Following last week's publication of the various OECD/G20 reports on the Base Erosion and Profit Shifting ("BEPS") project, the Irish Budget delivered on 13 October 2015 contains the first Government initiative on implementing some of the recommendations. Key features are the introduction of the first of its kind knowledge development box with a tax rate of 6.25%, country-by-country reporting and an update on Ireland's International Tax Strategy. Details of the knowledge development box and country-by-country reporting remain sparse and are unlikely to emerge until the publication of the Finance Bill in the next six weeks or so.
BEPS, EU Law and the Irish Tax Regime
Some years ago, at an early stage of the OECD/G20 BEPS initiative, the Irish tax regime was targeted for its approach to Irish incorporated but non tax resident companies. The Irish Government listened to the BEPS representations and liaised with key industry players and tax professionals. Tax law was duly amended. Moreover, as the Irish tax code has developed, Ireland has taken steps ahead of any BEPS initiative to ensure that its code is at the forefront of best-in-class international tax practice. For example, having regard to the use of Ireland as a key base for big ticket asset finance, some years ago, Ireland made changes to its tax law so as to impose withholding tax on certain interest payments to countries that either do not have a double tax treaty with Ireland and/or do not generally tax such foreign source interest.
Ireland's latest Budget merely further cements the strong platform of using the Irish fiscal base to attract investment that has continued for more than half a century. Key long-term features of the Irish tax regime in light of the various BEPS final reports include:
acceptance by the OECD/G20 that each country has a sovereign right to determine its own tax rate and by extension, Ireland's 12.5% tax rate is beyond international challenge; acceptance by the OECD/G20 that there should be no ring-fencing of the digital economy within a separate international tax regime. Hence, acceptance that digital businesses can continue to establish and grow from an Irish incorporated base; acceptance by the OECD/G20 that there is no requirement for Ireland to introduce a controlled foreign company regime that imputes taxable profits to an Irish parent company. Hence, Ireland will continue to be a favourable holding company location for technology companies...