The BEPS Project
Minister for Finance makes announcement on the Double Irish
On 14 October 2014, Minister for Finance Michael Noonan presented Budget 2015. The Minister reaffirmed the Government’s commitment to the 12.5% corporate tax rate as settled tax policy and outlined measures towards providing a competitive tax environment for multinationals to operate in Ireland.
In order to assure international investors of Ireland’s commitment to and focus on tax competitiveness, the Minister announced the BEPS consultation process in May 2014 which aimed to gather views on how Ireland’s tax system may need to change in response to the rapidly changing international tax landscape. The consultation process focused on three key elements: rate, regime and reputation. The Government has taken on board the feedback provided by the various groups and the BEPS papers released on 16 September 2014 and has outlined a roadmap on tax policy and measures to enhance Ireland’s intellectual property regime and underpin the Government’s commitment to making Ireland a destination for the best and most successful companies in the world.
In a widely anticipated move, the “Double Irish” structure will be abolished effective from 1 January 2015 and a broad range of measures have been announced in order to provide a competitive alternative to the Double Irish regime. The key measures announced as part of Budget 2015 include:
- The Double Irish structure will no longer be available to multinationals establishing such structures from 1 January 2015
- Grandfathering period of six years up to 31 December 2020 will be available for multinationals that have a Double Irish structure in place on or before 31 December 2014
- Introduction of a Knowledge Development Box, similar to other IP and Patent Box regimes across the EU in Finance Act 2016 or earlier if the outcome of EU / OECD review is known
- Enhancement of the current R&D regime in Ireland, most notably the abolishment of the base year expenditure threshold which will allow companies to achieve larger tax credit benefits and starting from 1 January 2015
- Significant enhancement to the current onshore IP regime in Ireland with no minimum corporate tax level
- Enhancement of existing Special Assignee Relief Program (SARP).
The Minister has published reports focusing on the importance of tax on investment location decisions. It recognises that multinationals, as part of their responsibilities to shareholders and to the capital markets, focus on effective tax rates which drive location decisions. In acknowledging the tax environment and that tax is recognised as playing a key role in all developed economies on location decisions, the Minister is recognising the need to balance the BEPS process with corporates’ and countries’ own requirements.
Double Irish structure
The structure has gained widespread international media attention in recent years with a number of high profile cases garnering unprecedented scrutiny from the OECD, the US and a number of European countries. The structure exploits different tax rules, particularly in the context of the US and Irish tax law.
To address the reputational concerns arising from the intense focus of the Double Irish structure, the Minister has announced that with effect from 1 January 2015, no new structures will be in a position to avail of the Double Irish regime. A grandfathering period of six years has been announced for structures in existence as at 31 December 2014. This grandfathering period will allow companies to continue to avail of the existing Double Irish regime and its benefits up to 31 December 2020 and also provides companies with a timeline to explore alternative beneficial IP structures.
Introduction of an Irish Knowledge Development Box regime
As discussed above, the Minister has also announced details of a Patent / Innovation Box regime as part of the package. The proposed new regime aims to complement the existing onshore regime and attract new inward investment and provides a strong commitment to the international community in relation to the Government’s foreign direct investment policy. Although the information contained within the Minister’s statement is relatively light on detail, he noted the regime will be best in class and similar to existing Patent / Innovation Box regimes, with a low and sustainable Irish corporate tax rate.
The UK regime, along with several other IP regimes across various EU States, is currently the subject of discussions and a review under the EU’s Business Code of Conduct Group, the outcome of which is expected by the end of 2014. This will facilitate securing EU approval for the Irish Patent / Innovation Box regime.
European IP regimes
It should be noted that the Patent/ Innovation Box regime proposed above is not out of the ordinary in the context of international tax competitiveness within the EU and further afield. Indeed, there is a large number of countries within the EU who have all implemented IP and Patent Box regimes with the goal of decreasing effective tax rates on intellectual property profits and increasing their countries’ competitiveness as a tax location. The following countries have all implemented a wide range of IP regimes, which vary in their terms and effective tax rates on offer, but all convey a significant advantage to multinational companies who look to invest in those countries:
Belgium France Spain
Hungary Luxembourg Malta
Netherlands Switzerland UK
In addition to the regimes noted above, it is interesting to note that on 22 September 2014, the Swiss Federal Government published draft legislation on corporate tax reform, effective from 1 January 2019, the main objective of which is to enhance Switzerland’s attractiveness as location for multinational companies.
The various regimes highlighted indicate the level of increased tax competition for IP intensive industries and the introduction of an an Irish Patent / Innovation Box will allow Ireland to compete for such business.
Enhancement to the current onshore IP regime
The removal of the minimum corporate tax is very welcome as while there has been some use of this regime by life sciences and tech companies, it has been perceived as overly complex. The extension of the scope of the IP regime to include customer lists broadens the definition of IP on which relief can be granted and again improves the attractiveness of this regime.
Enhancement of Special Assignee Relief Programme (SARP)
The Minister announced that he will be making improvements to the SARP regime, the details of which will be included in the Finance Bill to be published on the 23rd of October 2014. The announcement is to be welcomed as an effective regime to attract talent to Ireland
The key changes are the removal of the upper salary threshold (previously €500,000) and the reduction in the requirement to be employed abroad prior to arrival to 6 months.
The measures announced enhance Ireland’s competitiveness in attracting mobile employees and are welcome particularly at a time where the focus of the BEPS project is aligning substance with taxing rights and key people functions.