Ireland's corporate tax regime adheres to international standards and provides businesses with a supportive and favourable environment, according to a recent report prepared for the government on international tax reform and Irish corporate tax policy responses. The report was prepared by Ireland's Tax Strategy Group (TSG) ahead of the country's 2021 Budget and discussed Ireland's response to past and future international tax initiatives, including the OECD's tax base erosion and profit shifting (BEPS) Action Plan.
The report notes that Ireland has been "to the forefront in implementing" the recommendations of the OECD's BEPS project, and has "taken significant concrete actions to ensure the corporation tax code is in line with agreed international standards."
Ireland has already implemented the BEPS minimum standards. These are to remove any "harmful" tax provisions from its domestic tax regime, amend its tax treaty rules to prevent treaty abuse, implement country-by-country reporting rules and exchange these reports with other countries, and work with other countries to improve cross-border tax dispute resolution mechanisms.
Specifically, Ireland's transfer pricing rules were amended in Finance Act 2019, and Ireland has implemented the EU's Tax Dispute Resolution Mechanism Directive. Ireland has a mandatory disclosure regime in place, and has implemented the changes to the deadlines for reporting agreed at an EU level in response to COVID-19.
EU Anti Tax Avoidance Directives
In addition, the TSG paper covers Ireland's implementation of the EU Anti-Tax Avoidance Directives (ATAD I and ATAD II). It said that work on three of the five measures agreed by EU member states in 2016 and 2017 is now complete. Ireland has introduced new controlled foreign company (CFC) rules and a revised exit tax, while its existing general anti-abuse rule (GAAR) already met the required ATAD standard. Work is continuing on the two remaining measures: anti-hybrid/reverse-hybrid rules and an interest limitation ratio.
The first and most substantial part of Ireland's new anti-hybrid rules took effect from 1st January 2020. The remaining anti-reverse-hybrid rules are due for transposition into national law by the end of 2021 and are due to take effect from 1st January 2022. The Government will consult on these provisions in early 2021.
ATAD I also required EU member states to implement an interest limitation ratio, designed to limit the ability of entities to deduct net borrowing costs in a given year to a maximum of 30% of earnings before interest, tax, depreciation, and amortization (EBITDA). The general implementation date for this rule was January 1, 2019, but member states that already had targeted rules for preventing BEPS risks that were equally effective to the interest limitation rate were allowed to defer implementation until 1st January 2024.
The EU has commenced infringement proceedings against Ireland, and other member states, regarding transposition of the interest deduction limitation rules. The TSG said that while it remains of the view that the extended deadline should apply, work has begun to bring forward the transposition process.
However, the paper stressed that the effects of the COVID-19 pandemic and the end of the Brexit transition period should be considered in progressing the transposition process. It added that the introduction of the new rule will be complex, and that the key challenge will be "to deliver a system which is understandable and easy for both businesses and Revenue to administer, while also retaining the necessary protections for the tax base." It discusses, in-depth, drafting considerations for the government and the possible impact on multinationals.
On corporate tax reform, the report noted that consideration of moving to a territorial system of taxation has been deferred until there is greater certainty around the international taxation environment. In addition, drafting continues on the International Mutual Assistance Bill, which is expected to be concluded by the end of 2020.
In conclusion, the TSG said "Ireland's long-standing commitment to sustaining an attractive, stable, and transparent corporate tax regime provides certainty to businesses and allows us to compete legitimately to attract genuine substantive investment in the state."
However, it observed that "the international tax environment remains in flux." Significant reforms have taken place, and work is ongoing at both OECD and EU levels. The TSG stressed that, against this background, "it is important to support an environment of certainty for substantive business investment and job creation in Ireland."