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Tax Update - September 2023

DATE: 01/09/2023

Irish Government Publishes Roadmap on Introduction of Participation Exemption

On 14 September 2023, the Department of Finance published a Roadmap for the Introduction of a Participation Exemption to Irish Corporation Tax. This Roadmap confirms that, following an extensive consultation process to be carried out during this year and next, it is planned that a participation exemption for dividend receipts will be introduced from 2025. In addition, the possibility of introducing a foreign branch participation exemption will also be considered. 

The Roadmap signals the opening of an ongoing public consultation process to seek stakeholder feedback as to the design and implementation of this participation exemption, with the initial public consultation open for feedback until 13 December 2023. Matheson will prepare feedback to this consultation process and we would welcome any comments or feedback you may have in relation to the consultation.

European Commission Publication of the New Corporate Income Taxation Framework for Europe

On 12 September 2023, the European Commission adopted a package of key proposals to reduce tax compliance costs for large multinational businesses in the EU. 

The first proposal, "Business in Europe: Framework for Income Taxation" ("BEFIT") seeks to introduce a single set of rules to determine the tax base of groups of companies. The proposal may reduce compliance costs for large businesses operating in more than one Member State by up to 56% and will assist national tax authorities in determining which taxes are due. BEFIT seeks to ensure the following:

  • Companies that are members of the same group will calculate their tax base in accordance with a single set of rules;
  • The tax bases of all members of the group will be aggregated into one single tax base; and
  • Each member of the BEFIT group will have a percentage of the aggregated tax base calculated on the basis of the
  • average of the taxable results in the previous three fiscal years.

This proposal builds on the OECD / G20 international tax agreement and the Pillar Two Directive. The new rules will be mandatory for groups of companies operating in the EU with an annual combined revenue of at least €750 million, and where the parent company holds at least 75% of the ownership rights or of the rights giving entitlement to profit. The rules will be discretionary for smaller groups but may be of particular interest for SMEs. If adopted, the BEFIT proposal will enter into force on 1 July 2028.

The second proposal aims at harmonising transfer pricing rules within the EU by increasing tax certainty and mitigating the risk of double taxation and potential litigation. The proposal will also reduce the opportunities for companies to use transfer pricing for aggressive tax purposes. If adopted, the transfer pricing proposal will enter into force on 1 January 2026.

Second Feedback Statement on Pillar 2 Implementation

The Department of Finance ("DoF") issued a public consultation paper on the Second Feedback Statement. The consultation process provided an opportunity to review the draft legislation proposed by the DoF and to provide feedback on the approach to implementing the Pillar Two rules in Ireland. The consultation period ran until 21 August and Matheson's submission on the implementation can be accessed here.

UN Secretary General’s Report on Inclusive and Effective International Tax Cooperation

On 26 July 2023, the UN Secretary General issued a report entitled “Promotion of inclusive and effective international tax cooperation at the United Nations – Report of the Secretary-General”. The report calls for an enhanced role for the UN in tax-norm shaping and rule setting in order to make international tax cooperation fully inclusive and more effective. The report also highlights the importance of inclusivity in global tax talks noting that the OECD does not currently adequately address the needs of developing countries.

The report highlights three principal options to enhance the inclusiveness and effectiveness of international tax cooperation:

  1. The Multilateral Convention on Tax: This option would be a legally binding treaty or standard multilateral convention which would set out specific rules and obligations, which could have the effect of potentially limiting the exercising of taxing rights.
  2. The Framework Convention: The Framework convention is not regulatory in nature, and instead serves as a foundation, outlining the objectives, guiding principles, and the governing structure for future tax cooperation.
  3. The Framework for International Tax Cooperation: Another alternative would be a non-binding multilateral agenda for collaborative efforts, at the international, national, regional, and bilateral levels, which would focus on

    refining tax regulations.

Case T-143/23 - Koninklijke Boskalis

In this CJEU case brought by Koninklijke Boskalis NV and Boskalis Offshore Transport Services NV, the applicants sought to partially overturn the EU Global Minimum Tax Directive (Council Directive (EU) 2022/2523) (the "Directive").

The applicants pursued the annulment of specific sections of the Directive, particularly concerning the tax regime related to shipping activities and the lack of transitional measures for taxpayers who had invested based on a national tonnage tax regime. A 'tonnage tax' is an alternative method of taxing qualifying shipping companies by reference to the tonnage of the ships. They argued that the directive violated principles of equal treatment, proportionality, protection of legitimate expectations, and legal certainty. In addition, they also alleged that the Directive contravened Articles 115 and 107 TFEU.

However, the CJEU declared their action inadmissible due to late submission. For annulment proceedings, actions must be initiated within two months of the contested measure's publication. As the Directive was published on 22 December 2022, the deadline for annulment was 15 March 2023. However, the plaintiffs lodged their action on 16 March 2023, missing the window by a day, which rendered their claim inadmissible.


InDisputes: Debt Forgiveness – Taxpayer Appeals Unusual Reasoning

In this article, we outline the recent Tax Appeals Commission's determination which held that the forgiveness of a loan facility which had been included in the Taxpayer's accounts as a credit below the gross profit line was a deduction for the purposes of section 87 TCA and was therefore a receipt of the trade.

Irish Revenue issues guidance on DAC7 Reporting Obligations

Revenue recently issued its guidance on the DAC7 data reporting obligations which will come into effect in 2024. In this article, we explain key elements of the DAC7 reporting regime and how the regime will apply in practice.