The Irish Revenue Commissioners (Revenue) recently published their 2018 annual report together with an analysis of corporation tax receipts for 2016 and 2017 (the Reports). The Reports reflect Ireland’s strengthening commercial and economic environment and highlight the continued attractiveness of Ireland’s competitive, robust, BEPS-compliant and transparent tax system.
The Reports also provide further empirical evidence of the impact international tax developments are having on taxpayers with cross-border operations.
IP and Innovation
The Reports indicate that Ireland remains an attractive destination for the development and exploitation of intangibles noting that in 2016:
- Claims for capital allowances in respect of the amortisation of intangibles further increased to €36 billion ($42 billion) (interestingly, the increase in claims for capital allowances in respect of tangible assets was even greater); and
- A total of € 1.8 billion of qualifying R&D expenditure was incurred by 1,486 companies claiming Ireland’s refundable R&D tax credit.
The Reports note that Ireland’s knowledge development box (the world’s first BEPS compliant patent box) has not been widely claimed by taxpayers to date. The Reports indicate that this position is expected to change over the coming years as taxpayers develop and implement the procedural processes required to accurately track and trace income and expenditure.
International Affairs
The Reports highlight Revenue’s continued commitment to efficient dispute resolution despite the post-BEPS increase in mutual agreement procedure (MAP) and advance pricing agreement (APA) requests Revenue have experienced.
During 2017, Revenue’s engagement with other competent authorities through MAP resulted in the conclusion of 12 cases, 11 of which related to transfer pricing. The cases concluded during 2017 represent almost 30% of Revenue’s opening inventory for the year. Revenue also held negotiations on bilateral APAs with other competent authorities during 2017 to successfully negotiate two new APAs. In total, eight new APA requests were received by Revenue during the year.
The Reports also note Revenue’s active involvement in the inter-departmental work being undertaken to assess and prepare for the potential impact of Brexit in Ireland. Revenue are primarily focused on the fair and efficient implementation of possible tax and customs outcomes post-Brexit. Revenue’s activities in this context are likely to increase over the coming year as the details of the UK’s post-Brexit relationship with the EU become clearer.
Enhanced Cooperation and Certainty
In line with international best practices, Revenue have sought to promote a policy of cooperative compliance with large taxpayers by relaunching the cooperative compliance framework (CCF) in 2017 to encourage increased levels of voluntary compliance and certainty across all taxes and duties. The Reports highlight the success of the CCF, noting that 77 corporate groups have elected to participate to date.
Date Overload?
The Reports highlight Revenue’s increasing use of data for risk assessment purposes and note that in 2017 Revenue began evaluating and applying data received from other tax administrations under exchange of information programmes. The Reports indicate that this practice will become increasingly common during 2018.
The Reports also note Revenue’s active role in the OECD Forum on Tax Administration Advances Analytics Network, noting that Revenue hosted a two day international conference on advanced analytic techniques in tax administration during 2017 which was attended by 47 delegates from 25 tax administrations.
The Reports indicate that Ireland is among the most transparent countries in the world based on the results of OECD peer reviews. Ireland’s programme for exchanging tax rulings is fully operational and compliant with the OECD and EU requirements. The Reports confirm that of the 316 opinions issued by Revenue in 2017, 32 were exchanged under the EU and OECD programmes.
Tax Receipts
The Reports include an analysis of 2017 corporation tax payments and 2016 corporation tax returns which reflect Ireland’s strong economic performance in recent years. The Reports confirm that tax receipts increased in 2017 across all tax heads, a trend which has continued into 2018.
The Reports also highlight that company trading profits in most major sectors increased, particularly in the manufacturing sector which recorded the largest sectoral trading profits for the year. Company employment figures also increased in this period to 1.9 million resulting in EUR 16 billion in income tax and social security receipts for the period.
Comment
The Reports suggest that the implementation of international tax policy developments have enhanced Ireland’s appeal as a location for companies with cross-border operations to do business in and from. The foundation of Ireland’s appeal in this context is the real substance on offer and the well-established multi-national business eco-system. The increased recruitment and investment in Ireland by such taxpayers is proof of this. The Reports indicate that Ireland’s appeal in this context is underpinned by a tax authority which is willing to engage in a cooperative manner to provide taxpayers with the certainty required to carry on international business and to defend the Irish tax base where necessary.
This article was co-authored by Matheson Tax partner, Joe Duffy and Matheson Tax associate, Tomás Bailey and first published by TP Week on Tuesday, 26 June 2018.