Ireland Unveils Plans to Combat Corporate Tax Avoidance

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By Ali Qassim

The Irish government has set out its plans to implement international reforms to help combat tax avoidance from multinational companies.

The long-awaited Corporate Tax Roadmap reveals how and when Ireland plans to act on the OECD’s base erosion and profit shifting (BEPS) reforms and the European Union’s Anti-Tax Avoidance Directive (ATAD).

Ireland has come under fire for its 12.5 percent corporate tax rate, which is viewed as very favorable for companies like Apple Inc. and Pfizer Inc., which are based there.

“Ireland has been criticised for the way in which our tax system has been used by multinationals in their aggressive tax planning structures to exploit mismatches among various countries and gaps in the international tax framework,” Minister for Finance Pascal Donohoe said in the foreword to the plan Sept. 5.

Ireland will take the final steps to ratify a super tax treaty by the end of 2018 and seek “further input” on shifting to a territorial tax regime in which businesses would be taxed only on income within its borders, according to the plan.

Ireland does have a “long-term and continuing commitment” to continuing its 12.5 percent corporate rate, the plan said.

Donohoe called for international agreement by 2020 on a tax regime for digital companies. The EU in March proposed a 3 percent tax on large digital companies, though Ireland as been among those that say the bloc shouldn’t get out ahead of efforts in the OECD.

CFC Rules By Start of 2019

Ireland will likely start a consultation in early 2019 regarding changes to its inter-group pricing rules. Updating those rules is one example of how the plan takes into account “the impact on business,” Kevin McLoughlin, partner and head of tax at EY Ireland, told Bloomberg Tax in a Sept. 5 email.

Ireland plans to introduce controlled foreign company rules by the end of the year. The rules—which would take effect in 2019—are meant to keep multinational companies from shifting profits to controlled subsidiaries in low-or no-tax countries, according to the plan. Having a regime into place by 2019 is a requirement of the EU’s ATAD.

The government would attribute to the parent company any income arising from non-genuine arrangements that a company has put in place to obtain a tax advantage, according to the plan. The approach “should in practice carve out genuine activities in a subsidiary company established for valid business purposes,” the plan said.

“Given the draft legislation has not been shared, companies cannot yet properly assess the impact of these rules, which will present challenges to businesses to assimilate and apply in a very short period,” McLoughlin said.

Territorial Tax System

The government will in early 2019ask for comments comment on either moving to a territorial tax regime or simplifying the rules for the computation of double tax relief.

A territorial regime could make Ireland more attractive to companies, as its current system of worldwide taxation makes it “not as attractive as other locations,” said Peter Reilly, PwC Ireland’s tax policy leader.

Overall, the plan dispels “the notion that Ireland is not taking its obligations of reform seriously,” Reilly said, by “bringing for the first time together the progress made over the last five years and the future path of reform.”

To contact the reporter on this story: Ali Qassim in London at correspondents@bloomberglaw.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bloombergtax.com

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