Dublin, Ireland – In a landmark move, Ireland has commenced the application of the minimum effective 15% corporation tax rate for in-scope businesses, as of 31 December 2023. This pivotal change aligns with the OECD Two Pillar agreement, underscoring Ireland’s commitment to international tax reforms aimed at addressing the complexities of the digital economy.
The OECD Two Pillar agreement, which Ireland joined in October 2021, includes a global minimum effective tax rate of 15% for large enterprises. This top-up tax is designed to complement domestic tax laws, ensuring multinational entities contribute their fair share to the economies they operate in.
Despite this significant change, Ireland’s well-known 12.5% corporation tax rate will persist for the vast majority of businesses. This rate applies to companies with annual revenues below €750 million, which represents over 99% of businesses in Ireland. The 12.5% rate, a cornerstone of Ireland’s economic policy since 2003, continues to be a major factor in attracting foreign investment.
Finance Minister Michael McGrath expressed confidence in the new tax measures, emphasizing their role in providing stability and fairness in the global tax landscape. “The implementation of the global agreement on minimum effective corporate tax demonstrates Ireland’s dedication to agreed, multi-lateral international tax reforms,” McGrath stated.
In addition to the 15% corporation tax, the government has announced an increase in the Research & Development tax credit from 25% to 30%. This strategic move aims to stimulate innovation across businesses of all sizes, fostering future growth and productivity.
These changes come as part of Ireland’s adoption of the EU Minimum Tax Directive, integrated into Irish law through the Autumn 2023 Finance Act. The directive brings into effect three Pillar Two charging rules, including the Income Inclusion Rule (IIR), the Undertaxed Profit Rule (UTPR), and an optional Qualified Domestic Top-up Tax (QDTT), which Ireland has chosen to apply.
The transition to this new tax framework includes safe harbors to ease the administrative burden on businesses, particularly in the early stages of implementation. This approach reflects the government’s commitment to a balanced and pragmatic application of the new rules.
Minister McGrath concluded with a forward-looking statement: “This is a significant step in international tax reform, marking a new era of stability and fairness. Ireland’s proactive approach in adopting these measures will not only align us with global standards but also strengthen our position as a competitive and attractive destination for international business.”
This move by Ireland is seen as a critical step in the global effort to create a more equitable and transparent tax system, particularly in the fast-evolving digital economy. It represents a balance between maintaining the country’s competitive edge and fulfilling its responsibilities in the global financial community.