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July 23, 2019
Ireland publishes Tax Strategy Group papers – Budget 2020
On 17 July 2019, Ireland’s Department of Finance published the Tax Strategy Group (TSG) papers in respect of Budget 2020. The TSG papers are used by the Department to brief stakeholders on the key policy considerations involved in framing the Budget. The Budget 2020 speech will be delivered by the Minister for Finance to the Irish Parliament on 8 October 2019, with implementing legislation to be introduced as the Finance Bill in the weeks following that speech with enactment complete by the end of the calendar year.
The TSG papers are a regular fixture in Ireland’s budgetary cycle and offer valuable insight into the perspective of policymakers. This year’s TSG papers are particularly interesting from an international tax perspective as they contain:
The TSG paper on corporation tax opens by stating:
Ireland’s corporation tax regime is a core part of our economic policy mix and is a long-standing anchor of our offering on foreign direct investment (FDI). The 12.5% rate, which applies to a broad base, is internationally competitive and is notable for its long term stability. Certainty, transparency and a commitment to open engagement with stakeholders are cornerstones of the corporate tax regime.
This Alerts summarizes the key international tax and corporate measures outlined in the TSG.
Progress on corporation tax roadmap
The Corporation tax roadmap is an Irish Government policy document issued in September 2018, setting out Ireland’s key commitments to reform of its international tax rules. The TSG papers summarize progress against these commitments as follows:
Commitments requiring future action:
Detailed alerts will follow in the coming weeks covering the Department of Finance publication of the feedback statements on Anti-hybrid rules and transfer pricing, and perhaps further information on the interest limitation rule. Meanwhile Irish parented groups and other taxpayers using Ireland as a holding company jurisdiction will be disappointed at the backsliding on a territorial regime.
Other international tax reform matters
“Permanent establishment” definition for commissionaires
The TSG papers contain an interesting discussion of Ireland’s position on this topic. Briefly, this was not a ”minimum standard” of the BEPS project, and Ireland was among the many countries that opted out of adopting Article 12 of the Multilateral Instrument.
With an eye on the future the TSG papers state that while Ireland has no intention to adopt Article 12, it will keep the position under review, noting that the BEPS 2.0 process may in any event lead to further changes to the definition of permanent establishment.
OECD work and BEPS 2.0
The OECD work is divided into two Pillars. Pillar 1 is concerned with revised nexus and profit allocation rules. Although not explicitly stated in the TSG papers, Ireland has consistently taken the position that the OECD is the appropriate forum to develop consensus around a new framework and to avoid unilateral approaches. After a brief summary of the state of play at the OECD, the TSG papers then outline a statement by the Minister for Finance as to the criteria that any agreed outcome must meet, as follows:
Pillar 2 is effectively about some form of global minimum tax rules. On this proposal the Minister in the same speech stated that this Pillar is problematic, “not least because of a lack of clarity as to what its proponents are trying to achieve.”
Ireland remains an active participant in technical working parties on both pillars.
EU – Digital Services Tax
The TSG papers take note that the EU Finance Ministers will discuss OECD work “with a view to identifying any common perspectives.”
EU – Common Consolidated Corporate Tax Base (CCCTB)
The TSG papers take note that technical work continues on this and that Ireland is engaging constructively, while critically examining the proposal and whether it is in Ireland’s interest. They also note that unanimity will be required to introduce this proposal.
EU – Non-cooperative jurisdictions
This is called out as successful in encouraging tax reform in such jurisdictions. The TSG papers note that “Discussions … continue in respect of whether defensive measures are necessary in respect of countries that fail to take action and remain on the EU list.”
Other reforms in the domestic tax arena
R&D Tax Credit
A review of this regime is under way. It is clear that some enhancements are contemplated, largely focused on making the incentive suitable for small and medium enterprises.
Tax Appeals Commission (TAC)
Some technical changes are being contemplated to expedite the progress of the Commission in addressing a backlog of tax appeals. These will likely appear in the Finance Bill 2019. The areas under consideration are:
Additional Tier 1 (AT1) Capital
This is a specialist topic of relevance to regulated financial institutions, for which Ireland has already legislated, although some technical amendments to the legislation are expected in Finance Bill 2019. There was also discussion as to whether a similar treatment ought to be afforded to other comparable contingent convertible securities with similar characteristics. The TSG papers conclude that such instruments (i.e., contingent convertible bonds other than AT1) are unlikely to feature in the Irish market and therefore the Irish authorities do not propose to enact legislation to address them.
EY will be actively monitoring developments in the coming months. Detailed alerts will follow as matters unfold.
1. For example, Programme of Work to Develop a Consensus Solution to the Tax Challenges Arising from the Digitalisation of the Economy, OECD, 31 May 2019.
2. Final guidance from Irish Revenue is awaited, although this is not referred to in the TSG papers.
3. Now in force and effective for withholding tax matters from 1 January 2020 and other matters for taxable years beginning on or after 1 November 2019.
For additional information with respect to this Alert, please contact the following:
Ernst & Young (Ireland), Dublin
Ernst & Young (Ireland), Financial Services, Dublin
Ernst & Young (Ireland), Cork
Ernst & Young (Ireland), Limerick
Ernst & Young (Ireland), Waterford
Ernst & Young (Ireland), Galway
Ernst & Young LLP (United States), Irish Tax Desk, New York
Ernst & Young LLP (United States), Irish Tax Desk, San Jose
Ernst & Young LLP (United States), FSO Irish Tax Desk, New York