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A global business tax hike masterminded by Joe Biden and Brussels could wipe out almost €6bn (£5.2bn) of state revenues in Ireland in a major blow to the country's economy, the International Monetary Fund has warned.
In an "extreme scenario", Ireland's 10 largest corporation tax contributors could leave the country in response to White House plans for a 21pc minimum rate on the international earnings of US companies, the fund (IMF) said. The change could cut Ireland's €11.8bn of corporate tax revenues in half.
The plan to tackle tax havens has been backed by the European Union, which has said that minimum taxation levels should be decided by the Paris-based Organisation for Economic Cooperation and Development.
It is likely to hit Ireland particularly hard because the country's low rates have made it a popular destination for major firms such as Google, Apple and Amazon.
The proposals threaten to drive a wedge between Ireland and large EU countries such as France and Germany - as well as cooling its attitude towards US President Biden, who has often trumpeted his Irish heritage.
Ireland's headline corporate tax rate is 12.5pc, considerably below the proposed minimum, and foreign companies are often able to pay an effective tax rate of between 2.2pc and 4.5pc on global profits shifted to Ireland.
The IMF said the Irish government needs to raise taxes to fund education, housing and childcare. Sustained growth in the Irish economy will require more investment in social and physical infrastructure, it said.
There are fears that the introduction of a minimum global corporate tax rate could spark an exodus of international businesses from Dublin, causing a dramatic drop in income for the Irish government, although the IMF said it was sketching out a worst case scenario rather than what is thought most likely to happen.
The Irish Department of Finance has estimated that revenue from corporation tax will drop by €2bn by 2025 if the changes go ahead but finance minister Paschal Donohoe has warned that the hit could be more severe than this.
Small countries “need to be able to use tax policy as a legitimate lever to compensate for advantages of scale, location, resources, industrial heritage and the real, material and persistent advantage enjoyed by larger countries,” he said last month.
Ireland’s predicament could prove awkward for President Biden, who has spoken repeatedly about his Irish roots and regularly quotes Seamus Heaney in his speeches.
Warnings over a future drop to Ireland’s tax income come after it emerged that Apple received €83bn in dividends from its main Irish subsidiary last year.
Accounts showed that the division recorded a $33.8bn (£24bn) pre-tax profit. Apple Operations International, which is headquartered in Cork, is used by Apple to cover much of its non-US business.