On Budget Day the Minister for Finance announced a public consultation on the implementation of a number of the Coffey Report’s recommendations.
On 12 September 2017 the Department of Finance released the Review of Ireland’s Corporation Tax Code, a government commissioned report which was prepared by independent expert, Seamus Coffey. On Budget Day the Minister for Finance announced a public consultation on the implementation of a number of the Report’s recommendations.
Although the Report does not make a specific recommendation on the 12.5% tax rate, its findings are broadly positive on the future sustainability of Ireland’s 12.5% regime (though, in his Budget speech, the minister did reaffirm that the 12.5% tax rate will remain and is a core part of Ireland’s corporation tax offering). The Report does make a number of recommendations for changes to Ireland’s regime. These mainly reflect commitments that Ireland has made as part of multilateral measures to enact further protections against base erosion and profit shifting (BEPS). These commitments are aligned with those undertaken by other European Union (EU) Member States and with recommendations set out by the Organisation for Economic Cooperation and Development (OECD). In this way, the Report seeks to align Ireland’s tax regime with evolving international standards for corporate income tax regimes while preserving Ireland’s relative competitive position as an attractive location for business.
Other Report recommendations on areas for possible changes include broadening the scope of Ireland’s transfer pricing regime, changes to the tax regime for intangible assets, the introduction of a controlled foreign company regime, and changes to the exit tax regime.
The Report recommends that the transfer pricing rules should be updated to apply the 2017 OECD Transfer Pricing Guidelines (the legislation currently applies the 2010 guidelines). It also recommends that a number of other changes should be considered, including:
An extension of Ireland’s transfer pricing rules to non-trading transactions will likely have significant consequences for business in Ireland, in respect of both domestic and internationally focussed companies, particularly those engaged in intra-group financing. The public consultation announced by the minister on Budget Day includes a review of Ireland’s transfer pricing regime. Given the potentially significant impact which the recommendations in the Report could have if implemented, it will be important to monitor the impact of potential future changes. In evaluating how you might be impacted, you should consider the following areas:
The Report outlines the reliefs under Ireland’s Research and Development Tax Credit (R&D Tax Credit) and Knowledge Development Box (KDB) regimes and does not make any recommendations for changes to these. Its recommendations for changes to Ireland’s capital allowances regime for intangible assets are confined to reintroducing a cap on the deductibility of allowances and related interest expense – it does not recommend any changes to either the rate of claim or the scope of eligible expenditure for capital allowances on intangible assets. The cap on deductibility of allowances and related interest expense is recommended to be set at 80 percent of trading profits from specified intangible assets (which are those intangible assets eligible for capital allowances relief).
In his Budget speech the minister announced that this recommendation will be implemented with effect from midnight on Budget Day (and, consequently this does not form part of the public consultation). Whilst this change will likely slow down the use of allowances (depending on the profitability of the claimant), it is important to note that the total amount of qualifying expenditure will remain fully deductible, albeit the deductible amount may be capped in certain years, but available for deduction in future periods.
The recommendation to update existing transfer pricing legislation to reflect the 2017 OECD Guidelines will also affect businesses with intensive investment in intangible assets. The 2017 OECD Guidelines on pricing of intangible assets are focussed on attributing profits to the value added by functions related to the development, enhancement, management, protection and exploitation (DEMPE) of the intangibles.
In evaluating how you might be impacted by these possible changes, you should consider the following areas:
KPMG is actively engaged in debates on tax policy matters in Ireland and will continue to proactively engage in the consultation process to represent the views of business across all sectors in Ireland. Given the significance of the potential changes to Ireland’s corporation tax code that lie ahead and the impact they will have on business in Ireland, it is imperative that the voice of business is heard during the consultation process.
The consultation period in relation to the Review of Ireland’s Corporation Tax Code will run from 10 October 2017 to 30 January 2018. For more insights on Irish tax policy matters as they emerge, and importantly, to have your voice heard in the consultation on these changes, please get in touch with your usual KPMG contact or any member of your KPMG tax team.