Ireland has signed up to OECD BEPS 2.0 plan and will increase its corporation tax rate to achieve a 15% effective rate for multinational groups within the scope of Pillar Two. Ireland has also agreed to Pillar One proposals that reallocate taxing rights to market jurisdictions for in scope multinational groups.
These changes are expected to take effect from 2023 and the 15% minimum effective rate will only apply to multinational groups with turnover in excess of €750 million. Ireland will continue to apply the 12.5% corporation tax rate to companies with global turnover below this threshold. The 15% rate is expected to apply to roughly 1,500 businesses in Ireland. For most taxpayers, circa 160,000 businesses, there will be no change as a result of Ireland signing up to the OECD plan.
Ireland was one of a few countries that did not sign up to the Inclusive Framework in July 2021 due to the level of uncertainty surrounding the proposals, and in particular, a proposed minimum rate of ‘at least’ 15%. The reference to ‘at least’ has now been dropped from the OECD plan as a condition of Ireland signing up. It is worth noting that the impacted businesses would have suffered the additional taxes anyway even if Ireland did not agree to increase its tax rate.
With regard to Pillar One, Inclusive Framework members are still negotiating the percentage allocation of taxing rights to market jurisdictions. It is to be somewhere between 20% - 30% and could land at 25%. Further announcements from the OECD on the BEPS 2.0 plan are expected in the coming days. Technical work on the detail of the proposals will follow.
Certainty and stability for business
In the context of where the negotiations were going, securing a minimum effective rate of 15% for only large in-scope groups is a very good result. This agreement is expected to be for the long term. It will preserve the integrity of our corporation tax regime and provide businesses with the certainty and long-term stability that Ireland has offered in the past, well into the future. Ireland’s negotiated outcome demonstrates the continued commitment of the Irish government to a competitive and pro-business environment.
The Government have estimated that the BEPS 2.0 measures could cost the Exchequer up to €2bn. While it is difficult to quantify the impact on the Exchequer, we believe there is a chance that the impact could be close to net neutral, with a possibility of it being net positive. An analysis of the BEPS 2.0 plan as detailed in July 2021 and its impact for businesses operating in Ireland, can be viewed on our website through the link below.
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