Ireland Inc. and Foreign Direct Investment
The Minister launched an update on Ireland’s International Tax Strategy and formally announced that consultation on the recently published ‘Coffey report’ on the Corporate Tax Code opens today, until 30 January 2018. He has listed the areas for consultation ranging from transfer pricing to financing and a territorial system of corporate tax.
This is an opportunity for companies and interested parties to engage with the Department on their views and recommendations.
The Minister has reiterated that the 12.5% corporate tax rate is competitive and core to the Irish tax system. He has also focused on the fact that tax is a member state competence and that each country has equal right on decisions on tax issues. This is particularly pertinent given the current discussion on tax decisions moving from being a state competence to being subject to a form of qualified majority voting at EU level.
The detail in the budget statement is confined to a reintroduction of the minimum corporate tax of 20% on IP profits where IP amortisation and related interest is claimed against IP income. This is effective for IP purchased from midnight tonight. The change recognises the level of IP purchased over the last five years and more particularly over the last two years. In practice, it is a timing difference to smooth the relief and ensure a level of tax receipts from the IP profits over the period of amortisation.
The other significant detail to note is that Ireland has informed the EU Commission that, as in their view Ireland’s existing interest deduction rules are at least equally effective to the rules contained in the EU ATAD, Ireland will avail of the derogation and are thus not required to implement the new rules on interest caps until 1 January 2024.
The wider legislative agenda and timetable for implementation driven by the OECD and the EU which is dealt with in the ‘Coffey report’ is the backdrop for discussion and form of implementation over the next 6 to 9 months. Decisions made after consultation concludes in late January 2018 will frame the Budget 2019 and are likely to be of considerable importance in the future design of the corporation tax code.
Since Mr Coffey finished his report at the end of June, issues such as recent US Tax reform proposals, digital tax proposed by EU states in the EU and a proposal to remove tax as a country competence have come to the fore.
The Minister has today commented that he believes that a global solution is required to address digital tax issues. There is ongoing consultation at OECD level on digital tax with the OECD due to report in spring 2018.
Multinationals are currently assessing the implications from the OECD, EU and countries’ own unilateral measures together with their advisors. The challenge is in part fact specific to their own group, and depends on their industry sector, their scale of operations across the continents, their customer base and their need to change as a result of the various measures to be introduced over the next 5 years under OECD and EU tax rules.
This analysis combined with uncertainty as to the date of US tax reform, a market shift towards digitisation in virtually every industry and a desire by France to ensure a more closely aligned Europe post Brexit (to be executed potentially through a trade-off for market reform) makes ‘outcome assessment’ challenging for groups.
Understanding the political dimensions driving change, the impact of future change of law and practice on the current financial structures, market results and brand is crucial to managing the risk and impact whether in the short, medium or long term. Part of this process of planning involves consultation and we are available to consult with government on the form and timing of the proposal measures for introduction and to provide input into the wider EU debate.
The outcome of consultation at Irish government level and OECD and EU level will set the corporate tax code framework domestically and the changes in other trading partner countries will be of crucial importance for the next decade.
In our view, the decision whether to participate in that debate needs to be made now and appropriate consultation with ourselves and relevant industry groups is necessary to ensure appropriate planning and ultimately decisions based on best facts, prior experience and evidence can be made at management and board level for the group.