Speech by Minister Donohoe at European Movement Ireland (EMI) seminar on ‘A New Deal on Corporation Tax’

Check Against Delivery

Introduction

Good afternoon everyone. Let me begin by expressing my gratitude to European Movement Ireland for inviting me to speak at this important event. European Movement Ireland plays a vital role in improving the Irish public’s understanding of this country’s relationship with the European Union, with our European partners, and indeed facilitating dialogue on important international issues. This fostering of debate is even more important in the extraordinary times we are living in.

The OECD Agreement

These times are extraordinary in a number of ways, but the COVID pandemic in particular has presented a serious challenge to policy makers, business and citizens. The ability of our society and our economy to respond to this threat demonstrates what can be achieved when we work together towards a shared goal.

While the pandemic has posed a monumental challenge and one where we have shown what we can achieve through working together, we have other key global challenges and one of these is the international tax rules. Taxes fund our vital public services, they are important for the investment climate, and more broadly can be important policy levers. However, the tax system and particularly business taxes operate within a global framework and thus they need to work in harmony with that global environment.

It is well understood that the international tax rules, which have their origins in work at the League of Nations in the early part of the last century, have been creaking under the weight of digitalisation and globalisation in recent years, and needed structural reform.

While we have had successes in recent years in addressing the challenge of base erosion and profit shifting, and indeed Ireland has made many reforms to our tax code to reflect these new international norms developed at the OECD, it is also the case that one key structural element of the framework still needed to be addressed.

That is the issue addressing the tax challenge arising from the digitalisation of the economy.

The existing tax framework was built for a different age, that of bricks and mortar, and it has been evident to all that we needed a global tax system for the digitalised work we now live in.

On 8th October, Ireland joined 135 other jurisdictions in reaching a historic two pillar agreement on addressing the tax challenges arising from digitalisation of the global economy. I believe that this agreement represents a fair compromise reflecting the interests of the many countries involved in the negotiations, large and small, developed and developing.

The two pillared solution provides for a reallocation of residual profit under Pillar One and the introduction of a minimum effective rate under Pillar Two. Importantly for Ireland, the agreement provides that the minimum effective rate for those companies in the scope of the agreement will be 15%, and this will provide the critical certainty for Government and business.

This will be a global agreement, implemented consistently by all in a timely manner underpinning the required certainty and stability in the international tax framework to support future investment decisions. The EU Commission has provided welcome assurances to me that that the Directive it will shortly propose to transpose the OECD agreement will be faithful to the agreement and not go beyond the international consensus.

Importantly also, the agreement will continue to support innovation and growth, acknowledging the need for innovation incentives such as for research and development.

Innovation and technology were key elements in the remarkable response to the COVID pandemic, from the development of vaccines and management of our vaccination roll-out programme, to the seamless transition to remote working, and businesses adapting their business models to be online. Tax systems need to be able to support innovation which will bring benefits to all when we face the inevitable future challenges.

The Case for joining the agreement

As a small and open economy, it is essential that Ireland adapts and evolves in line with changes in the international environment. If Ireland was not in the agreement we would have been unable to participate in the ongoing critical discussions which will continue apace into the coming weeks and months on the implementation rules. Failure to sign up to an agreement would have resulted in continued uncertainty for businesses operating in Ireland.

I have indicated for some time that there will be a cost to the Exchequer arising from this agreement my officials and the Revenue Commissioners have estimated that the cost of the agreement will be up to €2 billion annually when both pillars come into effect. This is not insignificant. However, I have no doubt that the upsides of being in such a historic international agreement far outweigh the downsides of staying out. This was a complex and challenging decision, but I firmly believe it was the right one.

Our tax policy will remain stable and competitive. It is now part of a broader economic model – our membership of the European Union and Single Market, the quality of our education, and the skills and innovation of workers in Ireland.

Ireland must be part of global and European efforts to respond to complex challenges that all countries face, as we work together with multiple and historic rhythms of change converging in our time.

Our values, our heritage and our future means that Ireland should be influencing, and shaping inside international agreements. Not outside of them.

To make good on our multilateral commitment to provide stability and certainty in the international tax framework, we must ensure that implementation respects both the letter and the spirit of the agreement.

I believe that this agreement will provide the long-term stability and certainty to the international tax framework needs, and I would like to take this opportunity to express my gratitude to Pascal and the OECD’s Secretary General Cormann for their leadership and resilience in getting this agreement over the line.

Ireland is proud to have been part of the OECD story from the beginning. The six decades of the OECD have coincided with Ireland’s own economic and social transformation as Ireland opened up at home and opened out to the world. The OECD has been a good friend to Ireland, and I believe that we have made great contributions to the work of the OECD.

This international tax agreement which has been led by the OECD has demonstrated the true value of multilateralism – countries working together collaboratively to address shared challenges. But there will be more challenges, and we see the OECD, through its collaborative working methods, being key to assist countries in address these.

The next great challenge of climate change

As the dust settles on the historic international tax agreement it is evident that we need to focus our minds on the great challenge of climate change. The effects we face from climate change are clear for all to see, and it is timely, given the recent COP26 meeting across the Irish Sea in Scotland, for us to consider how best to address these impacts.

Climate Change is a global problem which requires all of us to work together to transition to a carbon neutral economy and society. Just as we did to address issues with the international tax framework, we can again look to the OECD to help facilitate and drive a collaborative approach. We clearly recognise the role the OECD can play in developing sustainable policy solutions, including developing green budgetary frameworks and innovative carbon pricing tools. I welcome the leadership shown by Secretary General Cormann in turning the organisation’s attention to this.

Ireland is ambitious to address climate change. We were among the first to implement a carbon tax back in 2010 and have legislated to incrementally increase our carbon tax to €100 per tonne of CO2 by 2030. In addition we are ring-fencing the tax revenues from this tax for use in green public spending to manage the transition and invest in a low-carbon future.

Throughout 2021, our ambitious work on climate has continued, with the enactment of the updated Climate Action Act in July and publication earlier this month of the Government’s Climate Action Plan. The updated Climate Act places on a statutory basis a net zero target for 2050 as well as an interim target for 2030 of reducing emissions by 51%, in line with the objectives of the Paris Agreement.

Ireland is committed to achieving this through a just transition, meaning all voices will be heard in a fair and equal manner and no one is left behind. Carbon pricing is a key aspect of our overall decarbonsation strategy and has an important role to play in contributing to our just transition objectives. Our public spending code builds in a shadow price of carbon and, together with the carbon tax and the incoming EU taxonomy for sustainable economic activites, is important to help price, monitor and fund this necessary transition.

I am confident that we can work together, within the European Union and at the OECD, to address climate change as we have done to address the international tax challenges.

Thank you.