Biden's Tax Overhaul Puts Ireland's Corporate Rate in the Spotlight

• Biden's "Made in America" plan, which proposes a global minimum tax rate, has reignited the flame.
• While Treasury Secretary Janet Yellen said that the "race to the bottom" on corporate tax rates needs to end.
• Consensus on tax is a debate that has fizzled for years.
• Any alterations to the corporate tax landscape will have an effect on Ireland, which has stood firmly by its 12.5% rate for years.

DUBLIN — Ireland's low corporate tax rate finds itself in the limelight again as U.S. President Joe Biden attempts to revamp the global tax landscape.

The country's rate of 12.5% has been a core feature in its ability to attract dozens of large companies, mostly U.S. tech and pharmaceutical firms, to its shores, often creating many jobs.

All the while Ireland's tax system has attracted much ire, most notably in the 13-billion-euro Apple tax tussle with the European Commission.

Biden's "Made in America" plan, which proposes a global minimum tax rate, has reignited the flame, while Treasury Secretary Janet Yellen said that the "race to the bottom" on corporate tax rates needs to end.

Consensus on tax is a debate that has fizzled for years, namely through the negotiations at the OECD over a global minimum corporate tax rate and the various efforts by national governments to impose digital taxes.

Alex Cobham, an economist and the chief executive of advocacy group the Tax Justice Network, told CNBC that while Biden's proposals haven't presented anything that has not been proposed before, there is a greater thrust behind it this time.

"We are very positive about what the Biden administration has done, partly as much for the big narrative shift as for the detailed policy," he said.

"There wasn't anything new there but what we understand happened is that the administration landed this very hard with media and they said, this is it, this is the big thing."

Any alterations to the corporate tax landscape will have an effect on Ireland, which has stood firmly by its 12.5% rate for years. Corporate tax receipts totaled 11.8 billion euros ($14.1 billion) last year.

"We are constructively engaging in these discussions, and will consider any proposals carefully noting that political level discussions on these issues have not yet taken place with the 139 countries involved in this process," a spokesperson for Ireland's Department of Finance said.

Tax strategies

There are two strands to Biden's strategy — what he can implement at home and how he can affect change internationally through consensus.

He plans to increase the rate of corporation tax in the U.S. to 28% with a view of funding his ambitious $2 trillion infrastructure scheme.  

Meanwhile, achieving an agreement on a global minimum tax rate would help prevent the U.S.'s tax take being undercut by lower rate jurisdictions like Ireland.

"The piece that is going to have the most consequence for Ireland is the proposals to strengthen the notion of a global minimum tax, that in some way every country would in effect levy approximately the same kind of percentages on the companies operating in their jurisdictions," Brian Keegan, director of public policy at Chartered Accountants Ireland, told CNBC.

"That's one aspect of the plan which the U.S. cannot achieve on its own."

The U.S. is not alone though in its ambitions, with French Finance Minister Bruno Le Maire voicing his support.

But Biden doesn't have time on his side as any changes in the midterm elections in 2022 could stymie his ability to push measures through at home.

"Ultimately all tax change is not tax change, it's political change, which also points to the urgency of the Biden tax plan," Keegan said.

On the international stage, consensus could be reached relatively quickly.

"The OECD process has been trundling on for at least two years so there's a lot of technical work already done at an OECD level to make this happen," Keegan said. "A lot of the machinery that would make a minimum system work has already been worked out."

Ireland's future

"I think we can say within 18 months or so, you will have that global minimum tax effectively in place in legislation in the U.S., across the EU, and probably a fair bit wider than that," Cobham added. 

Even with an increasing tax rate, it's unlikely that major tech companies like Facebook and Google, which have established large employee bases and physical infrastructure in Ireland will pack up their bags and leave.

"Obviously (Ireland) is a place with real economic activity, it's not that there aren't multinationals with employment and sales in Ireland but the profits being declared are completely disproportionate," Cobham said.

"When that goes, you lose a certain amount of tax revenue but that gets compensated to an extent because you're forced effectively to put a higher rate on the stuff that's real. The revenues may not be that big."

Where new challenges may emerge for Ireland is in attracting new foreign direct investment in the future, in a world with a more level playing field for tax.

With the winds of change blowing, Ireland will need to rely more heavily on its other attributes: its skilled workforce, that it is an English-speaking EU country, and its proximity between the U.S. and Europe connected by strong travel links.

"There could be a quite costly, albeit relatively short, period of adjustment in which the current Irish business model doesn't work and there isn't a new one in place," Cobham said. "If you're the Irish government, and if you haven't already done it, they really need to get focused on this in the next two months and say 'what are we going to be doing in a year or two years from now?'"