As the Deputy is aware, the OECD/G20 Inclusive Framework on BEPS met last October to agree a two-pillar solution to address 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 multination 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 multinational enterprises with annual turnover in excess of €750m.
It is expected that the Agreement will bring long-term stability and certainty to the international tax framework arising from discussions which have taken place.
The implementation timeframe for both Pillars is ambitious as acknowledged recently by the Secretary General of the OECD. However, I am fully committed to delivering both pillars of the agreement as soon as possible.
Intensive work is ongoing, both at the OECD and EU, to reach agreement on the technical detail required in both Pillars to ensure that these complex provisions are transposed robustly and in co-ordination by all signatories to the agreement.
An intensive programme of meetings is ongoing at the OECD to ensure that the Agreement can be translated into rules which ultimately can become legislation. My officials and those of the Revenue Commissioners are endeavouring to shape the rules to ensure that they provide the necessary tax certainty, are administrable for business and tax administrations, and remain broadly faithful to the October Agreement.
On Pillar One the OECD have divided the work into 14 building blocks necessary to implement Pillar One. Each block is sent to public consultation as part of the development process and these elements will eventually form the Pillar One Model Rules.
These model rules, which will govern the reallocation of taxing rights to market jurisdictions, are to be delivered through a Multilateral Convention. This will be both legally and legislatively challenging to develop and deliver.
Pillar Two is more advanced. The OECD published Model Rules in December 2021 and published a commentary to these rules in March of this year. The Model Rules provide an important framework to assist individual jurisdictions to implement the Global Minimum Effective Tax Rate in a coordinated and consistent manner in accordance with the terms of the Agreement.
Work is ongoing on the OECD’s Implementation Framework to deal with further implementation issues, such as co-existence with the US GILTI regime, and the GloBE information return.
In the EU, work on delivering Pillar Two into legislation through the Minimum Tax Directive is very advanced. I am fully supportive of the efforts of the French presidency towards reaching unanimous agreement of the Directive and am optimistic that unanimous agreement can be reached at ECOFIN soon.
The EU Minimum Tax Directive now provides for implementation by 31 December 2023, which is in line with the OECD agreement of 2023 implementation. This remains faithful to the original deadline, while recognising the complex work required of both tax administrations and businesses in order to introduce and operate these rules effectively.
Domestically, a public consultation has recently been launched on the implementation of Pillar Two into Ireland’s tax code and I encourage all interested parties to engage with this consultation.
