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Ireland signs up to the OECD’s International Tax Agreement

  • Ireland
  • Tax planning and consultancy - Briefings

08-10-2021

The following briefing is intended to summarise the key points in relation to the Irish Government’s decision to join the OECD International Framework.

Ireland and the OECD’s International Tax Agreement

  • The Irish Government approved Ireland’s entry into a political agreement with the OECD which includes a new tax framework designed to address the tax challenges of digitalisation of the world economy.
  • The agreement’s purpose is twofold. Firstly, it provides for a percentage of profits from sales made by multinationals to be taxed in the countries in which those sales were conducted. Secondly, it introduces a global minimum effective corporation tax rate.
  • Ireland initially refused to join the scheme over uncertainty regarding the minimum effective corporation tax rate proposed of “at least 15%”.
  • The Irish Government’s successful engagement with the OECD ensured certainty in respect of the minimum rate applicable to both larger multinational companies with turnovers exceeding €750 million as well as the retention of the existing 12.5% rate for smaller companies whose turnover is below this €750 million threshold.
  • The removal of the term “at least” from the agreement not only provides certainty for the Irish Government but also offers long-term security and confidence to businesses in terms of their investment strategies into the future.

 “New” Corporation Tax Rates

  • The OECD’s agreement provides for two separate rates of corporation tax that will be applied on the basis of a company’s revenue per annum.
  • Multinational enterprises (“MNEs”) with a turnover exceeding €750 million will be subject to a minimum effective corporation tax rate of 15%.
  • Businesses with a turnover below €750 million per annum will continue to be taxed at the 12.5% rate.
  • Consequently, most small and medium sized enterprises (“SMEs”) will fall outside of the scope of the framework resulting in no change to their Irish corporation tax bill.
  • The 56 Irish MNEs employing approximately 100,000 people, and 1,500 foreign owned MNEs located in Ireland employing approximately 400,000 people will be subject to the higher rate of 15%.

Ireland’s Negotiations with the OECD

  • Whilst Ireland originally declined to join the tax agreement in July 2021, subsequent negotiations with the OECD and other key stakeholders secured the removal of the problematic “at least” from the text of the framework.
  • The exclusion of this term creates a level of stability for the Irish Government as it ensures that the higher corporation tax rate of 15% cannot be raised at a later date.
  • The agreement further assured that Ireland maintains the 12.5% rate for companies with a revenue below €750 million.
  • The Minister for Finance, Paschal Donoghue commented that over 140 member jurisdictions of the OECD’s Inclusive Framework were involved and that compromises had to be made.

Key takeaways

  • As a member country of the OECD, it was in Ireland’s best interests to sign up to the global tax deal. Most, if not all industry bodies, professional associations and other interested parties acknowledged that Ireland should be part of the agreement, provided the requisite certainty could be obtained.
  • The initial position adopted by the Irish Government, in declining to join the initial deal, was not a refusal to agree to the deal. Indeed, the Minister for Finance said on numerous occasions that Ireland was constructively participating in the discussions around a global minimum tax.
  • The Irish Government’s engagements with the OECD around the drafting of the agreement and specifically the removal of “at least” have ensured that the 15% rate applicable to MNEs will remain constant, thereby ensuring a level playing field.

Ireland will remain competitive from a tax perspective while continuing to offer stability to both Irish and international investors. Smaller domestic entities which make up a large proportion of our domestic economy will still enjoy the competitive rate of 12.5%. This tax certainty, together with other infrastructural factors – English speaking Eurozone member; mobile, educated workforce; transport links and connectivity, etc. – will ensure that Ireland will remain the jurisdiction of choice for multinational expansion, and will remain at the forefront of investment decisions on a global basis.

For more information, please contact

Alan Connell, Managing Partner and Head of Tax - AlanConnell@eversheds-sutherland.ie

Tim Kiely, Partner, Tax and Commercial - TimKiely@eversheds-sutherland.ie

Melissa Daly, Senior Associate, Tax - MelissaDaly@eversheds-sutherland.ie

Robert Dever, Senior Associate, Tax - RobertDever@eversheds-sutherland.ie

Niall Pilkington, Solicitor – Tax and Commercial – NiallPilkington@eversheds-sutherland.ie

Aoife Noone, Solicitor – Tax and Commercial – AoifeNoone@eversheds-sutherland.ie