New 15% tax rate for multinationals forms cornerstone of Finance Bill

Legislation to implement a new 15 per cent rate of corporation tax on companies with a turnover of more than €750 million forms the cornerstone of this year’s Finance Bill.

The 270-page Bill, published on Thursday by Minister for Finance Michael McGrath to bring effect to measures announced in Budget 2024, provides for the introduction of the new minimum effective tax rate for big multinationals as agreed under the Organisation for Economic Co-operation and Development’s (OECD) so-called Pillar Two reform process.

While the original 12.5 per cent headline rate here remains in place for all companies, the biggest multinationals will —from next year — be liable to pay a new top-up tax, known as a qualified domestic top-up tax, equating to the difference between their effective rate and the new 15 per cent rate.

At present, the effective rate here, or what firms actually pay after deductions and allowances, is about 10-11 per cent so the increase — in many instances — could be between four and five percentage points, which is expected to boost corporate tax receipts.

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While the companies in question will be liable for the new rate from next year, the Bill affords them a lead-in period, with the first payments not due to Revenue until 2026.

The new top-up rate will sit outside the normal Irish corporate tax system as the OECD rules involve some differences from the existing Irish legislation which would have made the introduction of a new 15 per cent rate more complex.

The Bill outlines how the tax will be paid as well as the associated reporting required by companies.

“Pillar Two will be administered on a self-assessment basis, under the care and management of the Revenue Commissioners,” it said.

The new rules represent the biggest shake-up in the State’s corporate tax system since the introduction of the current 12.5 per cent headline rate in the 1990s. The higher rate is also expected to add to the Republic’s already-sizeable corporate tax windfall.

However, the Department of Finance has warned that the State is likely to lose out under Pillar One of the OECD’s reform plan, which seeks to give bigger countries greater taxing rights. This element of the OECD’s reforms has yet to be agreed and faces significant political opposition, particularly in the US

The Finance Bill also contains new anti-avoidance measures aimed at companies shifting profits — in the form of interest, royalties or dividends — to zero-tax jurisdictions.

The Bill also changes the current legislation to increase the State’s current research and development tax credit from 25 to 30 per cent as a possible offset for companies likely to end up paying the higher 15 per cent tax rate.

The Department of Finance projects corporate tax revenue will hit a record €23.5 billion this year, rising to €25.6 billion by 2026.

“The Finance (No. 2) Bill 2023 sets out the legislative provisions to bring effect to the tax measures announced in Budget 2024. It is a substantial piece of draft legislation required to implement the measures announced in Budget 2024 and the new international rules for the taxation of large corporates,” said Mr McGrath.

“This Bill implements a range of targeted tax changes including specific measures to further support individuals, families and businesses at a time when the cost of living is high, as well as measures to sustain growth for businesses,” he said.

“The Bill also contains a number of administrative changes to the tax code, reflects recent international developments, and seeks to protect and enhance the integrity of our tax code,” he added.