An overview of Ireland's tax strategy in the wake of Budget 2018.
The previous Minister for Finance published Ireland’s International Tax Strategy in conjunction with his Budget 2014 speech. His successor published an update on the strategy with Budget 2018.
Importantly, the minister reaffirmed Ireland’s commitment to the 12.5% rate of corporation tax. He also confirmed that Ireland will continue to take the actions needed to meet the highest international standards in tax, while offering a competitive tax regime that assists in building the Irish economy. The key areas addressed in the update are summarised below.
Ireland is committed to the OECD Base Erosion and Profit Shifting (BEPS) global tax reform process and has already taken a number of steps towards implementing the BEPS recommendations. In addition, in 2016 the Government commissioned an independent review of Ireland’s corporation tax system which was conducted by Seamus Coffey and was recently published. As discussed in our article “Consultation on Ireland’s Corporation Tax Code”, the Coffey report sets out a roadmap for Ireland to follow in bringing certainty to the implementation of the remaining BEPS recommendations.
Ireland was among the first countries to implement Country-by-Country Reporting which requires large multinational groups to disclose details of their profits and other key data on a country-by-country basis. The first Country-by-Country Reports will be filed with the Irish Revenue this year and will be exchanged with the tax authorities in all relevant countries.
The Irish Knowledge Development Box (KDB) provides for profits from certain intangible assets to be taxed at a lower rate of corporation tax of 6.25%. The KDB was assessed by the EU and the OECD and found to be the first such regime to be fully compliant with the new international standards for patent boxes. Budget 2018 Ireland was also among the first countries to sign the OECD BEPS multilateral instrument (MLI) in June. This MLI will provide the mechanism for tax treaties to be automatically updated to reflect a number of important BEPS recommendations without the need for countries to engage in separate bilateral negotiations. Ireland will seek to ratify the MLI, with the first steps in this process being taken in next week’s Finance Bill.
Work at the OECD continues on how tax systems should reflect the increasing digitalisation of the economy. Ireland is actively participating in this work through the Task Force on the Digital Economy. An OECD report on this matter is due to be published in the early part of 2018.
The update to the International Tax Strategy addresses the Government’s position in relation to the EU tax policy agenda and confirms that Ireland will continue to engage with EU tax proposals.
Ireland has actively engaged in the EU initiatives to ensure the consistent and strong implementation of OECD BEPS recommendations across the EU. The Second Anti-Tax Avoidance Directive was agreed by EU Member States earlier this year. This Directive significantly strengthened anti-avoidance provisions to target hybrid mismatches (e.g. tax reductions resulting from differing the treatments in different jurisdictions) and brings EU law more closely in line with the BEPS recommendations.
Work is already underway to fully transpose the fifth iteration of the Directive on Administrative Cooperation (DAC5) into Irish law. DAC5 will ensure that tax authorities are given access to relevant information prepared by financial institutions as part of their anti-money laundering requirements. Ireland is also engaging in discussions on DAC6 which would impose a requirement on tax advisers and companies to disclose tax planning arrangements that meet certain hallmarks that are indicative of aggressive tax planning. Ireland is one of the three EU Member States that already has mandatory disclosure rules in place.
The tax strategy update confirms that Ireland will implement the Directive on Dispute Resolution Mechanisms by June 2019. This Directive extends the availability of arbitration in cases where two Member States disagree on how, and where, a taxpayer should be taxed.
Member States are also actively discussing the taxation of digital business. Ireland has emphasised the need to wait for the outcome of the work of the OECD Task Force on the Digital Economy before moving ahead with EU measures.
The update to the International Tax Strategy states that discussions continue on the common tax base aspect of the Consolidated Common Corporate Tax Base (CCCTB) proposal. However, the update reiterates that Ireland will continue to insist that all tax measures at EU level require unanimity before they can be agreed, reflecting the fact that tax is a key Member State competence.
The tax strategy update also emphasises that Ireland remains a leading supporter of international efforts to increase tax transparency. The Irish Government has committed to the highest international standards in transparency in the taxation of the corporate sector with a view to tackling the global problems of tax avoidance and aggressive tax planning.
Ireland’s strong record in this area, including its strong support of the various DAC iterations, has been recognised by the Global Forum on Transparency and Exchange of Information for Tax Purposes, which awarded Ireland the highest possible rating following a second peer review which assessed Ireland’s compliance with international standards for the exchange of information between tax authorities.
The update also reaffirms Ireland’s commitment to constructive and respectful engagement with developing countries in relation to tax matters. Ireland has signed up for the Addis Tax Initiative and is an active participant in the EU Platform for Good Tax Governance.