Canon Ellis: Ireland could be affected by the global push for greater taxation justice
The scheduled June 11-13 Cornwall meeting of G7 leaders will have many weighty matters to consider but the global economic order will be an overarching issue.
However much US President Joe Biden values his Irish roots, a recent move by his administration on corporate taxation has not gone down well in the Republic of Ireland where the rate is just 12.5%.
In remarks to the Chicago Council on Global Affairs on April 5, US treasury secretary Janet Yellen referred to “a thirty-year race to the bottom on corporate tax rates” and said that the US is working with G20 nations to agree to a global minimum corporate tax rate that could stop that downwards trajectory.
The US initially proposed a 21% minimum global corporate tax rate but Reuters has since reported that it is now seeking “the highest rate possible above 15%”.
However, the financial analyst Matthew Lynn has commented in the Daily Telegraph that the Republic’s finance minister, Pascal Donohoe, had made “an extraordinarily optimistic intervention” on the issue, arguing that any global agreement on tax should somehow “accommodate” the Republic’s lower rate.
Nonetheless, in a May 18 statement, the EU indicated that the bloc plans to provide “a single corporate tax rulebook for the EU, providing for fairer allocation of taxing rights between member states”.
In her speech, Ms Yellen referred to the way in which policymakers from the allied nations had gathered in 1944 at Bretton Woods, New Hampshire, to plan for postwar global economic reconstruction.
She pointed out that today’s situation is no less significant internationally, given the economic rebuilding that is needed in light of the coronavirus pandemic, the urgent need for effective global vaccine distribution and the planning that is required to address climate change challenges.
As far as corporate taxation is concerned, BBC NI economics and business editor John Campbell has noted how the Republic of Ireland’s 12.5% compares favourably with 19% in the UK, 26.5% in Canada and 30% in Germany.
The US proposal would mean that if a company were paying a rate in a foreign country below the agreed rate, its home country could collect the balance.
Yet Matt Gardner, a senior fellow at the Institute on Taxation and Economic Policy, a non-partisan Washington think tank, has told CNN that because companies’ income can be sheltered from tax liability in various ways, simply increasing the tax rate would be a “tragically incomplete” way of repairing the system.
Clearly, the amount of income that is actually subject to taxes is every bit as important an issue as the tax rate itself.
The global aspect of company taxation has been an issue of major importance in church circles for some considerable time.
When I interviewed former Archbishop of Canterbury Rowan Williams for the Church of Ireland Gazette in 2014, in his capacity as chair of the trustees of Christian Aid, he highlighted the issue of tax transparency, pointing to the “long-term impact on developing economies” when tax is avoided.
Earlier in 2014, Christian Aid had published its report, ‘Tax for the Common Good’.
One contributor to that document, the director of the Centre for Theology and Community in London, Canon Angus Ritchie, wrote of the “tragedy” of many developing countries, from which companies extract resources such as minerals and oil without any apparent benefit for the vast majority of local citizens.
He stated: “There is an urgent moral issue here and both governments and multinational companies must recognise their moral responsibilities to act in ways that are for the good of the countries in which they work.”
In the Foreword to the ‘Tax for the Common Good’ report, Dr Williams wrote that tax justice is “crucial to the goal of setting many nations on the path to greater self-determination and ending their reliance upon aid”.
Conor O’Neill, Christian Aid Ireland’s acting head of policy, told me for this column that in 2019 the charity estimated that developing countries lose over $400bn per year to tax avoidance.
He said that this was happening “as multinationals and wealthy individuals shift profits to low or no-tax jurisdictions, siphoning away revenue that’s badly needed for healthcare and education”, adding that the $400bn figure is more than double the annual total given in official overseas aid across the world.
Mr O’Neill told me: “Across the countries of the Organisation for Economic Co-operation and Development, the average rate [of corporate taxes] has fallen from around 45% in the 1980s, to 32% in 2000, to 23% last year.”
He added that additional loopholes and breaks have been offered to reduce this even further but described a global minimum corporate tax rate as “an important step in the right direction”, while stressing that it is also important that a range of loopholes and inadequate rules have to be tackled.
The demands of today require a serious international plan to address the immediate aspects of the global economic situation and also to promote greater tax justice particularly where multinational corporations are concerned.
• Canon Ian Ellis is a former editor of The Church of Ireland Gazette
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