Thursday, 16 December 2021
Department of Finance
128. To ask the Minister for Finance if he will respond to reports and analysis from a company (details supplied) suggesting that Irish tax-resident companies in scope of pillar two of the OECD two pillar solution for international tax reform could reduce their tax liability despite the minimum effective tax rate of 15%; and if he will make a statement on the matter. [62368/21]
On 8 October this year, the OECD/G20 Inclusive Framework on BEPS agreed a two-pillar solution to address tax challenges arising from the digitalisation of the economy.
Pillar Two sets out rules, known as the Global anti-Base Erosion (“GloBE”) rules, which will apply a global minimum effective tax rate to multinationals with a global turnover of at least €750 million annually. The internationally-agreed minimum effective tax rate is 15%.
To ensure consistency in the application of the rules internationally to calculate effective tax rates, as a first step the GloBE rules set out a common basis for measuring profits. The starting point for measuring profits for GloBE purposes is to take the financial accounting information for the companies concerned, subject to certain agreed adjustments. This is the case whether the companies in question are in Ireland or anywhere else in the world.
The second step in calculating the effective tax rate is to work out the amount of tax to be matched against the profits. Again, the tax figure is taken from financial accounting information, subject to certain agreed adjustments. The use of financial accounting information in both steps sets out a robust process for calculating effective tax rates.
The report which is the subject of the Deputy’s question refers to section 291A of the Taxes Consolidation Act 1997 (“Section 291A”). Section 291A provides for allowances in respect of capital expenditure on the acquisition of certain intangible assets, referred to as specified intangible assets. Section 291A claims that are based on the amortisation or impairment charge, computed in accordance with generally accepted accounting practice, in the company accounts will align with the GloBE rules of Pillar Two. Where the Section 291A claim exceeds the amount of such charge in the company accounts, the GloBE rules will intervene to limit any deduction, for minimum tax purposes, to the charge in the accounts— unless the excess is attributable to a short-term timing difference that will subsequently reverse in the company’s accounts. Section 291A allowances are made in respect of real expenditure reflected in the financial accounts and are not unique to Ireland.
The report in question also refers to the so-called double Irishstructure. As the Deputy will be aware, Ireland has made changes to its corporate tax residence rules in Finance Act 2014 that are specifically designed to prevent such structures. Since 1 January this year, following a transitional period, the changes concerned have come into full effect.