Ireland: Threats And Opportunities Facing Ireland's Corporation Tax Regime

As the UK and US move towards lower corporate tax rates and the OECD BEPS project progresses, we examine the impact on Ireland's corporation tax regime in 2017.

It is almost 20 years since Ireland announced the introduction of a 12.5% corporation tax rate for trading income. In 1997, the Irish standard rate of corporate tax was 36%, just marginally above the current US Federal rate of 35%. With the UK moving towards a corporation tax rate of 17% and Trump proposing a 15% corporation tax rate, perhaps the only major surprise on international tax rates has been the time it has taken for the governments of the world's major economies to realise that a high corporate tax rate inhibits growth.

For Ireland's open economy, the change in other countries' tax rates and multiple other changes to the international tax environment provide opportunities for multinational groups to review existing operating structures and realign their businesses with the new international tax environment.

Brexit and the Trump Effect

As the UK moves towards triggering Article 50 and the US political scene shifts to a Republican majority control, Ireland can expect both the UK and US to reduce their corporate tax rates. However, the mere reduction of these countries' tax rates does not mean that the business case for using Ireland as a relatively low tax rate hub is diminished. In particular, US companies will continue to need access to the EU and with Brexit looming, the benefit of using Irish corporates as a platform to transact into one of the largest trading block in the world may become even more compelling. 

EU

In mid-2016 the EU passed its Anti-Avoidance Tax Directive. One aspect will be that Ireland will need to introduce a Controlled Foreign Company ("CFC") regime by the end of 2017. CFC legislation is designed to dissuade Irish parented groups from maintaining intellectual property and passive investment income in low- or no-tax territories. It will deem certain "passive" income and gains of such offshore entities as being liable to tax in Ireland. The introduction of such legislation is likely to cause existing offshore finance and other intellectual property companies to be brought onshore to Ireland, with the consequent increase in economic activity in Ireland. Moreover, if Ireland wishes to remain internationally competitive, it should amend its laws to exempt dividends from foreign subsidies as a quid pro quo for the introduction of a CFC regime.  Such a move will increase Ireland's attractiveness as an international tax-neutral holding company location and be in line with other EU proposals. 

Of more concern to Ireland must be the EU's latest proposal for a directive (First Directive) on a common tax base followed by another directive (Second Directive) on a Common Consolidated Corporate Tax Base ("CCCTB"). The First Directive would seek to adopt a pan EU code to harmonise the tax deductions available in each Member State from each companies' taxable profits. It would restrict interest deductions, exempt certain dividends and provide enhanced R&D deductions.  However, the Second Directive looks to determine a mechanism by which profits are allocated across EU Member States having regard to three equally weighted indicia; namely personnel, assets and sales. If groups wish to maximise the benefits of Ireland's 12.5% corporation tax rate, then the establishment of major facilities in Ireland will be a pre-requisite to ensuring that other EU Member States do not have extensive taxing rights under the Second Directive. Needless to mention that Ireland will campaign strongly to avoid CCCTB but without the UK at the negotiating table, its negotiating position is significantly weakened.

OECD and BEPS

In 2013, the OECD launched an initiative to dissuade multinational groups from using the differentiating factors of different countries' tax regimes for Base Erosion and Profit Shifting ("BEPS"). Whilst much of the initial action plans are moving into implementation phase, two key areas in relation to corporate Ireland's offering deserve special attention:

1. Reopening of Action 1 Taxation of the Digital Economy ​ 

The original BEPS action plan looked to change the basis of taxation of the Digital Economy. The original conclusion was to not alter the current system but this is being revisited. The latest EU CCCTB proposal, and indeed some of the US Republican proposals, also take aim at a revised approach to taxing such profits by reference to the location of ultimate sales. To maximise real benefits from an Irish presence, multinationals need to plan for major spend, research and development, and employment focus from an Irish base.

2. Multilateral Treaty

One of the key benefits of Ireland's treaty network is the ability to reduce withholding taxes on income flows into an Irish tax resident company without necessarily having regard to the ultimate recipient of such flows.  A key feature of any multilateral treaty is likely to be a limitation of benefits clause. The overriding aim of such a clause is to limit the ability to avail of reduced rates of withholding taxes under existing treaties where the ultimate recipient is not a resident of the payor or payee countries. The introduction of a multilateral treaty is likely to cause Irish recipients to suffer withholding tax on many inward payments.  Such withholding should be creditable against Irish tax but its impact needs to be modelled through.

Conclusion

A multitude of forces is converging on a common theme for reform of the basis by which groups operating cross-border are taxed. Historic operating regimes and rulings are being challenged – the recent publication of the EU's determination of state aid in the Apple case highlights the uncertain environment that exists for businesses reliant on historic practices. 

Internationally-focused groups need to review existing structures, bring onshore that which has been generally operated offshore and consider Ireland as a base for critical mass. The only certainty within the world of change will be Ireland's 12.5% low corporate tax rate and EU membership. Major groups should commence 2017 conducting an international tax strategic review of their global operations with a view to realigning their business with the likely new international tax norms.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
13 Sep 2017, Seminar, Dublin, Ireland

We will host our third Employment Law Top Tips seminar for 2017 on Wednesday 13 September in our offices at South Bank House, Barrow Street, Dublin 4.

 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.