Deloitte response to the second Feedback Statement on Pillar Two Implementation

On 21 August 2023 we responded to “Pillar Two Implementation Second Feedback Statement” (“July consultation”) from the Department of Finance. In the document we set out our comments on the draft legislative approaches which aim to transpose the EU Minimum Tax Directive (Council Directive (EU) 2022/2523) (“the Directive”) into Irish legislation, as discussed in this consultation.

Further details are provided in response to each question of the July consultation in the submission and Appendix 1; however, below is a brief summary of our key comments:

• The proposed legislation on the CbCR, transitional UTPR and QDTT/QDMTT safe harbours, as set out in the July consultation, appear reasonable, subject to our comments as part of the document.

• We would recommend that the legislation should follow the QDMTT safe harbour rules, set out in the July 2023 OECD Administrative Guidance (“July OECD Guidance”)

• In addition, it would seem that a standalone investment entity, on the basis it might not meet the conditions of being an excluded entity would fall within the application of the QDTT. We strongly recommend that all investment entities are excluded from the charge to the QDMTT in order to maintain Ireland’s competitiveness and attractiveness as a location for asset management and investment funds.

• Reference is made as part of the proposed QDTT legislation to “generally accepted accounting practice”. It is presumed that this will be defined for these purposes accordingly. Further, a new Section 3A is proposed as part of the QDTT legislation. It deals with the position where all of the constituent entities of the MNE group or joint venture group located in Ireland have financial statements prepared in accordance with GAAP and the fiscal year of all such statements is the same as the fiscal year of the consolidated financial statements of the MNE group. Section 3B deals with the position where any of the constituent entities of a MNE group located in the State prepare financial statements under both IAS and Irish GAAP. The position of group entities using differing accounting standards is not dealt with and consideration should be given to addressing same.

• The proposed legislation on Pillar Two Elections appears reasonable, subject to our comments as part of the document.

• When linking the legislation with other material, as discussed in Section 6 of the July consultation, we would suggest providing that the legislation should comply with the related OECD rules, commentary and administrative guidance “other than where such an application of this section would be inconsistent with the EU law purpose of the Directive”. Requiring the proposed legislation to refer to consistency with the “EU Law purposes of the Directive” could assist, in the absence of an amendment to the Directive, in Ireland’s legislation having such regard to such guidance within the confines of EU law.

• Subject to the Transitional Penalty Relief provisions, we would recommend that penalties and sanctions should not exceed those that already apply for corporation tax purposes. In our view, these penalties are suitably “effective, proportionate and dissuasive."

• Ireland already has very robust measures dealing with the collection of taxes. As such, Revenue should have sufficient avenues to recover any QDMTT within the required period without introducing new measures.

• The transitional penalty relief provisions should be applied to the fullest extent possible.

• It is important that the QDTT is creditable against taxes imposed further up the chain, otherwise double taxation may arise. Whether the QDTT is creditable will depend on the laws of the jurisdiction of the parent entity. As such, different countries could have different rules as to what can be credited. With regard to allocating based on qualifying income, we would recommend instead that taxpayers are provided with sufficient flexibility.

Read our submission in full here.