Updated Corporation Tax Roadmap for Ireland Updated Corporation Tax Roadmap for Ireland Updated Corporation Tax Roadmap for Ireland

On 14 January 2021, The Minister for Finance, Paschal Donohoe, published an update to Ireland’s 2018 Corporation Tax Roadmap. Anna Scally and Cillein Barry of our Tax practice examine this update below.

The purpose of the Roadmap is to provide all stakeholders with an indication of the actions that Ireland will take to ensure that the Irish corporation tax system remains competitive, fair and sustainable.

The update takes stock of the changing international tax environment, outlines the significant actions Ireland has taken to date and the further actions that will be taken over the coming years.

The update is being published in the context of discussions at International level on the reform of the International Tax Framework (commonly referred to as BEPS 2.0), which are expected to come to a conclusion in mid-2021 (further information on the OECD BEPS 2.0 proposals is available here).

Publishing the Roadmap Update, Minister Donohoe reaffirmed Ireland’s commitment to the 12.5% corporation tax rate and to a ‘competitive, fair and sustainable’ corporation tax regime.

The Minister also reaffirmed Ireland’s position on BEPS 2.0 that “It is vital to have a consensus-based, globally agreed approach to international tax. Tax rules need to continue to evolve to match the modern world, and that evolution can best take place through international agreement at appropriate institutions such as the OECD”.

The Roadmap, accessible here, outlines the range of commitments for 2021 and 2022 – summarised below.

1. Introduce ATAD-compliant interest limitation rules – the Department of Finance published an initial Feedback Statement in December 2020 which will be followed by a consultation and feedback process in early 2021, with transposition in Finance Bill 2021 and the new rules effective from January 2022.
2. Legislate for reverse hybrids aspect of ATAD anti-hybrid rules – while anti-hybrid rules were introduced from 1 January 2020, anti-reverse-hybrid rules must be added.  The Department of Finance will publish a consultation paper in Q1 2021 followed by a Feedback Statement by mid-2021, with legislation to be introduced in Finance Bill 2021 and effective from January 2022.
3. Consultation on possibility of moving to a territorial regime – to be launched in 2021.  Any subsequent policy actions will take account of the outcome of the ongoing international discussions on international tax matters (BEPS 2.0).  A move away from a worldwide system of taxation to a territorial regime could provide less complexity and greater certainty for businesses, particularly in preventing double taxation on foreign dividends.
4. Progress the International Mutual Assistance Bill – to be published in the coming weeks, and to begin progression through the Oireachtas in early 2021.  This will provide for full ratification of the OECD/Council of Europe Convention on Mutual Administrative Assistance in Tax Matters.
5. Apply defensive measures in CFC regime to countries on EU Member States’ list of non-cooperative jurisdictions – these measures were included in Finance Act 2020 and provide that Ireland’s CFC rules apply more stringently to companies with subsidiaries operating in jurisdictions that remain on the EU list.
6. Commitments met – the Updated Roadmap acknowledges that a number of commitments from the 2018 Roadmap have been met, such as the introduction of CFC rules, ratification of the Multilateral Instrument, introduction of an ATAD compliant Exit Tax Regime, anti-hybrid rules, applying the 2017 OECD Transfer Pricing Guidelines and Mandatory Disclosure Rules.

1. Consider additional defensive measures regarding countries on EU list of non-cooperative jurisdictions (the EU Blacklist) – in 2021 consideration will be given to introducing additional restrictive measures (in addition to the existing CFC rules), if required, including the denial of tax deductions or imposition of withholding taxes, where material payments are made from Ireland to listed jurisdictions.
2. Consider actions that may be needed in respect of outbound payments – in 2021 the Department of Finance will consider and commence a consultation on broader issues related to outbound payments from Ireland and our wider withholding tax regime.  The Roadmap anticipates that such issues relate primarily to historical issues which have largely been remedied by US tax reform.
3. Adopt the Authorised OECD Approach for transfer pricing of branches – the Department of Finance will commence work in early 2021 on aligning the transfer pricing rules for the taxation of branches in Ireland with the Authorised OECD Approach.  It is intended that the necessary legislation will be included in Finance Bill 2021 with a view to keeping Ireland’s transfer pricing rules in line with international best practice.
4. Continue to meet international best practices on exchange of information and support efforts to enhance information exchange – Ireland will continue to be at the forefront of developing and implementing the latest standards for exchange of information among tax authorities, including transposing the latest EU Directive on Administrative Cooperation (DAC 7) and contributing to the development of new reporting rules for crypto-assets and e-Money (DAC8).
5. Proactively respond to the outcomes of international reform efforts – as the future direction of the global tax framework becomes clearer, the Department will continue to take a proactive, consultative approach in ensuring Ireland’s corporation tax system is well-placed for the changing environment.
6. Publish a tax treaty policy statement taking account of International developments – a new tax treaty Policy Statement will be published before the end of 2021, having particular regard to treaty policy for developing countries.
7. Continued engagement in international fora and develop a new framework for domestic stakeholder engagement – a new annual domestic stakeholder engagement process to be established in 2021, with a view to formally facilitating engagement on broader matters of interest.

KPMG welcomes the publication of the update to Ireland’s Corporation Tax Roadmap.  This roadmap is critical in providing a sound base for future investment in the country.  We believe that Ireland’s tax regime will continue to remain competitive in the context of Ireland’s comparative attractiveness as a location for business.  It is welcomed that the Minister for Finance has again reaffirmed Ireland’s commitment to the 12.5% rate of corporation tax and a fair, competitive and sustainable regime.

Ireland has embraced international tax reform and the roadmap provides clarity around when additional changes will be introduced.  The tax reform that we have seen, and will continue to see, impacts all Irish businesses.  It is welcome that Government will seek feedback from stakeholders as part of the detailed implementation of the announced measures. KPMG remains committed to actively engaging in providing feedback on the impact of measures for business.

If you would like to discuss any of the measures included in the Roadmap and their potential impact for your business, please contact Anna Scally or Cillein Barry of our Tax team.