On October 7, 2021 the Irish Minister for Finance, Paschal Donohoe, has received Government approval to join the international agreement to reform the international tax rules to address the challenges arising from the digitalisation of the global economy.
As many of our readers might know, the agreement is to be discussed at the OECD’s Inclusive Framework on October 8, 2021. According to the Irish Minister of Finance, the agreement has been updated to provide additional clarity, which prevented Ireland joining the consensus in July. The proposed minimum effective tax rate of ‘at least 15%’, which was an open issue, has been set to a precise rate of 15%.
“The agreement provides that the minimum effective rate for multinationals with an annual revenue in excess of €750 million is 15%. We have secured the removal of ‘at least’ in the text. This will provide the critical certainty for Government and industry and will provide the long-term stability and certainty to business in the context of investment decisions.”
According to a press release issued by the Irish Ministry of Finance the joining of Ireland will amongst others mean that:
· Global minimum effective corporation tax rate of 15% for multinationals with revenues in excess of € 750million (This 15% rate will apply to 56 Irish multinationals employing approximately 100,000 people, and 1,500 foreign owned MNEs based in Ireland employed approximately 400,000 people);
· No change to the 12.5% rate for businesses with revenues below € 750million (this regards over 160,000 businesses in Ireland with a turnover less than € 750million per annum, who employ approximately 1.8 million people)
In this respect the Irish Ministry of Finance also published a statement from Minister Donohoe. Below we have inserted some quotes from this Statement.
“Furthermore, the vast majority of businesses in Ireland will be outside the scope of this agreement, and there will be no change to their corporation tax rate. This is important for the domestic economy and the thousands of SMEs that operate here.”
“Importantly also, the agreement will continue to allow our tax system to support innovation and growth including through the use of R&D tax credits.”
“For Ireland, the agreement will allow for the retention of our statutory 12.5% rate for businesses with annual revenues of less than €750million. This will mean that there will be no increase in the corporate tax rate for one hundred and sixty thousand businesses representing approximately 1.8 million employees and they will continue to enjoy all the benefits of Ireland’s longstanding 12.5% rate. I am happy to confirm that I have received assurances from the EU Commission that maintaining the headline 12.5% corporation tax rate for businesses out of scope of the OECD agreement does not present any difficulties.”
The full text of the Statement by Minister Donohoe on decision for Ireland to enter OECD International Tax agreement as published on the website of the Irish Government can be found here.
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