Ireland’s Global Minimum Tax Rules Honor Commitment to Reforms

Among a raft of tax changes forming part of Ireland’s Budget 2025, the Finance Act 2024 includes important measures related to the OECD’s initiative to address tax challenges of a digitalized economy—including the Pillar Two global anti-base erosion model, or GloBE, rules and Amount B of Pillar One.

The changes in the 2024 Act, signed into law last month, will be welcomed by multinational enterprises and large Irish domestic companies that are within the scope of the minimum effective tax rate because of the clarifications made to the domestic top-up tax one year after its introduction.

The rules will help affected taxpayers and their advisers resolve areas of uncertainty in what remains a new, complex set of tax rules to navigate.

Overall, the 2024 Act sends a clear message that Ireland will continue to honor its commitments to this important and ongoing global tax reform project—both at the EU and OECD levels.

Ireland transposed the EU Minimum Tax Directive, which was based on the Pillar Two GloBE rules, into its domestic laws in 2023, with the relevant provisions coming into effect for accounting periods starting on or after Dec. 31, 2023. Since then, the OECD published the third and fourth sets of administrative guidance in relation to the Pillar Two GloBE rules, in December 2023 and June 2024 respectively.

The main changes in the 2024 Act relating to Pillar Two involve the incorporation of key aspects of the OECD’s above administrative guidance into Irish primary legislation.

In the case of the 2023 guidance, noteworthy amendments relate to the transitional country-by-country reporting safe harbor so that it will now include detailed provisions for hybrid arbitrage arrangements.

As a result of those changes, when determining whether the transitional country-by-country reporting safe harbor applies to a multinational group, any expense or loss arising from a hybrid arbitrage arrangement entered into after Dec. 15, 2022, will be excluded from the multinational group’s profit and loss in respect of the jurisdiction.

The 2024 Act legislates for several elements provided for in the 2024 administrative guidance. These include expanding the definition of hybrid entity and clarifying the meaning of “owner” in assessing whether a flow-through entity is a tax transparent entity or reverse hybrid entity. The law also includes amendments to provide for allocating certain covered taxes to a constituent entity that is a hybrid entity or a reverse hybrid entity and allow for an election to exclude the allocation of certain deferred tax expenses and benefits to a jurisdiction.

Apart from legislating for elements of the Pillar Two GloBE administrative guidance, the 2024 Act aims to clarify some aspects of the domestic top-up tax calculation. These changes follow on from the Irish Department of Finance’s close engagement with industry stakeholders following the introduction of the Pillar Two rules, including the domestic top-up tax, in Finance Act (No. 2) 2023.

The 2024 Act also transposed elements of Pillar One’s Amount B, which set out a simplified transfer pricing approach for determining the arm’s-length amount of certain marketing and distribution arrangements.

This follows the agreement by members of the OECD/G20 Inclusive Framework in February this year on a political commitment on “covered jurisdictions” under Amount B, which would be provided for from Jan. 1, 2025 (known as Phase One of Amount B). The list of covered jurisdictions was finalized and agreed in June and includes 66 low- and middle-income countries as defined by World Bank Group classifications.

The 2024 Act makes the Irish transfer pricing rules reflect Phase One of Amount B, satisfying Ireland’s commitment as a member of the OECD/G20 Inclusive Framework. For chargeable periods starting on or after Jan. 1, 2025, where a covered jurisdiction with which Ireland has a bilateral tax treaty in effect applies the Amount B approach, the Amount B rules will be switched on for a qualifying arrangement.

Separately, the definition of transfer pricing guidelines in the Irish transfer pricing rules is updated to include the OECD Pillar One Amount B report published in February and added as an annex to the OECD’s transfer pricing guidelines, as well as the supplemental guidance released in June this year.

Ireland’s 12.5% tax rate has represented one of the cornerstones of its corporate tax policy for several decades that—along with its competitive physical, regulatory, and commercial framework for business—underlines the country’s status as a key foreign direct investment hub. This has enabled Ireland to provide a low-corporation-tax profit center for the Europe, Middle East, and Africa operations of multinational enterprises.

The introduction of the minimum effective corporation tax rate of 15% for accounting periods starting on or after Dec. 31, 2023, as part of the implementation of Pillar Two measures last year, was a significant milestone for Ireland in terms of its overall corporate tax policy and attractiveness as a gateway to the European market and beyond.

The new section introduced by the 2024 Act into the main Taxes Act regarding Amount B seeks to provide for the political commitment on Amount B (though additional documentation requirements and anti-avoidance rules have been included in the section), and there is perhaps less for affected taxpayers to get concerned about here. The same could be said for the updates on the Pillar Two GloBE administrative guidance.

For multinational enterprises and large domestic companies, there will be no surprises on how Ireland has implemented the rules around Amount B into its domestic laws and the third and fourth sets of the OECD administrative guidance. However, affected taxpayers will need to remain vigilant on additional administrative guidance released as part of the BEPS 2.0 project.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Robert Dever leads the Irish tax practice of Pinsent Masons, advising large domestic and multinational corporations on all aspects of Irish corporate and transactional tax.

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