The Update takes stock of the changing international tax environment, outlines the significant actions Ireland has taken to date and the further actions that will be taken over the coming years.
The Update outlines further actions that Ireland will be taking as part of international tax reform efforts, including commitments to:
- Implement Interest Limitation Rules in accordance with the ATAD standard;
- Legislate for new International tax transparency rules for digital platforms;
- Legislate for reverse hybrids aspect of ATAD anti-hybrid rules;
- Adopt the Authorised OECD Approach for transfer pricing of branches;
- Consider actions that may be needed in respect of outbound payments from Ireland and our wider withholding tax regime;
- Strengthen our domestic stakeholder engagement process.
The Update is being published in the context of discussions at International level on the reform of the International Tax Framework which are expected to come to a conclusion in mid-2021.
Publishing the Roadmap Update today, Minister Donohoe said: ‘I am delighted to publish this Update which sets out a direction of travel for corporation tax reform over the coming years. The Update highlights the significant actions that Ireland has taken and the actions we will continue to take to ensure that our corporation tax regime is competitive, fair and sustainable’.
“It is vital to have a consensus-based, globally agreed approach to international tax. Tax rules need to continue to evolve to match the modern world, and that evolution can best take place through international agreement at appropriate institutions such as the OECD. Ireland will continue to foster economic activity in Ireland, the EU and beyond by adapting and evolving our corporate tax regime while maintaining our key 12.5% rate. This Update to the Roadmap demonstrates the Government’s commitment to continuing the significant progress already made to strengthen and modernise Ireland’s corporation tax system now and in the years to come.’
Ireland’s Corporation Tax Roadmap January 2021 Update
The Roadmap outlines the range of commitments for 2021 and 2022:
Existing Commitments to Further Action
Introduce ATAD-compliant interest limitation rules
The publication of an initial Feedback Statement in December 2020 will be followed by an iterative consultation and feedback process in early 2021, with transposition in Finance Bill 2021.
2. Legislate for reverse hybrids aspect of ATAD anti-hybrid rules
Publication of a Consultation Paper in Q1 2021 followed by a Feedback Statement by mid-2021, with legislation to be introduced in Finance Bill 2021 to be effective from January 2022.
Consultation on possibility of moving to a territorial regime
A consultation on this issue will be launched in 2021. Any subsequent policy actions will take account of the outcome of the ongoing international discussions on international tax matters.
Progress the International Mutual Assistance Bill
Bill to be published in the coming weeks, and to begin progression through the Oireachtas early 2021.
Apply defensive measures in CFC regime to countries on EU Member States’ list of non-cooperative jurisdictions
Finance Act 2020 will provide that Ireland’s CFC rules apply more stringently to companies with subsidiaries operating in jurisdictions that remain on the EU list.
Further Commitments to Action, Consideration and Consultation
Consider additional defensive measures re countries on EU list of non-cooperative jurisdictions
In 2021 consideration will be given to introducing additional restrictive measures, if required, including denial of tax deductions or imposition of withholding taxes where material payments are made from Ireland to listed jurisdictions.
Consider actions that may be needed in respect of outbound payments
In 2021, commence a consideration of broader issues related to outbound payments from Ireland and our wider withholding tax regime.
Adopt the Authorised OECD Approach for transfer pricing of branches
Extend transfer pricing rules to the taxation of branches in Ireland in line with the Authorised OECD Approach. Work will commence in early 2021 on this policy and it is intended to bring forward the necessary legislation in Finance Bill 2021.
Continue to meet international best practices on exchange of information and support efforts to enhance information exchange
Ireland is, and will continue to be, at the forefront of developing and implementing the latest standards for exchange of information among tax authorities.
Proactively respond to the outcomes of international reform efforts
As the future direction of the global tax framework becomes clearer, the Department will continue to take a proactive, consultative approach in ensuring Ireland’s corporation tax system is well-placed for the changing environment.
Publish a tax treaty policy statement taking account of International developments
New tax treaty policy statement having particular regard to treaty policy for developing countries.
Continued engagement in international fora and develop a new framework for domestic stakeholder engagement
New domestic stakeholder engagement process to be established in 2021.
The key actions that have been taken by Ireland over the last seven years are:
- Changes were made to Ireland’s corporate tax residence rules in Finance (No.2) Act 2013 to prevent Irish incorporated companies from being stateless for tax purposes, and in Finance Act 2014 to shut down known structures (such as the so-called ‘Double Irish’) which were designed to exploit gaps in US tax rules.
- Ireland has continuously made changes to ensure we are constantly up to date with best practice on tax transparency and exchange of information. Of the 78 jurisdictions reviewed to date, Ireland is one of only a small number of jurisdictions to have been found to be fully compliant with new international best practice by the Global Forum on Transparency and Exchange of Information for Tax Purposes.
- Ireland commissioned and published in 2015 a Spillover Analysis, carried out by the independent International Bureau of Fiscal Documentation (IBFD), to examine the impact of our corporation tax regime on developing countries.
- Ireland introduced Country by Country Reporting in Finance Act 2015 and subsequently agreed a Directive (DAC4) to ensure a consistent approach on CbCR across the EU.
- Ireland agreed and has fully implemented an EU Directive (DAC 3) to provide for the automatic exchange of information on advance cross-border tax rulings and advance pricing arrangements among all Member States. Ireland is also fully compliant with the BEPS Action 5 requirements on exchange of taxpayer information in this regard.
- Ireland agreed an EU Directive (DAC5) in 2016 to ensure access for tax administrations to information about beneficial owners of companies and other information held for anti-money laundering purposes. Ireland has made Regulations to ensure Revenue can access and exchange information on beneficial ownership of companies.
- Ireland was among the group of countries to sign the BEPS multilateral instrument at the first possible opportunity in 2017. Ireland ratified and deposited our Instrument of Ratification with the OECD on 15 January 2019. The MLI is now in force to ensure that our tax treaty network is compliant with the BEPS standards.
- Ireland agreed two Anti-Tax Avoidance Directives (ATADs) with our fellow EU Member States in 2016 and 2017 and has made significant progress on transposition.
- Ireland commissioned an independent expert, Mr. Seamus Coffey, to carry out a thorough review of our Corporation Tax Code and to make recommendations for any reforms that may be needed. This review was published in September 2017.
- Ireland agreed in October 2017 the Directive on Dispute Resolution Mechanisms to extend the availability of arbitration when two Member States disagree on how, and where, a taxpayer should be taxed. This Directive has now been implemented by Ireland.
- Ireland agreed the first ever EU list of non-cooperative tax jurisdictions with our fellow Member States in December 2017. The list has been successful in encouraging third countries to commit to implementing international tax best practices.
- Ireland agreed an EU Directive (DAC6) in 2018 to introduce a common mandatory reporting regime for tax advisers and companies where transactions are entered into that meet certain hallmarks in 2018. The Directive was transposed in Finance Act 2019, however implementation was delayed across the EU until January 2021 due to COVID-19, a with a look back period to June 2018. Ireland was one of only three EU Member States to already have a mandatory disclosure regime in place prior to agreement of the Directive.
- Ireland introduced ATAD-compliant Controlled Foreign Company rules in Finance Act 2018. These anti-abuse rules deter the diversion of profits from controlling companies in the State to offshore subsidiaries.
- Ireland introduced an ATAD-compliant Exit Tax in Finance Act 2018. This applies a charge to tax on certain unrealised gains where a company migrates residence or transfers assets offshore such that they leave the scope of Irish tax.
- In 2019 Ireland notified that our long-standing General Anti-Abuse Rule (GAAR) already met the required standard under ATAD.
- The Revenue Commissioners entered into a Competent Authority Agreement with the Maltese tax authorities to shut down the structure known as the ‘Single Malt’.
- ATAD-compliant anti-hybrid rules were introduced in Finance Act 2019. These rules prevent arrangements that exploit differences in the tax treatment of a financial instrument or an entity under the tax laws of two or more jurisdictions to generate a tax advantage; referred to as a mismatch outcome.
- Ireland’s transfer pricing rules were comprehensively reformed in Finance Act 2019 to bring them into line with best international practice.
- Revisions to Ireland’s capital allowances for intellectual property were introduced in Budget 2021, with effect from 14 October 2020, to ensure such assets are fully within balancing charge rules in line with international best practice for such reliefs in other jurisdictions.
- Finance Act 2020 introduced certain legislative defensive measures which will provide that Ireland’s Controlled Foreign Company rules apply more strictly to companies with subsidiaries operating in jurisdictions that remain on the EU list of non-cooperative tax jurisdictions.