Irish Revenue reports reflect changing tides
The Irish Revenue Commissioners (Revenue) recently published their 2016 annual report together with an analysis of corporation tax receipts for 2015 and 2016 (the reports). The reports provide empirical evidence of the practical impact of international tax developments on taxpayers in Ireland with cross-border operations. This article, by Joe Duffy and Tomas Bailey from Matheson, provides an overview of the key trends emerging from the reports.
Ireland is increasingly being viewed as the most suitable location globally to onshore intellectual property (IP) as taxpayers reorganise group holding structures. The reports note that claims for capital allowances in respect of the amortisation of IP increased significantly between 2014 and 2015. The total value of IP amortisation claimed in 2015 was €26 billion ($30 billion).
The increase in IP onshoring confirms Ireland’s position as a leading global hub for pharmaceutical and technological based industries. The increase also reflects the real and well-established substance available in Ireland which enables multinational taxpayers to satisfy both domestic substance requirements and the revised international transfer pricing standards.
Availability of tax certainty
The reports confirm that Revenue remains committed to providing tax certainty to taxpayers involved in complex transactions. In 2016, Revenue recorded a 50% increase in the number of advance pricing agreement (APA) requests received. The introduction of a formal APA programme in 2016 has made Ireland an increasingly desirable destination for companies to initiate APA procedures.
Revenue also issued a total of 254 opinions and confirmations to taxpayers during 2016 on the interpretation and application of specific tax rules. Revenue confirmed that opinions and confirmations will continue to be available to taxpayers where required in certain circumstances.
Increased disputes and resolution
In line with international trends, tax disputes have become more commonplace in Ireland in recent years. The reports confirm that this trend continued in 2016, noting a 33% increase in the number of mutual agreement procedures (MAP) initiated during the year. However, the reports confirm Revenue’s continued commitment to efficient dispute resolution where possible. In 2016, Revenue completed negotiations to eliminate double taxation though MAP in almost 20% of its open case inventory. The reports note that Ireland will be subject to OECD peer review of its MAP procedures later this year.
The reports also provide an overview of Revenue’s audit and compliance activities during the year. In total, 40 tax cases involving alleged tax avoidance were settled during 2016, three of which related to the application of Ireland’s general anti-abuse rule. In addition, the reports confirm that Revenue’s transfer pricing audit branch currently have 12 open transfer pricing audits ongoing.
Corporate tax receipts
The reports provide an analysis of the trends in corporation tax payments for 2016, noting that all corporation tax returns for 2016 have not yet been filed. The following points are worth noting in this regard:
Corporation tax receipts increased by 7% to €7.35 billion in 2016;
Trading profits reported increased by 49% to €46 billion; and
The number of net corporation taxpayers increased by 10.6% to 44,149.
Interestingly, the reports note that, despite having the lowest marginal rate of corporation tax of all OECD countries, Ireland’s corporation tax yield as a percentage of GDP is equal to the OECD average and is almost 4% higher than the OECD average share of total tax yield.
The reports provide clear evidence that taxpayers with cross-border operations are responding to recent developments in international tax and increasingly see Ireland as an ideal location to grow their business operations. The reports confirm that taxpayers have confidence in Ireland’s BEPS-compliant tax offering and are enhancing the substance of their operations in Ireland as a direct result.
The increased substance in Ireland underpins the significant increase in trading profits reported in Ireland in 2016 and the continuous growth in employment figures recorded during the year. It is expected that this trend will continue over the coming years.