While more than 100 countries have agreed to support a 15% global minimum tax, Ireland – which has enjoyed the benefits of a low corporate tax rate for decades – is one of a handful of holdouts.
Ireland’s corporate tax rate is 12.5% -- lower than the proposed global minimum rate of 15%. The U.S., for comparison, has a current corporate tax rate of 21% – though President Biden has proposed increasing it to 28%.
A global minimum tax applies only to a country’s overseas profits and is designed to prevent the world’s largest companies from dodging tax obligations by offshoring.
If a company is paying a tax rate lower than the global minimum in a foreign country, it would owe the difference in the country where it is headquartered. The policy would also potentially affect some major companies by requiring that they pay taxes in the countries where their goods and services are sold, and not just where they are physically present.
Ireland implemented its low 12.5% rate in 2003, and it has attracted many multinational corporations and in turn bolstered the country’s economy.
Its success in courting major companies was documented in a 2016 memo from the European Commission, which cited globalization as a plausible explanation for a major upward revision Ireland reported in its GDP.
In 2016, Ireland revised its 2015 GDP growth rate up to 26.3% from 7.8%.
"It is primarily due to the relocation to Ireland of a limited number of big economic operators," the memo read.
The Organization for Economic Development and Cooperation made similar comments.
"The main reason for the particularly high Irish GDP growth rates lies in the fact that in recent years, attracted in large part by low corporation tax rates, a number of large multinational corporations have relocated their economic activities, and more specifically their underlying intellectual property, to Ireland," the group wrote in a report.
Chris Edwards, director of tax policy studies at the Cato Institute and editor of DownsizingGovernment.org, told FOX Business that the 15% global minimum tax is unfair to countries like Ireland that have efficiently lowered their corporate rate.
"The global tax deal is unfair to small countries such as Ireland that have successfully pursued economic development by adopting an efficient low-rate corporate tax," Edwards said. "The global tax deal can be interpreted as the large, powerful countries bullying smaller countries that have made sensible pro-growth tax reforms."
Edwards, who is critical of the tax, noted that corporate tax rates have largely fallen throughout major nations since the 1980s, which has led to increased compliance and investment.
Some Republican lawmakers who are critical of the proposal have made similar points.
Sen. Pat Toomey, R-Pa., characterized the proposal as an attempt to implore other countries to "punish their workers and businesses with their own tax increases."
"‘Race to the bottom’ is the way the Biden administration describes competition among developed countries to get to a tax code that attracts investment and maximizes growth. It is a race we should be leading, not trying to prevent," Toomey said in a statement.
The 2017 Tax Cuts and Jobs Act dramatically lowered the U.S. corporate tax rate to 21% from 35%.
As previously reported by FOX Business, 130 countries and territories have signaled support for the measure.
In addition to Ireland, several other countries have yet to agree, including Estonia, Hungary, Peru, Barbados and Kenya.
Implementing the measure in the U.S. will require congressional approval. Top Republicans have already signaled that they will not support a deal that does not protect American workers and the U.S. tax base.