The three big trends we are seeing in the world of corporate tax in 2021 are the increased power of the EU, the impact of Brexit and tax litigation.
In the space of a few short years, we have gone from minimal involvement by the EU in tax to a situation where Brussels is introducing significant tax changes for business.
It’s true that EU countries still have tax sovereignty, but we are now seeing major tax legislation and other tax initiatives constantly coming out of the EU, of which the Apple case was only one example.
For example, Ireland will be implementing “interest limitation rules” next year as a result of the EU Anti-Tax Avoidance Directive. This will limit the amount of interest that large companies can deduct and is one of the biggest corporation tax changes here in the past 20 years.
This will impact a range of sectors – multinationals, property companies, aircraft leasing and financial services companies.
Another EU measure is DAC6 reporting, a requirement for advisers and companies to report certain cross-border transactions to EU tax authorities which may involve tax planning. Britain promptly scrapped it the day it left the EU, which probably says something about it.
All these tax measures add complexity for companies carrying on business in the EU.
My hope is that the EU as a whole can stay competitive in international tax when compared to the approach taken in other parts of the world like the US and Asia.
India, which is notoriously tough on tax matters, for example, only applies its interest limitation rules to related party debt, whereas the EU applies it to external debt as well.
The US for its part has relaxed its interest limitation rules to help business on foot of Covid-19, the EU has not.
The OECD is leading the charge at the moment to bring in a global digital services tax, which will allow countries tax some profits of large online businesses where their customers or users are based, as opposed to where they are headquartered.
Ireland has seen a huge growth in corporation tax receipts in recent years from these businesses, so this would shift some of that tax away from Ireland, and at a time we need it most. Depending on the approach of the Biden administration, we can expect this to gather pace this year. The Maples Group made an industry submission to the OECD about this and participated in their online meeting this month. I expect that any agreement at OECD level will be implemented here through new EU legislation.
We are seeing Brexit drive business to Ireland, where previously the UK might have been the only EU presence for a company. Really, any company doing business or investing in the EU needs to have an EU base. We are advising financial services companies how to set up substantive, regulated businesses here, with senior C-suite executives being physically located here.
There are obviously practical challenges at the moment in relocating staff here due to Covid-19, but it is happening and local hires are being made from our substantial talent pool.
Manufacturing, food and retail companies are also setting up physical hubs here to deal with supply chain challenges.
Tax authorities worldwide have become more assertive in investigating and challenging the affairs of big companies.
We’ve seen this trend grow significantly in Ireland in recent times, driven by the fact that major international companies are now located here which in turn means that tax disputes follow.
The Revenue Commissioners have shown they are quite prepared to take on big international companies, and the sums are eye-watering.
In 2018, the Revenue issued a tax assessment for €1.64 billion on an Irish subsidiary of Perrigo Company plc, an international US-listed healthcare group, and in 2019 an assessment against Takeda, the pharmaceutical company, for €398 million.
Our tax disputes practice is made up of tax and litigation lawyers and we’ve advised on some major cases, most recently a financial services company in the High Court. Quite often we’ve been brought in by the board of the taxpayer company as a “second pair of eyes” and as a matter of good corporate governance to work alongside the original tax adviser.
I am also chair of the Irish Debt Securities Association, which represents the international securitisation industry in Ireland.
Ireland is one of the leading jurisdictions in Europe for international securitisation companies and it is an important part of the Irish international financial services offering, with over 3,000 jobs involved in the sector in Ireland.
The European Commission has endorsed the importance of securitisation in Europe as an important alternative to bank-based funding and to make the financial system more resilient, something particularly relevant today, of course, given the huge financial resources required in Europe to grow the economy after Covid-19.