Ireland launches BEPS consultation process and Deloitte’s response
On May 28th the Minister for Finance launched a BEPS consultation process. Ireland has played a very active role in the OECD BEPS initiative to date. The purpose of the consultation process is to gather views on how Ireland’s tax system might need to change in response to a changing international tax landscape.
OECD BEPS Project in an Irish context
Deloitte Ireland submission
The Irish government has been very pro-active in setting out its tax agenda in the context of the current international tax debate through the publication of the document in Autumn 2013, titled Ireland’s International Tax Strategy, which focused on rate, regime and reputation (the 3 Rs). Since that time, the debate has intensified in a number of areas, with many countries asserting their own views either verbally and/or through unilateral legislative action on issues that align to various Actions in BEPS, with a view to protecting and enhancing their own tax base.
In response to the Irish government's current consultation process on BEPS, our submission made on 22 July 2014 is available here.
Deloitte related material
Ireland’s corporate tax strategy – The three “R’s”
In October 2013, the Irish Government published their International Tax Strategy Statement containing a set of policy objectives and commitments as to how Ireland will deal with international corporate tax policy issues.
The three key factors in Ireland’s strategy to attract inbound investment are re-emphasised in the BEPS consultation paper:
1. Rate: There is 100% commitment to retaining the 12.5% corporation tax rate.
2. Regime: Ireland’s tax policy is “playing fair but playing to win”. Ireland is evaluating the competitiveness of its overall corporate tax regime on an on-going basis as it recognizes that countries are increasingly competing for mobile foreign direct investment.
3. Reputation: The BEPS process as well as other international developments has placed an increased focus on a number of international tax structures. It is recognized that tax reputation is also a key factor in winning mobile foreign direct investment. As part of the process of maintaining and enhancing Ireland’s tax reputation, Finance (No 2) Act 2013, introduced changes to ensure that Irish incorporated/registered companies cannot be ‘stateless’ in terms of their place of tax residency.
Budget 2015 will be announced in October 2014. As part of the Budget 2015 preparations, the Minister is examining ways in which the Irish tax regime’s competitiveness is enhanced and Ireland’s reputation is protected. It is acknowledged that a public consultation on the potential implications of the BEPS project in an Irish context is considered necessary as the tax system may need to change in response to a changing international tax landscape.
In particular, the consultation process seeks views on the following issues:
1. The BEPS action plan, including the following 2014 Actions:
- Treaty anti-abuse provisions
- Country-by-country reporting
- Hybrid mismatch arrangements
- Preferential regimes (e.g. patent box for intellectual property income) and substance requirements
2. Other BEPS actions
3. Company residence rules for the 21st century
4. Digital economy
Ireland recognizes that one of the goals of BEPS is to ensure that taxation rights are better aligned with real economic activities. This in turn presents opportunities for Ireland as an onshore location for international business operations. Ireland is well placed to take advantage of these opportunities due to the availability of skilled talent and Ireland’s much improved competitiveness in recent years. Recent surveys include:
- The IMD World Competitiveness Yearbook 2014 shows that Ireland has moved up nine places in overall competitiveness over the last four years (now 15th in the world). Ireland achieved top ranking position in a number of important sub factors as follows:-
· 1st for availability of skilled labour
· 1st for flexibility and adaptability of workforce
· 1st for attitudes to globalisation
· 1st for investment incentives
- Site Selection Magazine announced in May 2014 that Ireland is the Best Country in Western Europe to Invest in.
- Ireland heads Forbes’ December 2013 list of the Best Countries for Business.
Clearly Ireland can support substance based activities. The merits of substance based regimes are being debated at EU level and indeed the EU is currently undertaking a review of European IP regimes. The issue arises as to whether such regimes should be activity/substance focused or expenditure focused. Ireland wishes to ensure that its IP tax regime in the future adheres to best practices that result from the EU review due in June 2014. In addition, the Minister is seeking views on how such a regime should apply in an Irish context to ensure that Ireland is competitive in a global marketplace into the future.
One consequence of the alignment of taxation rights with economic activity is a review of the appropriateness of Ireland’s company residence rules. Any changes to the existing residence rules would most likely impact commonly used IP holding structures such as the Irish incorporated non-resident or ‘Double Irish’ structures. Any such changes for existing structures are likely to arise after a substantial grandfathering period. Typically a grandfathering period, should any such changes arise, provides certainty to companies in the medium term and allows companies sufficient time to alter their structures/assess alternative Irish centred IP regimes, as necessary. Clearly the fact that the structure of a new IP regime would be known during that time would facilitate decision-making.
The consultation period runs to 22 July 2014. The outcome of this consultation process will feed into Budget 2015, which is expected to be published on 14 October 2014.
In a changing international tax environment, it is welcome that the Minister is seeking feedback from interested parties on changes that may be necessary to enhance Ireland’s competitiveness for global multinationals in a post BEPS environment.
Other related material
- OECD BEPS action plan
- OECD report - addressing Base Erosion and Profit Shifting
- Deloitte BEPS alert: Deliverables on track for September G20 review and approval
BEPS action 1:
- BEPS action 1: Address the tax challenge of the digital economy
- BEPS action 1: Comments on behalf of Deloitte
- BEPS action 1: Public comments
- BEPS action 1: European Commission report press release
BEPS action 2:
- BEPS action 2: Hybrid mismatch arrangements: Tax policy and compliance issues
- BEPS action 2: Comments on behalf of Deloitte
- BEPS action 2: Deloitte UK DBrief
BEPS action 6:
- BEPS action 6: Preventing the granting of treaty benefits in inappropriate circumstances
- BEPS action 6: Comments on behalf of Deloitte
- BEPS action 6: Deloitte UK DBrief
BEPS action 7:
BEPS action 8:
- BEPS action 8: Revised Discussion Draft on Transfer Pricing Aspect of Intangibles
- BEPS action 8: Comments on behalf of Deloitte
BEPS action 13:
- BEPS action 13: Discussion Draft on Transfer Pricing Documentation and CbC Reporting
- BEPS action 13: Comments on behalf of Deloitte
- BEPS action 13: Comments on behalf of Deloitte
- BEPS action 13: Comments