Joe Biden wants a global minimum corporate tax, as you may have heard. Here’s the summary from the Financial Times:
The Biden administration is calling for the world’s biggest multinational companies to pay levies to national governments based on their sales in each country, as part of an ambitious proposal for a global minimum tax.
The plan would apply to the global profits of the very largest companies, including big US technology groups, regardless of their physical presence in a given country.
The US Treasury laid out its proposal in documents obtained by the Financial Times, which had been sent to the 135 countries negotiating international taxation at the OECD in Paris.
Obviously, were such a plan to come to fruition, it would be calamitous for Ireland. For about thirty years now, this country has had a fairly simple economic strategy: Set corporate taxes low, so as to attract international companies to set up shop in Ireland, where they can make more profits, while providing jobs and investment into the emerald isle.
If every country in the western world agreed, tomorrow, to set taxes at the same level, our entire economic strategy would be unravelled at the stroke of a pen. So it’s natural then that some people read this news and worry that it poses a real threat to Ireland.
And indeed, tax harmonisation has been one of the threats we’ve had to face for some time. If it happens, though, it won’t be from this plan.
Ironically, Biden is proposing for the world a policy that his own country is basically never going to adopt.
The United States can only become party to global treaties with the consent of two thirds of the United States Senate. For this reason, the US is not a member of the international criminal court. On climate change, it did not sign up to Kyoto. Even the Paris accords had to be structured as not a treaty, so as to allow the Obama administration to sign up (because they are non-binding legally, they are not a treaty).
Joe Biden is a very capable politician. But he is not so capable as to have any prospects, at all, of convincing 67 US Senators to sign up to a treaty which would effectively allow a global body to set US Tax rates. The most that the US could ever sign up to, politically, would be some sort of non-binding convention about tax rates. And if it’s non-binding for them, well, it would be non-binding on Ireland, too.
What the US could conceivably try to do is to treat companies the same way as they treat their citizens. US Citizens who live overseas, and earn money overseas, have to pay taxes back to Uncle Sam (in addition to the taxes they pay in their country of residence). The US could, conceivably, slap these additional taxes onto companies resident in Ireland. Conceivably, again, because that would take a minimum of 50 votes in the US Senate, and those votes simply are not there at the moment. This is Biden making noise, not Biden making actual policy.
The much bigger threat to Ireland’s corporate tax rate remains the European Union, which would dearly love to nobble it. The good news is, for now, anyway, that we retain a veto over EU tax policy. The problem will arise, of course, if we ever find ourselves badly in need of EU assistance, and they decide to ask for something in return. It’s good news then, that Ireland is such a well governed country, and such an eventuality could never arise.