Sustainability

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