Irish Corporation Tax Roadmap - Implications for US MNCs - EY
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6 September 2018
Global Tax Alert
Irish Corporation
Tax Roadmap –
Implications for
US MNCs
On 5 September 2018, Ireland’s Minister for Finance and Public Expenditure
and Reform (the Minister) published Ireland’s Corporation Tax Roadmap
NEW! EY Tax News Update:
incorporating implementation of the European Union (EU) Anti-Tax
Global Edition
Avoidance Directives (the ATADs) and recommendations of the Coffey
EY’s new Tax News Update: Global Review1 (the Roadmap).2
Edition is a free, personalized email
subscription service that allows
Background to the Roadmap
you to receive EY Global Tax Alerts,
newsletters, events, and thought The Roadmap lays out the next steps in Ireland’s implementation of the
leadership published across all areas various commitments made in EU Directives, the Organisation for Economic
of tax. Access more information Co-operation and Development (OECD) Base Erosion and Profit Shifting
about the tool and registration here. (BEPS) reports and recommendations from the Coffey Review.
Also available is our EY Global Tax Key commitments and timelines
Alert Library on ey.com. The key commitments to further action and timeline set out in the Roadmap
are as follows:2 Global Tax Alert
Q3 2018 Controlled Foreign Corporation (CFC) Feedback Statement to be published for comment
Q3 2018 Public consultation on interest limitation rule and anti-hybrid rule
Q4 2018 Finance Bill 2018 is published to include CFC rules and final legislative steps to allow ratification of the
Multilateral Instrument
Q4 2018 Publication of International Mutual Assistance Bill
1/1/2019 Effective date of CFC rules
Early 2019 Public consultation on updating transfer pricing rules
Early 2019 Public consultation on moving to a territorial regime or simplification of foreign tax credit regime
Q2 2019 Implementation of Dispute Resolution Mechanism Directive
1/1/2020 Alignment of Irish mandatory disclosure regime with DAC6
1/1/2020 Effective date of anti-hybrid rule
1/1/2020 Effective date of updated transfer pricing rules including adoption of the 2017 OECD Transfer Pricing
Guidelines
1/1/2020 Effective date of amendments to exit tax
1/1/2022 Effective date of reverse hybrid rule
1/1/2024 Latest possible introduction of interest limitation rule
Below we have set out some of the key implications for US multinational companies (US MNCs).
12.5% Corporate Tax Rate
The Minister has reiterated Ireland’s commitment to the key 12.5% rate as part of an overall regime which fosters economic
activity, is transparent, sustainable and legitimate.
The Roadmap confirms that the 12.5% rate will remain a cornerstone of Irish tax policy complemented by an open and
consultative approach to policy making.
Transfer pricing
Legislation will be introduced in Finance Bill 2019 to update Ireland’s transfer pricing rules with effect from 1 January 2020.
The update is expected to include adoption of the 2017 OECD Transfer Pricing Guidelines into Irish law.
This will bring BEPS Actions 8-10 including the DEMPE3 concept into Irish law a year before the end of the grandfathering
period for the old Irish residency rules so it will be key to monitor how these new rules would impact any payments from an Irish
company to a low substance intangible property (IP) company. The 2017 OECD Transfer Pricing Guidelines are immediately
relevant to US MNCs as other jurisdictions have already adopted the guidelines into local law. US MNCs should evaluate
alignment of their DEMPE substance with the ownership of IP.
The potential extension of domestic transfer pricing rules to non-trading income and to capital transactions should also be
monitored, particularly in relation to interest-free and royalty-free transactions.Global Tax Alert 3
A consultation will be launched in early 2019. US MNCs US MNCs should also, to the extent that they have not already
should consider participation in that consultation. done so, review their group structure to identify any potential
hybrid instruments or entities that involve Ireland.
It is notable that Ireland remains committed to the arm’s-
length standard as evidenced by the following extract from
Interest limitation rule
the Roadmap:
Ireland will introduce an ATAD-compliant interest limitation
We continue to believe that any reforms must be built on rule no later than 1 January 2024.
the arms-length principle and a common understanding of
where value is created. Reforms must be globally agreed The timing of that legislation will be determined following
and implemented in order to prevent the recurrence of further consultation with the European Commission
mismatches between jurisdictions and to continue to develop concerning Ireland’s position that national targeted rules
new robust global standards that are sustainable in the long are equally effective to the ATAD interest limitation rule.
term. Ireland has asserted, and remains of the view, that it is
entitled to a derogation from the introduction of the ATAD
CFC rules interest limitation rule until the beginning of 2024 (unless
BEPS Action 4 is declared a minimum standard by the OECD
Legislation to introduce CFC rules will be included in Finance
in which case the rule must be implemented at the start of
Bill 2018 and will be in effect from 1 January 2019.
the following calendar year).
Ireland’s rules will adopt Option B set down within the ATAD.
However, work has commenced to examine options to bring
The reasoning for choosing Option B also includes its link to
forward the transposition of the ATAD rule into Irish law. The
determining profits based on the internationally recognized
earliest date of introduction could be in Finance Bill 2019
and understood arm’s-length principle.
and at the latest the end of 2023.
Where US MNCs have an Irish or other EU resident holding
US MNCs may wish to participate in the public consultation
company, ATAD requires CFC rules effective 1 January 2019.
which is planned for Q3 of 2018 which will be linked to the
In an Irish context, US MNCs should consider the terms of
consultation on the ATAD anti-hybrid rules. The possibility
the Feedback Statement to be published in Q3 2018 and
of an ATAD-compliant grandfathering rule will be one policy
participate in the planned consultations.
decision which may be pursued during that consultation.
Our consultation to date with the Irish Department of Finance
US MNCs with Irish financing should consider sensitivity
has highlighted that the CFC rules should be drafted in
analysis of the potential impact of an interest limitation
such a way to reduce the compliance burden on groups and
rule on their current Irish interest deductions and evaluate
to ensure that bona fide commercial transactions are not
alternatives where appropriate.
caught by the CFC rules.
Exit taxation
Hybrid mismatch rules
Legislation that is compliant with the ATAD exit tax rules will
Legislation will be introduced in Finance Bill 2019 to be introduced to take effect no later than 1 January 2020.
bring into effect the first tranche of anti-hybrid rules from As a result, the current Irish statutory tax-free migration in
1 January 2020. Further legislation relating to anti-reverse qualifying circumstances will not be available after 1 January
hybrid provisions will be introduced subsequently effective 2020.
1 January 2022.
We expect ongoing lobbying regarding the shape of this rule
The rules are not expected to go beyond the terms of the including the exit tax rate.
ATAD. It is anticipated that the rules would not seek to
generally apply to an entity merely because it is a disregarded Consideration of a territorial regime
entity by virtue of a US check the box election. However this
It is intended that a public consultation will be launched in
should be monitored throughout the consultation period
early 2019 seeking further input on the alternative options
which will be launched later this month. US MNCs should
of moving to a territorial regime or conducting a substantial
consider participation in that consultation also.
review and simplification of the existing rules for the4 Global Tax Alert
computation of double tax relief. This will be of importance of international taxation which is appropriate to meet the
to US MNCs who have Irish subsidiaries currently claiming challenges and opportunities that arise from the digitization
double tax relief and should be monitored for companies of the economy.
considering holding company locations in a post-BEPS, post-
Digital tax is not the only issue being discussed on the
ATAD and post-US tax reform environment.
international tax agenda. The Roadmap notes that important
discussions continue on a range of issues including:
Other items
• What type of measures constitute harmful tax competition
The Roadmap effectively updates Ireland’s international tax
between countries
strategy document entitled “Update on Ireland’s International
tax Strategy & Consultation on Coffey Review,” published as • The future of the EU list of non-cooperative tax jurisdictions
part of the consultation launched on 10 October 2017.4 and what defensive measure could or should be applied
against listed countries
The Roadmap also outlines other international commitments
that Ireland has made in relation to International taxation, • The Commission’s Common Consolidated Corporate
namely: Tax Base remains under discussion as countries try to
determine what impact it would have on their tax bases
• Signing of the OECD Multilateral Instrument in June 2017
• The future of transfer pricing and whether the arm’s-length
• Commitment to make any changes required to Ireland’s
principle needs to be adopted for the modern world
mandatory disclosure regime to bring it in line with DAC 6
by the end of 2019 The amount of international tax fora in which Ireland
• Implementation of the Dispute Resolution Mechanism is involved (numbering 19) are listed at Appendix 2 to
Directive before July 2019 (work is underway) the Roadmap and highlights the importance placed by
the Government on constructive dialogue regarding
• Considering what administrative measures may be
international tax reform.
appropriate to take in response to the EU list of non-
cooperative tax jurisdictions Next steps
The Roadmap also includes a section in relation to the The Roadmap provides further clarity to the timing of
ongoing EU and International tax agenda. This deals with the introduction of key changes to the Irish Corporation Tax Code.
European Commission’s recent digital taxation proposals and This allows US MNCs to update their impact assessments
outlines that the Irish Parliament issued reasoned opinions to and provides a clear timeline for consideration of possible
the European Commission on 15 May 2018 that both digital responses to those changes and how they could impact on
proposals were in breach of the principle of subsidiarity. their group.
It states that Ireland will continue to actively engage on
US MNCs should also consider participation in the various
digital taxation with fellow Member States and the related
consultation processes signaled in the Roadmap.
debate ongoing at OECD level so that we have a system
Endnotes
1. The Coffey Review was an independent review of Ireland’s corporation tax code published in September 2017. See
EY Global Tax Alert, Ireland publishes Independent Review of Irish Corporate Tax Code, dated 14 September 2017.
2. See EY Global Tax Alert, Ireland publishes Corporation Tax Roadmap, dated 5 September 2018.
3. Control of development, enhancement, maintenance, protection and exploitation of IP and associated risk management.
4. See EY Global Tax Alert, Ireland announces consultation on Independent Review of Irish Corporate Tax Code, dated
12 October 2017.Global Tax Alert 5 For additional information with respect to this Alert, please contact the following: Ernst & Young (Ireland), Dublin • Joe Bollard joe.bollard@ie.ey.com • Dan McSwiney dan.mcswiney@ie.ey.com • Kevin McLoughlin kevin.mcloughlin@ie.ey.com Ernst & Young (Ireland), Cork • Frank O’Neill frank.oneill@ie.ey.com Ernst & Young (Ireland), Limerick • John Heffernan john.heffernan@ie.ey.com Ernst & Young (Ireland), Waterford • Paul Fleming paul.fleming@ie.ey.com Ernst & Young (Ireland), Galway • Paraic Waters paraic.waters@ie.ey.com Ernst & Young LLP, Irish Tax Desk, New York • Deirdre Fenton deirdre.fenton1@ey.com Ernst & Young LLP, Irish Tax Desk, San Jose • Karl Doyle karl.doyle@ey.com Ernst & Young LLP, FSO Irish Tax Desk, New York • Siobhan Dillon siobhan.dillon1@ey.com
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