On 14 January 2021, The Minister for Finance, Mr. Paschal Donohoe, published an update to Ireland
’s 2018 Corporation Tax Roadmap (“the Update”).
The Roadmap was originally published in 2018 to provide a clear indication of the actions that Ireland
would take to ensure that our corporation tax system remained competitive and sustainable. The update takes accounts of the changing international tax environment, outlines what actions Ireland
has taken to date and the further actions that will be taken in the coming years.
A key and very welcomed message in this update is the commitment to the 12.5% corporation tax rate. From the Roadmap it is evident that in 2021 the most significant changes that we will see introduced is the introduction of the interest limitation rules. There is a broad consultation exercise ongoing in respect of these rules in which a number of stakeholders are involved.
Summary comments in respect of the existing commitments under the September 2018 Roadmap and further proposed commitments are set out below.
The Update notes that a number of commitments from the 2018 Roadmap have been successfully legislated for and implemented including –
• Introduction of Controlled Foreign Company (“CFC”) rules
• Anti-Hybrid rules;
• An Anti-Tax Avoidance Directive (“ATAD”) compliant Exit Tax regime;
• Ratification of the Multilateral Instrument (“MLI”)
• Applying the 2017 OECD Transfer Pricing Guidelines and
• The introduction of the Mandatory Disclosure Regime otherwise known as DAC 6.
Commitments to be fulfilled
The Update commits to fulfilling a number of commitments including:
• Introduction of Interest Limitation Rules
These rules will have a significant impact on Irish businesses as they will be relevant to any taxpayer who has borrowings. The impact of these rules on businesses could be more significant than originally thought due to the impact of COVID 19 as a number of businesses likely have reduced earnings and increased borrowings.
A public consultation is ongoing with respect to how these rules will be legislated for with a number of key stakeholders involved. The rules are to be introduced in Finance Bill 2021 and will apply from 1 January 2022.
• Introduction of Reverse Hybrid Rules
Transposition of the reverse anti - hybrid rule will take place in 2021. The first stage of this process will be the publication of a Consultation Paper in Q1 2021 followed by a Feedback Statement by mid-2021 with legislation to be introduced in Finance Bill 2021 with an effective date of 1 January 2022.
• Public Consultation regarding the movement to a territorial tax regime
This was a commitment in the 2018 roadmap. The outcome of work at the OECD, and in particular Pillar Two, has the potential to fundamentally alter the international tax framework. Consideration of a possible move to a territorial system must take into account the potential direction of this framework. A consultation on this issue will be launched in 2021.
• International Mutual Assistance Bill
Work is ongoing on finalising the drafting of this Bill with the objective of publishing the Bill and progressing the Bill through the Oireachtas in early 2021.
• Apply Defensive Measures to countries on the EU’s list of non-co-operative jurisdictions
In October 2019, EU Finance Ministers agreed to introduce national legislative defensive measures against listed jurisdictions. These measures are: the non-deductibility of costs; withholding tax measures; enhancing CFC rules; and the limitation of participation exemptions on distributions of profit.
Finance Act 2020 introduced new measures to provide that Ireland
’s CFC rules will apply more stringently to companies with subsidiaries operating in jurisdictions that remain on the EU list.
• Introduction of additional defensive measures
Consideration will also be given to introducing additional defensive measures, if required, including denial of tax deductions or the imposition of withholding taxes where material payments are made from Ireland
to EU non-cooperative / blacklisted jurisdictions.
It is proposed to launch a public consultation in early 2021, with the objective of considering the introduction of appropriate measures in Finance Bill 2021.
• Outbound payments
While examining the appropriateness or necessity for further defensive measures to take against listed jurisdictions, the Roadmap explains that it would be appropriate to also explore broader issues related to outbound payments from Ireland
and withholding taxes.
Any such action will be considered in the context of Finance Bill 2021.
• Authorised OECD Approach for transfer pricing of branches
Following the substantial modernisation and extension of our transfer pricing rules in Finance Act 2019, the next step is to extend transfer pricing rules to the taxation of branches in Ireland
in line with the Authorised OECD Approach. Work will commence in early 2021 on this matter and it is intended to bring forward the necessary legislation in Finance Bill 2021.
• Respond to international reform efforts
The update notes that while governments will always need to be proactive in clamping down on any emerging aggressive tax planning schemes, it is hoped that successful agreement at the OECD and implementation of measures can lead to a period of stability after a decade of constant change. Such stability will be critical as we emerge from the COVID-19 pandemic.
• Tax Treaty Policy Statement
It is intended to publish a Policy Statement before end-2021. The Policy Statement will have a particular emphasis on tax treaties with developing countries, having regard to Ireland
’s development commitments and in consultation with the Department of Foreign Affairs and Irish Aid.
• Development of a new framework for domestic stakeholder engagement
The Department is also planning to establish a formal annual stakeholder engagement process, to facilitate engagement on broader matters of interest. Details of this process will be finalised in early 2021.
It is clear from the update to the Roadmap that Ireland
is committed to implementing effective tax measures that promote transparency and combats tax avoidance and evasion.? It is also clear that the Department of Finance is committed to taking on the views of all stakeholders given the following forthcoming consultations.
The Roadmap should provide business with more certainty on the changes that will be addressed as part of significant reforms to the Irish corporate tax code into the future.
Kate McKenna is a Tax Manager in Deloitte Ireland