More to Ireland than just tax - Business Post

Aidan Byrne, lead Tax Partner at RSM Ireland, says the sight of the economy bouncing back from Covid-19 shows that our tax rules are not the only reason foreign companies come to Ireland. 

By Lorraine Courtney, as published in Business Post

 

Ireland's economic outlook is positive despite Covid-19, said Aidan Byrne, lead Tax Partner at RSM Ireland. "The economy has rebounded strongly, with employment levels on the way back to pre-pandemic levels, buoyed by continued FDI investment into the county," he said. 

"From an Irish perspective, this is more important than any tax changes that are taking place. The supports that the government put in place got some criticism, but the logic of doing it has been borne out by where we now find ourselves. This backdrop, together with the recent IDA announcement on jobs created in 2021, puts paid to the argument that the only reason companies come to Ireland is tax. 

"2021 saw a record 29,000 jobs created in IDA-supported businesses. These businesses would have been keenly aware of the tax changes that were coming, and it did not discourage them from investing here, demonstrating that while tax is important, there are other reasons why companies choose Ireland as a place to do business."

Interestingly, more than half of the new investments were into regional areas, with employment growing in all regions of Ireland. 

Byrne said that the remote working environment is a great boost for the rural economy with many people choosing to operate and live away from Dublin, thereby increasing the local economy which feeds into social areas such as schools, sports clubs and so on. "It's a bonus for Ireland as it also helps in dealing with the congestion and over-reliance on the Dublin economy."

Budget 2022 announced an increase in capital expenditure allocation to €11.1 billion in 2022 (an increase of 14 per cent over 2021), said Byrne. "This investment in infrastructure will be crucial in maintaining Ireland's attractiveness for existing and prospective international businesses to invest in Irish operations." he said. 

"Maintaining the 12.5 per cent corporation tax rate for groups with a turnover with less than €750 million is significant. Ireland's commitment to the OECD/G20 proposed minimum tax rate of 15 per cent, as announced earlier this month for groups with turnover in excess of €750 million, was well flagged.

"Ireland's achievement in advance of signing off on this agreement in having the contentious wording 'at least 15 per cent' deleted was very significant. This retains Irish sovereignty over corporate tax rate policy, with Budget 2022 committing to a maximum rate of 15 per cent."

"A rate of 15 per cent positions Ireland very competitively for FDI flows. The work required at OECD and EU level to finalise the proposed global minimum tax rate and changes to the reallocation of taxing rights to the jurisdiction of the consumer will be keenly watched."

OECD Pillar 1 tax proposals would replace some existing norms for taxing multinationals, and would introduce a digital services tax (DST), which is a tax on selected gross revenue streams of large digital companies, said Byrne.

"DST is primarily aimed at taxing the business-to-consumer (B2C) transactions of businesses that offer services via the internet, but do not have a physical presence in the consumer's country."

However, while certain countries proceeded to enact a local DST (such as Austria, France, Hungary, Italy, Poland, Spain, Turkey and Britain) following EU agreement on Pillar 1, the introduction of a DST, at an EU level, is effectively off the table. 

Under a Multilateral Convention (MLC), no newly enacted DST or other relevant similar measures will be imposed on any company from 8 October 2021 and until the earlier of December 31, 2023. As a result, there is no current short-term likelihood of DST being implemented in Ireland."

OECD Pillar 2 proposals would see taxpayers in scope of the rules (largely groups with turnover in excess of €750 million) calculate their effective tax rate for each jurisdiction where they operate and pay top-up tax for the difference between their effective tax rate per jurisdiction and the 15 per cent minimum rate. 

"Any resulting top-up tax is generally charged in the jurisdiction of the ultimate parent for the MNE," Byrne said.

"A de minimis exclusion applies where there is a relatively small amount of revenue and income in a jurisdiction. The Pillar 2 Model Rules also contemplate the possibility that jurisdictions introduce their own domestic minimum top-up tax based on the GloBE mechanics, which is then fully creditable against any liability under GloBE, thereby preserving a jurisdiction's primary right of taxation over its own income."

 

*As seen in Business Post, January 2022

 

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Aidan Byrne
Tax Partner

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