Ireland, like many countries, is making changes to its tax regime in response to international pressure for more tax fairness and transparency.
It is a situation which is increasing tax uncertainty, not only in Ireland, but all over the world. Hence, the Irish Government has attempted to quell concerns over the direction it is taking with its tax system with the publication of its International Tax Strategy.
A Tax Roadmap
The Government describes the International Tax Strategy, which was first released last year and updated alongside the 2017 Budget, as a “roadmap” to inform business taxpayers where Ireland’s taxes are going in relation to BEPS and other international tax standards, and, just as importantly, how it intends to maintain its hard-won tax competitiveness.
Importantly the tax roadmap reiterates Ireland’s strong desire not to compromise with regards to its 12.5% rate of corporate tax, which has been a significant factor in drawing in high levels of foreign investment to the country.
According to the Irish chapter of the American Chamber of Commerce, Ireland received 20% of all US foreign direct investment into the European Union last year, whilst accounting for just 1 percent of the total EU economy.
The document describes Ireland’s low corporate tax as “the cornerstone” of its offering to investors, and Finance Minister Michael Noonan stressed in the 2017 Budget: "Ireland's 12.5% corporation tax rate will not be changed and nobody is asking for it to be changed."
Indeed, the Government has made its position clear on the corporate tax rate so many times down the years that Noonan quipped shortly before announcing the Budget that: "We could nearly put it on the flag.”
The most notable update is the inclusion of a section on Brexit. With Ireland naturally having a close trading relationship with the UK – the UK accounts for approximately 16% of Irish exports, and Ireland is the UK's fifth biggest export market – the nature of the UK’s divorce settlement with the EU could have a significant bearing on UK-Irish trade, which, the tax roadmap states, makes it all the more important that Ireland remains competitive on tax.
Therefore, the tax strategy affirms the Government's commitment to an improved Knowledge Development Box, and a "best in class" R&D tax credit.
BEPS and Transparency
The roadmap informs taxpayers that Ireland "has committed to the BEPS process and will play its full part in implementation." Country-by-country transfer pricing reporting has already been legislated for, and Ireland is fully implementing OECD exchange of information requirements in respect of tax rulings, the strategy document says.
Ireland is also implementing three other key BEPS recommendations, including rules on hybrid mismatches, interest deductibility, and controlled foreign companies. In addition, updates to Ireland’s transfer pricing rules are being considered to ensure that Ireland meets new OECD transfer pricing guidelines.
Ireland's international tax strategy also confirms the country's commitment to implement, by the end of 2016, the latest updates to the EU Directive on Administrative Cooperation, which will result in national tax rulings and country-by-country reports being exchanged automatically between member states.
"The Government has committed to the highest international standards in transparency in the taxation of the corporate sector,” the strategy document states. “Tax transparency and access to information is key to tackling the global problems of tax avoidance and aggressive tax planning."