Biden's tax plans risk bursting Ireland's bubble

The 12.5pc tax rate never has been and never will be up for discussion. The 12.5pc tax rate is settled policy. It will not change, said Michael Noonon, then the Irish finance minister, in his 2014 budget speech to the Dáil in Dublin.

Ireland's corporate tax rate has become a beacon for multinationals particularly from the United States that have learned how to shop around the global marketplace for the best tax loopholes and rates, and treated Ireland as a gateway to European markets.

Ireland doesn't have the lowest rates in the EU, but when the clearest alternative is Hungary it's not hard to see why businesses find themselves drawn to the Emerald Isle.

However, plans by the rich OECD group of nations have put 12.5pc under threat. The Biden administration's support for a global minimum rate of 15pc made the shift inevitable, with the President's Irish ancestry apparently doing little to add a green tint to American foreign policy.

Many details are yet to be thrashed out, but with most countries having already acceded or capitulated, Ireland - and a handful of holdouts - are all that is left against a major shift. The proposals create a predicament for Irish finance minister Paschal Donohoe, who met with US Treasury Secretary Janet Yellen in Brussels on Monday.

Donohoe, who also leads the Eurogroup of eurozone finance ministers, faces a difficult balancing act, needing to be seen as gunning for what has been a game-changing policy for Ireland, while avoiding Dublin being regarded as undercutting global efforts to level the tax playing field.

It looks inevitable that Dublin will buckle, most likely in the autumn. Michael McNamara, an independent member of the Irish parliament, said his country is finally having to get to grips with the impact its tax haven status has on the rest of the world.

"We have an image of ourselves in Ireland that might not be necessarily totally sustainable at the moment: of being a very outward-looking country, open to the world, and not a country that is effectively eating other people's lunch, which we have been doing on corporation tax for some time," he says.

"It served us well for a while, but I think it has come to a shuddering halt."

The 12.5pc rate is a badge of pride, proudly emblazoned across websites and literature enticing foreign companies to use Ireland - which now describes itself as "the only Englishspeaking country in the eurozone" post-Brexit - as a base for their activities in the continent.

Throughout most of the 20th century, companies' European entities were a fairly simple affair. Generally speaking, the globetrotters were manufacturers that sought to place international operations near the workforce, resources or markets they needed. That made taxation a relatively logical affair, and global tax rules that have stood for a century were based around this principle.

However, the new breed of techled services companies that emerged toward the millennium flipped this dynamic. With little interest in raw materials, and the ability to pull in a skilled workforce from across the bloc, it was possible for a company to base itself almost anywhere - giving countries a new way to lure in foreign investment.

Ireland was a key beneficiary from this shift. With a small, well-educated population, and its capital Dublin overshadowed by nearby London, creating a low-tax environment to act as a magnet for American businesses in particular suddenly became a political lever.

Corporation taxes were cut around the turn of the century, leveraging its position as a member of the continental bloc to lure companies with the promise of substantial savings.

The Irish economy reaped the benefits of this Faustian bargain, shaking off the doldrums of the early 1990s to notch up a spell of rapid growth that earned it the "Celtic Tiger" moniker - at least until the 2008 crash brought the party to an abrupt halt.

Stories of companies with Irish bases paying stunningly low rates of tax have become commonplace. Infamously, these included the "double Irish with a Dutch sandwich" arrangement - in which, under a now-abolished Irish law, companies could pay the corporation tax of their owner's country while being based in Ireland.