Fair, sustainable, competitive and transparent. This is the conclusion reached by economist Seamus Coffey following his review of Ireland’s corporate tax code. Commissioned in the wake of rumblings over Ireland’s tax regime, including the Apple ruling, the independent review provides significant reassurance about the openness of the country’s tax rules.
Mr Coffey, who is also chairman of the Government’s Fiscal Advisory Council, was asked to look particularly at issues relating to tax transparency, tax certainty and the avoidance of preferential treatment. Also included under the review’s terms of reference were further implementing Ireland’s international commitments and maintaining the 12.5% corporation tax rate.
The outcome of his consultation with a wide range of stakeholders was an unequivocal statement that Ireland’s corporate tax code meets the highest standards internationally with regard to transparency. The emphasis given in the review to the importance of certainty in tax rates is of note and can be substantiated by my own experience of doing business with international clients.
The recommendations included in the review with respect to transfer pricing, intellectual property (IP) allowances and the adoption of a territorial tax regime are also worth a closer look. In particular, the recommendation that the amount of IP allowances granted to a company be restricted to 80 percent of income, with the balance available for carry forward. This restriction is designed to smooth out tax receipts, and makes sense when considering the very high value that can attach to IP assets – and the disproportionate impact it can have on the economy.
In the main, commentators have largely welcomed the report, its conclusions and recommendations, not only for the reassurance it provides about the transparency and fairness of our current tax code but also for the roadmap it offers for ensuring the tax code aligns even more closely with best international practice in future. But challenges remain, especially with the potential of renewed debate around EU tax harmonisation and talk of sweeping corporate tax reform in the US.
A common tax scheme (Common Consolidated Corporate Tax Base or CCCTB) that would create a single set of rules for how EU corporations calculate their EU taxes and provide the ability to consolidate EU taxes was first proposed in March 2011. Recent statements by French President Emmanuel Macron look set to re-energise the discussion in which Ireland has a major stake.
Meanwhile, in the US attention has turned to tax reform, with the Trump Administration and Congress looking to cut the federal corporate tax rate from 35% to 20%. However, when state taxes are added there is still a persuasive difference between the US and the Irish corporate tax rate. Moreover, as has often been stated, the reasons US companies set up operations in Ireland are not exclusively based on tax. American multinationals will, I believe, always require international operations to service international customers and in this regard we have a lot to offer. Not least our FDI track record, our educated, English-speaking workforce, our pro-business environment and our EU membership.
One thing is certain: the debate is far from over.
This month’s blog is kindly provided by Joanne McEnteggart, Co-Managing Director of First Names Group in Ireland. First Names Group provides corporate, trust, fund and real estate administration services. Its corporate solutions include cross-border structuring, foreign direct investments and structured finance. See https://www.firstnames.com/ireland for more information.
First Names Group does not provide legal, tax or investment advice and the content in this blog should not be regarded as such.
The views expressed in the posts and comments of this blog do not necessarily reflect the views of the Institute of Directors in Ireland. They should be understood as the personal opinions of the author. The content of this blog is for information purposes only and the Institute of Directors in Ireland is not responsible for the accuracy of any of the information supplied.