A key part of Ireland’s appeal to international investment has been its pro business infrastructure and low corporate tax rate of 12.5%, and for decades major U.S. corporations have made use of that infrastructure and tax rate. Some prominent examples include Google, Facebook, and Apple, which famously made use of the notorious “double Irish” tax loophole in the 1990s. International firms have become an integral part of the Irish economy of today, to say the least.

However, U.S. President Joe Biden has introduced a new tax proposition that might change that dynamic. It has suggested that U.S. corporations be subject to a global minimum corporate tax rate, with U.S. Treasury Secretary Janet Yellen recommending a rate of 21%. This would work in the following way: if a U.S. firm has operations in Ireland and pays the lower Irish tax rate for those operations, the U.S. government would be able to apply additional taxes on that revenue until it reaches a rate of 21%. The rationale behind this proposal is to make ensure a more fair and level playing field, while putting an end to the long-running practice of tax avoidance among U.S. conglomerates.

While this is itself a sensible objective, and it is unlikely this measure is targeted at Ireland specifically, such a practice may radically change the nature of foreign investment and Ireland’s entire financial landscape by extension. As a primary motivating factor for U.S. business operations in Ireland is being able to avoid paying the higher U.S. tax rate, this tax plan would remove a large incentive for them. This might even lead corporations considering operations in Ireland to hold off, or lead those already here to roll those operations back.

As previously mentioned, this could have an enormous impact on the nature of business and economy in Ireland. According to Toney Foley, a professor of economics for the Dublin City, foreign companies account for 90% of manufactured imports and employ 10% of the workforce. If those firms were to leave, Ireland would see dramatic reduction in tax revenue. Their exit would undoubtedly have a devastating impact on the current Irish economic system.

Moving forward, Ireland must seriously consider the possibility of this plan being put into effect. Ireland might consider investing in other incentives to ensure Ireland remains attractive to international firms, be that in talent, infrastructure, or other areas. Ireland’s international appeal is not solely rooted in its tax rate, but it should nonetheless reflect on what challenges the future may bring and prepare accordingly.