Speech by Minister for Finance, Paschal Donohoe TD, to Virtual Seminar on International Taxation with the Department of Finance

21st April, 2021

Good morning, good afternoon and good evening.


I would like to welcome you virtually to Dublin today. I understand that delegates are joining us from many places across the world. In more normal times, I would have been delighted to welcome you all to Ireland and meet you in person. I look forward to having such opportunities again in the future. 


It is my pleasure to speak today at what is a critical juncture for the international corporate tax system. The 139 countries represented in the OECD Inclusive Framework will seek to reach agreement in the coming months on a new sustainable approach to business taxation, against the background of ever-growing, and indeed accelerating, digitalisation of our economies. As we have seen in the past year, the momentum for digitalisation has grown significantly since the initial onset of the pandemic.


The discussion today broadly relates to how we can reach a global agreement on reframing international tax rules for the modern age, and the post-pandemic era.


It is clear that there is new momentum to these discussions, as we look to achieve a sustainable international agreement this year. The momentum is driven by the strong desire to achieve certainty combined with renewed energy from the new US administration, against the significant backdrop of the pandemic as we look to recovery.    

Consultation and engagement with key stakeholders is a very important element of how we develop policy in Ireland, and I see the seminar today as an important part of this by bringing together some of the key players and perspectives.


Advancing Technology Through Innovation & Investment

Before I give my reflections and Irish policy positions on this important discussion, it is timely to mention the extraordinary role that the pharma and biotech sector has played, and will play, in helping society to recover from this terrible pandemic. The incredible work that is being carried out in this sector in developing treatments, testing regimes, and most importantly vaccines will be critical to our citizens, economies, and societies in the months and years ahead.


It is also important to recall the benefits of digitalisation that we have seen over the last year or so in keeping many sectors of our economies functioning. These technologies and digital solutions are facilitating efficient and effective home working, fostering innovative business ideas, getting vital Government supports to businesses and individuals and, importantly, managing the roll-out of vaccinations for our citizens in the weeks ahead.


The advances in technology, pharma and biotech are the result of many years of innovation and investment. We have seen the benefits of innovation, creativity and talent being focused to deal with a global challenge, and we must keep this in mind as we consider reframing the international tax rules.

We need to ensure that tax systems not only continue to support research and development, but also provide the certainty and stability, for critical investment decisions to be made into the future, which will, as we have seen during the pandemic, have benefits for all of society.


Considerable Progress Made in Reforming the International Tax Framework

As we are starting to emerge from the Covid-19 pandemic, it is useful to recall that the genesis of the BEPS project was in the aftermath of the global financial crisis. It led to the agreement of the BEPS actions in 2015 and the ongoing implementation of those actions internationally.


Not only has Ireland fully engaged in those international tax discussions for many years but we have also diligently and proactively reformed and modernised our tax code in line with these international developments.


It is fair to say that there has been remarkable progress in this period and that the OECD has been central to this. Looking back, we have come a long way in updating the architecture of the international tax framework to address Base Erosion and Profit Shifting, and it is helpful to note some of the many actions Ireland has taken over recent years to modernise our tax system in line with these new international norms.


As a committed participant in the OECD BEPS process, we acted unilaterally to update our tax residence rules, to abolish the possibility for companies to be Stateless due to mismatches with US tax rules, and to bring an end to the artificial structures, such as the so-called Double Irish.


We were among the first countries to sign and then ratify the BEPS Multilateral Instrument. This has significantly reduced the potential for tax treaties to be used for tax avoidance purposes.  Further, we agreed the EU Anti-Tax Avoidance Directives with our fellow Member States to implement a number of the key BEPS actions consistently across the EU.  


Measures I have already implemented include anti-hybrid rules, Controlled Foreign Company rules, a new Exit Tax, updates to our Transfer Pricing rules in line with the 2017 OECD Guidelines, and the application of defensive measures to countries on the EU list of non-cooperative jurisdictions. 


This year we will complete transposition of the Anti-Tax Avoidance Directives, through the introduction of Anti-Reverse-Hybrid rules and a new interest limitation ratio to supplement our long standing domestic interest rules.


Further, we have signalled we will be implementing the Authorised OECD Approach for Transfer Pricing of Branches, and we will shortly launch a consultation process in respect to addressing any potential double non-taxation issues on outbound payments.


Ireland has fully engaged in making massive strides on the broad tax transparency agenda at the OECD and in the EU, and we agreed a Directive to introduce mandatory binding arbitration for double tax disputes among tax authorities.


We have also invested in our tax administration to reflect the new international tax architecture, including with respect to Mutual Agreement Procedures and bilateral Advanced Pricing Agreements, which are important for taxpayer certainty.


The agreement and implementation of these measures has demonstrated Ireland’s commitment to modernise and reform in line with International rules and best practice. 


It is no exaggeration to say that BEPS was an essential generational project and has been successful in many respects. It was a significant step forward and we are clearly seeing the impact of the reforms we have made combined with those taken by other jurisdictions in correctly limiting the opportunities for artificial tax avoidance structures.


While this is a journey which is still ongoing elsewhere, it is a journey we will complete by the end of this year.


Towards Further Reforms

I acknowledge that there is an argument of unfinished business from the BEPS agreement. I also appreciate the new momentum at the Inclusive Framework, the energy towards agreement from the new US administration, and importantly the role of tax in supporting the recovery from the pandemic.


Ireland has constructively engaged in the discussions at the OECD Inclusive Framework on the latest iteration of the BEPS project. We are committed to reaching an agreement that will meet the needs of small and large countries, developed and developing. 

In May 2019, I spoke at the Harvard Kennedy School and Irish Tax Institute Global Tax Policy Conference in Dublin Castle. The Inclusive Framework had just proposed a two Pillar solution to complete the BEPS project – Pillar 1 was seeking to allocate a proportion of profits to market jurisdictions, and Pillar 2 was intended to address remaining BEPS issues through a global minimum effective tax rate.


When the OECD proposed this two-pillar solution, I expressed reservations with respect to Pillar 2 while at the same time signalling my openness to a Pillar 1 solution, which could address the specific tax challenges of digitalisation.  In doing so I outlined some key principles that could underpin a compromise solution on Pillar 1.  Much work on the Pillar 1 solution has been advanced that move in the right direction on those key principles.


My reservations at that time with respect to Pillar 2 were that it would be used as a mechanism for global tax harmonisation rather than to address aggressive tax planning and remaining BEPS issues.  The narrative in recent weeks of high minimum effective taxes has confirmed my reservations.


It is important to recognise that, for Pillar 2 just as for Pillar 1, countries first need to agree on the political principles underlying the concept of a global minimum tax rate. This is a discussion we still need to have. 


In particular, some important considerations are necessary, having regard to those countries that consciously decide to follow a substance-based industrial policy centred on being small but open for investment. I believe that small countries, and Ireland is one of them, need to be able to use tax policy as a legitimate lever to compensate for advantages of scale, location, resources, industrial heritage and the real, material and persistent advantage enjoyed by larger countries.


At the same time, I fully accept that there needs to be clear boundaries to ensure any competition is fair and sustainable.


I firmly believe that the long-established Irish corporate tax rate of 12.5% is a fair rate and within the ambit of healthy tax competition. It is a rate that can contribute to Exchequer revenues for investment in infrastructure and capacity, and one that can also stimulate investment, growth and innovation, which are core to Ireland’s industrial policy.


Let me be precise. I believe that an agreement can be reached and I will work constructively towards such an agreement. But, I also believe that it is a legitimate objective that any agreement can facilitate healthy and fair tax competition, while meeting the needs of all, not just some of the participants.


In stressing this point, we must recall that, today, we have far more robust international tax rules and safeguards to prevent abuse, arbitrage, base erosion and profit shifting than existed a decade ago.


The BEPS project has gone a long way to providing these safeguards and we are willing to go that extra mile in strengthening them.  


Building a Sustainable and Robust Framework

Ireland will continue to engage constructively in the discussions in the months ahead, as we have been doing for many years. In these discussions, we need to ensure that we get both the architecture and the construction right. We need solid foundations to ensure we have a sustainable structure that we can all buy into; one that will stand the test of time.


We believe that any agreement should be grounded in guiding principles, bearing in mind that whatever is agreed at the OECD will need to be underpinned in the European Union by Directives, which will be binding on Member States.


First, an agreement needs to accommodate healthy, proportionate and fair tax competition, and one which can respect tax sovereignty. We must have an agreement that also works for small countries. 


Second, an agreement must deliver certainty for administrations and business. It needs to ensure that countries play to the same rules with strong foundations. We would welcome a peer review process to support implementation, and favour the continuation of the work of the OECD Forum on Harmful Tax Practices.


Third, and following on from the second principle, any agreement must have common benefits. We should not have an agreement which has different tiers of benefits or where jurisdictions can apply different standards. It must ensure that jurisdictions who sign up and comply with these rules are treated equally and should not be subject to any adverse listing process or more onerous unilateral measures.  


Fourth, we need to ensure that compliance burdens on business are minimised.  In particular, we can achieve the right result and minimise those burdens through a global blending approach.


Crucially, when we agree this, we need to act and implement together.


Most importantly, after everything we have been through over the past year, any agreement at the OECD level needs to continue to support and facilitate innovation, creativity and investment. A tax system that supports this will be vital in the years ahead as we emerge from the pandemic and other challenges ahead. It is this innovation, creativity and investment that will be critical in how we respond to climate change.


We all need to consider these key questions, particularly as these decisions will have lasting implications and, crucially, we all need to find the right answers. These broad issues will undoubtedly be to the forefront of the minds of my fellow Finance Ministers as we consider the shape of any agreement.


Ireland’s Business Environment – The New Landscape

While the details of an agreement are not yet clear, we fully appreciate that there is momentum, which we have seen at the Inclusive Framework in January and at recent meetings of Finance Ministers of the G7 and G20.


I recognise that agreement on these proposals will have a cost for the Irish Exchequer, which is estimated to be at around 20% of our corporate tax revenues. Yet I believe that we need to have certainty and stability globally, and reframing the international tax rules for the modern age is an important part of this.


There are risks in an agreement, but the risks may be greater with continued uncertainty and instability if there is no agreement. 


There will be twists and turns in this negotiation over the months ahead and I think it is in everyone’s interests to have a balanced agreement.  


When agreement is reached, there will be a new landscape, and we will all need to adapt to it. And Ireland will.


We will remain competitive – we will ensure that we continue to play to our traditional strengths.


We will continue to have a forward-looking business environment.


We will act as that bridge from the US to the European Union.


Ireland will remain agile and competitive, and, importantly, we will continue to invest in an educated, adaptable and dynamic workforce – a workforce that has consistently delivered innovation, profitability and stability over many decades for businesses that have taken the strategic decision to build a substantial presence here in Ireland.



In conclusion, I believe that the right agreement at the OECD can bring stability to the international tax framework. This stability will be critical for business and jurisdictions as we emerge from the pandemic.


I want an agreement:

  • That continues to support innovation and growth;
  • Provides certainty and stability to underpin the investment decisions that will benefit all of our citizens in the coming years;
  • That guards against abusive practices;
  • That is implemented collectively and consistently;
  • That facilitates healthy but appropriate and acceptable tax competition aligned to key principles, such as substance and creation of real value, and accommodates Ireland’s 12.5% rate, and
  • That ultimately yields an outcome that is a fair and balanced compromise by and for all the 139 countries in the OECD Inclusive


My team and I look forward to engaging with our partners in the US, in the EU and at the Inclusive Framework as we seek to achieve this fair and balanced agreement.


There is a responsibility and a challenge for the OECD in brokering such an agreement, if it is to stand the test of time.  Our citizens should expect no less of us.


I would like to finish by kindly thanking the panellists for giving their time today on what is a very important and opportune discussion.


I, and over a thousand virtual delegates, will be keenly listening to their viewpoints and reflections at this critical juncture in the task of reframing the international tax rules for the modern age.


I wish you well for the discussions over the course of the coming hours and those that follow at the OECD.