Ireland’s competitive corporation tax rate has long been a key component of its foreign direct investment (FDI) offering. However, some commentators believe the global minimum tax rate introduced under the OECD BEPS Pillar II process has the potential to erode that advantage somewhat. How has this worked out in practice? Is Ireland still an attractive location from a tax perspective?
“Undoubtedly tax regimes have been a factor which has influenced the direction of foreign direct investment over time – tax rates, reliefs and incentives all being relevant,” says Louise Kelly, partner in tax and legal with Deloitte.
“Another important feature is the stability of the tax regime itself. Ireland has continually demonstrated its commitment to the 12.5 per cent corporation tax rate for trading income. The 12.5 per cent rate continues to apply alongside the new 15 per cent minimum corporation tax rate, which in effect operates to top up the tax rate to 15 per cent for Irish companies within large multinational corporations.
“A large multinational corporation for this purpose has consolidated revenues of €750 million or more. We should remember that many multinationals who are looking to make foreign direct investment may not be in scope of the 15 per cent minimum corporation tax rate and the 12.5 per cent rate may be the only applicable rate for such companies.”
‘A gas emergency would quickly turn into an electricity emergency. It is low-risk, but high-consequence’
The secret to cooking a delicious, fuss free Christmas turkey? You just need a little help
How LEO Digital for Business is helping to boost small business competitiveness
‘I have to believe that this situation is not forever’: stress mounts in homeless parents and children living in claustrophobic one-room accommodation
It should also be noted that the minimum rate applies to competitor jurisdictions as well. “Although the increase in the corporation tax rate to 15 per cent will have a financial impact, larger US multinationals in Ireland would not be incurring any higher a tax liability than it would in any of the other EU jurisdictions,” explains Alan Connell, managing partner and head of tax at Eversheds Sutherland.
“The corporation tax rate in most jurisdictions would still be in excess of the minimum rate of 15 per cent for larger multinationals. Ireland continues to offer a very stable economic and political environment, with certainty as to fiscal policy. Taking account of the strong existing economic ties between the US and Ireland, the fact that Ireland offers unfettered access to not only the EU but also the UK markets on the island, ensures that Ireland continues to offer an attractive proposition to US FDI.”
Sonya Manzor, head of William Fry tax advisory, concurs.
“Ireland has more to offer than a low corporation tax rate. It is now the only common law English-speaking country in the EU,” she says.
“Ireland offers a highly educated and skilled talent pool. Whilst it may be the case that certain US multinationals originally chose Ireland predominantly for the corporation tax rate, they have remained and have continued to invest in Ireland for a much broader range of factors.”
She welcomes the Budget announcements of significant investments in infrastructure which she believes signal a move in the right direction for keeping Ireland attractive for FDI.
“Increased investment in energy, transportation and housing are key to ensure that Ireland remains best in class as a destination for FDI even if the playing field has been levelled somewhat with the increase in the corporation tax rate,” she says.
The potential impact of the change is not yet clear but there are steps Ireland can take to shore up its competitiveness for FDI, according to Cillein Barry, tax partner with KPMG.
“At this early stage, it is difficult to predict how the introduction of the 15 per cent effective tax rate will affect future investment into Ireland over the longer term,” he notes. “However, it’s clear competition for FDI is increasing, with many of our international peers re-examining the attractiveness of incentives and subsidies.
“Ireland will need to differentiate itself from its competitors by enhancing its value offerings to businesses and individuals. This could include broadening incentives to attract the next wave of investment in new sectors such as AI and green economy. In addition, steps should be taken to reduce the cost of doing business in Ireland, particularly in relation to the cost of employment and administrative burdens placed on businesses. It will be important that each component of Ireland’s value offering is best in class.”
There are still questions surrounding Ireland’s ability to maintain its corporation tax regime in the face of pressure from the EU, the OECD and other sources. Connell doesn’t foresee any changes on the horizon at present.
“Having regard to the length of time it took to get Pillar II to a point where it could be implemented, it is unlikely that there would be further increases in the short to medium term,” he says. “It will take a number of years for the effect of the new rules to become clear and bedded down, and, as such, it would be difficult for any particular member states to push for a further increase from a platform where the same minimum tax rate already applies across all EU member states.”
Barry agrees. “We do not believe that the 15 per cent rate is likely to increase in the foreseeable future. Any increase would require broad international consensus, which would be difficult to achieve. Ireland’s position was made clear when the OECD Pillar II proposal was being negotiated. It was initially envisaged that the global minimum rate would be set at a rate of ‘at least’ 15 per cent. Ireland sought to protect its economic interests by successfully negotiating the removal of the term from the final agreed text.”
Of course, the headline rate is only part of the mix and other aspects of the regime, such as the R&D tax credit, are important as well.
“As part of our pre-budget submission we made a number of recommendations to enhance the existing R&D tax credit regime as well as expanding incentives to areas such as digitalisation and sustainability,” says Kelly.
“We await the outcome of the review with interest at a time when a number of countries, such as Singapore and Switzerland, are enhancing their incentives offering to remain competitive in a post-Pillar II environment.”