Ogier Leman’s Corporate team work closely with tax experts regularly. For our FDI Quarterly Update (August 2023 edition), we are grateful to feature the below contribution authored by Kevin Doyle, International Tax Partner, BDO, Ireland.
Introduction
In October 2021, Ireland along with 130 other counties signed up to an historic agreement to reform the international tax framework for large corporate groups. Building on the original BEPS project, the agreement contains a Two Pillar solution to address the tax challenges arising from digitalisation and globalisation. Pillar 2 is significantly more advanced at this point than Pillar 1 in terms of broad jurisdictional adoption. In the EU, the Pillar 2 rules are contained within an EU’s Directive which requires EU Member States to introduce a global minimum effective tax rate of 15% for corporate groups with annual turnover of at least €750 million. Member States have until 31 December 2023 to transpose the Directive into national legislation.
Current State of Play in Ireland
Ireland’s annual Budget and associated Finance Bill is generally announced and released in October each year. In order to engage with taxpayers and interested parties ahead of the formal release of the Finance Bill, Ireland’s Department of Finance issued its second Feedback Statement on the transposition of the EU’s Pillar 2 Directive on the 27th of July 2023.
Building on the first Feedback Statement issued in March, this latest Statement provides more information on matters such as the safe harbour rules, the proposed approach to the Irish Qualified Domestic Top-up Tax, certain elections that can be made and information regarding administrative matters and the new tax return that the in scope entities must provide (the GloBE Information Return –“GIR”).
Readers are reminded that Ireland secured agreement internationally that groups outside the scope of Pillar 2, i.e., groups with consolidated turnover of less than €750m, continue to be taxed under Ireland’s long standing and transparent 12.5% headline rate for trading activities.
What Should Potentially Impacted Groups Do now?
Below is a suggested list of questions and/or actions that potentially impacted groups should be asking/doing as soon as possible:
Impact/Feasibility Assessment
- Consider all entities by location and legal ownership structure.
- What elections and/or safe harbour positions are available?
- Are tax credits and other tax incentives impacted in certain jurisdictions?
Where Will the Information Come From?
- Do you have existing, capable accounting systems to identify and capture tax and accounting information on a jurisdictional basis or are significant enhancements needed?
- What internal/external resources may be required?
Can Future Compliance and Tax Rate be Reduced?
- Is there restructuring and/or entity rationalisation that may need to be performed?
- Strategic considerations should now factor in the material impacts of Pillar 2, e.g. M&A and disposals and associated modeling is likely to be more complex and may increase the cash tax effect compared to historical modelling.
Conclusion
Whilst underlying Pillar 2 tax filings and associated payments may not be required until late 2025 or more likely, the first half of 2026, the modelling required to prepare accounts and provide associated shareholder and market reporting will be needed later this year and from early 2024 onwards.
An insight into the forecast effective tax rate and the cash tax amounts, as well as a view regarding out of scope entities, should be performed as soon as possible in order to satisfy the likes of shareholders and auditors.
For further information relating to Pillar 2 or BDO’s service offering, please contact Kevin at kdoyle@bdo.ie
