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06 September 2018 Irish Corporation Tax Roadmap – Implications for US MNCs On 5 September 2018, Ireland's Minister for Finance and Public Expenditure and Reform (the Minister) published Ireland's Corporation Tax Roadmap incorporating implementation of the European Union (EU) Anti-Tax Avoidance Directives (the ATADs) and recommendations of the Coffey Review1 (the Roadmap).2 The Roadmap lays out the next steps in Ireland's implementation of the various commitments made in EU Directives, the Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) reports and recommendations from the Coffey Review.
The Minister has reiterated Ireland's commitment to the key 12.5% rate as part of an overall regime which fosters economic activity, is transparent, sustainable and legitimate. The Roadmap confirms that the 12.5% rate will remain a cornerstone of Irish tax policy complemented by an open and consultative approach to policy making. Legislation will be introduced in Finance Bill 2019 to update Ireland's transfer pricing rules with effect from 1 January 2020. The update is expected to include adoption of the 2017 OECD Transfer Pricing Guidelines into Irish law. This will bring BEPS Actions 8-10 including the DEMPE3 concept into Irish law a year before the end of the grandfathering period for the old Irish residency rules so it will be key to monitor how these new rules would impact any payments from an Irish company to a low substance intangible property (IP) company. The 2017 OECD Transfer Pricing Guidelines are immediately relevant to US MNCs as other jurisdictions have already adopted the guidelines into local law. US MNCs should evaluate alignment of their DEMPE substance with the ownership of IP. The potential extension of domestic transfer pricing rules to non-trading income and to capital transactions should also be monitored, particularly in relation to interest-free and royalty-free transactions. A consultation will be launched in early 2019. US MNCs should consider participation in that consultation. It is notable that Ireland remains committed to the arm's-length standard as evidenced by the following extract from the Roadmap: We continue to believe that any reforms must be built on the arms-length principle and a common understanding of where value is created. Reforms must be globally agreed and implemented in order to prevent the recurrence of mismatches between jurisdictions and to continue to develop new robust global standards that are sustainable in the long term. Legislation to introduce CFC rules will be included in Finance Bill 2018 and will be in effect from 1 January 2019. Ireland's rules will adopt Option B set down within the ATAD. The reasoning for choosing Option B also includes its link to determining profits based on the internationally recognized and understood arm's-length principle. Where US MNCs have an Irish or other EU resident holding company, ATAD requires CFC rules effective 1 January 2019. In an Irish context, US MNCs should consider the terms of the Feedback Statement to be published in Q3 2018 and participate in the planned consultations. Our consultation to date with the Irish Department of Finance has highlighted that the CFC rules should be drafted in such a way to reduce the compliance burden on groups and to ensure that bona fide commercial transactions are not caught by the CFC rules. Legislation will be introduced in Finance Bill 2019 to bring into effect the first tranche of anti-hybrid rules from 1 January 2020. Further legislation relating to anti-reverse hybrid provisions will be introduced subsequently effective 1 January 2022. The rules are not expected to go beyond the terms of the ATAD. It is anticipated that the rules would not seek to generally apply to an entity merely because it is a disregarded entity by virtue of a US check the box election. However this should be monitored throughout the consultation period which will be launched later this month. US MNCs should consider participation in that consultation also. US MNCs should also, to the extent that they have not already done so, review their group structure to identify any potential hybrid instruments or entities that involve Ireland. The timing of that legislation will be determined following further consultation with the European Commission concerning Ireland's position that national targeted rules are equally effective to the ATAD interest limitation rule. Ireland has asserted, and remains of the view, that it is entitled to a derogation from the introduction of the ATAD interest limitation rule until the beginning of 2024 (unless BEPS Action 4 is declared a minimum standard by the OECD in which case the rule must be implemented at the start of the following calendar year). However, work has commenced to examine options to bring forward the transposition of the ATAD rule into Irish law. The earliest date of introduction could be in Finance Bill 2019 and at the latest the end of 2023. US MNCs may wish to participate in the public consultation which is planned for Q3 of 2018 which will be linked to the consultation on the ATAD anti-hybrid rules. The possibility of an ATAD-compliant grandfathering rule will be one policy decision which may be pursued during that consultation. US MNCs with Irish financing should consider sensitivity analysis of the potential impact of an interest limitation rule on their current Irish interest deductions and evaluate alternatives where appropriate. Legislation that is compliant with the ATAD exit tax rules will be introduced to take effect no later than 1 January 2020. As a result, the current Irish statutory tax-free migration in qualifying circumstances will not be available after 1 January 2020. It is intended that a public consultation will be launched in early 2019 seeking further input on the alternative options of moving to a territorial regime or conducting a substantial review and simplification of the existing rules for the computation of double tax relief. This will be of importance to US MNCs who have Irish subsidiaries currently claiming double tax relief and should be monitored for companies considering holding company locations in a post-BEPS, post-ATAD and post-US tax reform environment. The Roadmap effectively updates Ireland's international tax strategy document entitled "Update on Ireland's International tax Strategy & Consultation on Coffey Review," published as part of the consultation launched on 10 October 2017.4 The Roadmap also outlines other international commitments that Ireland has made in relation to International taxation, namely:
The Roadmap also includes a section in relation to the ongoing EU and International tax agenda. This deals with the European Commission's recent digital taxation proposals and outlines that the Irish Parliament issued reasoned opinions to the European Commission on 15 May 2018 that both digital proposals were in breach of the principle of subsidiarity. It states that Ireland will continue to actively engage on digital taxation with fellow Member States and the related debate ongoing at OECD level so that we have a system of international taxation which is appropriate to meet the challenges and opportunities that arise from the digitization of the economy. Digital tax is not the only issue being discussed on the international tax agenda. The Roadmap notes that important discussions continue on a range of issues including:
The amount of international tax fora in which Ireland is involved (numbering 19) are listed at Appendix 2 to the Roadmap and highlights the importance placed by the Government on constructive dialogue regarding international tax reform. The Roadmap provides further clarity to the timing of introduction of key changes to the Irish Corporation Tax Code. This allows US MNCs to update their impact assessments and provides a clear timeline for consideration of possible responses to those changes and how they could impact on their group. US MNCs should also consider participation in the various consultation processes signaled in the Roadmap. 1 The Coffey Review was an independent review of Ireland's corporation tax code published in September 2017. See EY Global Tax Alert, Ireland publishes Independent Review of Irish Corporate Tax Code, dated 14 September 2017. 2 See EY Global Tax Alert, Ireland publishes Corporation Tax Roadmap, dated 5 September 2018. 3 Control of development, enhancement, maintenance, protection and exploitation of IP and associated risk management. 4 See EY Global Tax Alert, Ireland announces consultation on Independent Review of Irish Corporate Tax Code, dated 12 October 2017.
Document ID: 2018-6059 | ||||||||||||||||||||||||||||
