What does the OECD agreement mean for your organisation?

Kevin Doyle, Tax Partner and International Tax Coordinator, discusses the effect of Ireland joining the OECD International Tax agreement.

Ahead of the meeting of members of the Inclusive Framework on BEPS today, the Irish Government met to sign off on signing up to the OECD agreement for both Pillar 1 (market jurisdiction allocation of taxing rights) and Pillar 2 (minimum effective rate of tax).

Despite taking flak both domestically and internationally, Minister Paschal Donohoe and the Irish Government have been vindicated in their decision to continue to negotiate for the removal of the “at least” wording in relation to the minimum effective rate of 15%. The carve out for the 12.5% rate to remain for groups with turnover of less than €750m is also very welcome news for the majority of Ireland’s ambitious and growing companies as well as for the emerging businesses that chose to set up in Ireland as a gateway to Europe. I now hope that the EU moves quickly to confirm that Ireland continues to have such tax sovereignty in its affairs.

As with all things tax, the devil is in the detail! Even after June’s announcement of a draft deal many questions remained. The focus will quickly move on to how the calculation of the effective rate is to be done and what the final Pillar 1 deal looks like. Will the likes of R&D tax credits be permitted in terms of reducing the rate below 15%?

Over the last few weeks, the focus has been on Pillar 2 and the wording regarding the rate. However, Ireland is already committed to Pillar 1 which reallocates taxing rights to other jurisdictions. It also requires countries to pledge to remove any existing unilateral measures they have adopted such a Digital Services Taxes. Will all countries remove such taxes where the new Pillar 1 provides less of a tax take for their jurisdiction? Will they seek to apply it to groups not within the remit of Pillar 1?

The next few days and weeks will likely lead to some sweeping political statements on how a global tax deal has been reached and eye watering amounts of tax avoidance have been curtailed. I suspect that less will be said, or at least it will be less clear, about how this agreement will be implemented in a cohesive manner and how it will lead to anything other than years of tax disputes between jurisdictions. Will it have done anything to help climate change or drive real tax fairness for developing economies? Will subsidy hunting become the new tax avoidance? Will the US Government succeed in passing the necessary legislative changes to adopt any agreement?

Perhaps some of these questions will be answered by the end of the month but inevitably not all questions will or can be answered until consistent and co-ordinated legislation is passed in 140 or more jurisdictions around the world. This is a road with some way to go yet!

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