Hundreds of companies here will be liable to pay 15% corporation tax, as the biggest shake-up in the State’s corporate tax system in three decades is implemented.
It follows the introduction of the new minimum effective rate of tax for big multinationals under the terms of an agreement struck by the Organisation for Economic Co-Operation and Development (OECD), which Ireland signed up to in 2021.
The so-called Pillar Two agreement will result in close to 1,600 multinationals with operations in Ireland facing the higher rate.
Only those with turnovers in excess of €750m in at least two of the preceding four years will be liable for the top up tax, which will see them pay the difference between their existing effective tax rate and the new minimum requirement of 15%.
The vast majority of businesses operating in Ireland, more than 99%, will continue to pay the long-standing 12.5% rate.
That has been the headline corporation tax rate for 20 years, although in reality most firms pay slightly less than that when deductions and allowances are taken into account.
While the liability for the tax has now begun, the companies will not have to pay the additional tax under the system until 2026 to give them time to bed down the changes.
Signed up to by 140 other jurisdictions, the OECD agreement updates decades-old rules on cross-border tax for the digital age where tech giants can book profits in low-tax countries such as Ireland.
It is expected that Ireland will in time benefit financially from the introduction of the minimum effective tax rate reforms.
However, under Pillar One of the OECD plan, which aims to give greater taxing rights to larger countries, Ireland could lose out.
But so far agreement on the implementation of these changes has not been reached.
The Minister for Finance has welcomed the start of the application of the minimum effective corporation tax rules.
“By implementing the global agreement on minimum effective corporate tax, Ireland demonstrates our continuing commitment to agreed, multi-lateral international tax reforms,” said Minister for Finance, Michael McGrath,
“The decision to join this global agreement was not taken lightly.”
“Ultimately, it is our assessment that the positive effects will be greater than the challenges, as the agreement has the potential to bring much-needed stability to the international tax framework after the turbulence and uncertainty of recent years, safeguarding our future competitiveness by providing a sound and stable basis for inward investment into Ireland in the long-term.”
Mr McGrath added that a key benefit of a more settled international tax policy environment will be an increased scope to focus on domestic tax policy for business.
He also pointed out that several initiatives to improve aspects of the overall tax system were announced in Budget 2024.
“These include an increase in the R&D tax credit from 25% to 30% which will incentivise businesses of all sizes to invest in their future productive capacity, as well enhancements to the Employment Investment Incentive, Start-up Capital Incentive and Start-Up Relief for Entrepreneurs schemes and a new lower rate of CGT for angel investors,” Mr McGrath said.