OECD says Ireland to benefit post-BEPS
The OECD has said that its base erosion and profit shifting (BEPS) project will create policy challenges for Ireland, but the nation should emerge well placed to attract foreign direct investment, reports Tax News.
The report states: “Given the strong presence of intellectual property-intensive information technology and pharmaceutical companies in Ireland, preventing artificial profit shifting through the payment of non-market-priced royalties on intellectual property owned by companies in zero or low tax rate jurisdictions is crucial.”
It recommended that “Ireland should continue to keep its transfer pricing rules up to date with the OECD/G20’s BEPS project.”
According to the OECD, Ireland will likely benefit in the longer term from the BEPS project, although it might see a fall in tax revenues. The report states: “Although changes to tax rules elsewhere may have a significant economy-wide impact, the closing of tax loopholes in other countries may also increase the importance of the corporate tax rate as a determinant of investment. As Ireland is relatively competitive in this domain, this may help it to attract greater foreign investment.”
“A low and stable corporate tax rate is… important for attracting investment,” it said, highlighting also the importance of safeguarding the “reputation of the Irish system as fair and transparent.”
In that respect, the OECD welcomed the Government’s decision to prevent Double Irish structures going forward. The Double Irish arrangement has historically been used to enable a US parent to exploit intellectual property (IP) rights owned by a subsidiary offshore without that income becoming taxable in the US or in Ireland. The 2014 Finance Bill revised Ireland’s tax residency rules in a bid to prevent such structuring.
The change introduced more restrictive wording on when a company that is incorporated in Ireland will become resident for tax purposes. An amendment to Section 23A of the Taxes Consolidation Act, 1997, provides that all companies incorporated in Ireland will automatically become tax resident in Ireland for the purposes of income tax and capital gains tax, unless otherwise determined under a double tax treaty that supersedes domestic law.
The changes, which were intended to bring Ireland’s rules into line with the rest of the OECD, came into effect on January 1, 2015. A transition period has been allowed, until 2020, for existing companies.
