Ireland joins consensus on G20/OECD International Tax Proposals

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October 8, 2021
2021-1830

Executive summary

On 7 October 2021, the Irish Government announced it is supporting the G20/Organisation for Economic Co-operation and Development (OECD) International Tax Proposals – the two-pillar solution commonly referred to as "BEPS 2.0."

The announcement comes ahead of the G20/OECD Inclusive Framework meeting on 8 October 2021 to endorse the revised Statement of Agreement (the Agreement) on the two-pillar solution. Ireland's support for the consensus comes after having secured the necessary changes to that agreement to provide long-term certainty for business and stability in the international tax framework.

The Agreement provides that the minimum tax rate for those companies in the scope of the agreement will be 15% following deletion of the words "at least" in the earlier draft which raised concerns of a materially higher minimum rate. Important assurances were also obtained from the European Commission that the proposed implementing Directive will not go beyond the global consensus and there will be consistent and timely implementation to provide the required certainty and stability in the international tax framework to support future investment decisions.

The announcement can be accessed here.

Detailed discussion

Impact on competitiveness

Minister Donohoe indicated that he expected Ireland to continue to remain a very attractive location for foreign direct investment long after the OECD Agreement is implemented stating "I am confident that Ireland will remain competitive into the future, and we will remain an attractive location and "best in class" when multi-nationals look to investment locations. These multinational enterprises support our economy with high value jobs and at the same time, Ireland provides a stable platform and a long proven track record of success for MNEs choosing to invest here." He also noted "At the same time, we cannot be complacent and we need to reflect on both tax and non-tax aspects of our offering including in respect to simplification of the tax code."

In making the announcement the Irish Government reiterated its clear commitment to ensuring that Ireland's regime will remain competitive, fair and sustainable. The Minister stated that Ireland will be at the global minimum 15% tax rate which cannot be undercut by any competitor.

Retention of the 12.5% tax rate

The Agreement will allow for retention of the 12.5% rate for businesses with annual revenue less than €750 million. BEPS 2.0 will not increase the corporation tax rate therefore for the 160,000 businesses below the Pillar Two threshold employing approximately 1.8 million people in Ireland.

Rationale for joining consensus

The Irish Government noted four key risks in staying outside the consensus:

As a small open economy it is important to stay in line with key international accords.
Loss of influence in respect of critical discussions on implementation rules.
Continued uncertainty for businesses operating in Ireland.
In addition to the reputational risks, Ireland would be exposed to economic and fiscal risks were it not to apply the global minimum effective rate.

Minister Donohoe stated "I believe that the upsides of being in such a historic international agreement far outweigh the downsides of staying out. This is a difficult and complex decision but I believe it is the right one."

Cost of the Agreement

The cost to the Irish Exchequer arising from BEPS 2.0 is very difficult to predict. Government estimates are that the annual cost may be €2 billion when both pillars come into effect. In joining the consensus Minister Donohoe noted that "staying outside such an international agreement would have had a far higher cost in terms of our international reputation, would have led to business uncertainty, and risk our attractiveness as a prime location for multinational investment. This will also create Revenue loss."

Next Steps

The 140 member jurisdictions of the G20/OECD Inclusive Framework will meet on 8 October to reach agreement on the revised two-pillar solution.

There is much technical work to be completed on the detailed rules and implementation framework before the work of transposition into national legislation can occur. Ireland will continue to engage with key stakeholders on the work to be done at OECD and European Union level on these issues.

EY will continue to be an active stakeholder in that process.

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For additional information with respect to this Alert, please contact the following:

Ernst & Young (Ireland), Dublin