Ireland - Response to BEPS

Ireland - Response to BEPS

For Ireland, the implementation phase of the OECD BEPS project would end ideally with the country’s tax regime seen as meeting the standards for substance and transparency while maintaining the country’s reputation as a low-tax jurisdiction that encourages foreign direct investment (FDI). The first part of this goal should not challenge Irish tax policy makers as the country’s tax policy is already largely in step with anti-BEPS proposals. But when it comes to attracting and retaining mobile FDI, Ireland faces ever more international competition.

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Ireland’s October 2015 tax policy statement, issued after the final OECD BEPS reports were released, declares that “the 12.5 percent rate remains the cornerstone of Ireland’s corporate tax strategy⁵."

This strong statement signals Ireland’s desire to remain competitive internationally while maintaining its low-tax status. At the same time, the Department of Finance is keen to ensure that Ireland is not viewed as a tax haven. Substance and transparency are vital to the country’s corporate tax policy. The policy explicitly aims to preserve an open, transparent regime so Ireland can maintain its relationships with key trading partners while providing more certainty to taxpayers in Ireland.

While the Irish public is keenly interested in media coverage of some high-profile tax avoidance cases, they are also aware of the importance of FDI to a small economy such as Ireland’s. As a result, Irish politicians have been able to take a measured approach to tax reform, knowing that such a stance will not cost them at the polls.

Tax competitiveness

The Irish government is sensitive to the potential for unintended exploitation of its tax system. Ireland’s corporate tax regime is generally structured in line with the anti-BEPS efforts of the OECD and the EU.

Ireland’s 12.5 percent corporate tax rate applies only to active trading income whereas passive non-trading income is taxed at a rate of 25 percent. Ireland has had both a mandatory reporting regime for tax planning transactions with certain hallmarks and a GAAR for a number of years.

Unilateral BEPS actions to date

Ireland has committed to and was an early adopter of minimum standard recommendations from the OECD BEPS project. For example:

  • CbyC reporting legislation was enacted in Ireland’s Finance Act 2015, supported by regulations issued inDecember 2015. These measures apply to accounting periods beginning on or after 1 January 2016.
  • In a policy statement issued in October 2015, Ireland reaffirmed its commitment to the minimum standard ondispute resolution and other processes under mutual agreement procedures (MAP). Ireland is one of more than 20 countries participating in the OECD working group todevelop a mandatory binding arbitration mechanism inorder to improve dispute resolution mechanisms available under tax treaties.
  • Ireland is participating in the work to develop a multilateral instrument for adopting tax treaty–based measures into bilateral tax treaty networks. Given the importance of international trade flows to its economy, Ireland is seeking to balance the introduction of moreanti-abuse measures in its tax treaties against the preservation of certainty of access to tax treaty benefits for Irish tax residents.
  • Ireland was one of the first jurisdictions to sign an inter-governmental agreement with the United States under the US Foreign Account Tax Compliance Act (FATCA). Ireland generally supports measures for the automatic cross-border sharing of tax information, introducing guidelines implementing the OECD guidelines automatic information exchange taking effect 1 April 2016 and the EU directive on automatic sharing of tax rulings taking effect 1 January 2017.

Patent box

Following public consultations in 2015, Ireland introduced in Finance Act 2015 a new patent box that aligns with the modified nexus approach endorsed by the OECD and the EU. Ireland’s Knowledge Development Box offers a 6.25 percent rate of corporation tax on qualifying income. This should work together with Ireland’s attractive 25 percent research and development (R&D) tax credit regime to encourage R&D and innovation activity in Ireland.

Anti-haven rules

Ireland does not have specific anti-haven provisions, but various relief measures in Irish tax law (e.g. relief from source country withholding taxes) are only available to tax residents of the EU and Ireland’s tax treaty partners.

Digital economy

Like other EU member states, Ireland has introduced new place-of-supply rules for value-added tax (VAT) purposes for digital supplies. The rules took effect 1 January 2015 and apply VAT to supplies at the rate in force in the country of the consumer.

EU Anti-Tax Avoidance Directive

In its negotiations on the EU ATA Directive, Ireland’s Minister for Finance “sought to ensure that Ireland’s sovereignty and tax rates were fully protected and that anti-avoidance measures would not impact on genuine investment in Ireland⁶.”

Ireland is expected to transpose the following requirements of the ATA Directive:

  • Controlled foreign company regime: Ireland does not currently have a CFC regime.
  • Anti-hybrid mis-match measures: Irish domestic law already limits opportunities for specific hybrid structures. Legislative provisions broadly require that the income from such arrangements be taxable to the lender in order to ensure that certain interest payments remain tax deductible as interest, rather than being characterized as non-deductible dividends or distributions for Irish tax purposes.
  • GAAR: Ireland must consider whether its long-standing current GAAR meets the ATA Directive's minimum standard.
  • Exit tax: Ireland’s current exit tax regime potentially applies where an Irish resident company ceases to be resident in Ireland and assets cease to be subject to Irish tax. However, the regime does not apply where an existing Irish resident company ceases to be resident but is ultimately at least 90 percent controlled by persons resident in jurisdictions having tax treaties with Ireland. A new exit tax is expected to be introduced in 2020.

Ireland’s Minister for Finance commented that the interest limitation rules in the ATA Directive “are deferred until 2024 for countries, like Ireland, that already have strong targeted rules7.” This suggests that, pending a detailed review of its interest deduction regime, Ireland probably will defer introduction of the ATA Directive interest limitation rule, which is aligned with the best practice recommendations in Action 4 of the OECD BEPS project.

Impact on businesses

Changes to tax law are most assuredly coming. While the details of those changes remain uncertain, the level of complexity is bound to rise not only in Ireland but also in other jurisdictions. One certainty is that Ireland’s 12.5 percent corporation tax regime promises to remain a constant.

Footnotes

⁵Department of Finance. Update on Ireland’s International Tax Strategy. October 2015, p.7.

⁶and⁷ Department of Finance press release. Minister Noonan welcomes agreement on the Anti-Tax Avoidance Directive. 22 June 2016.

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