2024 brings with it ‘a brand new tax system’ as BEPS Pillar Two, which includes the introduction of a minimum tax rate for the world’s largest corporates, enables a once-in-a-generation reform of Ireland’s corporate tax regime. These BEPS reforms and further planned moves at EU level, such as ‘Unshell’ proposals, mean refinements to Ireland’s tax offering will be required to remain competitive.
The highlight of the year in tax 2023 has to be the introduction of the global minimum tax rules into Irish law through the Finance Act which brought in, from 1st February 2024 ‘a brand new tax system’, as described in this month’s Roundtable by Maples’ Andrew Quinn, who he sees it as a positive, even beyond the tax sphere. ‘It is a huge development in the tax world to have a consistent approach and set of tax rules internationally, and more broadly what it says in terms of international cooperation and the relationship between governments, business and citizens.’
Deloitte’s Tatiana Kelly also chose it as one of her highlights, describing it as ‘a once-in-a-generation reform to our corporation tax system which was the culmination of a ten-year, global project to reform the taxation of multi-national enterprises.’
With this in the background, the confirmation of plans to introduce elements of a territorial tax regime e.g. the proposed introduction of a participation exemption for foreign-sourced dividends is also a positive highlight of 2023.
Paschal Comerford, Director International Tax, Grant Thornton writing on this says ‘The proposed introduction of a participation exemption for foreign-sourced dividends is an extremely positive move from the Department of Finance. Ireland is an outlier as the only EU country and one of very few OECD countries that does not operate some form of such exemption.’
On this, Deloitte’s Emma Storey says, ‘Ireland is the only EU Member State not to have a participation exemption regime for dividends/distributions and is only one of four OECD countries (along with Chile, Korea and Mexico)’ and that the change is an ‘opportunity to simplify the Irish corporation tax code and protect the country’s competitiveness.’
Describing the introduction of the participation exemption as ‘long overdue’ BDO’s Michelle Adams says it ‘will be well received with the consensus view that Ireland’s current worldwide system of taxation reduces our attractiveness as a location for inward investment due to the complexity and administrative burden of operating the ‘tax and credit’ model.
Deloitte’s Stephanie Bowe, on improving Ireland’s personal income tax structures says there are many opportunities to help achieve this including the key recommendations made by Deloitte in 2023 such as increasing the standard rate band, reducing the higher rate of income tax to 50% and updating SARP and KEEP.
Grant Thornton’s Cian O’Sullivan analyses the options facing authorities around personal taxes and writes ‘there is wide acceptance that major fiscal risks/challenges lie ahead underpinned by an ageing population, high levels of public debt and vulnerable Corporation Tax receipts’ with changes to the personal income tax system one option to increasing the tax take.
An important element of personal income in certain sectors is share-based remuneration and in this month’s Roundtable the Department of Finance’s consultation on the area features with Grant Thornton’s Elaine Flynn outlining a number of areas that could be updated to support Ireland’s share-based remuneration offering including updating the aforementioned KEEP scheme, including a ‘safe harbour’ approach from Revenue around valuations; retention of the employer PRSI exemption for schemes, and bringing Ireland’s rules in line with most EU and OECD countries, including a reform to defer tax on exercise of stock options to date of sale.
Reforms to KEEP are also suggested by Deloitte’s Sarah Conry and Niall Dunleavy who also call for the deferral of tax to the date of disposal. They also recommend a review to the Save As You Earn (SAYE) and Approved Profit Sharing Schemes (APSS) schemes, following the UK’s lead where a consultation was recently held on how to improve similar schemes in the UK.
Also in this issue Grant Thornton’s Fadi BouKaram analyses the EU’s anti VAT fraud Central Electronic System of Payment Information (CESOP) which came into force on 1st February 2024 while Deloitte’s Daniel Baquerin explains recent changes to the VAT treatment of Portfolio Management Services.
This article appeared in the February 2024 edition of the Irish Tax Monitor.
