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Corporation Tax Ireland: 15% Tax Rate

In October 2021 it was announced that Ireland would increase their corporation tax rate to 15% for certain large multinational companies. It was originally envisaged this increased rate would be implemented in 2023 provided agreement was reached at an OECD level. However, delays on approval in the US by the Biden administration and recent objections by Member States at an EU level have potentially deferred this implementation which we have examined below.

Why an increase in Corporation Tax?

In October 2021, members of the Organization for Economic Co-Operation and Development (OECD)/G20 Inclusive Framework worked on a global consensus-based solution to reform international corporation tax. It resulted in a
global agreement of 137 jurisdictions including Ireland. The proposal was made up of two key global tax initiatives referred to as Pillar 1 and Pillar 2. Pillar 1 addresses the partial re-allocation of taxing rights. This will result in the taxing rights being shifted towards the country of consumption rather than the country where the company is located. Some jurisdictions have already sought to impose digital taxes in advance of this measure. Pillar 2 addresses the minimum level of taxation applied on profits of multinational enterprises. After some initial negotiations around the wording of the minimum tax, ensuring the words “at least” 15% were removed to avoid future rate creep, Ireland agreed to adopt the minimum corporation tax rate of 15% for certain large multinationals. However, the proposed tax increase will only apply to any domestic and international group with a combined financial revenue of over €750 million a year.

Timing of new Corporation Tax Rate

With the EU presidency currently sitting with France they had pushed for EU States to implement the minimum tax rate quickly. However, the approval for this would need the unanimous support of all 27 States and recently Poland, Sweden, Estonia, and Malta have raised their reservations until a clear position has been taken by the US. With Ireland in agreement to the proposal, Paschal Donohoe (Minister for Finance) wishes to legislate the bill for the beginning of 2023. However, with pushback from these other EU nations, suggestions have been made to change implementation to 2024 to allow companies time to adapt. French Minister for Finance Bruno Le Maire intends to readdress the proposal in April.  

Impact for Ireland

Given the new rate will only impact large multinational groups with turnover in excess of €750m, Ireland’s 12.5% corporation tax rate will primarily remain intact. How the increased rate will affect Ireland’s FDI will be watched with interest. The government have stated projected figures of €2billion being the decrease in tax revenue arising from the increase tax rate. Ireland has been at the forefront of all recent international tax reforms introducing items such as interest limitation rules, anti-hybrid measures and increased transfer pricing focus. These items, along with Trump tax reforms in the US, had all led to anticipation of Ireland’s FDI being impacted which did not materialise to any significant level. Roberts Nathan’s Tax Partner, Brendan Murphy brendan.murphy@robertsnathan.com is available to discuss all aspects of Ireland’s position on international tax reform.    
April 5, 2022

RN Podcast: 2021 – What is in store for the Irish tax landscape in the year ahead

Vivian Nathan, Managing Partner, welcomes Brendan Murphy, Tax Partner, to Roberts Nathan. Brendan joined the firm at the beginning of 2021 to continue the firms expansion and our commitment to providing our clients with dedicated specialist within specific sectors. On this podcast, Viv and Brendan discuss the opportunities Brendan sees for businesses from a tax perspective in the year ahead and what will be the key areas of focus for tax advisors. They also look at the impact to date of Brexit and how this will continue to effect trading between Ireland and the UK. Finally they will look at the cost Covid-19 is having on the Irish economy and what the future Irish tax landscape may look like.
We hope you enjoy listening to our podcast and if you have any questions regarding any of the points raised please let us know.
April 19, 2021

Some Highlights of Budget 2020

Minister for Finance Paschal Donohoe delivered his Budget 2020 speech on Tuesday which included a €2.9bn budget day package. Also confirmed is a €1.2bn Brexit-proof fund. Whether you are for or against it, carbon tax will be the most controversial element of the package and a talking point for many. Below we have outlined the main tax highlights of Budget 2020. Personal Taxes
  • Income tax rates and bands and the USC rates and bands remain unchanged. The Minister for Finance did not want to commit to personal tax cuts in the lead up to a no-deal Brexit.
  • The Home carer credit has increased to €1,600 and the Earned income credit has increased to €1,500.
  • The Group A threshold for CAT has increased from €320,000 to €335,000. The increased threshold applies to gifts or inheritances received on or after 9 October 2019.
Payroll Taxes
  • There was no mention of employer’s PRSI however Budget 2019 announced this would increase from 10.95% to 11.05% from 1 January 2020. Employer’s PRSI has steadily increased over the last few years and represents a significant cost to businesses.
  • SARP relief and the Foreign Earnings Deduction have been extended to 31 December 2022.
  • In 2018, the Government implemented a 0% BIK rate for electric vehicles subject to a value limit of €50,000 in comparison to a rate of 30% of the car’s original market value for non-electric vehicles. This initiative has been extended to 2022.
Business Taxes The R&D tax credit regime has been amended so that it is more accessible to micro and small companies in Ireland. These amendments include the following:
  • An increase in the credit from 25% to 30%.
  • The ability to claim the credit on qualifying expenditure before the company commences trading. It should be noted that any credit claimed in this period can only be offset against VAT and payroll liabilities.
  • An increase in the outsourcing limit applicable to third level institutes from 5% to 15%.
  • Farm restructuring relief, a capital gains tax relief due to expire at the end of this year, has been extended to 31 December 2022.
  • Several amendments will be made to the KEEP scheme to incentivise take-up in the scheme. This includes a change in the definition of a qualifying company so that the scheme applies to group structures and a change in the definition of a qualifying individual so that it applies to part-time and flexible employees.
  • EII relief, an income tax relief for individuals who invest funds in certain companies, will also undergo changes which apply from yesterday. The amendments will allow individuals to claim full relief in the year of investment and the annual investment limit will increase from €150,000 to €250,000.
  • The Minister for Finance announced there will be a significant overhaul to the DWT regime. From 1 January 2021, real-time date collected under the new PAYE Modernisation regime will be used to create a personalised rate of DWT on distributions received by individuals. In the meantime, an increase in the DWT rate from 20% to 25% will apply from 1 January 2020.
October 9, 2019
  Corporation Tax

Apple, Ireland and the USD $13,000,000,000 Plus!

The European Commission (EC) is sticking to its guns regarding its state aid investigation into the Corporation Tax arrangements of Apple in the Republic of Ireland.

As everybody knows at this stage, Ireland has been ordered to recover up to €13 billion of state aid from Apple relating to a ten year review period. It is estimated that when interest is applied to this sum, the final amount due by Apple to the Irish Exchequer will be in the region of €19 billion.

Both Apple and the Irish Government have confirmed that they strongly disagree with this order and both parties plan to lodge separate appeals to the European Courts in objection to the order.

The Government has also confirmed that in its view, and according to Irish tax legislation, Apple have paid the appropriate amount of Corporation Tax. It has also confirms that no state aid was provided.

The EC has provided very limited information supporting its decision on this matter which is resulting in serious questions in relation to the validity and calculation of the tax deemed to be due to the Irish State. It is likely to be several months before the detailed reasoning supporting the decision is published by the EC.


What does this mean for Ireland and its relationship with the EU?

The Irish Corporate Tax rate, together with other factors is critical in terms of our attractiveness as an economy for Foreign Direct Investment (FDI). In theory each EU Member State is free to set their own individual tax rates for each category of tax arising in each country. However, for some years now the Irish Government has come under considerable attack from other EU Member States, but particularly France, to increase its headline Corporate Tax Rate above the existing 12½%. The Irish Government has been forced to strongly defend Ireland’s corporate tax rate against outside criticism from Europe and is resolute in its commitment in this regard.

If the appeal is lost and Ireland ultimately ends up receiving these funds as directed by the EC then in effect the EU will have taken steps which enable them to interfere in and have the potential to exert influence over tax law. If this were to transpire foreign multinationals may change their perspective of Irish tax laws and no longer regard Ireland as a suitable location for FDI purposes. This could have potentialy disastrous economic consequences for the Irish economy in the future.

We believe the Irish Government are absolutely right in fighting this decision by the EC and proceeding with an appeal to the European Courts in order to defend Ireland’s position in this regard. However, any appeal that takes place will extend the matter for many years before a ruling is received from the European Courts.

Images: Shutterstock

September 8, 2016
  Corporation Tax

Reasons To Do Business In Ireland – Corporate Tax Rates and Tax Administration

While there are many factors which attract Foreign Direct Investment (FDI) to Ireland, our well publicised Corporation Tax Rate of 12.5% is considered as one of the most significant.  Ireland’s  rate of 12.5% is one of the lowest “onshore” Statutory Corporate Tax rates in the world; however, it is not an incentive regime, it is in fact the standard tax rate applicable to any active business or “trading” income from any industry or sector in Ireland.  
  1. Corporate Tax Rate of 12.5%

Ireland’s headline Corporate Tax rate has come under much scrutiny from both the USA and Europe in recent years.  However, Ireland is the only country in Europe where our official tax rate was in line with our actual tax rate (12.5% V’s 12.4%), giving us the most effective tax rate in Europe. (Paying Taxes 2015) While Ireland has been accused of creating a “race to the bottom” in relation to Corporation Tax, it is interesting to note that for many European countries there is a substantial difference between their official tax rate and their actual effective tax rate. Furthermore, the Corporate Tax rate of 12.5% applies only to “trading” income, with passive income attracting a tax rate of 25%.  Examples of passive income include investment income, rental income and net profits from foreign trades.  
  1. Overall Tax Rate

Included in the “Paying Taxes 2015” report, the overall tax of each country was also reviewed.  Under this category Ireland ranked 4th globally, with  Ireland’s overall tax rate amounting to 25.9%, which is substantially lower than other countries and the average rate of 41%. The following is a breakdown of how Ireland’s overall tax rate compares with some of the key countries in Europe:
Category   Ireland   Germany   Italy   France
Profit Taxes 12.4% 23.3% 19.9% 7.4%
Labour/Employer Taxes 12.1% 21.2% 43.4% 51.7%
Other Taxes 1.4% 4.3% 2.1% 7.5%
Total Tax Rate   25.9%   48.8%   65.4%   66.8%
  1. Bureaucracy and Administration

Ireland ranks 1st in Europe and 6th in the world for ease of paying taxes, which takes into consideration the number of hours companies spend a year dealing with tax administration along with the average number of tax payments made by companies each year. In Ireland companies spend an average of 80 hours per annum complying with tax administration, which is a very positive result when compared to Germany at 218 hours, Italy at 269 hours and the average number of hours coming in at 176 hours. Ireland also compares very favourable under the category of number of taxation payments made by a company during the year. On average Irish companies only make 9 tax payments each year, with the average being 12.5 payments. Taxes are a significant consideration for companies when considering a suitable location for their operations and Ireland continues to do well in this regard. It is therefore vital that Ireland retains a tax system that eases the administrative burden of tax compliance.  The introduction and investment in electronic filing by the Irish Government has assisted in this regard, with the Revenue Commissioners making substantial advances in electronic filing in recent years.  
  1. Three Year Exemption From Corporate Tax For Start-Up’s

In the Irish Budget 2015, the Minister for Finance announced an extension to the exemption from Corporation Tax for Start-up companies.  Such an announcement demonstrates Ireland’s commitment to encouraging entrepreneurship and employment creation. For those companies which were incorporated after 14th October 2008 and commenced to trade between 1st January 2009 and 31st December 2015 relief is granted on profits of the new trade, including chargeable gains on disposals of assets used for the new trade Where the total amount of annual Corporation Tax does not exceed €40,000, a full exemption may be available.  Where the Corporation Tax is between €40,000 and €60,000 marginal relief is given. The quantum of relief available is also linked to the number of employees and the amount of employers’ PRSI paid or deemed paid by the company in the relevant accounting period.  

The Future Of Ireland’s Corporation Tax

In recent budgets the Minister for Finance has remained firm that Ireland’s Corporation Tax rate should remain at its current level.  The “Paying Taxes 2015” report will also provide comfort for the Irish Government against any criticism on our Corporate Tax rate as it confirms that Ireland’s rate of 12.5% is not just a tax incentive.  Our low Corporate Tax rate coupled with an efficient tax system and the relative ease with which companies can pay tax in Ireland are all factors which strengthen Ireland’s attractiveness as a location for FDI. If you would like further information or have any queries on the above you can contact us
here.   Images: Shutterstock
August 6, 2015