Failure to strike corporate tax deal risks sparking global trade wars, Donohoe warns

Failure to agree on a minimum tax rate of 15% risks reigniting global trade wars, the finance minister has said.

Aschal Donohoe said there were “challenges” in finalizing a deal, which was agreed in principle last October by 137 countries, including Ireland, but has since been plagued by delays in the United States and put into effect. doubt in the EU due to last-minute objections from Hungary.

“The absence of such an agreement and the absence of this agreement will bring us back to square zero,” Donohoe said at an event Friday hosted by the American Chamber of Commerce in Ireland.

“Failure to implement and make progress where we are now actually increases the risks of trade disputes and will increase the challenges that global tax policy will face.”

Hungary’s U-turn last month infuriated French Finance Minister Bruno Le Maire, who this week suggested the EU should override Budapest’s veto.

He said Hungary was holding the EU “hostage” after previously agreeing to the deal, and said a deal would go ahead “with or without Hungary’s consent”.

Tax issues require unanimity at EU level, but a process known as ‘enhanced cooperation’ allows groups of countries to move forward on their own.

Mr Le Maire said he was in talks with the EU about using enhanced cooperation and had briefed US Treasury Secretary Janet Yellen on his plans.

The European Commission said this week it was focused on reaching a unanimous agreement, while a US Treasury spokesman said the United States was “optimistic” about Hungary signing.

Mr Donohoe said he was “optimistic” the EU and US could agree on the two elements of the tax deal – a 15% tax and a transfer of large taxing rights multinationals to other countries.

“I strongly believe it is in our interests for this to happen. The rest of the world is watching this process,” he said.

The 15% rate would affect around 1,600 multinationals in Ireland with revenues in excess of €750m a year. The other part of the deal will only affect the world’s 100 most profitable companies, with revenues over €20bn, and could cost Ireland up to €2bn in tax revenue lost, says the Ministry of Finance.

US Chamber of Commerce President Catherine Duffy said any attempt to broaden the tax base should be done “in a way that does not harm our international competitiveness and our ability to attract and retain jobs and investment in innovation”.

A large majority of companies (79 percent) surveyed by the US Chamber expect to add new jobs in the next 12 months, while 74 percent said they have hired in the past year.

Almost a third of businesses say housing is the biggest challenge Ireland faces in growing their business.
Ms Duffy said the 2023 budget must be “sustainably funded” and should include investments in affordable housing, childcare, health care, education, energy and cybersecurity.

Mr Donohoe said ‘pragmatism’ would be needed ahead of Budget Day, again warning that there are ‘limits to what any government can do to deal with the effects of the global change now unfolding’.

His comments came as Eurostat estimates Irish prices rose 9.6% in June, well above the eurozone average and the highest rate in nearly 40 years.

“It’s higher and it’s more persistent than initially expected,” Donohoe said of inflation.

“We also recognize the risk that rising inflation will begin to erode the real impact of our spending on public services.”

While he said the government “will continue to do everything possible to help”, he warned that a glut of additional spending could risk “further fueling our inflationary challenges and accumulating more public debt”.