Press release
Minister McGrath notes Ireland’s application of effective 15% corporation tax rate for in-scope businesses
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The Minister for Finance Michael McGrath has welcomed the beginning of the application of the minimum effective corporation tax (Pillar Two) rules in Ireland from today (31 December 2023).
Ireland signed up to the OECD Two Pillar agreement in October 2021, including the agreement of a global minimum effective rate of 15%, on a jurisdictional basis, for in-scope entities by means of a top-up tax, which is added to corporation tax charged under domestic rules to reach the 15% effective rate.
Ireland will continue to apply the 12.5% corporation tax rate, which has been in effect since 2003, for businesses out of scope of the agreement, that is, businesses with revenues less than €750 million. This means that over 99% of companies operating in Ireland are outside of the scope of the global minimum effective tax rate of 15%.
The decision to introduce the 12.5% corporation tax rate was originally announced in 1997 and phased in by average reductions in the standard rate of 4% per annum over six years.
Minister McGrath said:
“In October 2021, Ireland, along with almost 140 other jurisdictions, signed up to the OECD Two Pillar solution to address the tax challenges arising from the digitalisation of the economy. This has been described as a once-in-a-generation agreement and the pinnacle to the process of international tax reform that began over a decade ago. The rules become effective today in Ireland and in many other jurisdictions across the world.
"By implementing the global agreement on minimum effective corporate tax, Ireland demonstrates our continuing commitment to agreed, multi-lateral international tax reforms.
"The decision to join this global agreement was not taken lightly. Ultimately, it is our assessment that the positive effects will be greater than the challenges, as the agreement has the potential to bring much-needed stability to the international tax framework after the turbulence and uncertainty of recent years, safeguarding our future competitiveness by providing a sound and stable basis for inward investment into Ireland in the long-term.
"It is important to note that Revenue estimates that there may be approximately 1,600 multinational entity groups with a presence in Ireland that will come in scope of Pillar 2. The vast majority of businesses, those with revenues of less than €750 million per annum, will continue to pay corporation tax at the 12.5% rate.
"It is my firm belief that a key benefit of a more settled international tax policy environment will be an increased scope to focus on domestic tax policy in the enterprise sector, with several initiatives to improve aspects of the overall tax system announced in Budget 2024. These include an increase in the R&D tax credit from 25% to 30% which will incentivise businesses of all sizes to invest in their future productive capacity, as well enhancements to the Employment Investment Incentive, Start-up Capital Incentive and Start-Up Relief for Entrepreneurs schemes and a new lower rate of CGT for angel investors.”
In the EU, Pillar Two is being implemented by means of the EU Minimum Tax Directive, which has been transposed into Irish law by the Autumn 2023 Finance Act.
On 20 December 2023 the Minister for Finance signed S.I. No. 675 of 2023 providing for the December 2023 instalment of the OECD Administrative Guidance to be recognised as part of Irish Pillar Two legislation.
The Pillar Two top-up tax is calculated by reference to financial accounting rules, subject to certain adjustments agreed upon by the OECD Inclusive Framework and set out in the legislation. The new provisions will apply to both multinational and domestic businesses with a global annual turnover of over EUR 750 million in at least two of the preceding four years.
There are three Pillar Two charging rules: a Income Inclusion Rule (IIR) which operates via group parent entities, an Undertaxed Profit Rule (UTPR) that can be operated by other group entities as a backstop provision where an IIR has not applied, and an optional Qualified Domestic Top-up Tax (QDTT), which provides for the collection in a jurisdiction of any top-up tax due in respect of in-scope entities located in that jurisdiction. Ireland has elected to apply a QDTT.
In line with published OECD guidance on Pillar Two implementation, the legislation includes transitional and permanent safe harbours, which aim to ease the administrative burden on in-scope businesses, particularly in the initial period of the application of the Pillar Two rules.