On 8 October 2021, Ireland, along with 136 jurisdictions, signed up to a two-pillar International agreement at the OECD/G20 Inclusive Framework on BEPS to address the tax challenges arising from the digitalisation of the economy.
Pillar One will see a reallocation of 25% of residual profits to the jurisdiction of the consumer. The scope is confined to multinational groups with turnover in excess of €20 billion annually. Residual profit is profit greater than 10% of turnover. Pillar Two provides that the minimum effective rate is 15% for in-scope businesses (MNEs over €750m revenue).
Signatories to the agreement, including Ireland and the United States, are working intensively at the OECD working parties to reach agreement on the technical detail required to ensure these complex provisions are transposed robustly and in co-ordination by all signatories to the agreement.
In respect to Pillar One, the OECD have divided the work into 14 building blocks which are under development with drafts released for public consultation periodically.
For Pillar Two, Model Rules were published by the OECD in December 2021 and the European Commission subsequently published a legislative proposal, the Minimum Tax Directive, to transpose Pillar Two within the European Union. Ireland has been actively involved in the technical negotiations on the Directive since the start of 2022 and we support the current draft text which is broadly faithful to the OECD agreement. It is hoped that final agreement on the Directive can be reached soon between all EU Member States. This will allow its coordinated implementation in national laws across the EU to proceed.
In relation to the overall cost of the package, it has been estimated that the cost to the Exchequer arising from joining this agreement will be in the region of €2 billion annually, however it remains difficult to accurately estimate the impact at this stage pending completion of the ongoing technical work. The outcome of these discussions, coupled with the future business decisions of multinationals, will have significant implications for our future corporation tax receipts – the scale of the effect will only become fully known with time. Once the technical work is complete and the architecture has been agreed a more robust estimate on the overall cost can be provided.
