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.