The Irish and Estonian governments on Thursday agreed to sign on to a 15% global minimum tax rate on multinational firms, leaving only Hungary as the last hold-out against the far-reaching deal.
The reform aims to stop international corporations from slashing the tax bills by registering in nations with low rates.
“The government has now approved my recommendation that Ireland joins the international consensus,” Irish Finance Minister Paschal Donohoe said.
“I’m absolutely satisfied that our interests are better served within the agreement,” he added.
Estonian Prime Minister Kaja Kallas said that joining the reform would ensure “we have the best chance of ensuring that Estonia’s business environment and tax policy continue to work in the interests of a better future for all of us.”
Finance ministers from wealthy G-7 nations in June endorsed a global minimum corporate tax rate of at least 15%, reached in the framework of the Organization for Economic Co-operation and Development (OECD).
It was approved by the G-20 in July and has been signed by more than 130 countries, except Hungary.
Hungarian Foreign Minister Peter Szijjarto said earlier this week that there was a chance that his country could agree to it as long as the reform “does not damage the Hungarian economy or put Hungarian jobs in danger.”
Donohoe said Ireland has insisted on a change of wording, excluding “at least” before the 15% figure, describing this as an important issue that needed to be resolved, due to the “desire of some to seek a higher rate.”
The minister said the reform was expected to take effect in 2023.
Ireland currently has a 12.5% tax rate.
Its tax policy has attracted giants such as Apple and Google, while Estonia had been concerned that joining the reform could threaten its vibrant tech start-up sector.
The reform will affect 56 Irish multinationals that employ about 100,000 workers, as well as 1,500 foreign-owned multinationals employing 400,000 people.
It only applies to companies with annual turnover of more than 750 million euros ($870 million) a year. Smaller businesses will still pay corporate tax at 12.5%.
Kallas said that in the case of Estonia the reform “will not change anything for most Estonian business operators, and it will only concern subsidiaries of large multinational groups.”
While Ireland stands to lose 800 million to 2 billion euros in corporate tax receipts if companies leave the country, the minister argued that if it did not sign up to the deal, Ireland would “lose influence in respect to the critical decisions that will come in the coming months.”
He added that there was debate in the U.S. Congress on changes that would align their tax system with the OECD agreement, calling this a key factor due to “significant investment by U.S. multinationals here.”
Following Ireland and Estonia’s decision, U.S. Treasury Secretary Janet Yellen said, “We are on the way to a generational achievement of creating a global minimum tax, which would create a more level playing field so jobs and investment can flourish in the United States.”
Ireland’s low levy has attracted an outsized number of pharma and tech firms but also prompted accusations the nation acts as a tax haven.