Ireland is likely to implement a top-up tax, which would apply to major companies with Irish bases, rather than a new 15 per cent headline tax rate, according to a feedback statement from the Department of Finance to be published shortly. The top-up tax would apply an effective 15 per cent rate to the earnings of major companies, but taking this route would mean that 12.5 per cent remains in place as the only headline corporation tax rate in the Irish system.
Countries have scope to apply the minimum effective 15 per cent tax rate in various ways, as outlined by the Organisation for Economic Co-operation and Development (OECD) agreement. An EU directive, still in draft form, will outline the implementation plan in the EU. The Department of Finance engaged in a consultation programme with interested parties last year and the feedback statement is the next step in this process.
The top-up tax – known as a qualified domestic top-up tax (QDTT) – would apply to companies with turnover in excess of €750 million, aiming to ensure that they pay a minimum effective rate of 15 per cent on earnings here. Given that the key players to which this will apply in Ireland are largely US firms, a key issue is how this will dovetail with the US tax system and particularly with the tax it applies on overseas earnings. The American Chamber of Commerce Ireland, which represents big US companies here, has flagged concerns about the uncertainty this may create for major multinationals.
In recent congressional tax hearings, US treasury secretary Janet Yellen faced criticism from Republicans who claimed that the US could lose out further in terms of tax revenues to countries like Ireland due to the likely interplay of the rules, a charge she denied. However, with the Biden administration unlikely to get support for proposed budget reforms, there may be political sensitivities here for Ireland. The rules are due to be in domestic legislation across the EU by the end of this year, though there remains some flexibility in terms of phasing them in.
While a number of submissions to the original corporate tax consultation held by the Department of Finance on the OECD plan supported the QDMTT concept, sources believe that opinion is divided among companies as to whether to go down this route or introduce a new 15 per cent rate to apply to the largest companies. The feedback document is expected to indicate a likely preference for the top-up tax route, but sources say Minister for Finance Michael McGrath has yet to decide which to recommend to Cabinet.