Michael McGrath (Cork South Central, Fianna Fail) | Oireachtas source

I move amendment No. 45:

In page 126, between lines 30 and 31, to insert the following:

“ ‘the Acts’ means the Tax Acts and the Capital Gains Tax Acts;”.

Section 90 of the Bill relates to the transposition of pillar 2. I propose to read a short note on the amendments and then read the note on the section as that places it in a context and we can have the discussion from there. Amendments Nos. 45 to 64, 66 to 91, and 93, are Government amendments to sections 90 and 92 of the Bill and are being taken together for debate. Section 90 of the Bill inserts a new Part 4A into the Taxes Consolidation Act 1997 to transpose the EU minimum tax directive into Irish law. Committee members will be aware that this is a very sizeable section of the Bill containing the bulk of the legislation required for the introduction of the pillar 2 rules in Ireland. Section 92 provides for consequential amendments to other Acts to reflect the introduction of the pillar 2 rules. The amendments I propose to these sections are all technical amendments to ensure the correct operation of the legislation as intended and to correct cross-referencing and typographical errors in the Bill, as initiated. A number of the amendments are updates to better reflect agreed OECD commentary and administrative guidance to the OECD pillar 2 model rules, which are used as a source of illustration or interpretation in order to ensure consistency in application across implementing jurisdictions. I will now proceed to put the note on the section on the record but before I do I would like to bring to the committee's attention that, having regard to the significant volume of legislation being introduced in the Bill to give effect to the new global minimum tax rate, I expect to bring forward a number of Report Stage amendments to the pillar 2-related provisions in the Bill.

Section 90 is the largest in the Bill at 125 pages and, as such, committee members will understand that this will be a relatively lengthy speaking note. Even with that, I will only be touching on the main points of what is being introduced, but I am aware that a technical briefing was sent to the committee following publication of the Bill and I hope that this has been of assistance to members. This section inserts a new Part 4A into the Taxes Consolidation Act 1997 to transpose the EU Minimum Tax Directive into Irish law. A number of consequential and related amendments are also provided for in sections 91 to 95. The directive is based on the OECD’s pillar 2 model rules, which seek to address the tax challenges arising from the digitalisation of the economy and implement a minimum tax rate for large groups and companies. This section is quite technical, providing as it does for both the pillar 2 charging rules and the tax base upon which the top-up tax is charged.

I will now give an outline of the main points contained in this section. Pillar 2 consists of a series of interlinked rules, known as the global anti-base erosion rules, referred to as the GloBE rules. These rules provide that, in general, in-scope businesses will pay a minimum effective tax rate of 15% on their profits in respect of each country in which they operate. The GloBE rules operate as a top-up tax, which is added to corporation tax charged under domestic rules to reach the 15% effective rate. The pillar 2 top-up tax is calculated by reference to financial accounting rules, subject to certain adjustments agreed upon by the OECD inclusive framework and set out in the legislation. The new provisions will apply to both multinational and domestic businesses with a global annual turnover of over €750 million in at least two of the preceding four years.

The three pillar 2 charging rules provided for in this section are as follows. First, an income inclusion rule, IIR, which imposes a top-up tax on a group’s ultimate parent entity, UPE, or certain intermediate parent entities, in respect of the low-taxed income of a constituent entity. A secondary rule is called the undertaxed profits rule, UTPR. The UTPR is intended to operate as a backstop rule in cases where an IIR does not apply, or does not fully apply. Ireland is also introducing a qualified domestic top-up tax, QDTT, which provides for the collection in Ireland of top-up tax due in respect of the profits of in-scope entities located in Ireland. The QDTT will allow Ireland to collect any top-up tax due from domestic entities before an IIR or UTPR rule in another jurisdiction would apply to collect it.

The QDTT liability will be directly creditable against liabilities otherwise arising under the IIR and the UTPR. A QDTT may result in the IIR or UTPR not applying in respect of domestic entities where QDTT safe harbour status applies. The QDTT legislation in the Bill has been designed with a view to obtaining safe harbour status under the OECD peer review. The provisions being introduced include a substance-based income exclusion, SBIE, in line with both the OECD model rules and the EU directive. The SBIE excludes a certain amount of income from the scope of the Pillar 2 top-up tax calculated by reference to payroll costs and tangible assets in the jurisdiction. The percentages reduce annually over ten years before settling at 5% for each category.

In line with published OECD guidance on Pillar 2 implementation, the legislation includes transitional and permanent safe harbours which aim to ease the administrative burden on in-scope businesses, particularly in the initial period of the application of the Pillar 2 rules. This section provides for the IIR and QDTT to come into effect from 31 December 2023. The UTPR backstop rule will come into effect generally from 31 December 2024 but may apply from 31 December 2023 in certain limited circumstances relating to a delayed implementation option provided for in the EU directive for member states with 12 or fewer UPEs in the jurisdiction. This section also provides for the administration of Pillar 2 by the Revenue Commissioners. This will include the obligation to register for the top-up taxes, being the IIR, UTPR or QDTT, the filing of a top-up tax information return, and pay and file obligations which will be due within 18 months of the first fiscal year end and within 15 months of each fiscal year end thereafter.

I would be happy to address any of the individual provisions in further detail if committee members have any questions on same.