On September 12, 2017, Ireland’s Minister for Finance and Public Expenditure and Reform released the independent report of Mr. Seamus Coffey on Ireland’s Corporate Tax Code in relation to the OECD BEPS project. The recommendations in the report will be considered by the Irish government.
Ireland’s commentary from the Report with respect to specific BEPS action items is outlined below.
The EU Anti-Tax Avoidance Directive (ATAD) applies to hybrid mismatches between member states to prevent the occurrence of either a double deduction or a deduction without corresponding taxation in another member state. Following amendments to the ATAD in ATAD 2, the application of the provisions concerning hybrid mismatches was extended to third countries. This provision must be implemented by January 1, 2020.
On June 7, 2017, Ireland signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (“MLI”). See BEPS Action 15. Under the MLI, Ireland will introduce a provision to ensure consistent tax treaty treatment when countries classify entities differently. Ireland has also adopted the credit method for eliminating double taxation as opposed to the exemption method.
ATAD outlines a minimum requirement for member states to implement CFC rules, which must be transposed by January 1, 2019.
In general, the ATAD provides that a deduction in respect of a net interest expense may not exceed 30% of EBITDA. Although this provision must be implemented by January 1, 2019, there is a possibility to defer it until January 1, 2024 if member states have in place equally effective rules to combat BEPS risks. If Ireland’s current interest limitation rules are equally effective, then these rules must be transposed by January 1, 2024.
BEPS Action 5 covers preferential tax regimes and income arising from certain qualifying IP (IP regimes’ or patent boxes). The OECD has reached an agreement on the “modified nexus” approach, which provides a formula to establish the income that may benefit from an IP regime. The Irish IP Regime, the Knowledge Development Box (KDB) follows the modified nexus approach.
According to the Report, any proposed measures should be carefully scrutinized to ensure that they do not (i) constitute a potentially harmful preferential tax regime, as identified by the OECD Forum on Harmful Tax Practices, or (ii) a potentially harmful tax regime, as identified by the EU Code of Conduct for Business Taxation.
Ireland currently complies with the OECD Framework developed under Action 5, and an exchange of tax rulings may be carried out under various international agreements between Ireland and other jurisdictions.
Ireland signed the MLI on June 7, 2017, and therefore, will adopt the Principal Purpose Test (PPT); therefore, introducing a general anti-avoidance clause into any treaty where the treaty partner also chooses the PPT option.
Ireland will adopt the anti-fragmentation rule, which is designed to prevent corporate groups from fragmenting into smaller operations in order to prevent a permanent establishment (PE).
Ireland’s tax treaty partners may seek to adjust a taxpayer’s profits under the Associated Enterprises article of the relevant double tax agreement with respect to the 2017 OECD Transfer Pricing Guidelines (“TP Guidelines”). An amendment to the Taxes Consolidation Act (TCA) 1997 will be required to give effect to the TP Guidelines.
Ireland’s mandatory disclosure rules are contained in Chapter 3 of Part 33 of TCA 1997. The rules provide that a promoter or user of arrangements which fall within one of four classes of specified descriptions which may give rise to an Irish tax advantage and which are designed primarily to gain access to such an advantage, must disclose certain specified information to the Revenue Commissioners.
The Irish mandatory disclosure regime does not currently extend to cross-border schemes.
The requirement for certain taxpayers to submit a CbC report is contained in Section 891H TCA 1997 and the Taxes (Country-By-Country Reporting) Regulations 2016.
Ireland signed the Multilateral Competent Authority Agreement on the Exchange of Country-By-Country Reports (“CbC MCAA”) on January 27, 2016. Ireland relies on the CbC MCAA for the exchange of information outside the EU.
Ireland intends to opt into mandatory binding arbitration. In general, Ireland supports arbitration wherever possible except where: (i) the issue has been decided by a Court; (ii) the case involves domestic anti-abuse rules, or (iii) the taxpayer may be liable to certain penalties.