For Ireland, the OECD BEPS project would ideally end with the country’s tax regime perceived as meeting the standards for substance and transparency but keeping its reputation as a low-tax jurisdiction that encourages foreign direct investment (FDI). This should not present a challenge for Irish tax policymakers as the country’s tax policy is already largely in step with the anti-BEPS proposals.
Following a public consultation on BEPS, the Minister of Finance addressed a number of BEPS related matters in a tax strategy document subtitled A Roadmap for Ireland’s Tax Competitiveness, released in tandem with the country’s October 2014 budget.
The policy document declares that Ireland’s 12.5 percent corporation tax rate “should not and will not change… Ireland remains 100 percent committed to the 12.5 percent corporate tax rate. This will not change.”1 This strong statement signals Ireland’s desire to remain competitive internationally in the race for foreign investment by 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, which explicitly states the goal of maintaining an open and transparent tax regime.
While the Irish public is keenly interested in the media coverage of some high-profile cases, they are also aware of the importance of FDI to a small economy such as Ireland’s. As a result, politicians have been able to take a measured approach to reform, knowing that this stance will not cost them at the polls.
Because of the successful retention of business-friendly tax policies, Ireland’s tax regime has attracted its share of scrutiny. Mindful of potential reputational damage, the Irish tax authorities have become more cautious in their engagement with individual taxpayers and continue to be conscious of the need to show evidence of transparency and fairness in their dealings with companies.
Reputational concerns were also at the heart of a 2014 legislative amendment to prevent Irish incorporated companies from being managed into ’statelessness’ and therefore not taxable anywhere. Notably, the amendment was enacted well before the BEPS project’s conclusion.
The government is sensitive to the potential for unintended exploitation of its tax system, and the structure of its corporate tax regime is generally aligned with the anti-BEPS efforts of the OECD. This has been the case for several years now. Ireland’s 12.5 percent corporate tax rate applies only to active trading income, whereas passive non-trading income is taxed at 25 percent. Ireland has had a mandatory reporting regime related to tax planning transactions with certain hallmarks for a number of years.
On other matters related to the tax regime, the authorities are awaiting the final outcome of the BEPS-related reform process to determine their next steps. The desire to remain competitive as a tax jurisdiction is likely to inform any proposed changes.
Ireland stands to benefit as other jurisdictions seek to tighten their requirements for counterparty jurisdictions to have substance and to subject companies to tax. Companies that do not already have a substantial overseas presence may seek a low-tax jurisdiction such as Ireland in which to establish a home base.
Following consultations and a feedback statement2 released in 2015 on the introduction of a patent box – referred to as the ‘Knowledge Development Box’ (KDB) Ireland announced plans to introduce legislation in its 2015 budget for a KDB that meets the OECD’s substance requirements under the modified nexus approach endorsed by the OECD and the EU.
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 available only to persons who are tax-resident in the EU or in countries with which Ireland has entered into tax treaties.
Like other EU member states, Ireland has introduced new place-of-supply rules for VAT purposes for digital supplies. The rules took effect from 1 January 2015 and apply VAT to supplies at the rate in force in the country of the consumer.
Irish domestic law already limits opportunities for specific hybrid structures. Legislative provisions broadly require that the income from such arrangements is 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.
The Irish Department of Finance views the stance of the BEPS project on alignment issues as an opportunity. If the BEPS project is successful, Ireland may become a ‘hub for the centralization of international business’.3 The department recognizes that mismatches arising within the current international tax framework can only be resolved multilaterally.
Many view CbyC reporting as an effective deterrent to profit shifting. Ireland is an early adopter of the OECD’s Common Reporting Standard (CRS) for the automatic exchange of financial account information.
Ireland was one of the first jurisdictions to sign an intergovernmental agreement with the United States under the US Foreign Account Tax Compliance Act (FATCA).Ireland has generally supported measures for the cross-border sharing of tax information and has stated its support of the OECD’s CbyC reporting proposals.4
Changes to tax law are most assuredly coming, and while the nature ofthose changes remains uncertain, the level of complexity is bound torise – not only in Ireland but also in other jurisdictions. Despite this, Ireland's 12.5 percent rate of corporation tax regime promises to be well aligned with BEPS proposals and is underpinned by a government policy that is intent on retaining the stability and certainty of Ireland's tax regime.
1Ireland, Department of Finance, Competing in a Changing World: A Roadmap for Ireland's Tax Competitiveness, pages 1 and 8.
2Ireland, Department of Finance, The Knowledge Development Box: Feedback statement, 30 July 2015.
3Ireland, Department of Finance, OECD Base Erosion and Profit Shifting Project in an Irish Context, Public Consultation paper (May 2014), page 4.
4Ireland, Department of Finance, Competing in a Changing World: A Roadmap for Ireland’s Tax Competitiveness, page 10.