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Review of Ireland's Corporation Tax Code Presented to the Minister For REVIEW OF IRELAND’S CORPORATION TAX CODE PRESENTED TO THE MINISTER FOR FINANCE AND PUBLIC EXPENDITURE AND REFORM BY MR. SEAMUS COFFEY LETTER FROM THE INDEPENDENT EXPERT TO THE MINISTER FOR FINANCE AND PUBLIC EXPENDITURE AND REFORM. ............................................ 3 SUMMARY OF RECOMMENDATIONS ............................................................................ 4 1. INTRODUCTION ............................................................................................................ 7 1.1 Terms of Reference ..................................................................................................... 7 1.2 Approach taken ........................................................................................................... 7 1.3 Context of the review .................................................................................................. 8 1.4 Structure of the Review ............................................................................................... 9 2. THE IRISH CORPORATION TAX CODE ................................................................ 10 2.1 Historical Background............................................................................................... 10 2.2 The Corporation Tax Base ........................................................................................ 18 2.3 Tax expenditures ....................................................................................................... 29 2.4 International features of the corporation tax code ..................................................... 31 3. OVERVIEW OF BEPS ACTIONS ............................................................................... 37 3.1 Context of the OECD/G20 BEPS Project ................................................................. 37 3.2 Summary of BEPS Actions ....................................................................................... 38 4. ENSURING THAT THE CORPORATION TAX CODE DOES NOT PROVIDE PREFERENTIAL TREATMENT TO ANY TAXPAYER ................................................ 50 4.1 Introduction ............................................................................................................... 50 4.2 OECD Forum on Harmful Tax Practices .................................................................. 50 4.3 The EU Code of Conduct .......................................................................................... 51 4.4 History of preferential regimes in Ireland ................................................................. 52 4.5 Current Preferential Regimes .................................................................................... 53 4.6 Recommendations ..................................................................................................... 54 5. ACHIEVING THE HIGHEST STANDARDS IN TAX TRANSPARENCY ........... 55 5.1 Introduction ............................................................................................................... 55 5.2 Defining tax transparency ......................................................................................... 56 5.3 Methods to achieve tax transparency ........................................................................ 57 5.4 International standards in tax transparency ............................................................... 61 5.5 Achieving the highest international standards .......................................................... 67 5.6 Recommendations ..................................................................................................... 69 6. FURTHER IMPLEMENTING IRELAND’S COMMITMENTS UNDER BEPS: ACTIONS, 8, 9, 10 AND 13 ................................................................................................... 70 6.1 Introduction ............................................................................................................... 70 6.2 Domestic transfer pricing legislation ........................................................................ 73 6.3 BEPS Actions 8 - 10.................................................................................................. 73 1 6.4 Extending transfer pricing rules to non-trading transactions .................................... 76 6.5 Extending transfer pricing rules to pre-1 July 2010 transactions .............................. 79 6.6 BEPS Action 13: Strengthening transfer pricing documentation requirements ........ 80 6.7 Extending transfer pricing rules to SMEs ................................................................. 81 6.8 Providing for two-way transfer pricing ..................................................................... 83 6.9 Recommendations ..................................................................................................... 84 7. FURTHER IMPLEMENTING IRELAND’S COMMITMENTS UNDER BEPS: ACTIONS, 2, 3 AND 4 ........................................................................................................... 86 7.1 Introduction ............................................................................................................... 86 7.2 Interest Limitation rule .............................................................................................. 87 7.3 Hybrid Mismatch Arrangements ............................................................................... 89 7.4 Controlled Foreign Company rules ........................................................................... 91 7.5 Exit Tax ..................................................................................................................... 92 7.6 General Anti-Abuse Rule .......................................................................................... 93 7.7 Recommendations ..................................................................................................... 94 8. DELIVERING TAX CERTAINTY FOR BUSINESS AND MAINTAINING THE COMPETITIVENESS OF IRELAND’S CORPORATION TAX OFFERING .............. 95 8.1 Introduction ............................................................................................................... 95 8.2 Tax competition......................................................................................................... 95 8.3 Taxation of foreign income of companies................................................................. 98 8.4 Tax certainty ............................................................................................................ 107 8.5 Recommendations ................................................................................................... 112 9. THE SUSTAINABILITY OF CORPORATION TAX RECEIPTS ........................ 114 9.1 Introduction ............................................................................................................. 114 9.2 Sectoral Breakdown from the Revenue Commissioners ......................................... 116 9.3 Aggregate Corporation Tax Computation ............................................................... 119 9.4 Effective Rates of Corporation Tax ........................................................................ 128 9.5 Recommendations ................................................................................................... 130 References ............................................................................................................................. 131 APPENDIX I – STAKEHOLDER CONSULTEES ......................................................... 140 2 LETTER FROM THE INDEPENDENT EXPERT TO THE MINISTER FOR FINANCE AND PUBLIC EXPENDITURE AND REFORM 30 June 2017 Mr Paschal Donohoe T.D., Minister for Finance and Public Expenditure and Reform, Government Buildings, Merrion Street, Dublin 2. Dear Minister, I am very pleased to provide the attached review of the corporation tax code which your predecessor as Minister, Mr. Michael Noonan T.D., appointed me to undertake last October. Over the past months I have consulted with a wide range of stakeholders which has assisted me greatly in formulating my recommendations. Indeed, in light of this experience I have recommended further consultation on a number of the areas to better inform policymaking and provide certainty in what is a time of great change in the international tax environment. I believe that the approach of frequently reviewing key areas of policy is a sound one. There is a strong rationale for conducting another review of the corporation tax code following the implementation of our commitments under the OECD/G20 initiative to combat base erosion and profit shifting. I hope that these recommendations will assist you in formulating corporation tax policy at this time. Yours sincerely, Seamus Coffey 3 SUMMARY OF RECOMMENDATIONS Ensuring the corporation tax code does not provide preferential treatment to any taxpayer 1) Any proposed measures should be carefully scrutinised to ensure that they do not (i) constitute a potentially harmful preferential tax regime, as identified by the OECD Forum on Harmful Tax Practices, or (ii) a potentially harmful tax regime, as identified by the EU Code of Conduct for Business Taxation. Enhancing tax transparency 2) Ireland should take account of any recommendations of the peer review being undertaken by the Global Forum on Transparency and Exchange of Information for Tax Purposes. 3) Ireland should continue its commitment to support proposals for a Directive providing for mandatory disclosure rules in line with the recommendations outlined in the G20/OECD BEPS Action 12 Report.
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