Global Corporate Tax Changes Get Big Bump With Ireland Sign Off Clearing Way for EU

Report from the New York Times

In Brief – The most significant change in global corporate tax policy in generations continued its march forward with the Irish Government agreeing to support the deal. Ireland has become the European base for large global companies, including digital giants Microsoft, Apple, Google and Facebook, in part through business-friendly tax policies. “Pillar 2” of the two-part global tax deal involves countries agreeing to set their corporate tax no lower than 15%, which is above Ireland’s current 12.5 percent. While the EU has strongly supported the global tax agreement, it was focused on “Pillar 1”, which allows countries to increase taxes on very large companies that sell to domestic consumers but have most of their operations in other countries, a modified version of Digital Services Taxes (DST). The EU requires unanimity among member states for tax policy changes, and Ireland had threatened to oppose the deal due to Pillar 2. However, pressure from the US and the largest EU countries, and an agreement that the corporate minimum rate would be 15%, not “at least” 15%, brought Ireland on board.

Context – A number of countries, especially France, Great Britain, Italy and Spain, moved aggressively to increase taxes on large digital platforms in 2019 and 2020, but were largely stymied by Trump Administration opposition and threats of trade sanctions. The Biden Administration changed the debate and appears on the way to a major global tax deal, first shifting the US focus away from stopping DSTs over to getting a global minimum corporate tax rate (Pillar 2) and also shifting the DST-related agreement (Pillar 1) to cover more than just digital companies, although all the largest digital platforms are expected to be impacted. As the OECD agreement continues forward, questions remain on the substance, whether the Biden Administration can get its provisions through the US Congress, and whether European countries and the EU will drop their DST plans anytime soon.