Close to 1,600 companies to be hit with new 15% corporate tax rate

Close to 1,600 multinationals with operations in the Republic, including 67 with “ultimate parent entities”, will be liable to pay the new 15 per cent corporate tax rate from next year.

The introduction of the new minimum effective tax rate for big multinationals could trigger another significant jump in corporate tax receipts, adding to the State’s already-sizeable windfall, according to industry insiders.

Legislation to implement the new rate, provided for under the Organisation for Economic Co-operation and Development’s (OECD) so-called Pillar Two agreement, is said to run to 200 pages and take up roughly half of the Government’s Finance Bill, which is due to be published on Thursday.

The new rules represent the biggest shake-up in the State’s corporate tax system since the introduction of the current 12.5 per cent headline rate in the 1990s.

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Companies with turnovers of more than €750 million will – from next year – be liable to pay a new top-up tax, known as a qualified domestic top-up tax (QDTT), equating to the difference between their effective rate and the new 15 per cent rate.

Currently, the effective rate here, what firms actually pay after deductions and allowances, is about 10-11 per cent, as distinct from the State’s headline rate of 12.5 per cent, so the increase – in many instances – could be up to 5 per cent.

While the companies will be liable from next year, the first payments under the new system are not expected until 2026.

“This is a once-in-a-generation reform to our corporation tax system, and marks the culmination of a 10-year, global project to reform the taxation of multinational enterprises,” Minister for Finance Michael McGrath said in his budget speech last week.

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Sources said the likely jump in receipts from the introduction of the new rate was too difficult to predict but was expected to boost tax coffers here all other things being equal.

However, they warned that the State was likely to lose out under Pillar One of the OECD’s reform plan, which seeks to give bigger countries greater taxing rights. But, this element of the OECD’s reforms has yet to be agreed and faces significant political opposition, particularly in the US.

[ Corporate tax rate of 15% will pose companies ‘significant challenges’ ]

The Department of Finance projects corporate tax revenue will hit a record €23.5 billion this year, rising to €25.6 billion by 2026.

Given the complexity of the new rules and the differences in accounting standards across jurisdictions, the Finance Bill is expected to include provisions for a transitional period of simplified reporting and various penalty reliefs.

It will also include legislation to increase the State’s current research and development (R&D) tax credit from 25 to 30 per cent as a possible offset for companies likely to end up paying the higher 15 per cent tax rate.

[ State plans to exempt foreign dividends from tax in ‘exchequer-neutral’ move ]

Industry sources are also said to be worried about the likely scope of new withholding taxes on what are known as “outbound payments” by companies operating here and whether they could erode the State’s competitiveness in attracting incoming foreign direct investment. Outbound payments are typically payments of interest, royalties and dividends to third parties in other jurisdictions.

In his budget speech, Mr McGrath admitted the issue of outbound payments was a complex area “which will take some time to work through”.