Ireland launches consultation on EU Minimum Tax Directive and proposed legislative approach

Introduction

• On Friday, 31 March 2023, the Irish Department of Finance released a Feedback Statement (‘FBS’)¹ on the transposition of the EU Minimum Tax Directive² (‘the Directive’). This FBS, which builds on the May 2022 public consultation, launches the next phase of Ireland’s consultation process on the implementation of the Organisation for Economic Co-operation and Development’s (OECD) Pillar Two framework under BEPS 2.0.
• Minister for Finance Michael McGrath confirmed that Ireland will bring forward implementing legislation later this year. As required by the EU Minimum Tax Directive the law will be effective for accounting periods beginning on or after 31 December, 2023.
• The introduction to the FBS emphasizes that the Irish authorities have not lost sight of competitiveness in implementing the Directive:
  

“The Pillar Two framework will have quite significant impacts for Ireland. We have engaged extensively at both OECD and EU level to ensure the agreed rules allow continued support for economic growth and prosperity, and also safeguarding our competitive tax regime for real and substantive activities in the State.”

• The FBS outlines Ireland’s approach to transposing the Directive and includes over 100 pages of possible legislative approaches in this regard.
• Stakeholders are invited to provide responses to various queries raised throughout the document on how the Directive will be implemented in Irish legislation.
  
• The consultation period will run to close of business Monday, 8 May 2023.
  

Key Elements

Approach to Transposition

The FBS notes that Ireland’s transposition of the Directive will involve four key elements:

1. Income inclusion rule
2. Undertaxed Profits Rule
3. Qualified Domestic Top Up Tax (‘QDTT’)
4. Administration

Structure of FBS

The Feedback Statement is structured as follows:

• General approach to legislation
• QDTT
• Administration
• Other issues

General approach to legislation

It is proposed that the transposition of the Directive will largely follow the structure of the Directive itself with references to certain aspects of the OECD Model Rules³, Commentary⁴ and Administrative Guidance⁵ where appropriate. An appendix to the FBS outlines possible legislative approaches to the transposition of the Directive. Comments are invited on this proposed legislative approach.

QDTT

The FBS notes that it is “considered appropriate” to introduce a QDTT as part of the Pillar Two implementation process and the FBS proposes two possible approaches in this regard which are as follows:

1. Prepare a detailed part of the legislation to set out all of the elements required to calculate and implement a QDTT, separate and stand-alone from the parts of the legislation required to implement the IIR and UTPR, or
2. Prepare shorter provision(s) which would reference the detailed provisions relating to the IIR with any necessary modifications.

Comments are invited on these possible approaches to implementing a QDTT in Irish legislation.

Administration

The FBS invites stakeholders to provide responses on a range of questions relating to the administration of the Global anti-base Erosion (‘GloBE’) rules including:

• Registration and De-Registration requirements
• GloBE Information Return filings and notifications
• Domestic return filing requirements
• Payments
• Record keeping obligations
• Group filings/payments.

It is noteworthy that the proposed approach is for the administration of the GloBE rules and the associated top up taxes to be kept separate to Ireland's existing corporate tax regime.

Other Issues

Stakeholders are invited to provide comments on any issues relevant to the Directive which are not covered in the FBS. We note that the FBS does not deal with the Transitional CBCR Safe Harbour in detail⁶.

Questions

The FBS contains a series of questions which are summarized below:

1. Transposition of EU Minimum Tax Directive
   Comments are invited on the possible draft legislative approach as provided for in Appendix 1.
2. OECD Model Rules, Commentary and Administrative Guidance
   Comments are invited on what reference, if any, should be made to the OECD Model Rules, Commentary and Administrative Guidance (and any future Guidance) in the legislation.
3. QDTT
   Comments are invited on the possible approaches to legislative implementation of a QDTT in Ireland. 
4. Administration
   1. Proposed approach to administration
      1. Comments are invited on the proposed approach that the administration of the GloBE rules and the associated top-up taxes will be kept separate to the existing corporation tax regime.
         
      2. Do stakeholders foresee any issues / challenges in treating the top-up taxes as separate to corporation tax?
         
   2. Registration and De-Registration
      
      1. Comments are invited on the overall approach to registration / de-registration proposed in the FBS.
         
   3. Filing of GloBE Information Returns and Notifications
      
      1. Comments are invited on the proposed approach for GloBE Information Returns and associated notifications.
         
   4. Filing of Domestic Returns / Self-Assessment
      
      1. Comments are invited on the overall approach to domestic returns / self-assessment in relation to the GloBE rules.
         
      2. Comments are invited in relation to the proposed approach of having an additional return, separate return to the Form CT1, which will cover all three top-up taxes arising.
         
      3. Do stakeholders have any views on the interaction of GloBE Information Return (‘GIR’) and GloBE Top-Up Tax return?
         
      4. Do stakeholders have any views on the information to be contained in the GloBE Top-Up Tax return? 
         
   5. Payments
      
      1. Comments are invited on the proposed approach to payments.
         
   6. Record Keeping
      
      1. Comments are invited regarding the proposed record keeping requirements.
         
   7. Other Administrative Provisions
      
      1. Comments are requested regarding the proposed approach to other administration provisions.
         
      2. Comments are requested regarding the general approach to administration of the GloBE rules.
         
   8. Group Filings / Payments
      
      1. Registration
         Should it be possible for one Constituent Entity within a group to register on behalf of other Constituent Entities within the group? If so, how should this operate in practice? How would the appropriate permissions (e.g. for an entity to act as a Designated Local Entity on behalf of another Constituent Entity) be granted?
      2. GloBE Top-Up Tax Return
         Should it be possible for one Constituent Entity within a group (a “group filer”) to file a GloBE Top-Up Tax Return on behalf of other Constituent Entities within the group? If so, how should this operate? Should there be:
         1. One “joint return” filed by the group filer which covers numerous entities?
            
         2. Separate returns for each Constituent Entity within the group but filed by the group filer?
            
         3. Other “group filer” approach used? If so, please provide details of same.
            
      3. If some form of “group filer” approach were available, how should it operate from a compliance perspective? If returns are filed late or filed incorrectly how should any surcharges / penalties be applied (e.g. which entities should be liable)? Which entity(ies) should be liable for any top-tax liabilities arising?  Please provide an answer based on the possible options to group filing outlined at question 4.8.2 above.
         
      4. Payments
         Should it be possible for one Constituent Entity within a group (a “group payer”) to pay top-up tax liabilities on behalf of other Constituent Entities within the group? If so, how should this operate?
      5. If a group payment option were available, how should it operate from a compliance perspective? If payments are made late or incorrectly how should any interest be applied (e.g. which entities should be liable)?
         

Next steps

EY will continue our extensive engagement with the Department of Finance on Pillar Two implementation including seeking maximum flexibility for taxpayers to avoid unintended consequences and to simplify administration and compliance.

We look forward to supporting our clients in evaluating their perspectives and responses to the FBS ahead of the May 8 deadline.