Muammar
IBX-Jakarta. The implementation of Ireland’s minimum effective corporation tax rules began on December 31, 2023, resulting in a rise in the tax on profits from 12.5% to 15%. For businesses falling outside the agreement’s scope, namely those with revenues less than €750m, Ireland will maintain the longstanding 12.5% corporation tax rate, which has been in place since 2003. The decision to introduce the 12.5% corporation tax rate was initially disclosed in 1997 and gradually phased in over six years, reducing the standard rate by an average of 4% per annum. More than 99% of companies operating in Ireland fall below the €750m revenue threshold.
Under the OECD Two Pillar agreement, Ireland committed in October 2021 to impose a global minimum effective rate of 15% on in-scope entities by adding a top-up tax to domestic corporation tax, applied on a jurisdictional basis. It’s estimated that approximately 1,600 multinational entity groups present in Ireland will fall within the scope of Pillar 2. The EU Minimum Tax Directive, incorporated into Irish law by the autumn 2023 Finance Act, is being utilized to implement Pillar Two.
On December 20, 2023, the Minister for Finance signed S.I. No. 675 of 2023, recognizing the December 2023 installment of the OECD Administrative Guidance as part of Irish Pillar Two legislation. The Pillar Two top-up tax is determined based on financial accounting rules, adjusted according to agreements made by the OECD Inclusive Framework and outlined in the legislation. The newly enacted provisions will apply to both multinational and domestic businesses with a global annual turnover surpassing €750m in at least two of the preceding four years. There exist three Pillar Two charging rules: an Income Inclusion Rule (IIR) affecting group parent entities, an Undertaxed Profit Rule (UTPR) as a backstop for other group entities, and an optional Qualified Domestic Top-up Tax (QDTT) allowing collection of top-up tax in a specific jurisdiction for in-scope entities located there. Ireland has opted to implement a QDTT.
The legislation contains transitional and permanent safe harbors aimed at reducing administrative burdens on in-scope businesses, particularly during the initial implementation phase of the Pillar Two rules. Finance Minister Michael McGrath remarked that in October 2021, Ireland, along with almost 140 other jurisdictions, agreed to the OECD Two Pillar solution to address tax challenges due to digitalization of the economy. McGrath emphasized that joining this global agreement was a significant decision, with potential positive effects outweighing challenges. He anticipated increased stability in the international tax framework. He also expressed confidence in the agreement’s ability to allow more focus on domestic tax policy within the enterprise sector, highlighting initiatives in Budget 2024 to improve aspects of the overall tax system, such as increasing the R&D tax credit to 30% and enhancing various schemes for businesses and investors.
Source: Corporation tax rate increases to 15% for large enterprises – Business Plus
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