Ireland on Thursday announced that it will join an Organization for Economic Cooperation and Development agreement that brings an end to the country's low-tax policy for large multinationals, an incentive that attracted companies like Apple and Google to its shores.
By joining the OECD agreement, Ireland is ditching its longstanding 12.5% tax rate to comply with a minimum effective corporation rate of 15% for multinationals with global revenues that exceed 750 million euros (about $867 million) annually. The country's cabinet agreed to the deal ahead of a wider OECD announcement scheduled for Friday, reports The Guardian.
Ireland was among nine countries to staunchly refuse the OECD pact and in June pushed for compromise on the proposed global tax rate. At the time, the G7 agreed to make sweeping changes to international tax law, including closing off tax loopholes used by companies like Apple.
"I'm absolute convinced that our interests are better serviced within the agreement," Paschal Donohoe, Ireland's finance minister, said in a statement. He added that Ireland was partially successful in its plea for compromise, noting that Dublin was able to remove the phrase "at least" from a July draft that sought a tax of "at least 15%," the report said. The language suggested that additional rate hikes were in the works.
Dublin received assurances that the 15% rate would not be changed in the near future, Donahoe said in a lengthy statement explaining the turnabout.
"Overall I believe this agreement will bring long term stability and certainty to the international tax framework," he said. "We have been involved in these discussions for many years and this is the significant milestone in what has been an ongoing process to reform the international tax rules."
According to Ireland, the 15% tax rate will apply to 56 Irish multinationals employing about 100,000 employees and 1,500 foreign multinationals employing some 400,000 people. Companies making less than 750 million euros a year are subject to the old 12.5% tax rate, which has been in effect since 2003.
The Irish government is supposedly not worried about a potential mass exodus of multinationals that set up shop in the region to reap the benefits of a lower effective tax rate, sources told The Guardian. Corporations looking to pull out would likely have already done so, as tax policies that allowed for more lucrative strategies like the "Double Irish" loophole were squashed in 2015.
Apple was known to have perfected an evolution of the tax avoidance strategy -- dubbed the "Double Irish with a Dutch Sandwich" -- by funneling overseas revenue through properties in Ireland and the Netherlands, including its European headquarters in Cork. By some estimates, the company saved some $9 billion per year by employing the plan. The European Commission took issue with the low rates enjoyed by Apple, calling it illegal and ultimately charging the tech giant $14.4 billion in back taxes. That ruling is currently under appeal.
Barring unforeseen roadblocks, the OECD rules are scheduled to go into effect in 2023.