Authorised OECD approach
On 16 March, the Department of Finance launched a public consultation on Ireland’s corporation tax rules relating to the application of the Authorised OECD Approach (AOA) to the attribution of profits to branches of non-resident companies.
The AOA seeks to attribute to a permanent establishment, or branch, the profits that it would have earned at arm’s length, if it were a legally distinct and separate enterprise performing the same or similar functions under the same or similar conditions. It is expected that Finance Bill 2021 will legislate for the application of the AOA to the attribution of income to a branch of a non-resident company operating in the state.
Digital taxation
Following a meeting of the European Council on 25 March, EU leaders reiterated their commitment to reaching a consensus-based global solution on international digital taxation within the framework of the Organisation for Economic Co-operation and Development (OECD) by mid-2021. However, the leaders confirmed that the EU would be ready to move forward if the prospect of a global solution was not forthcoming. The leaders also referred to the European Commission’s upcoming proposal on a digital levy, with a view to its introduction by 1 January 2023 at the latest.
This activity follows the adoption by the Council of new rules to revise the Directive on administrative cooperation in the field of taxation (DAC). The amendments to the Directive (DAC7) create an obligation for digital platform operators to report the income earned by sellers on their platforms and for member states to automatically exchange this information.
The new rules cover digital platforms located both inside and outside of the EU and will apply from 1 January 2023 onwards. The amendments to the DAC will allow national tax authorities to detect income earned through digital platforms and determine the relevant tax obligations.
OECD updates
On 4 March, the OECD provided an update on the ongoing work on addressing the tax challenges arising from the digitalisation of the economy (Pillar One and Pillar Two), and other areas of the OECD’s tax agenda.
The OECD confirmed that US Secretary of the Treasury, Janet Yellen, outlined in a letter to the G20 that the US is withdrawing its ‘safe harbour’ proposal for Pillar One. She stated that ‘The United States is committed to the multilateral discussions on both pillars within the OECD/G20 Inclusive Framework, overcoming existing disagreements, and finding workable solutions in a fair and judicious manner.’
The OECD confirmed that work on reviewing the scope and quantum of the pillars is continuing at the various dedicated working groups. The 139 members of the Inclusive Framework on base erosion and profit shifting (BEPS) are scheduled to meet at the end of June or early July to try to reach a consensus on the proposals and, if agreed, it will then go to the G20 finance ministers for approval at their meeting on 9-10 July.
The OECD also confirmed that progress on the implementation of the BEPS minimum standards – Action 5, Combating Harmful Tax Practices; Action 6, Countering Tax Abuse; Action 13, Country-by-Country Reporting; and Action 14, Improving Dispute Resolution – is ongoing.
US corporate tax reform proposals
At the end of March, US President Joe Biden announced new corporate tax proposals as part of The Made in America Tax Plan. The plan confirms that the US will seek global agreement on a minimum tax, intended to ‘bring an end to the race-to-the-bottom on corporate tax rates that allows countries to gain a competitive advantage by becoming tax havens’.
In addition, the president plans to increase the global minimum tax on US corporations to 21% and calculate it on a country-by-country basis. Also proposed is elimination of the rule that allows US companies to pay no tax on the first 10% of return when they locate investments in foreign countries. Furthermore, the Foreign-Derived Intangible Income rules introduced as part of the 2017 US tax reform package by President Trump will be repealed. President Biden also proposes to reverse the cut to the corporation tax rate introduced in 2017, increasing the rate from 21% to 28%.
An important element of the plan is the US indication that it will be seeking global agreement on a minimum tax through multilateral negotiations, in an effort to avoid the possibility of US corporations switching their headquarters to foreign countries. The plan also includes denying deductions to foreign corporations on payments that could allow them to reduce profits in the US if they are based in a country that does not adopt the minimum tax.
It is likely to be a number of years before President Biden’s proposals make it through the US legislature. The final details of the plan will be important in considering their possible impact on foreign direct investment in Ireland by US multinationals.
Disclaimer: While every effort has been made to ensure the accuracy of this information, the Irish Tax Institute does not accept any responsibility for loss or damage occasioned by any person acting, or refraining from acting, as a result of this material.
