Tax revamp imperils Ireland's economy

On the crowded waterside quay of Dublin's Silicon Docks neighborhood, Google's European headquarters tower above the skyline. Facebook and Twitter are neighbors. The European bases of Apple, Pfizer and hundreds of U.S. multinationals are implanted around the country, symbols of the commerce produced by Ireland's famously low corporate taxes.

But the model that has fueled the so-called Celtic Tiger economy for decades is in peril, as a coalition of 130 nations works to overhaul a global tax system that Ireland depends on to lure businesses looking to reduce the taxes they pay.

As ministers from the Group of 20 major economies gathered Friday in Venice for a two-day summit to hash out details for a historic accord that would limit tax dodging by multinational firms, Ireland is hunkering down to battle what amounts to a major threat to its livelihood.

"Ireland is very much a tax haven operating in Europe, so it makes sense that Ireland will resist this as hard as they can," said Alex Cobham, the chief executive of the Tax Justice Network, an advocacy group that fights tax avoidance. "The Celtic Tiger is something to be proud of, and if the model is breaking, they need to look like they are defending it as much as possible."

The battle lines drawn by the Irish government have cast a global spotlight on the nation of 5 million people — and fanned controversy among the Irish themselves.

At stake is Ireland's low official corporate tax rate of 12.5% and a tax regime that helps global companies based there avoid paying taxes to other countries where they make profits, a setup that has put billions of euros into Ireland's tax coffers and created hundreds of thousands of jobs.

Ireland was one of only nine countries not to sign on to the sweeping framework last week, overseen by the Organization for Economic Cooperation and Development, that could undermine those advantages. The accord would impose a new 15% global minimum corporate tax rate and force technology and retail giants to pay taxes where their goods or services were sold, rather than where the company had its headquarters. The details of the agreement are expected to be completed in October, and then each country's government would need to adopt it.

Ireland will seek a "comprehensive, sustainable and equitable agreement," Paschal Donohoe, the finance minister, said in a statement last week. Almost every major corporation tries to minimize its taxes. But tax rates have become a contentious issue for the world's governments as public finances deteriorate after more than a year of grappling with the pandemic. A 15% minimum tax would generate $150 billion in additional tax revenue each year, the OECD has said.

The stakes are especially high for Ireland, which is in the company of notorious tax havens like Barbados as it fences with the United States and its major allies in Europe.

Some might say the optics aren't good — Ireland risks looking as if it wants to deprive other countries of their fair share of tax revenue — and the government in Dublin has been grudging in its statements on the issue. The finance ministry declined interview requests and did not respond to written questions. Similarly, multinational companies that have profited from the low-tax regime have been conspicuously silent, declining requests to discuss the issue.

Behind the scenes, pro-business lobbies, including influential global accounting firms that have long profited from the business of helping multinationals in Ireland avoid tax, like Accenture and Ernst & Young, are said to be pressuring the Irish government to hold its ground.

An overhaul of the global tax order could cost Ireland 2 billion to 3 billion euros annually in lost tax revenue, the finance ministry estimates. Much of that money would go to other countries.

But the shift wouldn't necessarily prompt Google, Pfizer or other global companies in Ireland to leave — at least not immediately, not after they have invested time and money making the country their European base, analysts said.

After all, companies didn't flee when an OECD accord closed tax avoidance schemes last year with names like the "Double Irish With a Dutch Sandwich," which Apple and other tech giants used to slash their global tax bills through Ireland for more than a decade.

Continued investment has made Ireland's economy one of the most resilient in Europe. More than 800 U.S. companies are present, spending 20 billion euros ($23.6 billion) annually on investments, goods and services and payroll, according to American Chamber of Commerce data. They employ an estimated 180,000 workers and indirectly support another 144,000 jobs in Ireland's economy.