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April 5, 2023
Ireland launches consultation on EU Minimum Tax Directive and proposed legislative approach
On 31 March 2023, the Irish Department of Finance released a FBS1 on the transposition of the Directive2 . Building on the May 2022 public consultation, this FBS launches the next phase of Ireland's consultation process on the implementation of the Organisation for Economic Co-operation and Development's (OECD) Pillar Two framework under BEPS 2.0.
Minister for Finance Michael McGrath confirmed that Ireland will bring forward implementing legislation later this year. As required by the EU Minimum Tax Directive, the law will be effective for accounting periods beginning on or after 31 December 2023.
The introduction to the FBS emphasizes that Irish authorities have not lost sight of competitiveness in implementing the Directive:
The Pillar Two framework will have quite significant impacts for Ireland. We have engaged extensively at both OECD and EU level to ensure the agreed rules allow continued support for economic growth and prosperity, and also safeguarding our competitive tax regime for real and substantive activities in the State.
The FBS outlines Ireland's approach to transposing the Directive and includes more than 100 pages of possible legislative approaches in this regard. Stakeholders are invited to respond to various queries raised throughout the document on how the Directive will be implemented in Irish legislation. The consultation period will run to the close of business 8 May 2023.
Approach to Transposition
The FBS notes that Ireland's transposition of the Directive will involve four key elements:
Structure of Feedback Statement
The FBS is structured as follows:
General approach to legislation
It is proposed that the transposition of the Directive will largely follow the structure of the Directive itself with references to certain aspects of the OECD Model Rules,3 Commentary4 and Administrative Guidance5 where appropriate. An appendix to the FBS outlines possible legislative approaches to the transposition of the Directive. Comments are invited on this proposed legislative approach.
The FBS notes that it is "considered appropriate" to introduce a QDTT as part of the Pillar Two implementation process and the FBS proposes two possible approaches:
Comments are invited on these possible approaches to implementing a QDTT in Irish legislation.
The FBS invites stakeholders to provide responses on a range of questions relating to the administration of the Global anti-base Erosion (GloBE) rules including:
It is noteworthy that the proposed approach would keep the administration of the GloBE rules and the associated top-up taxes separate from Ireland's existing corporate tax regime.
Stakeholders are invited to provide comments on any issues relevant to the Directive that are not covered in the FBS. We note that the FBS does not deal with the Transitional CbCR Safe Harbour in detail.6
The FBS contains a series of questions, which are outlined below:
EY will continue our extensive engagement with the Department of Finance on Pillar Two implementation, including seeking maximum flexibility for taxpayers to avoid unintended consequences and to simplify administration and compliance.
EY has the experience to assist taxpayers in evaluating their perspectives and responses to the FBS ahead of the 8 May deadline.
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
Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor
1 Referred to as the "Pillar Two Implementation Feedback Statement March 2023," — see FBS here.
2 Referred to as the "COUNCIL DIRECTIVE (EU) 2022/2523 of 14 December 2022 on ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups in the Union" https://eur-lex.europa.eu/eli/dir/2022/2523/oj.
3 OECD (2021), "Tax Challenges Arising from the Digitalisation of the Economy — Global Anti-Base Erosion Model Rules (Pillar Two): Inclusive Framework on BEPS," OECD, Paris, Tax Challenges Arising from the Digitalisation of the Economy — Global Anti-Base Erosion Model Rules (Pillar Two) (oecd.org).
4 OECD (2022), Tax Challenges Arising from the Digitalisation of the Economy — Commentary to the Global Anti-Base Erosion Model Rules (Pillar Two), OECD, Paris, Tax Challenges Arising from the Digitalisation of the Economy — Commentary to the Global Anti-Base Erosion Model Rules (Pillar Two) (oecd.org).
5 OECD (2023), Tax Challenges Arising from the Digitalisation of the Economy — Administrative Guidance on the Global Anti-Base Erosion Model Rules (Pillar Two), OECD/G20 Inclusive Framework on BEPS, OECD, Paris. Tax Challenges Arising from the Digitalisation of the Economy — Administrative Guidance on the Global Anti-Base Erosion Model Rules (Pillar Two) (oecd.org)
6 The FBS notes that, arising from the negotiations at EU Council, amendments were made to the original proposed text prior to the EU Council's its agreement in December 2022 to the effect that where a Member State elects to apply a Qualified Domestic Top-up Tax (the Directive's equivalent to a QDMTT), the Directive provides that, under certain circumstances, this will operate as a "safe harbour". Such a payment will meet the requirement of Pillar Two minimum taxation as it pertains to an entity situate in that jurisdiction and no further top-up tax liability will be calculated in another Member State.