Contributing Firms:
Ireland’s lodestar for Corporation Tax is reaffirmed
The Contributors to this edition of the Irish Tax Monitor give a positive welcome to the Government’s landmark strategy document on Irish corporation tax policy, in the review and update of the 2018 Corporation Tax Roadmap, entitled 'Ireland’s Corporation Tax Roadmap January 2021 Update' which was published on Thursday January 14th.
Ireland’s Corporation tax system is central to the health of the economy, and while recent economic assessments by credit rating agencies, and by the European Union, continue to raise the question of uncertainty over the future yield from corporation tax there is no reason to believe that a decline in its importance as a contribution to Irish economic welfare is inevitable.
And that is very important, as the same EU Economic review1 of economic performance across Europe in 2020 shows that Ireland was the only country in Europe not to suffer a decline in its national income.

The Corporation Tax Roadmap January 2021 Update' demonstrates, in detail, the many impressive actions taken in Budgets in the intervening period to bolster Ireland’s commitment to fair taxation on the global stage summarised in the memorable declaration by former finance minister Michael Noonan in 2013 that Ireland wants to play fair and “play to win” in the international corporation tax competition arena. The actions taken are detailed in Kate McKenna’s article on page 54.

At the heart of the Roadmap is a continued national commitment to the 12.5% rate, and, the principle of adherence to the principle of unanimity amongst EU member states on national taxation matters.

From the Roadmap it is evident that in 2021 one of the most significant changes that we will see introduced is the introduction of the interest limitation rules, referred to by Aileen Stephens in her response (page 47). There is a broad consultation exercise ongoing in respect of these rules in which a number of stakeholders are involved.

The Roadmap also contains a commitment to consider the introduction of a territorial regime in Ireland with a public consultation this year. On this, the head of Maples Dublin tax team, Andrew Quinn says “At present, Ireland has a worldwide system of taxation for Irish companies, which is complex and is increasingly unusual among other modern tax systems. Most OECD countries use a territorial based tax system which focuses on the taxation of profits earned within the jurisdiction, with anti-abuse measures to prevent the diversion of profits elsewhere. Previously, the absence of a CFC regime in Ireland was seen as an obstacle to a territorial system, but Ireland now has CFC rules as a result of EU ATAD. This could mean the introduction of an exemption based approach to foreign dividends of a holding company, rather than the current complex tax credit system. This would be a welcome change in that it would align the Irish tax system in this regard with international norms and reduce complexity”.

The Roadmap recognises the international tax landscape remains in flux in the context of the International Tax Framework (commonly referred to as BEPS 2.0) with significant work underway at the OECD and also at EU level, and it makes the important point that consideration of what actions are appropriate for Ireland to take on tax reform issues are heavily influenced by the progress of this international work, says Deloitte’s Aileen Stephens in her contribution.

“Overall it makes clear Ireland’s desire is for a multilateral agreement which will be a welcome affirmation to many”, she says.

“In the context of the EU perspective and related actions, it is noteworthy that the Government call out their “grave concerns about any proposals which may seek to undermine the requirement for unanimity on tax issues. The Update highlights that unanimity has not been an obstacle to very significant tax reform at European level, as demonstrated by the achievements in recent years. Thus Commitment 10 is important as it declares a proactive agenda that envisions successful agreement at the OECD but which is qualified by the wider comments of the Update made regarding the unwavering stance of the Government regarding the importance of consensus and protecting the principle of unanimity”, she says.

Ireland has 74 tax treaties, but other countries have more, such as UK, France and Italy, as Lynn Cramer and Joanne Fox point out. Fox says that Double tax treaties are key instruments to protect taxpayers and countries against unilateral tax measures that have and may be introduced in future by certain countries to clamp down on perceived unfair tax competition and profit shifting.

It is clear that there is scope for more Tax Treaties to be signed up, and the identification of this in the Department of Finance’s ‘Ireland for Finance’ Strategy, published this month is therefore very timely.

1 https://ec.europa.eu/economy_finance/forecasts/2021/winter/ecfin_forecast_winter_2021_ie_en.pdf