In Budget 2016, the Minister announced details of a number of measures which will be relevant for international investment. The “Update on Ireland’s International Tax Strategy” published as part of the Budget documents will also be of interest.
With the publication of the final OECD BEPS paper last week, it is no surprise that the measures announced have a strong element of BEPS compliance as their focus. The Minister made the point in the “Update on Ireland’s International Tax Strategy” that Ireland is well positioned for the post-BEPS world.
Corporate Tax Rate
In the “Update on Ireland’s International Tax Strategy”, the Minister reaffirmed the government’s commitment to the 12.5% corporation tax rate and made the point that the BEPS project will not affect Ireland’s tax rate. It is noted that the 12.5% rate remains the cornerstone of Ireland’s corporate tax strategy.
Knowledge Development Box (“KDB”)
Further details of the eagerly-awaited KDB regime have been revealed. The KDB regime will come into effect from 1 January 2016 and will apply a preferential rate of corporation tax of 6.25% to income arising from qualifying intellectual property.
A key feature is that the KDB regime will be the first and only patent box in the world which is compliant with the OECD’s “modified nexus approach”. The modified nexus approach seeks to align the taxation of profits with real substance. This approach will ensure that IP income will qualify for the preferential regime where the underlying R&D activities which generated the IP have predominantly taken place in Ireland.
The KDB regime will provide the certainty and transparency needed by companies when planning their international tax affairs. Overall the introduction of the KDB regime is to be welcomed. When combined with the 12.5% rate, the R&D tax credit regime and the intangible asset amortisation regime, it should further strengthen Ireland’s position as one of the most attractive jurisdictions for multinational companies.
One point to note is that under the current R&D tax credit regime there is no requirement for the expenditure to be incurred in Ireland in order to qualify for the 25% R&D tax credit. Under the KDB regime there needs to be a strong nexus to Ireland in order to benefit from the preferential tax rate. If the R&D regime remains unchanged the combination of the R&D tax credit and the KDB regime will represent a very generous offering.
Country by Country Reporting (“CbCR”)
CbCR is a key element of the OECD’s BEPS action plan. It involves the reporting of revenues, profits, taxes, assets and other information to the “home country” tax authority by a group on a country by country basis.
The announcement in Budget 2016 that Ireland will legislate for CbCR shortly is further evidence of Ireland’s commitment to ensuring an open and transparent tax regime.
It is proposed that CbCR will apply to Irish headquartered multinational enterprises and related groups with annual consolidated group revenue in excess of €750 million. It is expected that Ireland will apply CbCR in respect of accounting periods commencing on or after 1 January 2016.
The introduction of CbCR will highlight to foreign tax authorities instances where Ireland is being used as a conduit and where the “Double Irish” structure is being used. Consideration should be given to the potential for the media to access certain information. Despite the fact that existing Double Irish structures may continue in existence until 2020, if companies are concerned about potential negative publicity, it may be worth considering winding down the structure before the CbCR regime is fully introduced. Companies who wind down the Double Irish should try to structure their operations so as to benefit from Ireland’s onshore tax regime including the new KDB regime.
Full details of both the KDB regime and CbCR will be included in Finance Bill 2015 which is expected to be published on 22 October 2015.