Arthur Cox LLP Submits Response to the Second Feedback Statement on Irish draft legislation to Implement Pillar Two
In July 2023, the Irish Department of Finance (the “Department“) published the second feedback statement on the implementation of the Pillar Two Global Anti-Base Erosion (“GloBE“) rules through the transposition of the EU Minimum Tax Directive (Council Directive (EU) 2022/2523) into Irish legislation.
This feedback statement follows the publication of the first feedback statement issued in March of this year. The final legislation will form part of this year’s Finance Act, which will be enacted prior to the end of 2023 and applicable from 31 December 2023.
Arthur Cox LLP submitted a response to the Department containing technical points on the legislative text but also highlighting the necessity to ensure that the approach taken by the Department in implementing Pillar Two does not have the effect of unfairly prejudicing Irish headquartered multinationals. Arthur Cox took the opportunity to again emphasise the necessity for the concurrent implementation of a full participation exemption regime to maintain Ireland’s attractiveness as a holding company location.
Arthur Cox LLP’s Response:
Arthur Cox LLP highlighted the positive approach taken by the Department in their technical engagement with all stakeholders during the consultation period. The necessity for implementing a full participation exemption on dividends and branch profits concurrently with the Pillar Two Rules was outlined in order to ensure that the Irish tax regime remains in line with the underlying precepts of Pillar Two itself, which presupposes that jurisdictions have a territorial tax regime in place. Ireland is in a minority of jurisdictions without such a regime, which puts it at a distinct disadvantage and undermines its competitiveness as a location for FDI.
Arthur Cox LLP recommended that the UTPR safe harbour not be extended beyond the fiscal year ending before 31 December 2026 in order to ensure equal treatment for multinational groups headquartered in Ireland. It welcomed the inclusion of the exact end date for the transition period cautioned that the OECD guidance should be carefully monitored going forward. As Ireland will impose the UTPR from 31 December 2023, Arthur Cox LLP have suggested this definition should include fiscal years beginning on or before December 2024.
It recommended that the language used in the legislation on the application of top-up tax and additional top up tax under the UTPR safe harbour be amended to align with the OECD wording and ensure that constituent entities are considered subject to tax.
The feedback statement suggests that accounting standards for constituent entities tax resident in Ireland should be limited to Irish GAAP, but Arthur Cox LLP emphasise that the flexibility offered by the OECD Administrative Guidance on the GloBE Model Rules, which permits flexibility in the choice of accounting standard, should also be incorporated into Ireland’s Pillar Two legislation.
Arthur Cox LLP have welcomed the intention of the Department to ensure that the Irish QDTT will be classified as a qualified domestic minimum top up tax, however, have recommended that further clarification be provided on the peer review process and in particular the timing of that process.
Finally, Arthur Cox LLP have stressed the importance of minimising the administrative burden on both the taxpayer and the tax authorities when implementing an administratively burdensome directive such as Pillar Two. It is recommended that no interest or penalties are imposed in the first number of years, and that the interpretation of “reasonable measures” when assessing the application of GloBE rules is given a broad reading.
Arthur Cox LLP look forward to providing further input into any future proposals on a dispute resolution process within the relevant legislation in order to effectively combat the inevitable disputes between jurisdictions in the initial period of Pillar Two legislation becoming effective across EU member states.
The full statement is available to read here.