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Deloitte response to Feedback Statement on Pillar Two Implementation


On 31 March 2023, the Department of Finance launched a Feedback Statement on the transposition of the EU Minimum Tax Directive (the Pillar Two Directive).

This Feedback Statement builds on the May 2022 public consultation which considered broad scoping questions relevant to the implementation of Pillar Two rules into Irish legislation.

The consultation period which closed on 8 May 2023 raised a number of questions with respect to the implementation of Pillar Two rules in Ireland, inviting comments on:

  • The possible draft legislative approach to transposing Pillar Two,
  • The treatment of OECD Model Rules, Commentary and Administrative Guidance in the legislation,
  • The possible approaches to legislative implementation of a Qualified Domestic Top up Tax (QDTT) in Ireland,
  • Administrative aspects of the Pillar Two rules in Ireland including registration, self-assessment, filing of returns, payments and record keeping.

Read our submission in full here.

Our views and core recommendations

The proposed legislative approach included in the Feedback Statement largely follows the structure of the Pillar Two Directive, albeit with the addition of certain provisions included in the OECD Model Rules, OECD Commentary and Agreed Administrative Guidance (“Additions”) that are not in the Directive. From an operational perspective, we would broadly agree with the inclusion of these Additions. However, from an EU Law perspective, and with regard to how the Irish rules will interact with the rules of other countries, consideration will need to be given to whether it is appropriate to include these Additions in Irish primary legislation.

In our view, the Irish domestic Pillar Two rules should be construed, as far as practicable, consistently with the OECD Pillar Two Model Rules and associated Commentary. Accordingly, the OECD Commentary should be used as an interpretive guide to construing Irish domestic legislation.

With respect to the implementation of the QDTT in Irish law, the Feedback Statement notes that two possible approaches to applying such provisions in legislation would be to:

  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.

The Feedback Statement proposes that the latter option may be most efficient. We would agree with that approach as it would minimise the amount of legislative drafting and also more closely align the QDTT and IIR bases. We do not envisage significant issues /challenges from an Irish perspective in treating top-up taxes (including QDTT) as separate to the main corporation tax rules. Nonetheless, it is important that the top up taxes are considered corporate taxes in order that such top up taxes may be creditable in foreign jurisdictions.

With respect to the administration of Pillar Two Rules in Ireland, we would suggest that as part of the registration, a group should have the option to appoint a single entity (the “Responsible Entity”) to be responsible for all Irish Pillar Two filing requirements including registrations, notifications and the GloBE Top-up Tax Return. i.e., the Responsible Entity will be an agent of the Irish constituent entities for GloBE compliance purposes. It should be possible for one Constituent Entity (e.g., the Responsible Entity) to pay top-up tax liabilities in respect of other Constituent Entities within the group, with the same being reflected as an intra-group liability, if neccesary

In addition to the specific questions raised by the Feedback Statement, in our view a number of other matters must be given due attention prior to the domestic transposition of Pillar Two rules into Irish law. Firstly, existing tax legislation in Ireland is complex and multi-layered. The introduction of Pillar Two rules into domestic law has the potential to add another layer of complexity. In the interests of taxpayer certainty and to ensure that the Irish tax regime remains workable and user friendly, we would recommend that serious consideration be given to streamlining and simplifying the Irish tax code.

In particular, the existing regime for the provision of double tax relief on foreign income contained in Schedule 24 TCA97 is overly complex and results in increased compliance and other costs for taxpayers. The adoption of a territorial regime of taxation for foreign dividends and foreign branch income on an elective basis and the broad simplification of other areas of the Irish double tax relief regime would be a welcome step in reducing taxpayer compliance costs prior to the introduction of Pillar Two rules. In addition, further consideration should be given to modifying the existing Knowledge Development Box (“KDB”) regime in Ireland to ensure it retains its attractiveness in a post Pillar Two context. Under the current regime, the KDB gives a downward adjustment to taxable profits where specific conditions are met. In a Pillar Two context, and in particular with regard to the ETR calculations, this reduces the “Covered Taxes” element of the calculations but the “GLoBE income” taken from the financial statements stays the same. As top-up tax is paid on the difference between the GLoBE 15% rate and the KDB rate of 6.25%, this means the KDB company will receive no KDB relief when considered at a holistic level. In the absence of a carve out, consideration should be given to amending the Irish KDB regime. Consideration could be given to changing the method of granting the relief from giving a downward adjustment to giving the taxpayer a tax credit (“IP Tax Credit”) calculated as a percentage of qualifying profits. Such credit should be drafted consistently with the “qualified refundable credit” definition in the EU Directive on Pillar Two with a view to making the KDB “Pillar Two neutral”. Similarly, consideration should be given to the mechanism by which taxpayers may claim relief for the digital games tax credit and whether this relief will be treated as a qualifying refundable tax credit for Pillar Two purposes.

Next steps

It is important that Ireland continues to work on its competitiveness, and in particular to take steps to simplify its tax regime given the additional compliance burden and complexity that Pillar Two introduces. We appreciate that Department’s efforts at OECD level and we would encourage further interaction with OECD/others to ensure that safe harbours are introduced for QDTTs. Ireland will need to be mindful of the evolution of Pillar Two and its implementation to protect against additional complexity, administration and to ensure that double taxation is avoided. Lastly, while the Feedback Statement refers to internationally agreed safe harbours from the application of the top-up tax, specific detail as to how such safe harbours are to operate is not provided. We look forward to further clarity on the transitional safe harbours in an Irish context given the industry focus likely to be placed on same on the introduction of Pillar Two into Irish law.

While responses to the public consultation are currently under review by the Department of Finance, in view of the complexity of the project and limited time to meet the transposition deadline, legislative drafting will likely continue at pace. We expect to see legislation released as part of next Finance Bill, with continued stakeholder engagement in the interim.

Should you have any queries as to how these changes may affect you or your business, please do not hesitate to contact us.

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