Sponsored
Sponsored content is premium paid-for content produced by the Irish Times Content Studio on behalf of commercial clients. The Irish Times newsroom or other editorial departments are not involved in the production of sponsored content.

Forging a path to certainty in a changing tax landscape

Active engagement to tackle uncertainty head on is the best way to future-proof business models

The international tax landscape has changed dramatically over the past decade as a result of significant rule changes. Photograph: iStock

Thu Sep 1 2022 - 05:00

The international tax landscape has changed dramatically over the past decade as a result of significant rule changes and that change continues apace. As the world turns to implement the latest set of reformative rules, active engagement to tackle uncertainty head on is the best way to future-proof business models, according to Shane Hogan partner and head of tax at Matheson.

“Certainty is now a key tax concern for most international businesses,” Hogan notes. “The focus is not on mitigation, per se. Rather it is on understanding precisely how reform proposals will apply from jurisdiction to jurisdiction so that discussions with company stakeholders can meaningfully detail the implications of business decisions.”

Among the reformative measures on the horizon is the introduction of a 15 per cent minimum corporate tax rate for large corporate taxpayers.

Matheson tax partner Tomás Bailey points out that in theory the introduction of a minimum tax rate should not give rise to uncertainty. “The main source of uncertainty arising from the new rules is around tax base alignment,” he explains. “The new rules will effectively change the way a company’s profits are calculated for tax purposes, departing from many established tax principles in the process. The new system also depends on uniformity across countries, which is something that can be difficult to achieve in practice.”

READ MORE

Hogan highlights a number of recent examples of far-reaching international tax rule changes being introduced relatively efficiently. “That noted, those changes were generally achieved by way of multilateral or supra-national legal instruments which were prescribed by the OECD or the EU, meaning that the domestic legal implementing mechanics were relatively minimalistic” he adds.

“In contrast, the new rules will require more heavily involved domestic legal implementation around the world. This increases the risk of inconsistencies and therefore the risk of double taxation, which is very bad for business. Ireland in particular, as a small open economy, will need to ensure that the rules are implemented in a manner that is as closely aligned with key trading partners as possible and does not lead to double taxation.”

The introduction of the new minimum tax rate and related rules will also impact international M&A activity. “Fully understanding the consequences of the new rules will be a key consideration in order to ensure the successful negotiation of an M&A deal, particularly where that deal has a cross-border dimension,” says Hogan.

“The rules also have the potential to increase the complexity of modelling the financial impact of any acquisition, particularly where the acquisition brings the acquirer or the target or both within the scope of the rules for the first time,” Bailey adds.

Other potential rule changes on the horizon include EU proposals to limit the use of holding companies and incentivise equity over debt financing of businesses. According to Hogan, the scale of the proposed reforms means the tax function in large corporate taxpayers is likely to continue to be very busy over the coming years as they seek to integrate all of the new rules without disrupting the business.

As part of the proposed tax rule changes the OECD intends to introduce a framework to resolve disputes more efficiently. “There has been a material increase in tax disputes in recent years, which is a trend that looks set to continue,” says Hogan. “We have advised clients on a number of very significant tax disputes which involved lengthy procedures and litigation before the Irish and European courts. We would, therefore, generally support the introduction of measures which improve efficiencies in tax disputes and will be working with clients to avail of such measures in suitable cases.”

“Large corporate taxpayers have been exemplary in managing the operational changes needed to comply with the large-scale international tax reforms witnessed in recent years,” Bailey notes. “It is crucial that taxpayers continue to engage with developments as early as possible to accurately assess the potential impact of the changes on global business and to identify and eliminate as much uncertainty as possible in the circumstances.”

According to Hogan, having Ireland’s largest law firm tax practice means Matheson is very well placed to assist clients with navigating a path through any uncertainty and complexity arising from the proposed changes. “Our size and scale allow us to actively engage with, and to constructively participate in, reform and policy developments in Ireland and internationally. Our engagement with tax developments in this way enables us to identify and resolve the legal complexity and uncertainty that invariably arises from such wide-ranging change.”

LATEST STORIES