Investing in Ireland: A dynamic, knowledge-based economy - 2022

Peter Vale
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The last ten years has seen significant upheaval in the global tax environment, with more changes expected. Ireland has fully embraced this new landscape.

An evolved landscape

Despite initial concerns, changes in the global landscape have broadly been very positive for Ireland, with the closer alignment of taxable profits and real substance acting in our favour.

Following the publication of the OECD Base Erosion Profit Shifting (BEPS) project in 2015, many groups fundamentally altered their tax structure, with valuable intellectual property moving from traditional offshore locations to onshore jurisdictions such as Ireland.

Since then, more tax changes have been introduced at local, EU and OECD/global level, broadly aimed at reducing the opportunity for tax avoidance.

The changes include some notable provisions, such as:

  • New controlled foreign company (CFC) legislation;
  • A new multilateral instrument (MLI) fundamentally altering numerous global tax treaties; and
  • New EU tax directives (ATAD), tackling issues such as hybrid mismatches, exit taxes and interest limitation rules, the latter being particularly important for Ireland.

Notwithstanding the scale of the global tax changes introduced within a relatively short time period, the OECD moved ahead with its “Pillar One” and “Pillar Two” proposals. Pillar One is aimed at reallocating a portion of the profits of very large groups to market jurisdictions. Pillar Two proposes the introduction of a new global minimum tax rate.

While Ireland has embraced both Pillars, neither Pillar One nor Pillar Two have been formally implemented, although many countries have taken unilateral measures recently to introduce aspects of both.

The key elements of Pillar One include:

  • Taxing rights over 25% of the residual profit of the largest and most profitable MNEs would be re-allocated to the jurisdictions where the customers and users of those MNEs are located;
  • Tax certainty through mandatory and binding dispute resolution, with an elective regime to accommodate certain low-capacity countries;
  • Removal of digital services taxes and other similar measures;
  • The establishment of a simplified and streamlined approach to the application of the arm’s length principle in specific circumstances, with a particular focus on the needs of low capacity countries.

Ireland has agreed to the OECD Pillar Two initiative to introduce a minimum effective corporate tax rate of 15% for MNEs, where consolidated revenue exceeds €750 million. Ireland has worked hard in retaining its longstanding 12.5% corporation tax rate for groups that do not exceed this threshold, and following successful negotiations by the Irish Government with the OECD and EU, the lower 12.5% corporation tax rate will continue to apply for qualifying companies.

The main elements of Pillar Two include:

  • a global minimum effective corporate tax rate of 15% on all MNEs with annual revenue exceeding €750 million;
  • a separate subject to tax rule (STTR) to be introduced for certain intra-group cross-border payments, such as interest and royalties, that are subject to taxation on receipt below the 9% STTR minimum rate. If tax on the payment is below the 9% STTR minimum rate, a taxing right (or additional taxing right, as the case may be) will be granted to the source jurisdiction. The STTR is not yet finalised; and
  • carve-out to accommodate tax incentives for substantial business activities.