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    Ireland Finance Bill 2023: An Overview

    Ireland Finance Bill 2023 – Introduction

     

    The Finance Bill for 2023, published on 19 October, brings forth significant changes and updates in the Irish financial landscape. 

     

    This bill primarily focuses on implementing the Pillar 2 regime, setting a minimum effective tax rate of 15% into Irish law, among other noteworthy provisions.

     

    Here’s a summary of some of the key changes and their implications.

     

    Transposition of the EU Minimum Effective Tax Directive

     

    As expected, the Finance Bill transposes the EU Directive on ensuring a global minimum level of taxation, often referred to as the “Pillar 2 Directive.” 

     

    This directive sets a minimum effective tax rate of 15% into Irish law.

     

    This change will have a significant impact on large multinationals with a global turnover exceeding €750 million and wholly domestic groups within the EU. 

     

    It involves the introduction of “GloBE” rules, consisting of an income inclusion rule (IIR) and an Under Taxed Payment Rule (UTPR).

     

    The IIR takes effect for fiscal years starting after 31 December 2023, and the UTPR will broadly apply for fiscal years starting after 31 December 2024.

     

    Safe Harbours

     

    The Finance Bill introduces transitional and indefinite safe harbors to alleviate the compliance burden. 

     

    The qualified domestic minimum top-up tax (QDMTT) is one such provision, which aims to allow Ireland to apply a domestic top-up tax for Irish constituent entities. 

     

    This will potentially reduce the tax calculation and payment obligations for in-scope groups.

     

    Ireland has also adopted other safe harbors following the OECD’s guidance.

     

    Additional Withholding Tax Measures

     

    To prevent double non-taxation of income, the bill introduces measures denying withholding tax exemptions in certain situations. 

     

    These measures primarily apply to payments of interest, royalties, and distributions to associated entities in jurisdictions that are not EU Member States and appear on the EU list of non-cooperative or zero-tax jurisdictions.

     

    Interest Deduction for Qualifying Finance Companies

     

    New rules are introduced for interest deductibility for “qualifying financing companies” with specific criteria. 

     

    These rules generally apply when such companies own 75% or more of the ordinary share capital of a “qualifying subsidiary” and borrow money to on-lend to the subsidiary.

     

    R&D Tax Credit

     

    The R&D tax credit is enhanced by increasing the rate from 25% to 30% of qualifying expenditure for accounting periods beginning on or after 1 January 2024. 

     

    This change aims to maintain the credit’s net value for companies under the new Pillar 2 regime while providing a real increase in the credit for SMEs.

     

    A pre-notification requirement and other information requirements for R&D claims are introduced as well.

     

    Digital Gaming Credit

     

    Adjustments are made to the operation of the digital gaming credit to align with the new Pillar 2 definition of a non-refundable tax credit. 

     

    These changes affect the manner and timeline for credit payments.

     

    Changes to Accountable Person for Share Options Taxation

     

    From 1 January 2024, the mechanism for taxing gains from share options shifts from self-assessment by employees to being the responsibility of employers through the Pay As You Earn (PAYE) system.

     

    Angel Investor Relief

     

    The bill introduces capital gains tax relief for angel investors in innovative SME start-ups. 

     

    Detailed wording for this relief is expected to be included later.

     

    Improvements to the Employment Investment Incentive Scheme

     

    The EIIS is amended to standardize the minimum holding period for relief at four years. 

     

    The limit on the amount that an investor can claim for such investments is increased from €250,000 to €500,000 per year of assessment within four years.

     

    Stamp Duty

     

    An exemption from Irish Stamp Duty for American depository receipts (ADRs) is extended to include transactions in DTC of US-listed shares. 

     

    This exemption streamlines the process and eliminates the need for Revenue clearance, making it more efficient.

     

    Tax Administration – Joint Audits

     

    The Finance Bill transposes EU Directive DAC 7, allowing for cross-border audits with other EU Member States. 

     

    It also clarifies Revenue’s authority to make inquiries under the Mandatory Disclosure Regime.

     

    Ireland Finance Bill 2023 – Conclusion

     

    The Finance Bill 2023 introduces numerous significant changes in Irish tax and financial regulations. 

     

    Businesses should carefully assess and adapt to these changes to ensure compliance and minimize tax implications effectively. 

     

    As always, consulting with financial experts is crucial to navigating these complex tax reforms.

     

    If you have any queries about Ireland Finance Bill 2023, or Irish tax matters in general, then please do get in touch.

    Canada and Global Minimum Tax implementation: A closer look

    Canada and Global Minimum Tax implementation – Introduction

    The wheels of international tax reform continue to turn as Canada takes significant strides to implement the OECD’s Pillar Two global minimum tax (GMT) recommendations.

    On August 4, 2023, the Department of Finance unveiled draft legislation outlining the implementation of two pivotal elements of Pillar Two: the income inclusion rule (IIR) and a qualified domestic minimum top-up tax (QDMTT).

    The aim is to align Canada’s tax landscape with the evolving international consensus on curbing tax base erosion and profit shifting.

    Let’s have a look at the key aspects of this draft legislation, along with insights into the broader implications it holds.

    Pillar Two at a Glance: IIR and QDMTT Implementation

    The draft legislation holds particular importance for multinational enterprises (MNEs) as it focuses on two crucial aspects of the GMT framework:

    These provisions are designed to ensure that MNEs pay a minimum level of tax on their global income, irrespective of their jurisdiction of operation

    The income inclusion rule (IIR)

    The IIR, closely aligned with the OECD’s model rules and the accompanying commentary, obliges a qualifying MNE group to include a top-up amount in its income.

    This amount is determined by evaluating the group’s effective tax rate against the stipulated minimum rate of 15%.

    Notably, the draft legislation incorporates mechanisms for calculating this top-up amount, encompassing factors such as excess profits, substance-based income exclusions, and adjusted covered taxes.

    The goal is to prevent instances where MNEs might be subject to lower tax rates in certain jurisdictions.

    The qualified domestic minimum top-up tax (QDMTT)

    The QDMTT, on the other hand, allows jurisdictions to implement a domestic top-up tax to align with the principles of Pillar Two.

    This is aimed at domestic entities within the scope of Pillar Two, counterbalancing the global minimum tax liability.

    The intricacies of the QDMTT provision, including computations and adjustments, are outlined in the draft legislation to ensure an encompassing and fair application.

    Administration of GMTA

    To effectively implement the Global Minimum Tax Act (GMTA), the draft legislation covers a spectrum of administrative facets.

    These include provisions for assessments, appeals, enforcement, audit, collection, penalties, and other vital components to ensure the smooth functioning of the new tax regime.

    As part of compliance measures, the legislation introduces the requirement of filing a GloBE information return (GIR) within 15 months of the fiscal year’s end, with potential penalties for non-compliance.

    It’s important to note that the legislation doesn’t shy away from significant penalties for non-compliance.

    Failure to file the required GIR within the stipulated timeframe could result in penalties of up to $1 million. Moreover, penalties may also be imposed as a percentage of taxes owed under the GMTA for not filing Part II or Part IV returns, adding a layer of urgency to adhere to these provisions.

    How does GMTA live with the existing tax framework?

    One of the central themes that emerge from the draft legislation is the intricate interplay between the GMTA and Canada’s existing tax framework.

    While the legislation attempts to bridge these two domains, certain aspects remain to be ironed out.

    Notably, the interaction between the GMTA and provisions within the Income Tax Act (ITA) raises questions about the allocation of losses or tax attributions under the ITA to offset taxes owing under the GMTA.

    Additionally, the draft legislation is deliberately silent on the specifics of this interaction, particularly concerning issues like Canadian foreign affiliate and foreign accrual property regimes.

    As businesses and professionals delve into the consultation process, these areas of ambiguity are likely to be focal points of discussion, aiming to ensure a harmonious alignment between the new regime and the existing tax landscape.

    Looking ahead

    The consultation process for the draft legislation is underway, with the Department of Finance welcoming feedback until September 29, 2023.

    During this period, stakeholders, including businesses, tax professionals, and policymakers, have the opportunity to contribute insights and perspectives to shape the final legislation.

    The complex and evolving nature of international taxation underscores the importance of robust consultation, as the new rules have far-reaching implications for cross-border businesses.

    Canada and Global Minimum Tax – Conclusion

    Canada’s proactive approach to aligning its tax laws with the global consensus on minimum taxation is a significant stride.

    As the draft legislation undergoes scrutiny and refinement, it’s essential to recognize its implications not only for multinational enterprises but also for the broader tax landscape.

    The interplay between the GMTA and the existing tax regime will be closely watched, highlighting the intricate path of international tax reform and the commitment of nations to creating a fair and balanced tax environment.

    If you have any queries about this article on Canada and Global Minimum Tax, or Canadian tax matters in general, then please get in touch.

    The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article..

    Switzerland Embraces Global Minimum Tax

    Introduction

    In a significant move, the Swiss electorate and cantons have voted in favor of implementing the Organisation for Economic Co-operation and Development (OECD) global minimum tax of 15% for large multinational enterprises operating in Switzerland.

    This constitutional amendment was supported by an overwhelming majority, with 78.45% of voters and all cantons endorsing the proposal.

    The implementation of the OECD minimum tax aims to safeguard Switzerland’s tax receipts and maintain its position as a stable business location.

    Context of the vote

    The global minimum tax initiative has been developed by the OECD and the Group of 20 countries to establish a uniform minimum tax rate worldwide.

    Under this framework, multinational companies with a global annual turnover exceeding €750 million will be subject to a minimum tax rate of 15% in each country they operate in.

    Numerous countries, particularly in the European Union, plan to introduce the OECD minimum tax on 1 January 2024.

    In Switzerland, 21 out of the 26 cantons currently have tax rates below the required 15%. Failure to meet the minimum tax rate would result in the imposition of a supplementary tax to make up the shortfall.

    By implementing the minimum tax, Switzerland ensures that its tax receipts remain within the country rather than being shifted to other jurisdictions.

    Impact on Companies

    It’s important to note that the OECD minimum tax will only affect large multinational groups with an annual turnover of at least €750 million.

    Small and medium-sized enterprises will not be affected by this amendment.

    In Switzerland, approximately 200 internationally active groups headquartered in the country and 2,000 Swiss subsidiaries of foreign groups will be subject to the minimum tax.

    As a result, around 99% of companies in Switzerland will continue to be taxed under the existing regulations.

    Expert commentary

    The constitutional amendment to introduce the OECD minimum tax is in Switzerland’s best interest.

    Without such a provision, jurisdictions in which Swiss multinational groups operate would be entitled to impose a subsequent tax to compensate for the difference in tax burdens, thereby impacting Switzerland’s tax revenues. Implementing the minimum tax rate ensures tax stability for Switzerland and provides legal certainty for companies affected by the new international tax rules.

    However, it is worth considering the potential impact on tax competition within Switzerland.

    High-tax cantons may become more attractive compared to those with lower taxes, as the introduction of the minimum tax limits the extent to which lower tax rates can be used to offset geographical disadvantages.

    Conclusion

    Switzerland’s embrace of the OECD global minimum tax represents a proactive step to secure tax revenues and maintain its status as an internationally stable business location.

    By implementing the minimum tax, Switzerland ensures that tax receipts remain within the country and avoids the risk of revenue shifting to other jurisdictions.

    While this decision may have implications for tax competition within Switzerland, the overall objective is to create a robust and equitable international tax framework.

    The introduction of the OECD minimum tax paves the way for a more uniform global tax system, providing a level playing field for multinational enterprises across different countries.

    If you have any queries about this article, or Swiss tax matters in general, then please get in touch.

    The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.

    Three crowns and two pillars: Guernsey, Jersey & Isle of Man to Implement Pillar Two

    Introduction

    Yesterday, Guernsey, Jersey, and the Isle of Man announced their intention to implement the OECD’s Pillar Two global minimum tax initiative.

    Three crowns

    The three Crown Dependencies have said that they will implement an “income inclusion rule” and a domestic minimum tax to ensure that large multinational enterprises (MNEs) pay a minimum effective tax rate of 15% from 2025.

    Two pillars… or Pillar Two, anyway

    Pillar Two is a new set of international tax rules that seek to address the problem of base erosion and profit shifting (BEPS).

    BEPS is a practice by which MNEs use complex structures to shift profits to low-tax jurisdictions, thereby avoiding paying taxes in high-tax jurisdictions where the profits are generated.

    The income inclusion rule is one of the two main components of Pillar Two. The income inclusion rule requires MNEs to pay a top-up tax in high-tax jurisdictions where their effective tax rate is below the 15% minimum.

    The domestic minimum tax is the other main component of Pillar Two. The domestic minimum tax requires MNEs to pay a minimum tax in each jurisdiction where they operate, regardless of their effective tax rate.

    The implementation of Pillar Two is a significant development in the global fight against BEPS. The rules are expected to raise billions of dollars in additional tax revenue for governments around the world. The rules are also expected to make it more difficult for MNEs to avoid paying taxes.

    Tax efficient or a tax haven?

    The announcement by Guernsey, Jersey, and the Isle of Man to implement Pillar Two is a positive development.

    The three Crown Dependencies have a reputation for being tax-efficient jurisdictions. However, they have also been criticized for being used as tax havens by MNEs.

    The implementation of Pillar Two will help to ensure that MNEs pay their fair share of taxes in the jurisdictions where they operate.

    The implementation of Pillar Two will have a number of implications for MNEs. MNEs will need to review their global tax structures to ensure that they are compliant with the new rules.

    MNEs may also need to increase their tax payments in high-tax jurisdictions.

    The implementation of Pillar Two is a significant development for the global tax landscape. It will be interesting to see how MNEs respond to the new rules.

    Conclusion

    The rules will help to ensure that MNEs pay their fair share of taxes in the jurisdictions where they operate.

    However, it is important to note that the rules are complex and will require careful implementation.

    If you have any queries relating to the three Crown Dependencies’ implementation of Pillar Two, then please do not hesitate to get in touch.

    The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.

    Singapore two pillar solution or BEPS 2.0

    Singapore two pillar solution – Introduction

    The global wave of the two-pillar solution to address base erosion and profit shifting (which all the cool kids are calling BEPS 2.0) has reached Singapore. 

    Pillar talk

    Singapore will implement Pillar 2 of BEPS 2.0 in 2025, which will require multinational enterprises (MNEs) with local operations to top up their effective tax rate (ETR) in Singapore to 15%. 

    Many MNEs with Singapore operations currently benefit from tax incentives and enjoy an ETR lower than the upcoming 15%. 

    It is unclear whether existing incentives and exemptions will continue to apply, and whether Singapore’s territorial basis of taxation will change. 

    As the full effects of BEPS 2.0 are expected to be felt in 2025 or later, Singapore has chosen a cautious approach to delay implementation until then, giving itself time and a chance to learn from the experiences of other countries before determining the best way forward.

    Pillar fight

    The implementation of Pillar 2 is crucial for Singapore, as it is an opportunity to increase revenue and fortify its fiscal position. 

    Under Pillar 1, Singapore is expected to lose revenue when profits are reallocated to the countries where markets are located. With a small domestic market, Singapore has to give up taxing rights to bigger markets and receives very little in return. 

    However, Pillar 2 presents a chance for Singapore to generate more corporate tax revenue, assuming that existing economic activities are retained.

    The key to Singapore’s continued success is staying competitive in attracting and retaining investments. 

    The use of tax incentives may become obsolete or significantly compromised once the effects of BEPS 2.0 are felt. 

    Singapore has signaled that it will seek to reinvest and strengthen non-tax factors to remain competitive. 

    Whatever additional corporate tax revenue can be generated from BEPS 2.0 will be reinvested to maintain and enhance its competitiveness. Together with the intended implementation of Pillar 2, Singapore will also review and update its broader suite of industry development schemes.

    A lack of detail?

    The lack of details and the delayed implementation of Pillar 2 suggest that policymakers are looking for more information to guide their decisions. If there are additional delays internationally, it is likely that Singapore will adjust its implementation timeline. 

    Singapore has assured companies that it will continue to engage them and give them sufficient notice ahead of any changes to its tax rules or schemes.

    Singapore two pillar solution – Conclusion

    MNEs that may be affected should actively participate in public consultation exercises before the implementation of Pillar 2 in 2025. 

    Those who currently benefit from an existing tax incentive should consider reaching out early to the relevant authorities if they are concerned about the implications of the new rules.

    If you have any queries relating to the Singapore two pillar solution, or Singaporean tax matters more generally, then please do not hesitate to get in touch.

    The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.