Most of yesterday's pre-election budget statement for 2016 (the "Budget") by Ireland's Minister for Finance (the "Minister") focused on personal taxation. In the portion of his statement covering corporation tax, two key announcements were made in line with expectations following on from the publication of the final reports under the OECD's base erosion and profit shifting ("BEPS") project:
- Ireland will implement country by country reporting ("CBCR") as recommended under BEPS Action 13; and
- Ireland's knowledge development box ("KDB"), which will permit certain income from intellectual property to be taxed at 6.25%, will incorporate the nexus approach proposed under BEPS Action 5, making it the world's "first and only OECD-compliant box".
The detail of these announcements will be available next week upon publication of the Finance Bill 2015. It is anticipated that the parameters set out in the final reports issued by the OECD under BEPS Actions 5 and 13 will be reflected in the draft legislation.
In addition, the Minister published an Update on Ireland's International Tax Strategy which outlines Ireland's position on the BEPS project and the emerging EU tax agenda.
Ireland's position on BEPS
Ireland has fully engaged in the BEPS project. Ireland recognises that continuation of the "remarkable international consensus" is vital to further implementation of the BEPS recommendations.
As a first step, Ireland will implement the changes announced yesterday (CBCR and an OECD-compliant KDB). The next steps for Ireland on BEPS are:
- to update Irish transfer pricing legislation to incorporate the revisions made to the OECD Transfer Pricing Guidelines under Actions 8 to 10;
- to participate in the negotiation of the multilateral instrument ("MLI") proposed under BEPS Action 15. It is intended that the MLI will implement recommendations made under BEPS Action 6 to prevent treaty abuse and BEPS Action 7 to extend the definition of what constitutes a permanent establishment; and
- to participate in the ad hoc group of 20 countries that have agreed to incorporate mandatory binding arbitration provisions into their double tax treaties.
Other than the transfer pricing changes, the next steps mentioned above consist simply of continued participation in ongoing negotiations and discussions. Outside of that participation, Ireland will not take immediate steps to implement other BEPS recommendations but will "continue to engage constructively with international developments".
Ireland's position on the emerging EU tax agenda
The European Union has been increasingly active in the area of direct taxation. Most recently, it has proposed amendments to existing European Directives to provide for automatic exchange of information relating to financial accounts and automatic exchange of information relating to tax rulings. Ireland is supportive of both initiatives.
As a broader matter, the Update on Ireland's International Tax Strategy confirms that Ireland considers that tax policy is a vital aspect of Member States' sovereignty. Ireland disagrees with any harmonisation of tax rates or minimum levels of taxation. Ireland will continue to engage in discussions on the proposed re-launch of the common corporate tax base to ensure that Ireland's perspective is fully heard. Changes may only be made to corporation tax at EU level if all Member States are in unanimous agreement.
Irish implementation
The Finance Bill is due to be published next week and that will contain additional detail on CBCR and the KDB. We will keep you informed of relevant developments.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.