Ireland’s tax revenue is increasing
Irish Revenue reported €$ 2 billion ($ 2.3 billion) increase in corporate tax revenue, bringing total corporate tax revenue to €9.5 billion. Overall, the Irish government has seen tax revenues grow by 20% since last year.
“Corporate tax revenues in October were higher than expected, which once again illustrates the inherent unpredictability and volatility of this source of income,” said Paschal Donohoe, Ireland’s Treasury Secretary.
“Despite the further clarity that now exists with international tax reform, there is still a great deal of uncertainty about its impact on Ireland,” he said.
The Treasury Department attributed the sudden surge in revenue to unscheduled payments from pharmaceutical companies. These payments include a € 297 million settlement from pharmaceutical company Perrigo as part of its € 1.6 billion tax bill.
Most of the tax revenue came from personal income tax and VAT, which saw strong growth due to rising employment and higher consumer demand. VAT increased €12.6 billion while generating income tax €20.6 billion
This puts the Irish government on track for a record-breaking increase in tax revenues. Still, the Irish government is unlikely to spend any money as it expects to raise the corporate tax rate in the near future.
“The best defense against adverse effects is strong and stable public finances,” said Donohoe.
As a well-known low-tax country, Ireland was originally one of the most prominent hold-out nations in Europe. However, the Irish government decided to sign up to 15% after the European Commission reassured them that the final rate would not go up any further.
This move helped to tip the balance in favor of the OECD-brokered deal. Ireland may be better placed to raise taxes in the long run, but the government will try to make sure the country remains competitive in some way.
The heads of state and government at the G20 summit in Rome officially supported a global minimum tax of 15%, which, along with weak discussions about climate change and debt relief, is probably the only concrete result of the summit.
The G20 approved the two-pillar proposal of the OECD Inclusive Framework (IF) of a global minimum tax rate of 15% and a redistribution of 25% of the residual profits of the largest companies to the legal systems of the market.
Treasury Secretary Janet Yellen said: “Every G20 head of state has approved a historic deal on new international tax rules, including a global minimum tax that will end the harmful race to the bottom in corporate taxation.”
The deal also includes tax credits for companies facing taxes on digital services (DST) prior to the implementation of the first pillar. This was a requirement from the US to agree to the framework for redistributing residual profit under the first pillar.
The agreement to establish a floor for tax competition and a system to redistribute corporate profits in more than 130 countries is significant. However, several stakeholders said the solution would penalize around 70 other countries outside the IF as well as some developing countries within the IF.
Read the article here
Transfer Pricing (TP) Directors must ensure that internal contracts reflect external ones and amend any files used to justify the firm’s use of arm’s length pricing when deviating from the London Interbank Offered Rate (LIBOR).
The transition from LIBOR is still a significant hurdle for many companies. TP directors must ensure that their companies are transitioning in the same way as their external and internal colleagues. This is another difficulty for TP directors, but they also need to make sure that the documentation supports the tariffs they are using
If the deadline is 31.
“The concept of TP is not threatened by the benchmark because the differences are pretty narrow – you have the adjustment spreads. If you simply use them, you are documented safe. If you look at the numbers, the differences are very small, ”says Edouard Nguyen, partner at Kleber Advisory.
“You have to make sure, however, that you are still back to back and not switching on one side and not the other,” he added.
While moving from LIBOR to Risk Free Rates (RFRs) doesn’t seem like a significant business risk, moving from benchmark means more than just a simple swap. Companies need to ensure that their internal contracts reflect the external ones and that the files meet market requirements.
Read the article here
Next week in ITR
The ITR is closely following the tax policy developments at COP26. A key area is carbon taxation and how the impact of such levies can affect transfer pricing by forcing changes in intra-group transactions.
The tax profession is changing in view of the requirements for ecological sustainability. Readers can expect an in-depth look at hiring trends as tax departments play a vital role in promoting sustainability in businesses.
At the same time, the two-pillar plans of the OECD are to become a reality. National governments around the world are preparing their budgets and preparing to align their tax systems to a global minimum corporate tax rate.
Readers can expect these and many more stories next week. Do not miss the most important developments. Sign up for a free trial of ITR.
© 2021 Euromoney Institutional Investor PLC. You can find help in our FAQ.