Significant changes have been announced to Ireland's policy on the taxation of businesses.

The reforms will water down considerably a cornerstone of the country’s foreign direct investment offering - the 12.5% tax rate.

What has been announced?

In essence, the Government has said it will sign up to a plan, brokered among 140 states by the Organisation for Economic Cooperation and Development, to reform global tax rules.

The proposals involve the introduction of global minimum corporation tax rate of 15%.

It will also give additional rights to states to levy taxes on firms that are making sales in their territory without having a physical operation there for taxation purposes.

So does that mean Ireland's 12.5% tax rate is gone then?

Yes and no.

The reforms only apply to firms that have a turnover of €750 million or more.

So very large multinationals, like Google, Facebook, Microsoft and many businesses in the pharma sector.

In total, 1,500 foreign owned multinationals with subsidiaries in Ireland that employ approximately 400,000 people.

There are also Irish firms that will be impacted too - 56 in total that employ around 100,000 staff.

And what about all the other companies here?

They can breathe a sigh of relief, because if their turnover is less than the golden €750 million, then they will continue to pay the 12.5% rate.

In fact, that impacts the vast majority of businesses in Ireland, some 160,000 that collectively employ 1.8 million people.

Is that allowed?

Yes.

For much of the past few weeks, the Irish Government has been seeking guarantees from the EU that it won’t penalise Ireland under taxation and state aid rules for having two different rates, one of which is below the minimum 15% rate in the OECD plan.

Those assurances have now been received, clearing the way for the State to join the accord.

Will the 15% rate be gradually increased though in the future?

The Government certainly hopes not.

It also negotiated hard since July to have a reference to "at least 15%" with regard to the global minimum rate watered down to just say 15%.

This takes away much of the scope for the minimum rate to be increased by stealth or otherwise.

This coupled with agreement from the EU that it won’t try to gold plate the OECD agreement by imposing a higher minimum rate on member states means the 15% rate should stick.

Why is all this happening now?

For many years there has been growing unhappiness among many states that the global corporation tax system is not fair.

The frustration was borne from the digital era, where tech firms were able to make vast sales and profits across borders, without having a physical footprint in states.

This meant those states were not able to tax them on those profits.

Others also felt that many companies were not paying their fair share of tax, using aggressive tax planning methods to reduce their bills.

So a process has been ongoing under the auspices of the OECD aimed at tidying up the system, making it fairer, more transparent and to force businesses to pay what it is felt they should.

Ireland has benefitted over the years from the way the global tax system operated, because it had a low 12.5% rate, as well as a large number of foreign multinationals based here.

But is has been clear for some time that change was coming. The only thing Ireland could do was try to mitigate the damage.

And what will the damage be?

Only time will tell.

The Department of Finance has estimated that the changes to the taxing rights of countries could cost Ireland between €800m and €2bn a year when fully implemented – or a fifth of Ireland’s corporation tax take.

But this could, in theory, be offset somewhat by an increase in the rate to 15% for the companies that have to pay it.

However, the fear is that without the 12.5% rate, Ireland could lose or certainly will find it hard to win multinational investment into the future.

The FDI community argue this won’t be the case – that Ireland has too many other attractive features to offer investors to suffer greatly from the change.

But if that is not the case, then in the medium to longer term, the damage could be more severe.

It is too soon to know now though.

So what happens next?

Tomorrow, the OECD will hold a meeting of officials of all 140 countries involved in the process to try to get a deal fully over the line.

Last July, 130 countries agreed to the changes contained in the proposals. Since then four more joined.

Ireland was one of the few remaining holdouts and now that it has agreed to sign up, it removes a key barrier.

However, it is unclear whether the changes agreed since July have the backing of all 140 states or not.We’ll know more tomorrow.

When does all this take effect?

In theory, if agreed by the 140 states, it comes into effect from 2023.

But the Minister for Finance described the timetable for implementation as highly ambitious.

While the outline of the plans is close to agreement, when it comes to the implementation, the devil will be in the technical detail.

There is also the question of whether Joe Biden can get his tax reform package, which incorporates the OECD deal, through the US Congress.

Because if the US fails to run with it, the whole venture is pointless.