Our battles with Brussels have only just begun

Ireland’s decision to officially join the OECD’s draft corporate tax deal is both welcome and belated, but it does not guarantee an end to the tax harmonization battles from Dublin to Brussels.

In the short term, Ireland’s entry into the minimum tax tent brings several benefits. It removes the emphasis on the credibility of Irish policies which have come to dominate international coverage of this issue. It will also divert attention to other EU states (namely Poland and Hungary) which present Brussels with much more fundamental challenges regarding the rule of law and the primacy of EU law. Being part of the solution (as opposed to moving away from principled isolationism) will allow Ireland to defend its interests more vigorously as the deal draws closer to finalization.

But, this is politically where the greatest benefits can accumulate. Ireland’s actions inadvertently coincided with a growing urgency in Paris for a global deal (ahead of the French presidential election in early 2022). The willingness of the OECD (and Paris) to change the language around the 15 per cent minimum rate is testament to their desire to reach as broad an agreement as possible before political momentum inevitably begins to wane.

By entering the tent of the OECD, Ireland is thus in a stronger position to act as a constructive hesitant voice on issues of tax harmonization within the EU. The importance of this role cannot be underestimated given the integration impulses of a growing number of Western European Member States. Impulses that the current pandemic has revived with a renewed europhilia.

Unfortunately, so far the issue of the minimum tax rate has overshadowed the much more important question of how small Member States – like Ireland – can remain competitive in an EU where further harmonization is now a goal. clear.

Space to act

In this context, and freed from the baggage of being outside the OECD agreement, Ireland now has the opportunity to act as a key promoter of a more competitive EU on a global scale. An EU that respects the ability of small states to compete for investment under a globally agreed minimum corporate tax rate.

But for that to happen, Dublin must actively support the OECD’s ratification efforts, especially in the United States.

Dublin must actively support efforts to ratify the OECD agreement, especially in the United States

The tempting opinion, often heard in Dublin and Brussels, is that Irish interests would be best served by signing the global deal, but sitting idly by as he dies a slow, partisan death on the public floor of the US Senate.

But such a wish is misguided and will end up proving even more detrimental to Ireland’s long-term goals.

Because if the OECD agreement is not ratified, it will prompt the EU to act unilaterally and reintroduce its own corporate tax reform proposals. But these proposals will not be met by a minimum tax rate of 15 percent.

On the contrary, detached from the demand for a global compromise, the EU’s proposals will include stricter measures that are truly capable of calling into question Ireland’s economic model. A digital tax (already introduced by several Member States) and a move towards even deeper tax harmonization will be on the agenda.

The renewed enthusiasm in Brussels for deepening integration should not be underestimated. The pan-European response to the ongoing pandemic has convinced Brussels that the time has come for “more Europe”. Politically, their stars might even align.

Joint loan

Germany’s consent to the European Recovery Fund has created expectations for more permanent European structures for joint borrowing, especially in southern Europe. The retirement of Chancellor Angela Merkel has created a vacuum that allows Emmanuel Macron to emerge as the key voice in driving the European agenda. Stripped of UK coverage, the other free markets – the Nordic countries, the Netherlands, Ireland – are not large enough to act as a blocking minority on many issues.

Stripped of UK coverage, the other free markets – the Nordics, the Netherlands, Ireland – are not big enough to act as a blocking minority

The next French presidency of the European Council (from January 2022) will consist of considering a deeper, more French, hardly more competitive Europe. Even the fragmentation of support for France’s far-right presidential candidates bodes well for Macron’s re-election prospects.

For Ireland, the strategic question is not about the logic (or not) of signing the OECD agreement, but how to use this potential global agreement to constrain an increasingly concerned EU. deeper economic integration. This integration has structural implications for the Irish economic model.

Dublin, however, has its work cut out for it. On economic issues, its about-face in recent years (moving from the frugal camp to the Mediterranean camp depending on the political mood) has not gone unnoticed across Europe. His hasty approach to corporate tax reform failed either.

For Ireland, the OECD proposals represent only the first skirmish in the coming economic battles of Dublin in Europe. For an economy based on the double pillar of attracting foreign investment and joining the EU, there will probably be no more bloodshed victories.

Eoin Drea is principal researcher at the Wilfried Martens Center, the official think tank of the European People’s Party of which Fine Gael is a member.

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