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Corporation Tax Environment

The minister acknowledged the significant contribution made by corporation tax receipts to date in 2020, noting the c.€7.5 billion as playing an essential role in funding the expenditure measures introduced in response to the pandemic, write Anna Scally and Cillein Barry of our tax practice.

In this context, the minister reiterated the importance of maintaining a stable and transparent corporation tax regime, and again reaffirmed Ireland’s strong commitment to the 12.5% rate of corporation tax.

In September 2018, the Department of Finance published Ireland’s Corporation Tax Roadmap. The minister noted that this would be updated to reflect the actions taken to date and the areas for further review and consultation in the coming months and years. The Roadmap has proven to be a helpful guide to timing and approach to the implementation of the broad ranging tax changes resulting from EU and OECD initiatives, and has provided greater certainty for taxpayers on the direction of travel for the Irish tax regime.

The minister noted that the updated Roadmap will address the OECD BEPS 2.0 blueprints dealing with the tax challenges of digitalisation of the economy.  These blueprints, published by the OECD on 12 October 2020, propose a framework for changes to international tax under two broad pillars. Pillar One relates to the allocation of profits of multinationals, linking tax nexus to the jurisdictions in which the consumer markets are located. This represents a significant change to the current transfer pricing approach and is targeted at digital service providers and consumer facing businesses. Pillar Two seeks to implement a global minimum corporate tax rate for multinationals with revenues in excess of €750 million. The OECD has opened public consultations on a number of matters with regard to Pillars One and Two. These consultations are due to close on 14 December 2020, with a view to meeting a mid-2021 deadline for final agreement.

The minister acknowledged that these impending changes would likely result in a reduction in profits taxable in Ireland, but also warned of the negative consequences if agreement could not be reached at the OECD level. 

EU Anti-Tax Avoidance Directive (ATAD)

The minister reaffirmed his commitment to address the remaining EU ATAD measures which have yet to be adopted by Ireland, namely the introduction of interest limitation and anti-reverse hybrid rules. The minister has committed to the introduction of such legislation next year, which is expected to be introduced in Finance Bill 2021 and to take effect from 1 January 2022. 

Intangible Asset Allowances

Ireland’s intangible asset regime was introduced in Finance Act 2009 and allows a company to claim capital allowances (tax deductible amortisation) on the cost of acquiring a broad range of intellectual property assets for the purposes of its trade.

The minister announced that qualifying intangible assets acquired on or after 14 October 2020 will be fully within the scope of balancing charge rules. This means that irrespective of how long these assets are held, a balancing charge may arise on their disposal or where they cease to be used for the purposes of a trade. The minister noted that while the impact of the amendment is not expected to result in significant additional tax revenue, it will ensure Ireland’s intangible assets regime remains competitive, legitimate and sustainable.

Exit Tax

In line with the EU Anti-Tax Avoidance Directive, Ireland amended its exit tax rules in 2018. Two technical amendments were also introduced as part of Finance Act 2019. The minister announced a further technical amendment to these rules, effective from 14 October 2020, to clarify the operation of interest on instalment payments.

The Irish exit tax applies by deeming there to be a disposal of assets for market value on the happening of certain events, where the assets are taken out of the Irish tax net without otherwise triggering a taxable event.

For certain exits to EU/EEA countries the company can elect to defer the payment of the exit tax and pay the tax in equal instalments over five years including interest. The technical amendment was made to ensure the calculation of interest on exit tax instalment payments which remain unpaid on or after 14 October 2020 are to be calculated on the outstanding balance and not by reference to the amount of the particular instalment due. 

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