Explained: What will a change to Ireland's corporate tax rate mean?

Here is all you need to know about the OECD deal and Ireland's corporate tax rate.
Explained: What will a change to Ireland's corporate tax rate mean?

The Government has confirmed that Ireland will join the Organisation for Economic Co-operation and Development (OECD) agreement on a global minimum tax rate for large multinational companies.

Here is all you need to know about the OECD deal and Ireland's corporate tax rate.

So, what is the problem with a 12.5 per cent corporation tax rate?

Ireland has had a relatively low corporate tax rate of 12.5 per cent since the early 2000s.

The 12.5 per cent tax rate has been successful in attracting major foreign direct investment to the country. The likes of Google, Apple, Facebook and Linkedin all have their European headquarters in Ireland.

Despite this, the 12.5 per cent is one of the lowest rates in the developed world.

Successive Irish governments have defended the low rate despite continuous criticism at home and internationally.

Critics of the low rate have labelled Ireland as a tax haven due to large corporations paying very little tax.

Now after years of defending the country's low corporate tax rate, the Government looks set to increase it.

What is the OECD deal?

In July the OECD brokered a major deal to reform the global corporation tax system.

The aim of the deal is to stabilise the way countries calculate and collect tax from large multi-national companies.Part of the agreement is a global minimum corporate tax rate of 15 per cent.

The Government has said that Ireland has more to lose than most with the new tax rate.

An increased corporate tax rate can be seen as a disincentive for large tech firms, such as Facebook and Google, who employ one in eight Irish workers.

Furthermore, the Government has said that raising the tax rate to 15 per cent could cost the country €2 billion a year.

Another element of the deal is a proposal that countries can tax the profits of large companies in markets where they are earned, regardless of whether they have a presence there.

This element of the deal is another issue for Ireland because many large tech firms that operate in the country.

The deal was signed by 130 countries representing more than 90 per cent of global GDP.

Ireland was one of nine countries which did not sign the deal in July.

However, due to mounting international pressure, the Government now looks like it will sign up to the deal.

How will it impact businesses?

According to the Taoiseach Micheál Martin, the vast majority of companies will not be impacted by the new rate of corporate tax.

Mr Martin said it was the intention of the Government to only apply the new 15 percent tax rate to companies with turnovers of more than €750 million.

According to the Government, Ireland has been given assurances that SMEs with turnovers of less than €750 million will still be able to operate with the 12.5 per cent tax rate.

However, it is understood that these details would need further negotiation

The Government has been in continuous talks with the OECD on the issue to establish a revised agreement.

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