Ireland - Response to BEPS
Ireland - Response to BEPS
For Ireland, the implementation phase of the OECD BEPS project would end ideally with the country’s tax regime seen as meeting the standards for substance and transparency while maintaining the country’s reputation as a low-tax jurisdiction that encourages foreign direct investment (FDI). The first part of this goal should not challenge Irish tax policy makers as the country’s tax policy is already largely in step with anti-BEPS proposals. But when it comes to attracting and retaining mobile FDI, Ireland faces ever more international competition.
Ireland’s October 2016 international tax policy statementdeclares that “the cornerstone of our competitive offeringremains the 12.5 percent corporation tax rate”.1
This strong statement signals Ireland’s desire to remain competitive internationally while maintaining its low-tax status. At the same time, the Department of Finance is keen to ensure that Ireland is not viewed as a tax haven. Substance and transparency are vital to the country’s corporate tax policy. The policy explicitly aims to preserve an open, transparent regime so Ireland can maintain its relationships with key trading partners while providing more certainty to taxpayers in Ireland.
Ireland offers a stable and consistent corporate tax offering underpinned by its 12.5 percent corporate tax rate on trading profits and balanced with anti-avoidance legislation. Ireland’s corporate tax regime is generally structured in line with the anti-BEPS efforts of the OECD and the EU.
Ireland’s 12.5 percent corporate tax rate applies only to active trading income whereas passive non-trading income is taxed at a rate of 25 percent. Ireland has had both a mandatory reporting regime for tax planning transactions with certain hallmarks and a GAAR for a number of years.
European Commission and tax rulings
Ireland has appealed against the state aid finding of the European Commission on tax opinions given to members of the Apple Group. Ireland has stated its intention to vigorously defend its position. The monies to be recovered from the company are to be held in escrow pending resolution of the appeal process, which now proceeds to the General Court of the European Union.
Implementation of BEPS actions to date
Ireland has committed to and was an early adopter of minimum standard recommendations from the OECD BEPS project. For example:
- CbyC reporting legislation was enacted in Ireland’s Finance Act 2015, supported by regulations issued in December 2015 and updated with minor changes in 2016 to align Ireland’s regime with the OECD- and EU-approved CbyC requirements. These measures apply to accounting periods beginning on or after 1 January 2016.
- Ireland has reaffirmed its commitment to the minimum standard on dispute resolution and other processes under mutual agreement procedures (MAP). Ireland has signaled its intent to adopt a mandatory binding arbitration mechanism in its tax treaties under the OECD’s Multilateral Instrument. In a technical briefing note on Ireland’s proposed choices under the instrument, Ireland’s Department of Finance said, “Ireland is open to the type of arbitration that is used. Ireland generally supports arbitration being available wherever possible”.
- Ireland proposes to adopt the minimum standard antiabuse measures under the Multilateral Instrument, including the principal purpose test and many of the targeted anti-abuse measures. Ireland has stated its intention to reserve adoption of the expanded PE definition for dependent agents under Article 12 of the Multilateral Instrument“due to continuing significant uncertainty as to how to test would be applied in practice”. 2 Given the importance of international trade flows to its economy, Ireland is seeking to balance the introduction of more anti-abuse measures in its tax treaties against the preservation of certainty of access to tax treaty benefits for Irish tax residents.
- Ireland was one of the first jurisdictions to sign an intergovernmental agreement with the United States under the US Foreign Account Tax Compliance Act (FATCA). Ireland generally supports measures for the automatic cross-border sharing of tax information, introducing guidelines implementing the OECD guidelines on automatic information exchange taking effect 1 April 2016 and the EU directive on automatic sharing of tax rulings taking effect 1 January 2017.
Ireland introduced in Finance Act 2015 a new patent box that aligns with the modified nexus approach endorsed by the OECD and the EU. Ireland’s Knowledge Development Box offers a 6.25 percent rate of corporation tax on qualifying income. This should work together with Ireland’s attractive 25 percent research and development (R&D) tax credit regime to encourage R&D and innovation activity in Ireland.
Ireland does not have specific anti-haven provisions, but various relief measures in Irish tax law (e.g. relief from source country withholding taxes) are only available to tax residents of the EU and Ireland’s tax treaty partners.
Like other EU member states, Ireland has introduced new placeof- supply rules for value-added tax (VAT) purposes for digital supplies. The rules took effect 1 January 2015 and apply VAT to supplies at the rate in force in the country of the consumer.
EU Anti-Tax Avoidance Directive
In its negotiations on the EU ATA Directive, Ireland’s Minister for Finance “sought to ensure that Ireland’s sovereignty on tax rates was fully protected and that anti-avoidance measures would not impact on genuine investment in Ireland.”3
Ireland is expected to transpose the following requirements of the ATA Directive to meet the agreed deadlines:
- Controlled foreign company regime: By 1 January 2019. Ireland does not currently have a CFC regime.
- Anti–hybrid mismatch measures: By 1 January 2020. Irish domestic law already limits opportunities for specific hybrid structures. The law broadly requires that the income from such arrangements be taxable to the lender in order to ensure that certain interest payments remain tax-deductible as interest, rather than being characterized as non-deductible dividends or distributions for Irish tax purposes.
- GAAR: It appears likely that Ireland’s longstanding current GAAR meets the ATA Directive’s minimum standard.
- Exit tax: By 1 January 2020. Ireland’s current exit tax regime potentially applies where an Irish resident company ceases to be resident in Ireland and assets cease to be subject to Irish tax. However, the regime does not apply where an existing Irish resident company ceases to be resident but is ultimately at least 90 percent controlled by persons resident in jurisdictions having tax treaties with Ireland. A new exit tax is expected to be introduced in 2020.
Ireland’s Minister for Finance commented that the interest limitation rules in the ATA Directive “are deferred until 2024 for countries, like Ireland, that already have strong targeted rules.”4 Ireland has sought to defer introduction of the ATA Directive interest limitation rule, which is aligned with the best practice recommendations in Action 4 of the OECD BEPS project.
Impact on businesses
Changes to tax law are most assuredly coming. While the details of those changes remain uncertain, the level of complexity is bound to rise not only in Ireland but also in other jurisdictions. One certainty is that Ireland’s 12.5 percent corporation tax regime promises to remain a constant.
1 Department of Finance, Update on Ireland’s International Tax Strategy, October 2016, at p 4.
2 Department of Finance, Technical Briefing Note, Ireland’s approach to the OECD Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS.
3 Department of Finance press release, Minister Noonan welcomes agreement on the Anti-Tax Avoidance Directive, 22 June 2016.