Ireland Bows to Pressure to Increase Its Corporate Income Tax Rate
In 2015, Ireland caved in to pressure from the European Union, the Organisation for Economic Co-operation and Development (OECD), and the U.S. to close a loophole that facilitated the use of the controversial Double Irish structure by multinational enterprises (MNE). The Double Irish structure was typically coupled with a Dutch Sandwich to form a Double Irish, Dutch Sandwich. It became a preferred structure on the menu of tax planning strategies for MNEs. The Irish government gave MNEs until 2020 to eliminate this structure. In the latest blow to Irish tax sovereignty, the Irish government agreed to an increase in its corporate income tax rate from 12.5 percent to 15 percent so it aligns with the OECD’s plan to implement a global minimum tax.
A global minimum tax is a pillar of the OECD’s goal to combat base erosion and profit shifting by MNEs. Under the proposal, referred to as the Global Anti-Base Erosion (GloBE) rules, there will essentially be a minimum tax rate of 15 percent for each jurisdiction. If a country has a tax rate of less than 15 percent or if a payment to a country is taxed at less than 15 percent, the rules force those profits to be taxed at 15 percent, either at the parent company level or in another jurisdiction. One hundred and thirty-three countries, with the notable exception of Ireland, Estonia, and Hungary, had signed on to OECD’s plan to implement the GloBE rules. The Irish government was reluctant to increase its corporate tax rate, as it was instrumental in luring large MNEs, such as Google, Pfizer, LinkedIn, and Facebook, to establish their European headquarters in Ireland, which resulted in the creation of numerous jobs and an increase in its tax base.
On October 7, the Irish cabinet came out in support of the OECD’s plan and agreed to raise its corporate tax rate on large taxpayers. Under the new agreement, starting in 2023, large MNEs, defined as having consolidated revenues of more than €750 million (approximately $866 million), will be subject to 15 percent corporate income tax in Ireland. Companies under that threshold will continue to be taxed at 12.5 percent. It is estimated that 56 MNEs will be affected by the new Irish tax rate and just 100 companies accounted for almost 80 percent of Ireland’s tax revenue. As part of convincing Ireland to join the plan to adopt the GloBE rules, the OECD agreed not to increase the rate above 15 percent in the future.
MNEs with operations in Ireland should assess if they will be subject to the 15 percent corporate rate. Prognosticators have predicted that if the GloBE rules are successful, the €750 million threshold will be reduced so it is applicable to all MNEs, regardless of revenue size. Reach out to your BKD Trusted Advisor™ or submit the Contact Us form below to discuss the proposed OECD GloBE rules or the increase in the Irish tax rate.