Paschal Donohoe (Dublin Central, Fine Gael) | Oireachtas source

Okay, I thank the Chair. I apologise to the committee for being a few moments late. I had to move some financial resolutions and Supplementary Estimates in the House. I thank the committee for the opportunity to be here. From their outset in 2013, Ireland has constructively engaged with the global tax discussions and we have already significantly reformed our tax system to be in line with emerging international norms. Last month, Ireland joined 135 other countries in reaching a global two pillar agreement on addressing the tax challenges arising from digitalisation of the global economy.

Ireland did not join the interim agreement in July, primarily because it did not provide sufficient certainty with regard to what any globally agreed rate would be. My priority in recent months was to secure the necessary changes in the October agreement and to ensure our strategic interests would be protected.

There are two pillars to the agreement. Pillar 1 will see a reallocation of a proportion of profits to the jurisdiction of the consumer. This means a proportion of corporate tax revenue streams that now flow to the Irish Exchequer will flow to the exchequers of other countries when implemented. Pillar 2 will see the adoption of a global minimum effective tax rate of 15% applying to multinational companies with global revenues in excess of €750 million.

It is important to set out why I believe Ireland should be in the agreement. First, Ireland is one of the most highly globalised countries in the world. We have clearly benefited from the investment and good jobs that have accompanied the decision of many multinationals to make Ireland their home. It is vital we adapt and evolve in line with new international rules so that we can continue to be a world-class destination for inward investment. Second, while the agreement introduces a global minimum effective tax rate of 15% for companies that have a turnover greater than €750 million, my intervention was instrumental in ensuring the rate is moderate and will continue to permit tax competition within guardrails, recognising that other countries advocated for higher rates. In addition, removing a proposal for "at least" helps deliver the predictability that is a cornerstone of Ireland’s offering. Third, we will retain the 12.5% corporation tax rate for the 95% of companies in Ireland that are out of scope of the agreement. Discussions with the European Commission confirmed a forthcoming directive on pillar 2 will be faithful to the agreement. Further, we can continue to allow our tax system to support innovation and growth, including through the use of research and development tax credits.

I have long signalled there will be a cost to Ireland signing up to this agreement. My Department and Revenue have estimated the cost in terms of tax receipts forgone could be up to €2 billion in the medium term. This costing will be kept under review as the critical technical discussions proceed.

It is important, however, to consider the very real risks associated with staying outside the process. As a small, open economy within the EU, we have strong ties to the US and many of the other G20 countries. This makes it essential we stay in line with key international accords. Further, if Ireland was not in the agreement, we would lose influence in respect of the critical and ongoing technical discussions. The design of the global minimum tax means that if Ireland were outside the agreement, other jurisdictions could apply a top-up tax to the subsidiary of a multinational if it were taxed below the global minimum effective rate.

I believe the upsides of being in such a historic international agreement far outweigh the downsides of staying out. This has been a difficult and complex decision but I believe it is the right one, and I am confident Ireland will remain competitive into the future and we will continue to be an attractive location when multinational companies look to invest overseas.

I am in the Chairman's hands here. Would he like me to deal with questions on corporation tax now? I can continue with my opening statement on SEAR afterwards and deal with the questions then.