Corporate tax rate of 15% will pose companies ‘significant challenges’

Minister for Finance Michael McGrath has acknowledged that large companies will face “significant challenges” in preparing to comply with a new 15 per cent corporate tax rate.

In line with an agreement reached between members of the Organisation for Economic Co-operation and Development (OECD) in October 2021, Ireland is among 137 jurisdictions globally that have agreed to a two-pillar reform of international corporation tax.

The first pillar involves the reallocation of tax rights to the country of consumption rather than where the company is located, while pillar two requires countries to adopt a minimum corporate tax rate of 15 per cent for certain large multinationals.

It is due to come into effect in the State from 2024 and the Government has said this will involve the 12.5 per cent rate remaining in place for all companies, while a special top-up tax of 2.5 per cent called the “qualified domestic top-up tax” will apply to companies with a turnover of at least €750 million.

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Addressing a PwC event in Dubin on Wednesday, Mr McGrath said that implementation of the corporate tax increase was progressing “at pace” and would be legislated for in the Finance Bill published this autumn.

He acknowledged that businesses and their advisers would “face very significant challenges in preparing for compliance with what is a complex new framework”.

“It will require an understanding of new concepts, and indeed of terminology, access to new data points and complex new calculations,” he said.

“We do recognise that pillar two will bring much added complexity for in-scope companies, particularly as implementation follows a concentrated period of corporate tax reform in recent years,” he added, acknowledging that it was “becoming ever more challenging for business to ensure they remain tax-compliant”.

Paraic Burke, head of tax with PwC, said the complexity of the incoming pillar-two rules was “causing concerns” for the company’s clients.

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“The rules are coming in, it is happening, but I think it’s the complexity of the rules, the added compliance cost, and also the uncertainty about what the rules are in different jurisdictions. You could have a company that’s in 10 or 15 different jurisdictions and will everyone deal with it the same way?” he said.

The Minister said that his department was placing a renewed focus on access to education, and reducing red tape and bureaucracy in relation to corporation tax and a number of domestic tax schemes.

The Department of Finance is set to issue a “significant policy statement” and consultation paper on Thursday, setting out a roadmap for the State to move to a territorial system of corporate taxation.

This will bring the Republic into line with most other EU countries and simplify processes for Irish-headquartered companies that receive dividends from operations abroad, and help companies to manage double-tax agreements which are designed to avoid paying tax twice.