Could Lost Revenue Mean More Scrutiny in Ireland?11th January 2022
It seemed like a global kumbaya moment, back in October when 137 countries agreed to the OECD’s global tax reform. But not every signature spelled enthusiasm. Ireland, as you may recall, held out on signing, conceding at the 11th hour only once its own demands were met. The Emerald Isle agreed to the two-pillar plan after insisting that the phrase “at least 15% minimum tax” be changed to simply “a 15% minimum tax,” thus prohibiting any country from upping the global minimum tax requirement. (Oh, the difference two little words can make!) While Ireland faced critics for hemming and hawing, the country did have its reasons. In fact, on a recent Irish radio show, Ireland’s finance minister Paschal Donohoe claimed that when the OECD’s plan goes into effect in 2023, he expects Ireland’s corporate income tax revenue to take a hit. In 2021, the government collected €15.3 billion in tax revenue (about $17.3 billion), a quarter of Ireland’s total tax revenue and a 30% increase from 2020, but Donohoe is sure the country won’t see those kinds of numbers once the OECD’s plan takes shape. Despite the expectation that revenues will decline due to dips in corporate profits and the fact that Pillar One’s tax reallocation will route tax dollars away from home, Ireland plans to take one for the global team and, in 2023, increase its tax rate from 12.5% to the global minimum of 15%. What does this mean for multinational companies? Tax-friendly Ireland will be on the lookout for lost revenue; and where do you think the government will look for it? You guessed it—multinational companies’ transfer pricing.