Professor Elaine Doyle and Dr Brendan McCarthy, Department of Accounting and Finance at Kemmy Business School, discuss how Ireland could be impacted by President Donald Trump’s decision to pull the United States out of the Organisation for Economic Co-operation and Development’s (OECD) global minimum tax rate agreement.
What a difference a day makes. Within 24 hours of President Donald J. Trump taking up residence in the White House for the second time, he issued a slew of executive orders. While many of these have provoked considerable alarm worldwide, one in particular could pose a significant threat to Ireland’s future, namely the withdrawal of the United States from the OECD’s global minimum tax rate agreement.
This 2021 agreement sought to bring certainty, stability and uniformity to the taxation of corporate entities worldwide by standardising the corporation tax rate. A persistent problem which has plagued the international tax field for years is that too often, tax legislation has evolved in ‘silos’, absent an appreciation of how domestic tax measures may conflict with equivalent tax measures in other jurisdictions. Increased globalisation has served to shine a harsh light on this issue, illuminating those gaps often left wide open to exploitation. The disparity between rates at which companies pay tax has long been one of the largest of these gaps.
Ireland has not escaped unscathed in this regard, with many questions being raised in recent years about Ireland’s commitment to its low corporation tax rate. Yet, this has not always been the case. In the mid-1950s, for example, profits were subject to tax at a rate of almost 50%. In the backdrop of renewed focus on attracting inward investment, however, 1956 saw the introduction of Export Profits Tax Relief (EPTR). This system which provided relief in respect of manufacturing profits derived from exports, remained in place until the early 1970’s. It was not until Ireland sought accession to the European Union (the then-EEC) that Ireland set about reviewing its corporation tax regime, ultimately choosing to replace it with one more palatable to our European neighbours. EPTR would survive until the end of that decade, but it was then replaced by a new, low 10% rate on all manufacturing companies. This new regime operated for a further 2 decades, initially attracting little to no international criticism, even when the rate was extended to include the Shannon Free Zone and, bizarrely, the International Financial Services Centre (IFSC) in Dublin (albeit with EU-approval). But this was not to last. Cracks began to appear, largely attributable to the ever-widening definition of ‘manufacturing’ and the nature of some of the activities which were being included under this definition. This led to some rather dubious and, in hindsight, laughable claims by some companies seeking to pay tax at the low rate of 10%. This inevitably drew significant international attention, ultimately falling foul of the EU’s State Aid rules. Ireland had no choice but to act and in 2003 introduced the 12.5% corporation tax rate.
This new rate, one of the lowest corporate tax rates in the world, combined with what was seen as Ireland’s favourable corporate tax residency rules, meant that Ireland suddenly became even more attractive to outside investors. Indeed, the 12.5% rate quickly became the cornerstone of ‘Brand Ireland’ which, despite slowly growing international attention, successive Irish Governments firmly treated as unimpeachable. It was not until the early 2020’s that Ireland began to concede some ground on this matter. In response to the OECD’s move towards a global minimum tax rate, Ireland, together with over 135 member jurisdictions of the OECD, agreed to apply a minimum tax rate of 15% to the profits of the largest companies, wherever they may be.
It is from this agreement that President Trump has now withdrawn. This could not have come at a worse time for Ireland. With seemingly no end in sight to the housing crisis, as well as major infrastructure problems nationwide, this no doubt presents international investors with serious pause for thought. These risks are undoubtedly exacerbated by Ireland’s over-reliance on corporation tax receipts: in their pre-Budget 2025 statement, the Irish Fiscal Advisory Council warned that with only a handful of companies accounting for more than 40% of the country’s corporation tax haul each year, this, together with an abundance of high-pay, high-tax jobs, meant that ‘Brand Ireland’ was already dangerously exposed.
It must be remembered that Ireland has always had more to offer besides low corporate tax rates and favourable tax residency rules. We continue to offer significant tax reliefs and incentives, particularly to corporate entities: Ireland’s R&D tax credit, for example, remains one of the most attractive in the world. Moreover, Ireland has a young, mobile, tech-savvy and highly educated workforce and, as one of the few remaining EU Member States with English as one of its official languages, is uniquely positioned between the European and US economies.
Nevertheless, Ireland cannot afford to be complacent. President Donald J. Trump is now in the White House. No matter what result we may have preferred in the recent US, or indeed Irish, elections, in the words of President John F. Kennedy, “we must deal with the world as it is”. The world has seldom found itself on such a knife-edge where, in a time of the 24-hour news cycle, every ‘Breaking News’ alert lands more like a red alert. Yet, while we cannot change the past, Ireland can nonetheless help to shape a more stable future for us all. As a small, island nation, Ireland has always ‘played well with others’, as evidenced throughout the last century by our dealings with the European Union, the OECD and others, but we have always steadfastly defended our positions too, not least of which in the realm of corporate taxation. It is therefore incumbent on the new Irish administration to deal with the new US administration “as it is”, to negotiate in good faith and play our part, but also to defend our interests, assert our position as global leaders and yes, when necessary, live to fight another day.
Because after all, in these days of the new abnormal, 24 hours is a long time. And tomorrow is another day.