Eight years ago, I sat in the Paris office of Pascal Saint-Amans to interview the OECD official who has led the charge on global corporate tax reforms.
I remember it had a very nice view of the Eiffel Tower in the distance. The office was in an anonymous block far from the swish of central Paris. Its relative obscurity matched the convoluted acronym given to the corporate tax reform process: BEPS.
But now 'Base Erosion and Profit Shifting' has emerged from years in the wilderness of policy wonkiness to declare itself as an idea whose time has come.
Earlier this week US Treasury Secretary Janet Yellen said in her first keynote speech since taking on her new role that a "…consequence of our interconnected world has been a thirty year race to the bottom on corporate tax rates".
She declared US support for a global minimum corporate tax rate, for which she will seek agreement amongst other G20 countries.
What’s different to other initiatives towards corporate tax reform is that this seems to be bound up with a sharp political edge.
Secretary Yellen said in her speech that reform would ensure that "…all citizens fairly share the burden of financing government".
This isn’t more of the kind of incremental reforms we’ve seen for which you would need a qualification in international tax accountancy to understand. This is an ambitious, potent push which could revolutionise the way multinationals are taxed.
In the US, every big change needs a compelling political narrative behind it. Because it must get through the tight margins of Congress, not to mention the legions of lobbyists that influence government.
Janet Yellen’s speech framed changes to global corporate tax rules as one part of a wider re-engagement by America with the rest of the world. She also spoke about how trade has been used as an engine for growth, but also how those who had not benefitted had been neglected.
Covid, of course, and the economic devastation it has wreaked has been a catalyst for this shift.
But the discontent has been brewing for a long time. The auguries of low interest rates and the blessings of the IMF and other international bodies suggests the ambition of President Biden’s Administration is off to a good start.
Unfortunately, that’s not terribly good news for us.
The Minister for Finance, Paschal Donohoe, said he has "reservations" about a minimum global corporation tax rate.
He told a press conference this week that the case would have to be made for small and medium-sized economies to be able to continue to use their tax systems to support their competitiveness.
Depending on how it’s designed and implemented, a global minimum rate would undermine the tax advantage offered in jurisdictions with low rates like Ireland.
And that’s before the implications of the second plank of BEPS is considered: divvying up tax revenues relative to where a company sells its products and makes most of its revenues, ie, in bigger economies.
We’re talking about hard cash here.
Last year the Exchequer collected €11.8 billion in corporation tax, 20% of our tax take.
An analysis of data from the US tax authority, the IRS, by UCC economist Seamus Coffey shows that corporation taxes paid by US multinationals in Ireland in 2018 was worth almost €1,400 for every man, woman and child in the country. He wrote, in equivalence terms, that’s covering the costs of the State pension system.
The Department of Finance has already estimated that tax changes proposed under BEPS could cost the Exchequer up to €2 billion. Long term, it could cost upwards of €6 billion if companies are less likely to invest here.
The debate over corporate tax reform has been going on for years. It may have taken a pandemic to accelerate the push towards reform. But there’s no doubt it’s now picking up pace. Many believe an agreement could be reached this summer.
The outcome isn’t certain but it’s likely to mean Ireland will have to live with lower corporate tax revenues. We may also have to forge an economic policy that relies less on tax to make us competitive as a location for investment.