Budget 2016: New tax rules for multinationals

The State is to introduce country-by-country reporting for multinationals in accordance with the recent recommendations of the Organisation for Economic Cooperation and Development (OECD).

The OECD’s recent final report on Base Erosion and Profit Shifting (Beps) recommended that multinationals provide the revenue authority in the jurisdiction in which they are headquartered with country-by-country reports on aspects of their operations,

This confidential data is to be shared with the tax authorities in the markets in which the company operates by way of the tax treaty network.

As part of the Budget process, Minister for Finance Michael Noonan has revealed that the introduction of the new regime would be provided for in the Finance Bill, with a commencement date of January next.

It is likely that the State’s largest corporations will have to comply with the measure.

Revenue will not get new information on the activities of US multinationals with substantial operations here, unless or until country-by-country reporting is legislated for in the US.

Department update

The Department of Finance published an update on the State’s international tax strategy as part of the Budget.

In the introduction to the document, Mr Noonan says that the Beps recommendations present challenges to policymakers and businesses, but also opportunities for countries such as Ireland, where the “alignment of tax and substance has been a long-standing feature of our economic and international tax policy”.

The document says that the State will play its part in the full implementation of the Beps process.

“It is important to us that the remarkable international consensus, which led to the agreement of the Beps reports, remains in place to implement the measures contained in the reports.”

Mr Noonan said that work is underway among 90 countries, including the State, on the development of a multilateral instrument that will be used to deliver a number of the Beps recommendations.

The Minister said that the State “looks forward” to the completion of this work.

The update shows that the State has committed greater resources towards defending transfer pricing disputes.

Corporation tax

On the EU’s agenda in relation to corporation tax, the document says that the State believes that taxation is a vital aspect of an EU member state’s sovereignty and that it has welcomed the postponement of the consolidation aspect of the Common Consolidated Corporation Tax Base proposal.

It says that the State awaits the European Commission’s relaunched proposal in this regard and will “constructively engage in discussions to ensure that Ireland’s perspective is fully heard in this decision”.

The document says that the State disagrees with any harmonisation of tax rates or minimum levels of taxation but is a strong supporter of the commission’s work in the area of tax transparency and administrative cooperation, which are “key to tackling the global problems of tax avoidance and aggressive tax planning”.

The Government has also published a “spillover analysis” that looks at the effect of the State’s tax policies on developing countries.

The State is the only country apart from the Netherlands that has published such a document.

The analysis identified only a very limited flow of capital and trade between Ireland and developing countries, indicating a small likelihood of spillovers from the Irish tax system.

The analysis is “broadly positive”, but some potential issues were identified in relation to tax treaties with Zambia and Pakistan.

However, these treaties are already in the process of being renegotiated.