KEY THEMES IN TAX
IRISH PROPOSED LEGISLATION
Taxation and Certain Other Matters (International Mutual Assistance) Bill
This bill will transpose elements of the OECD Mutual Convention on Administrative Assistance and the EU / Switzerland Anti-Fraud Agreement.
Latest stage: Heads of bill have been approved. Pre-legislative scrutiny has been waived.
Finance (Tax Appeals) Bill 2022
To amend the Finance (Tax Appeals) Act 2015 to allow for the appointment of non-temporary Commissioners with different tiers of responsibility and potential amendments to address the Supreme Court decision in Zalewski v An Adjudication Officer & Ors [2021] IESC 24.
Latest stage: Heads of bill being prepared.
Ireland published Finance (No. 2) Bill 2023 on 19 October 2023. Most notably, in order to transpose the EU directive to ensure a minimum level of taxation (see further details below), the bill implements the OECD Pillar Two rules to ensure a minimum effective tax rate of 15% for multinational groups with an annual global turnover exceeding €750 million in at least two of the preceding four years.
The bill also includes a number of amendments previously announced as part of Budget 2024, including amendments to the research and development tax credit and an amendment to the digital games tax credit to ensure that the credit will align with the definition of a qualified refundable tax credit under the OECD Pillar Two rules.
Following a public consultation by the Department of Finance earlier this year, the bill inserts new sections regarding outbound payments (withholding taxes on royalties, interest, dividends) to ensure the prevention of double non-taxation. The bill also outlines a change in respect of the collection of any tax on the exercise of a share option on or after 1 January 2024 from self-assessment to the PAYE system.
Latest stage: Seanad Éireann, Committee Stage. The final text is expected to be passed into law before the end of 2023.
Matheson Insight
EU DIRECTIVES IMPLEMENTED IN IRELAND
Date published: 22 March 2021
This directive amends the existing rules (Directive 2011/ 16/ EU) on exchange of information and administrative co-operation and extends the EU’s tax transparency rules to digital platform operators. It requires new reporting obligations for digital platform operators in respect of revenues generated by sellers carrying out certain activities via digital platforms and provides for the automatic exchange of the information reported by EU tax authorities. The first reporting obligation for digital platform operators will arise on 31 January 2024 in respect of the year 2023. The directive has been transposed into Irish law by Finance Act 2022 and the statutory instrument introducing further regulations in respect of DAC7 can be accessed here.
The directive also makes amendments with respect to joint audits by EU tax authorities from 1 January 2024.
Transposition date: The Irish Revenue Commissioners published a guide on "EU Reporting Obligations for Platform Operators" in July 2023 which was subsequently updated in October 2023. The guide clarifies how certain aspects of the DAC7 regime will apply in practice and can be accessed here. The registration portal for platform operators in Ireland was opened from 1 November 2023, with the deadline for registration being 30 November 2023. The Revenue Guide on "Registration Guidelines for DAC7" was published in November 2023 and provides general guidance on how to register for the reporting obligations in Ireland. This Guide can be accessed here.
Finance (No.2) Bill 2023 will transpose the provisions regarding joint audits by EU Member States into Irish law.
Matheson Insight:
Irish Revenue Guidance in Respect of DAC7 Reporting Obligations
Date published: 1 December 2021
Under the terms of the directive on public country-by-country reporting (“CBCR”), multinational corporate groups with consolidated group revenue in excess of €750 million for each of the last two consecutive financial years, and which are active in more than one EU jurisdiction, will be required to publicly report certain information, including their employee headcount, revenue (from related and unrelated parties), pre-tax profit, income tax accrued and income tax paid on a country-by-country basis for each Member State.
Companies will also be required to report this information for certain “third countries”, i.e. each country that is listed on the EU blacklist or that has been listed for two consecutive years on the EU grey list. Information in respect of all other third countries can be compiled on an aggregated basis and provided as a single line item.
EU branches of undertakings located outside the EU can also trigger a reporting requirement where their parent undertaking satisfies the €750 million revenue threshold. Where the parent of a multinational group is established outside the EU, a reporting obligation will arise where an EU subsidiary constitutes a “medium” or “large” undertaking, as defined in the EU Accounting Directive 2013/ 34/ EU. Broadly, this means that a multinational group will be required to file a CBCR report where it has an EU subsidiary that exceeds at least two of: a balance sheet of €4 million; net turnover of €8 million; or average number of employees of 50 during a financial year.
The directive provides for a ‘safeguard clause’ whereby certain business-sensitive information can be temporarily omitted from public disclosure. Any such omitted information must be published within five years of its original omission. However, information concerning tax jurisdictions listed on the EU blacklist may not be omitted. The safeguard clause (along with a number of other clauses) will be reviewed as part of a planned wider review of the impact and effectiveness of the directive which it has been agreed will be completed by 22 June 2027.
The information must be made accessible to the public free of charge on the website of the relevant undertaking. The information must be made available for a minimum of five consecutive years. The European Commission intends to provide a common template which must be adopted when making a CBCR report. The CBCR report must be published within 12 months of the balance sheet date of the relevant financial year. In-scope multinational corporate groups with a 31 December year-end will need to publish this information on the group’s website in respect of the 2025 financial year (ie, the first reportable financial year for companies with a 31 December year-end) by December 2026 (ie, the first reporting deadline for companies with a 31 December year-end).
Transposition date: The Irish regulations transposing the directive came into effect under Irish law on 22 June 2023 with reporting requirements applying to financial years starting on or after 22 June 2024.
EU DIRECTIVES AWAITING IMPLEMENTATION
Directive on ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups in the Union
Date published: 22 December 2022
In line with the OECD / G20 agreement on a two pillar solution to address the tax challenges arising from the digitalisation of the economy (the "OECD Agreement"), the EU published a directive to implement Pillar Two of the agreement, namely the measures to ensure a global minimum level of taxation for multinational groups. The objective of this directive is to impose a minimum effective tax rate of 15% on multinational groups above a certain size threshold.
The Pillar Two rules encompass two sets of rules: (i) the “GLoBE” rules (including the ‘income inclusion rule’ ("IIR") and the ‘undertaxed profits rule’ ("UTPR")); and (ii) the subject to tax rule. This directive proposes to implement only the “GLoBE” rules, with the subject to tax rule to be implemented in a model treaty provision.
As provided in the OECD Agreement, the directive will only apply to entities of a multinational group located in the EU that meet the annual threshold of at least €750 million of consolidated revenue in at least two of the four preceding years, and certain exclusions set out in the OECD Agreement are carried over into this directive. The directive also extends the application of the IIR to purely domestic groups established in a Member State if they reach the €750 million threshold in line with the EU’s fundamental freedom of establishment.
This Directive has been implemented in Ireland in the Finance (No.2) Bill 2023.
Following the two feedback statements published by the Irish Department of Finance earlier this year in respect of the implementation of the Pillar Two rules in Ireland, Finance (No.2) Bill 2023 will transpose the directive into Irish law.
The bill sets out that Ireland will introduce a qualified domestic top-up tax ("QDTT") to ensure collection of any top-up tax from in-scope domestic entities before the IIR or UTPR would apply in another jurisdiction. The QDTT has been designed with a view to obtaining safe harbour status such that a multinational group can exclude the group entities subject to the QDTT when calculating the IIR and UTPR in another jurisdiction. All countries seeking to avail of this status will be subject to an OECD peer review process.
Ireland will also implement the transitional UTPR safe harbour. The UTPR top-up tax calculated for the ultimate parent entity ("UPE") jurisdiction would be deemed to be zero if the UPE jurisdiction has a corporate income tax with a rate of at least 20%. The transitional UTPR safe harbour applies for fiscal years that run no longer than 12 months beginning on or before 31 December 2025 and ending before 31 December 2026.
The transitional CBCR safe harbour will also be implemented under the bill to provide for a transitional period to ease the compliance obligations where a multinational group meets certain tests.
Transposition date: Member States are to transpose the provisions of the directive by 31 December 2023 and apply these provisions for accounting periods starting on or after 31 December 2023 except the UTPR, which applies a top-up tax where an IIR is not applicable, is to come into effect one year following the IIR for accounting periods beginning on or after 31 December 2024.
This Directive has been implemented in Ireland in the Finance (No 2) Bill 2023.
Directive amending Directive 2006/112/EC as regards Rates of Value Added Tax
Date published: 6 April 2022
Under this directive, the existing EU rules (Directive 2006/ 112/ EC) on setting reduced rates of VAT are amended and Member States are granted more freedom in setting VAT rates (provided that the average weighted rate exceeds 12%) and to what they apply. In addition a list of goods and services has been agreed to which reduced rates cannot apply.
Transposition date: 31 December 2024
Directive on Introducing Certain Requirements for Payment Service Providers
Date published: 2 March 2020
Under this directive (amending Directive 2006/ 112/ EC) payment service providers will be required to keep records in respect of cross-border payments made to payees who receive a relatively high volume of cross-border payments. Payment service providers will make these records available to EU tax authorities. The directive is intended to facilitate tax fraud detection by EU tax authorities.
Transposition date: 31 December 2023. The Commission published a guide on the "Guidelines for the reporting of payment data from payment service providers and transmission to the Central Electronic System of Payment information" which provides details on how these obligations shall operate in practice. This guide can be accessed here.
Directive amending Directive 2011/ 16/ EU on Administrative Co-operation in the Field of Taxation ("DAC8")
Procedure reference: 2022/0413/CNS
Date published: 8 December 2022
This directive is the eighth amendment to the Directive on Administrative Co-operation (Directive 2011/ 16/ EU) (“DAC8”). The DAC8 proposals seek to strengthen existing rules and expand the exchange of information framework to address tax issues related to digital currencies, cryptocurrency and e-money, including the lack of information at the level of EU tax administrations.
Transposition date: Member States are to transpose the provisions of the directive by 31 December 2025. The provisions will apply as of 1 January 2026.
EU DRAFT LEGISLATION
Proposal for a Directive on Business in Europe: Framework for Income Taxation (BEFIT)
Procedure reference: 2023/0321 (CNS)
Date published: 13 September 2023
In line with the Commission Communication on Business Taxation for the 21st Century ("Commission's Communication") adopted on 18 May 2021, the Commission is seeking to introduce a common set of rules for groups active in the EU to calculate their taxable base. Under the BEFIT proposal, profits of the BEFIT group members will be consolidated into a single tax base and allocated between the group members. This proposal replaces prior proposals (CCCTB (common consolidated corporate tax base) and CCTB (common corporate tax base)) to better reflect global developments, in particular by taking account of digitalisation. The new rules will be mandatory for groups operating in the EU with an annual combined revenue of at least €750 million (aligning with the Pillar Two rules) and where the ultimate parent entity holds, directly or indirectly, at least 75% of the ownership rights or of the rights giving entitlement to profit. For groups headquartered outside the EU, their EU group members would need to have raised at least €50 million of annual combined revenues in at least two of the last four fiscal years or at least 5% of the total revenues of the group to fall within the scope of the rules. Groups falling below these thresholds may choose to opt in to the rules as long as they prepare consolidated financial statements. If adopted, BEFIT must be implemented by Member States by 1 January 2028 and the proposed provisions would apply from 1 July 2028.
Latest stage: The Council has yet to adopt the proposal. Discussion on this proposal is on-going at working party level.
Proposal for a Directive on Transfer Pricing
Procedure reference: 2023/0322 (CNS)
Date published: 12 September 2023
This proposed directive is part of the BEFIT package and seeks to harmonise EU transfer pricing rules for the first time. The proposal seeks to incorporate the arm's length principle and key transfer pricing rules into EU law, clarifies the role and status of the OECD Transfer Pricing Guidelines and establish common binding rules on specific aspects of the rules. It is proposed that Member States will implement the transfer pricing rules by 1 January 2026.
Latest stage: The Council has yet to adopt the proposal. Discussion on this proposal is on-going at working party level.
Matheson Insight:
New EU Proposal for a Transfer Pricing Directive
Proposal for a Directive on Faster and Safer Relief of Excess Withholding Taxes
Procedure reference: 2023/0187 (CNS)
Date published: 19 June 2023
This proposed directive aims to make withholding tax procedures in the EU more efficient and secure for investors, financial intermediaries and Member State tax administrations. One of the key proposals is a common EU digital tax residence certificate to make withholding tax relief procedures faster and more efficient. If adopted the directive must be implemented by Member States by 31 December 2026 and the proposed provisions would apply from 1 January 2027.
Latest stage: The Council has yet to adopt the proposal. Discussion on this proposal is on-going at working party level.
Proposal for a Directive laying down rules to prevent the misuse of shell entities for tax purposes (ATAD 3)
Procedure reference: 2021/0434 (CNS)
Date published: 22 December 2021
The purpose of this legislation is to prevent the misuse of shell companies for tax purposes, amending Directive 2011/ 16/ EU. The legislation will tackle legal entities of minimal substance which do not perform any economic activities and are used for the purposes of tax avoidance and evasion.
The directive sets out three ‘gateway’ criteria to identify shell entities. Entities that meet all three gateway criteria are required to report on whether they meet the minimum substance requirements through their annual tax returns. If an entity does not meet all of the minimum substance requirements (or does not provide sufficient documentary evidence) it will be classified as a shell entity and will be denied access to tax treaties and denied tax benefits under the Parent-Subsidiary and Interest and Royalties Directives.
Certain entities are excluded from the proposed directive, such as listed companies, regulated financial undertakings, domestic holding entities and entities that have at least five full-time employees exclusively carrying out income-generating activities. An entity can also be exempted if it can prove that there is no tax advantage arising from its use.
Latest stage: The Commission proposed this directive in late 2021. The European Parliament approved an amended version of the directive on 17 January 2023. It is currently subject to discussions within the Council where it must be approved unanimously by all EU Member States before it can be adopted into EU law. Although the directive has not yet been adopted there has been no change to the proposed effective date of 1 January 2024 yet. Currently, there is a reference period of two years that is envisaged to apply for determining whether ATAD 3 is applicable to an entity (ie, for assessing the 'gateways'), which means that the facts and circumstances as per 1 January 2022 are potentially relevant for this purpose.
Proposal for a Directive laying down rules on a debt-equity bias reduction allowance and on limiting the deductibility of interest for corporate income tax purposes
Procedure reference: 2022/0154 (CNS)
Date published: 11 May 2022
The proposed directive (the "DEBRA") seeks to introduce two new tax measures: (i) an ‘allowance on equity’ that would provide a tax deduction to taxpayers that increase their equity capital compared to their previous tax year and (ii) a proposal to further refine the existing interest limitation rule. DEBRA is proposed to apply to all taxpayers subject to ‘corporate income tax’ in EU Member States. A number of exclusions are proposed, including exclusions for AIFs, UCITS, AIFMs, credit institutions, insurance undertakings, certain securitisation entities and other taxpayers.
Latest stage: The proposal is currently in discussions within the Council.
Matheson Insight:
Proposal for a Directive on Pillar One of the OECD Agreement
Procedure reference: TBC
Date published: TBC
The Commission has stated that a directive for implementing the provisions in Pillar One of the OECD Agreement, namely the reallocation of taxing rights on multinational enterprises with a global turnover exceeding €20 billion, will be proposed. The existing proposed directives on Digital Services Taxes (procedure references 2018/0072 (CNS) and 2018/0073 (CNS)) will be withdrawn, as per the Commission’s Communication.
Broadly, Pillar One aims to re-allocate profits of the largest and most profitable multinational enterprises to the jurisdictions where the customers and users of those enterprises are located. The proposal also aims to remove and standstill the patchwork of independent national digital services taxes and other similar measures that have been adopted in a number of jurisdictions. In practical terms, Pillar One places multinational enterprises with a global turnover above €20 billion and total profits greater than 10% of their global revenue in-scope.
It will function by creating a new ‘special purpose’ nexus rule which results in the allocation of what is referred to as ‘Amount A’ to any market jurisdictions in which that multinational enterprise derives at least €1 million in revenue. Extractives and regulated financial services are excluded from the scope of Pillar One.
The threshold for the special purpose nexus rule (which applies to determine whether a jurisdiction qualifies for the Amount A allocation) is lower for smaller jurisdictions with GDP lower than €40 billion. This includes jurisdictions such as Malta, for example, where the threshold has been set at €250,000. Pillar One will use a revenue-based allocation key which will allocate 25% of the ‘residual profits’ (defined as profit in excess of 10% of revenue) to market jurisdictions which fall within the parameters of the special purpose nexus. A second amount, ‘Amount B’, aims to use the arm’s length principle to standardise remuneration received by related party distributors engaged to perform baseline marketing and distribution activities for those multinational enterprises. The Commission has proposed to allocate15% of the residual profits, which would be reallocated to Member States under Pillar One, to the EU budget.
The OECD published the text of the multilateral convention (“MLC”) to implement amount A of Pillar One on 11 October 2023. A minimum of 30 jurisdictions, including those with headquarters of at least 60 percent of in-scope multinational enterprises, must sign and ratify the MLC before it enters into force. The jurisdictions that have ratified the MLC can decide when the MLC enters into force once these conditions are met.
The Commission submitted a progress report to the Council on 30 June 2023 regarding the implementation of Pillar One internationally and in this report it stated that the Commission will do its utmost to ensure a timely and consistent implementation of Pillar One at an EU level.
Latest stage: A proposal for a draft directive on Pillar One is expected to be published now the MLC has been published by the OECD but no specific timeline has been announced.
Proposal for a Council Directive amending Directive 2006/112/ EC as regards the Introduction of the Detailed Technical Measures for the Operation of the Definitive VAT System for the Taxation of Trade between Member States
Procedure reference: 2018/0164 (CNS)
Date published: 25 May 2018
This proposal, if adopted, would significantly change the existing VAT system as it applies to business to business (“B2B”) transactions involving cross-border supplies of goods, implementing a destination basis to such supplies. That change would also require changes to the place of supply rules for B2B transactions. In addition, the Mini One Stop Shop system which currently is available to suppliers in respect of certain business to consumer transactions would be extended to apply to B2B transactions. Finally, the proposal would introduce a new concept of ‘certified taxable person’ which could alter the person accountable for VAT on certain supplies.
Latest stage: On 12 February 2019, the European Parliament voted in plenary to adopt the proposal with amendments. The Council has yet to adopt the proposal. Discussion on this proposal is on-going at working party level.
Proposal for Council Directives amending three EU legislations i.e. Directive 2006/112/EC, Council Implementing Regulation EU 282/2011 and the Council Regulation on Administrative Cooperation EU 904/2010
Procedure reference: 2022/0407 CNS
Date published: 8 December 2022
On 8 December 2022, the European Commission published its new EU VAT proposals on VAT in the Digital Age ("ViDA"). The ViDA proposal consists of amendments to three pieces of EU legislation: the VAT Directive (2006/112/EC), Council Implementing Regulation (EU 282/2011) and the Council Regulation on Administrative Cooperation (EU 904/2010). The proposal is divided into three main objectives –
(i) Digital reporting requirements – these proposals aim to modernise the VAT reporting obligations by introducing digital reporting requirements, which will standardise the information that needs to be submitted by taxpayers on each transaction to the tax authorities in an electronic format and at the same time it will impose the use of e-invoicing for cross-border transactions.
(ii) Platform economy – these proposals address the challenges of the platform economy, by updating the VAT rules applicable to the platform economy in order to address the issue of equal treatment, clarifying the place of supply rules applicable to these transactions and enhancing the role of the platforms in the collection of VAT when they facilitate the supply of short-term accommodation rental or passenger transport services.
(iii) Single VAT registration – These proposals aim to remove the need for multiple VAT registrations in the EU by improving and expanding the existing systems of One-Stop Shop (OSS) / Import One-Stop Shop (IOSS) and reverse charge in order to minimise the instances for which a taxpayer is required to register in another Member State.
Latest stage: The Council has yet to adopt the proposal. Discussion on this proposal is on-going at working party level.
It is expected that the first stage of the proposal will apply from 1 January 2024.