The roadmap provides a blueprint for the implementation of the EU Anti-Tax Avoidance Directive (ATAD) into Irish tax law and the modernisation of Ireland’s domestic transfer pricing rules (TP rules).
The roadmap marks the latest milestone in the ongoing work on updating Ireland’s corporation tax system and follows on from last year’s publication of the Review of Ireland’s Corporation Tax Code. The roadmap provides a detailed overview of the new measures that will be introduced in Ireland to give effect to evolving international tax standards and confirms the intended timelines and procedures for effecting the changes required in this regard.
The journey to reform
The roadmap details Ireland’s proposed approach and timeline for implementing a number of BEPS and other international tax initiatives that will impact taxpayers in Ireland with cross-border operations, including:
Controlled foreign company (CFC) regime: CFC rules will be included in the Finance Bill 2018 to apply from January 1 2019. Ireland will adopt an Option B approach. This means that income arising to a non-Irish resident CFC from non-genuine arrangements put in place for the essential purpose of obtaining a tax advantage may be regarded as CFC income. A consultation paper was published separately that contains draft legislation that provides for the inclusion of undistributed CFC income that is attributable to significant people functions performed in Ireland. The consultation paper indicates that additional provisions may be included in subsequent draft legislation that targets cash box companies.
General anti-avoidance rule (GAAR): Ireland has had a statutory GAAR for almost 30 years. No changes will be required to Ireland’s existing GAAR to implement the anti-abuse rule included in the ATAD.
Interest limitation rule: The roadmap confirms that Ireland considers that the existing domestic rules that limit interest deductions are at least equally effective to the rule contained in the ATAD. Ireland is currently in correspondence with the European Commission on the point, and it is unclear whether an agreement will be secured. The timing of the implementation of the interest limitation rule will depend on this engagement with the commission, and the roadmap notes that “it is anticipated that transposition could potentially advance, at the earliest, to the Finance Bill 2019”.
Anti-hybrid rules: Draft legislation to give effect to anti-hybrid rules will be introduced in the Finance Bill 2019 with effect from January 1 2020. Further legislation will be introduced in a subsequent Finance Bill for anti-reverse-hybrid rules.
Exit tax: The roadmap confirms that the exit tax envisaged in the ATAD will be effective from January 1 2020. There is, as yet, no indication on rate, but the roadmap notes that a majority of participants in the review suggested that a 12.5% rate would be appropriate.
Transfer pricing: The roadmap confirms that Ireland will move forward with updating domestic transfer pricing rules with effect from January 1 2020. This should mean that the 2017 OECD Transfer Pricing Guidelines will be incorporated into Irish law in the Finance Act 2019. The roadmap is silent on whether:
(a) grandfathering for pre-2010 transactions will be removed;
(b) the transfer pricing rules will be extended to apply to non-trading and capital transactions; and
(c) whether revised OECD transfer pricing documentation requirements will be expressly legislated for.
Multilateral instrument (MLI): Ireland will seek to complete the ratification of the MLI in the Finance Act 2018 with a view to the provisions of the MLI being effective in respect of the withholding tax provisions of Ireland’s double tax treaties from January 1 2020 and for all other purposes from October 1 2019. The roadmap notes that consideration is being given as to whether any related changes need to be made to Ireland’s domestic withholding tax provisions to give effect to the new anti-avoidance provisions that will be introduced by the MLI.
Move to a territorial regime: The roadmap acknowledges that, based on recent consultation, there is broad support for moving to a territorial regime, particularly upon the enactment of the CFC rules from January 1 2019. Practically, this would mean the introduction of a participation exemption for dividends.
Digital Taxation: The roadmap notes the EU and OECD’s work on the taxation of the digital economy, and confirms that Ireland will continue to engage actively on these matters at the EU and OECD level with a view to “reaching a fair and appropriate solution… which ensures that tax is paid where real value-creating activities tale place”.
Plotting the route
The roadmap notes that the success of international tax reform will depend on the ability to translate newly-agreed standards into clear and unambiguous rules that facilitate globalised trade while ensuring that taxes are paid where value is created. In this context, the roadmap highlights the importance of engaging with businesses to ensure that new measures “are fully understood, are operable in practice, and are introduced with sufficient lead-in time to comply with new requirements”.
The roadmap confirms that a number of public consultations will be launched over the coming months to gather responses from interested parties on the design and implementation of the new measures, encompassing:
A feedback statement on draft CFC rules (which was published on September 7 2018);
A consultation on the anti-hybrid and interest limitation rules in Q3 2018;
A consultation on the transfer pricing rule changes in early 2019; and
A consultation on moving to a territorial regime in early 2019.
The roadmap reaffirms Ireland’s commitment to the 12.5% rate of corporation tax and to ensuring that the corporation tax regime remains competitive and continues to contribute to employment and economic growth.
Although the roadmap does not deal specifically with the substance of reformative measures, it does helpfully chart the proposed route that Ireland will take over the coming years to align the corporation tax system with new international standards. By providing an overview of the proposed timing and procedure for the implementation of the reformative measures, the roadmap is a useful tool for taxpayers in Ireland with cross-border operations to assess accurately the resources needed to prepare adequately for the changes ahead.
JOE DUFFY & TOMÁS BAILEY
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