Ireland To Open To International Tax Changes

; posted on
May 28th, 2019

The Ministry of Finance of Ireland, Paschal Donohoe suggests that Ireland should consider a broader concept of how companies are taxed in the modern digitalized world, setting out his country’s stall in a debate that is key to its economy.

Ireland’s Reform Agenda

Despite the debate of Ireland’s status as a low tax country that is against the Digital Service Tax (DST), the Irish Ministry of Finance has argued that his country has proven track record of taking significant actions to prevent aggressive tax planning, proven with the following agenda:

  • Ireland acted unilaterally to abolish the possibility for companies to be Stateless due to mismatches with US tax rules.
  • Amended the tax residence rules to bring an end to the Double Irish structure.
  • Participated in the OECD BEPS process and acted very quickly to introduce Country by Country Reporting in 2015.
  • Ratified the BEPS Multilateral Instrument.
  • Transposed the EU directive in the tax law.

Details on Other International Tax Changes

Ireland recognizes that it must actively participate in the ongoing negotiations to protect its national interests, such as its right to fair tax competition, considering the growth of internet giants such as Google, Facebook and Amazon which has pushed international tax rules to the limit, prompting the Organization for Economic Cooperation and Development (OECD) to pursue global reforms.

The debate centers around the booking of profits by multinational firms in low-tax countries such as Ireland where they have bases rather than where most of their customers are. In Ireland, where Apple, Facebook and Google all have their European headquarters, multinational companies make up around 10 percent of the country’s entire workforce. They benefit from Ireland’s corporate tax rate of just 12.5 percent.

During the press conference given by the minister, Pascal Donhoe argued that Ireland will agree to tax the digital economy as long as the agreed outcome follows the well-established principle of aligning taxing rights with value creation. According to the minister, however, developing a broader concept of value creation which recognizes that some value may arise from scale, from brands or from access to markets is required.

Moreover the policy should meet the following criteria:

  • modest and appropriately targeted to cause as little disruption to the long established international corporate tax framework;
  • be appropriately and modestly targeted so that it does not upend the existing international corporate tax framework, and be based on existing transfer pricing rules as much as possible;
  • ensure that most profits continue to be taxable in exporting jurisdictions under current tax rules, avoid favoring large countries over smaller jurisdictions;
  • and ensure medium-term certainty for both governments and business.

Based on the minister’s statement, it seems Ireland implicitly supports the pillar 1 of OECD proposals. Under pillar 1, which focuses on profit allocation and nexus issues, there is a proposal that would give more taxing rights to user jurisdictions based on active user contribution, which the United Kingdom supports; a proposal that would give more taxing rights to market jurisdictions based on marketing intangibles, which the United States favors; and the reconsideration of nexus concepts, such as “significant economic presence,” which India wants.

Pascal Donhoe reiterated that indeed change is coming to the international tax system and Ireland’s engagement with this work must reflect this reality.

Sources: Reuters, Irish Government

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