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.
Finance (No. 2) Bill 2023
Every year, the Minister for Finance issues a budget statement outlining the proposed public spending for the following year and changes to Ireland's tax laws. The budget statement for 2024 is scheduled for October 2023. Finance (No.2) Bill 2023 should be issued in the week following the budget statement and will include legislation to implement the announced tax policy changes. As set out in further detail below, Ireland will transpose the directive on the new minimum effective tax rate of 15% for in scope companies into national law as part of this year's finance bill.
Latest stage: Heads of Bill being prepared.
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 also makes amendments with respect to joint audits by EU tax authorities from 1 January 2024.
Transposition date: Finance Act 2021 transposed the directive into Irish law. However, the relevant section has now been repealed and replaced in its entirety by Finance Act 2022 to ensure that the DAC7 rules are effectively implemented into Irish law. The statutory instrument introducing further regulations in respect of DAC7 can be accessed here.
EU DIRECTIVES AWAITING IMPLEMENTATION
Directive on the level of Taxation for Multinational Groups in the Union
Date published: 22 December 2022
In line with the OECD 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’ and the ‘undertaxed payments rule’); 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 later 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 ‘income inclusion rule’ 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.
On 31 March 2023, the Irish Department of Finance published a feedback statement inviting submissions on the implementation of the Pillar Two rules in Ireland. Submissions closed on 8 May 2023 and the responses are currently being reviewed. Ireland plans to implement the directive, together with a “Qualified Domestic Minimum Top Up Tax”, in this year’s finance bill (to be published in October 2023).
Read more: Matheson Insight on the feedback statement on the implementation of Pillar Two
Transposition date: Member States are to transpose the provisions of the directive by 31 December 2023 and apply these provisions for accounting years starting on or after 31 December 2023 except the ‘undertaxed payments rule’, which will apply for accounting years starting on or after 31 December 2024.
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
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”, ie, 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: This directive was approved and came into force on 21 December 2021. Member States must transpose the directive into national law by 22 June 2023 with reporting requirements applying for all financial years starting on or after 22 June 2024. The Irish Department of Enterprise, Trade and Employment completed a public consultation on the transposition of the directive into Irish law in February 2022. The transposition deadline of 22 June 2023 is expected to be met.
Read more: Matheson Insights article on Compromise Directive on Public Country by Country Reporting.
PUBLISHED INITIATIVES
Published Initiative on Business in Europe: Framework for Income Taxation ("BEFIT")
In line with the Commission Communication on Business Taxation for the 21st Century (the “Commission Communication”) adopted on 18 May 2021, the Commission launched an initiative on 13 October 2022 to introduce a common set of rules for EU companies to calculate their taxable base while ensuring a more effective allocation of profits between EU countries, based on a formula. Under the BEFIT proposal, profits of the EU members of a multinational group will be consolidated into a single tax base. This initiative replaces prior proposals (CCCTB and CCTB) and will feature a different apportionment formula from the CCCTB and CCTB to better reflect global developments, in particular by taking account of digitalisation.
Latest stage: The public consultation on the BEFIT proposal closed on 26 January 2023. It is expected that a proposal will be adopted by the Commission in Q3 2023.
Published Initiative on Withholding Taxes – New EU System to Avoid Double Taxation
The Commission launched an initiative in September 2021 to introduce a common EU-wide system for withholding taxes on dividend or interest payments, including a system for tax authorities to exchange information and co-operate with each other. It is stated that this initiative aims to tackle the burdensome withholding tax relief procedures for cross-border investors in the securities market, stimulate cross-border investment and simplify taxation. The within scope stakeholders of this initiative are primarily cross-border portfolio investors.
Latest stage: The public consultation closed in June 2022. The proposal for a directive was expected to be published in Q4 2022 but has not yet been published.
EU DRAFT LEGISLATION
Published Initiative on Proposed Amendment to Directive on Administrative Co-operation
Procedure reference: 2022/0413/CNS
Date published: 8 December 2022
The Commission launched an initiative in Q4 2020 regarding the eighth amendment to the Directive on Administrative Co-operation (“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.
Latest stage: On 16 May 2023, the EU Council reached political agreement on a compromise text for the DAC8 directive. It is expected that DAC8 will be formally adopted in June 2023, after the parliamentary consultation process is completed. Following the Council's formal adoption of DAC8, Member States will have until 31 December 2025 to transpose the main rules into national law. The provisions will apply as of 1 January 2026.
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.
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 profitability above 10% 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.
From an OECD perspective, a Progress Report on the Administration and Tax Certainty Aspects of Amount A of Pillar One was published in October 2022 for the purpose of obtaining further input from stakeholders on the administration and tax certainty aspects of Amount A. In December 2022, a public consultation document was released on the draft Multilateral Convention ("MLC") Provisions on Digital Services Taxes and other Relevant Similar Measures. The OECD is now finalising the technical Model Rules to Pillar One, with the aim of having the MLC ready by mid 2023 and set to come into effect in 2024.
The Directive on the level of Taxation for Multinational Groups in the Union (Pillar Two) includes a provision requiring the Commission to submit a report to the Council by 30 June 2023 assessing the situation regarding the implementation of Pillar One internationally and, if appropriate, the Commission will submit a legislative proposal in the absence of the implementation of the Pillar One solution.
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.
Latest stage: A proposal for a draft directive on Pillar One is expected to be published following finalisation of the MLC by the OECD.
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. It is intended that the directive will come into force as of 1 January 2024. 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 relevant for this purpose.
Procedure reference: 2022/0154 (CNS)
Date published: 11 May 2022
The proposed directive 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. The directive has a target implementation date of 1 January 2024.
Read more: Matheson Insight Article on the DEBRA directive.
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.
Procedure reference: TBC
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.
Proposal for a Regulation of the European Parliament and of the Council establishing the Union Customs Code and the European Union Customs Authority and repealing Regulation (EU) No 952/2013
Proposal for a Council Regulation amending Regulation (EEC) No 2658/87 to introduce a simplified tariff treatment for the distance sales of goods and Regulation (EC) No 1186/2009 to eliminate the customs duty relief threshold
Proposal for a Council Directive amending Directive 2006/112/EC as regards VAT rules relating to taxable persons who facilitate distance sales of imported goods and the application of the special scheme for distance sales of goods imported from third territories
Procedure reference: 2023/0156/COD; 2023/0157/NLE; 2023/0158/CNS
Date published: 17 May 2023
The Commission is proposing significant reforms of the EU Customs Union which will impact a wide range of stakeholders, including EU traders, consumers and national customs authorities. On 17 May 2023, the Commission published its proposals, describing them as "the most ambitious and comprehensive reform of the EU Customs Union" since its inception. The Commission announced the proposed timeline for these reforms to take effect, with the earliest changes scheduled for 2028.
Latest stage: The three legislative proposals will now be put before the Council for consideration.
Read more: Matheson Insights article on Commission's proposals for significant reforms of the EU Customs Union