Corporate Tax

EU energy and Brexit shock waves will form the world of corporate taxation – taxes

The three big trends we’re seeing in the corporate tax world in 2021 are the growing power of the EU, the impact of Brexit and tax disputes.

In just a few years we have gone from having a minimal EU contribution to taxes to a situation where Brussels is introducing significant tax changes for companies.

It is true that EU countries still have tax sovereignty, but we now see important tax laws and other tax initiatives constantly coming from the EU, of which the Apple case was just one example.

For example, Ireland will implement “interest cap rules” next year due to the EU tax avoidance directive. This will limit the amount of interest large companies can deduct and is one of the biggest corporate tax changes in the last 20 years.

This will affect a number of sectors – multinational corporations, real estate companies, aircraft leasing and financial services companies.

Another EU measure is DAC6 reporting, an obligation for consultants and companies to report certain cross-border transactions to EU tax authorities that may involve tax planning. The UK promptly scrapped it the day it left the EU, which probably says something about it.

All of these tax measures add complexity for companies doing business in the EU.

I hope that the EU as a whole can remain competitive with other parts of the world such as the US and Asia in the area of ‚Äč‚Äčinternational taxation.

India, which is notoriously tough on tax issues, for example, applies its interest cap rules only to related party debt, while the EU applies them to external debt as well.

The US, for its part, has relaxed its rules on interest rate caps to help companies walking away from Covid-19, the EU has not.

The OECD is currently leading the way in collecting a global tax on digital services that will allow countries to tax some of the profits of large online businesses where their customers or users are located, as opposed to their headquarters.

Ireland has seen a huge surge in corporate tax revenue from these companies in recent years, so some of that tax would be shifted away from Ireland and at a time when we need it most. Depending on the approach taken by the Biden administration, we can assume that this will gain momentum this year. The Maples Group filed an industry proposal with the OECD and attended their online meeting earlier this month. I assume that any agreement at OECD level will be implemented here through new EU legislation.

We see Brexit driving business to Ireland, where the UK may previously have been the only EU presence for a company. Really, any company that does business or invests in the EU must have an EU base. We advise financial services companies on establishing substantial, regulated companies, including senior executives in the C-Suite.

There are obviously practical challenges moving employees here currently due to Covid-19, but this is happening and local hires are being made from our extensive talent pool.

Manufacturing, grocery, and retail companies are also setting up physical hubs here to address supply chain challenges.

Tax authorities around the world have become more confident in investigating and questioning the affairs of large corporations.

We have seen that this trend has increased significantly in Ireland recently, due to the fact that large international companies are now based here, which in turn leads to tax disputes ensuing.

The Revenue Commissioners have shown they are ready to take over large international businesses, and the sums are staggering.

Revenue issued a tax assessment of EUR 1.64 billion in 2018 for an Irish subsidiary of Perrigo Company plc, an international US-listed healthcare company, and in 2019 a tax assessment of EUR 398 million for the pharmaceutical company Takeda out.

Our tax litigation practice consists of tax and litigation attorneys. We have advised on a number of important cases, most recently with a financial services firm in the high court. Very often we have been called in by the taxpayer company’s board of directors as a “second pair of eyes” and a matter of good corporate governance to work with the original tax advisor.

I am also the chairman of the Irish Debt Securities Association, which represents the international securitization industry in Ireland.

Ireland is one of the leading jurisdictions for international securitization firms in Europe and an integral part of the Irish international financial services offering with over 3,000 jobs in the sector in Ireland.

The European Commission has endorsed the importance of securitization in Europe as an important alternative to bank-based finance and to improve the resilience of the financial system, which is of course particularly relevant today given the enormous financial resources required for the growth of the economy in Europe after Covid19 .

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The content of this article is intended to provide general guidance on the subject. A professional should be obtained about your particular circumstances.

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