Minister for Finance Paschal Donohoe on 15 November acknowledged that Ireland’s embrace of the recent two-pillar agreement to address the tax challenges arising from digitalization of the global economy will come at a tangible cost to the Irish economy, but reiterated his belief that the decision to join the agreement was the right one.
Minister Donohoe made the case for Ireland joining the agreement during a virtual event held by European Movement Ireland in partnership with BDO in Ireland. Additional participants included Pascal Saint-Amans, Director of the Centre for Tax Policy and Administration at the OECD; Kevin Doyle, Corporate International Tax Partner at BDO in Ireland, Monika Loving, leader of BDO USA’s International Tax Service practice; and Mary Cosgrove, a lecturer of tax and accountancy at the J.E. Cairnes School of Business and Economics at the National University of Ireland, Galway.
Minister Donohoe stated that the cost to the Exchequer arising from this agreement has been estimated to be up to EUR 2 billion annually when both pillars enter into effect. While not an insignificant cost, Minister Donohoe said, “the upsides of being in such a historic international agreement far outweigh the downsides of staying out".
The agreement will bring stability and certainty in the international tax framework, and attention now turns to implementation, which, Minister Donohoe said, must respect both the letter and the spirit of the agreement.
Within the EU, the agreement must be implemented through a directive. Minister Donohoe said the EU Commission has provided “welcome assurances” that the directive on Pillar 2 (i.e. the Global Anti-Base Erosion Proposal, “GloBE”), which is expected to be issued before year end, will be faithful to the agreement and not go beyond the international consensus.
Minister Donohoe confirmed that Irish domestic legislation transposing the deal will be contained in next October’s Finance Bill with the passing of same expected to occur before the end of 2022.
OECD Views
Pascal Saint-Amans complimented Ireland for “fighting the right fights” during the negotiations and expressed his gratitude for the country having been “extremely demanding” in a constructive way.
Saint-Amans said attention now turns to implementation. Pillar Two will require the drafting of model domestic legislation which is expected to be finalised in the coming weeks. Pillar One will be adopted through a multilateral convention, which will be made available in early 2022 for members to ratify by June 2022.
Irish Business Reaction
Kevin Doyle commended Minister Donohoe for the “huge political effort” that was necessary to make sure Ireland could come to the table and participate in the international deal. Doyle said Irish business reaction to the agreement had been broadly positive, and he stressed the importance of retaining Ireland’s 12.5% corporate tax rate for those entities that are not in scope for Pillar Two, which constitute the overwhelming majority of Irish businesses.
To answer queries about what businesses should be looking out for in the next few months, Doyle said that the focus will be on the Pillar Two model legislation in the following weeks. In the Irish context, he added, the topic of innovation – specifically, capital allowances on intellectual property and the R&D tax credit will be important: how exactly will they be retained to include carry forwards? Will it require separate legislative action? Can it be done without going back to the EU, where the issue of State Aid could come up? Doyle also noted that Irish domestic tax legislation has become more complex over the last number of years and that simplifications could be considered including perhaps the removal of the 25% rate on passive income.
U.S. Implementation
Monika Loving echoed Doyle’s statement regarding the reaction of the business community, stating U.S. business had been very supportive of the initiative because of the stability and certainty it brought to international tax rules. Loving acknowledged that more work needs to be done to iron out technical details.
Loving explained that implementation of the two pillars in the U.S. will follow two different paths, and noted that for Pillar Two, there is legislation currently winding its way through Congress that would more closely align the global intangible low-taxed income (GILTI) rules with the global framework’s minimum tax rules.
Asked whether Ireland should have signed on to the deal when implementation in the U.S. is still uncertain, Minister Donohoe expressed confidence that the U.S. will implement the deal over the next year and stated his expectation that the U.S. “will make it happen.”
Click here for the virtual event recording.
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