Welcome to this Maples Group Tax and Coffee podcast, where we discuss EU and international
tax developments. I'm Andrew Quinn. I'm head of tax at Maples Group, and I'm delighted
that you can join us for this special tax and coffee podcast, which is a recent Farside
Chat that I had with the Irish Minister for Finance, Michael McGrath TD, and Noelle O'Connell,
who is CEO at European Movement Ireland. As you will hear, we had a wide-ranging discussion,
principally discussing the new EU Global Minimum Tax Directive, which implements the OECD's
pillar two rules across the EU. That went live in Ireland and the EU on 31 December 2023,
so it's now law, and it affects any large group of companies with presence in Ireland
or the EU. We also chat about matters including the recent Advocate General opinion in the
European Court of Justice, Apple Case. So, again, delighted you can join us. Please settle
in to enjoy this chat. Good afternoon, ladies and gentlemen. A very warm welcome to you
all joining us for our online European Movement Ireland event held in cooperation with the
Maples Group, as we discuss and provide a state of play as to where things stand on
the EU Minimum Tax Directive. My name is Noelle O'Connell, and I'm the CEO of European
Movement Ireland. I'm delighted to be chairing today's proceedings. I know we have a really
huge audience tuning in, not only right across Ireland, but also across Europe and America,
and a very warm welcome to you all today. So, to help us tease out and examine in greater
detail this topic, which is, of course, more relevant than ever, we have a very distinguished
panel of expert speakers joining us today. It is my honour to introduce our keynote speaker
and our guest of honour, Minister for Finance Michael McGraw, and I'm also delighted that
we're joined by Andrew Quinn, who is Head of Tax at Maples Group. So, in terms of our
running order for today's webinar, Andrew will provide his opening welcoming introductory
remarks, and then he will be followed by Minister McGraw, who will deliver his keynote speech.
And then it's over to you, ladies and gentlemen of the audience. We will open up the floor
to questions and comments from those of you joining us today. So, as you know, we are
here to discuss the recent unanimous adoption by the European Union Member States of the
Directive to Implement the Pillar 2 Global Minimum Tax Rules. And, of course, this is
a significant development in the advancement of the Global Minimum Tax Framework, agreed
by the OECD Inclusive Framework in 2021. And, indeed, this is a really timely and important
discussion for us to have, not only here in Ireland, but of course across mainland Europe
and, indeed, across the Atlantic. We really want you to get involved in today's discussion
with such stellar speakers. You can, of course, email your questions to
[email protected]
or through our Live Events Centre Q&A button on the right-hand side of your screen. And
also you can post about today's conversation across the various social media platforms
using the hashtag #EMIMapels. So, without further ado, I would like to invite Andrew
to give his welcome remarks. And by background, Andrew is the head of tax at MAPELS, and
he is an acknowledged leader and expert in Irish and international tax. And, as part
of his role, he advises companies, investment funds, banks and family businesses on Irish
EU and international tax matters. And on top of all that, he is also chair of the Irish
Law Society Tax Committee and a past chair of the International Fiscal Association,
Irish branch. Andrew, over to you. Well, thank you very much, Noel. And I'll start by thanking
you and European Movement Ireland for hosting this wonderful event with Minister McGrath.
We at MAPELS are very proud to be members of European Movement Ireland. European Movement
was founded back in 1954 and serves to promote Ireland's connection with the European Union.
Of course, last year Ireland and European Movement celebrated a milestone event, Ireland's
50 years in the European Union. So, look, there's 41 days to go, not to Christmas, although
the shops in Ireland are full of mince pies and selection boxes. No, it's 41 days to the
31st of December, when Ireland and the EU will implement the EU Global Minimum Tax Directive.
So, it's a hugely significant event in the world of international tax and how large companies
will be taxed going forward. But equally importantly, it's a huge moment, I think, within the European
Union for driving this initiative. It's a huge moment, I think, in terms of what it
says about multilateralism, global cooperation and coordination between politicians globally
to achieve this economic and social policy objective. Firstly, quick overview of the
directive and how it operates. It's part of the wider OECD Global Minimum Tax Initiative,
which was approved by the G7 and G20 Group of Countries. The OECD rules and the directive
aim to ensure that large multinational groups of companies pay a minimum effective rate
of tax of 15% in every country in the world in which they operate. So, how does the directive
achieve that? Well, here's the science bit. It's very, very clever. Of course, each country
in the world is free to choose how a taxes countries that operate within that jurisdiction.
But what the global minimum tax rules do is introduce a new set of taxes, what are being
called top-up taxes, and they are imposed in the countries that have implemented the
new rules to tax those under taxed profits, those low taxed profits, wherever else in
the world they arise. So, to give a simple example, you have an international group
of companies operating in several countries around the world. They have a subsidiary in
Ireland or another EU country. Under the new rules, Ireland will impose tax on that Irish
company, not just on its own profits, but also those low taxed profits abroad. So, very
new system. And if I might give a few comments on the directive, having worked with it for
a few years now, helping clients and helping business prepare for the directive. Firstly,
it's an entirely new system of taxation. There's been a lot of talk about the rate, the 15%
rate, but this is an entirely new corporation tax regime designed from the ground up. And
it will be implemented in a consistent way in the EU and all the countries that have
implemented the OECD rules. So, Ireland will be imposing the very same set of rules as
Germany, as France, and those other countries who are implementing the UK, Japan, Korea,
Switzerland in a uniform way. And that's the first time that's ever happened. I would
say that it's a complex set of rules. And the analysis is very much a mix of law, legal
interpretation and applying accounting rules. So, on the legal side, there is interpretation
of the legislation, looking at the exemptions and safe harbours that are available, looking
at some of the deferrals that have been put in place, some of the exceptions. On the accounting
side, then, it's number crunching, looking at what the effective tax rate is for these
multinational groups around the world. And we've been working with clients, it's been
very much a mixture of law firms and accounting firms assessing the impact for business. So,
really, before passing over to the Minister, just say again, you know, what a remarkable
achievement it is that we have arrived at this point. It's all happened very, very quickly.
I've chatted with OECD officials over the past few years. I've met them at events and
at various tax conferences. It's fair to say that at some points along the road, it was
quite possible that the global minimum tax initiative would never come into force. And
I think the turning point was when the EU signed up and agreed to implement the rules
through the directive. The global minimum tax requires a critical mass of countries
in order to function. Clearly, if only a handful of countries around the world were
to implement it, it just wouldn't work. So I think the EU signing up, suddenly bringing
27 new countries to implement the rules, was absolutely a turning point and has led to
the success of the global minimum tax implementation. And I would say Ireland was very important
in that. Ireland, obviously, has a globalised economy, high profile in terms of its tax
regime. Ireland implementing the EU directive and being part of that process, I think, was
crucial. So pass back to you, Noelle.
Great. Many thanks, Andrew, for that really comprehensive overview and state of play of
where things are at and indeed the background as well. And I'm now delighted to turn to
our guest of honour, our keynote speaker, Ireland's Minister for Finance, Michael McGraw,
to deliver his opening remarks and by way of introduction and bio for the minister. He
is, of course, well known to all of us, but to give his bio and to give his outline and
his brief resume, he is, of course, the Minister for Finance and the TD for Cork South Central,
having served on local council before entering national politics. And indeed he has served
as a TD with great distinction since 2007. And I can testify, Minister, to when we were
both in finance class back in the day and UCC probably too many years ago that we care
to remember, but very appropriately in his role as Minister for Finance, he holds a first
class commerce degree from UCC and is a qualified Chartered Accountant with KPMG. Minister,
we know how busy you are and we're very grateful to you joining us here today. And it is my
pleasure to hand the virtual floor over to you, Minister.
Thank you very much, Noel, for the kind introduction and good afternoon, everyone. I'd like to
thank EMI and the Maples Group for the opportunity to say a few remarks today on what is a really
important issue for Ireland, but indeed for all of the countries that have signed up to
the OECD BEPS process. With implementation of the global minimum tax rules now only a
matter of weeks away, as Andrew has said, this is an opportune time to reflect on the
eventful couple of years since Ireland joined with almost 140 other jurisdictions in reaching
an agreement on the principles of a two-pillar solution to address the tax challenges arising
from the digitalisation of the global economy. And it's now over a decade since the OECD
BEPS process commenced. And in that time, it's fair to say we have seen significant progress
in global action to develop a more robust architecture for international tax. Reforming
the international tax framework has been a key objective over the last decade for many
jurisdictions around the world, and Ireland has been and remains committed to global tax
reform as the best way to resolve global tax challenges. Substantial progress has been
made with a broad range of new rules in place throughout the European Union to address challenges
of base erosion and profit shifting, and indeed to improve tax transparency as well. However,
it's also the case that one key structural element of the framework remained on resolved
BEPS action one addressing digitalisation. The 2021 OECD agreement provides for a reallocation
of residual profit under pillar one and the introduction of a minimum effective rate of
taxation under pillar two. Importantly for Ireland, the agreement provides that the minimum
effective rate for those companies within scope of the agreement will be 15%. And as
you will remember, we fought hard to successfully achieve the removal of the term, at least
from the text to address long term uncertainty regarding the future direction, the rules,
and ultimately allow Ireland to be in a position to join. And I do want to publicly once again
acknowledge the role of my predecessor, Minister Pascal Dunahu, in his work in shaping and
guiding the eventual deal that was agreed globally. At the same time, we took action
to receive assurances in order to protect the 12.5% rate for out of scope businesses
in Ireland, which will continue to be an important part of our offering into the future. The
agreement we've reached strikes an appropriate balance we believe between the reforms that
are needed to ensure that the international tax framework reflects the changes in how
businesses conducted in recent years, while also providing the certainty and stability
to allow ambitious companies to continue to grow and to prosper over the period ahead.
As a small open economy, this is fundamental to our economic model. The objective of government
is always to ensure that Ireland remains best in class when multinational enterprises look
for new opportunities to expand, to grow, and to innovate. And our tax system will continue
to be a cornerstone of the supports that we have in place to advance that objective.
The government's decision to join the global agreement was certainly not taken lightly.
And I know that the views expressed by you and your network through the consultation
process at that time were really helpful in informing the decision that government made.
Tax reform is an ongoing process and I am aware of the burden such change places on
many of you who are part of this virtual meeting. And I want to let you know that I value your
input and I look forward to continuing this relationship into the future.
Since October 2021, intensive technical work has been ongoing. As you will recall, the OECD
moved quickly after the agreement to deliver the global anti-base erosion globe model rules
by the end of 2021 and the accompanying commentary in early 2022. Much work since then has focused
on ensuring that the agreement can be implemented in a practical manner. While that has certainly
been challenging, it is a principle that has been consistently championed by Ireland as
a business-friendly jurisdiction with a supportive tax administration system. And these are issues
that we have been active at in the OECD in helping to shape.
So before delving into pillar two, it's important that we mention pillar one and that I remain
hopeful that it will be agreed in the coming months with the process of signing and ratifying
the convention to start next year. A current draft of the multilateral convention has,
as you know, been published and some jurisdictions, most notably the United States, are undertaking
a consultation process. This process is important to pave the way for agreement. The multilateral
convention will only come into effect once a critical mass of jurisdictions have signed
the text, which critical mass defined as at least 30 countries and containing 60% of in-scope
company headquarters. And as a small open economy, it is critically important for us
to support this work and progress towards a global consensus. Pillar one will only work
as a global solution, and it's important that jurisdictions internationally move together.
Pillar two is made up of the globe rules and the subject to tax rule. Of most interest
to Ireland, the globe rules are a series of three interlocking elements designed to ensure
the application of a 15% minimum effective corporate tax rate globally. The new provisions
will apply to both multinational and domestic businesses with a global annual turnover of
€750 million and above in at least two of the preceding four years. The priority rule
is to qualify domestic minimum top-up tax. This allows the jurisdiction of a low-taxed
constituent entity to apply and collect any top-up tax required to reach the 15% minimum
effective rate under the globe rules. A qualified domestic minimum top-up tax has been included
in Ireland's pillar two implementation, meaning that Ireland will collect the top-up tax in
respect of the in-scope entities located here. In addition, the qualified domestic minimum
top-up tax being introduced in Ireland has been designed with a view to obtaining safe
harbour status under a future OECD peer review process. A preference for the adoption of
a qualified domestic minimum top-up tax was clear in the stakeholder feedback that we
received. It will provide certainty to businesses located here and the low Ireland to collect
the top-up tax arising in our jurisdiction instead of leaving it on the table for other
jurisdictions to claim. Where a qualified domestic minimum top-up tax is not applied,
the multinational enterprise may be subject to the income inclusion rule at the level
of an ultimate or intermediate pair entity, which ensures that the multinational pays
the global effective rate in each jurisdiction in which it has group entities. Where for any
reason neither the qualified domestic minimum top-up tax, nor the income inclusion rule
has been applied and any underpayment of tax under globe rules remains, the under-taxed
payments rule may be applied in the jurisdictions in which the multinational enterprise has
a presence and which have implemented Pillar 2 rules. This is perhaps most likely to happen
because the parent company is located in a non-implementing jurisdiction. Each of the
three instruments, the income inclusion rule, the under-taxed payments rule and the qualified
domestic minimum top-up tax will result in a 15% effective tax rate on profits in each
jurisdiction in which a group operates. And we believe that that is important, that that
is done across the board. Pillar 2 will be administered as you know on a self-assessment
basis under the care and management in Ireland of the revenue commissioners. And apart from
the normal pay and file process, in-scope businesses will be required to file a globe
information return, which is an informational return in a standardised format as agreed
at the OECD. For multinational enterprises, there will be a possibility of centrally filing
the globe information return in a single jurisdiction. Returns required under Pillar 2 will not be
due until mid-2026 at the earliest. It is important to recognise that Pillar 2 will not prevent
us from continuing to support innovation and growth by acknowledging the need for vital
innovation incentives, such as for research and development. And in order to prepare for
the implementation of the new rules, both the R&D tax credit and the knowledge development
box were amended to bring them into line. The changes brought forward include a fixed
three-year payment schedule for the R&D credit. We've also increased the R&D tax credit in
the recent budget from 25% to 30% for all companies, including in-scope companies. This
will mean that the R&D tax credit will remain an attractive support once Pillar 2 has been
implemented. In December 2021, the European Commission proposed a directive to transpose
Pillar 2 of the OECD agreement known as the Minimum Tax Directive. Ireland was always fully
supportive of the directive and worked hard throughout 2020 to reach agreement. The directive,
which will provide for a consistent application of the minimum tax across all member states
and in accordance with EU law, will play an important role in safeguarding Ireland's
competitive tax regime. It was very important to Ireland that the proposal remained faithful
to the OECD agreement and did not go beyond the international consensus. That happened
and this is why Ireland remained fully supportive right through. The French presidency undertook
an intensive period of substantial work developing the rules in the first half of 2022, and the
file was agreed technically by March 2022, a considerable achievement in such a short
period of time. There followed a delay as political agreement was sought and we used
this time wisely in Ireland. The revised implementation date provided my officials with the opportunity
to engage with many of you through a public consultation process to ensure that the new
rules would work in practice and not result in unintended consequences. Unanimity was
ultimately achieved under the Czech presidency in December of last year, allowing us all
the last year to implement the rules into our domestic codes in a coordinated manner.
And while a number of member states continue to finalise their legislation, I continue
to remain confident that the rules will be enforced across the EU from the start of next
year. In Ireland, the Finance Bill, as you know, was published some weeks back. We have
concluded committee stage in the parliament, and on Wednesday of this week, I will bring
the Finance Bill through report and final stages in Dall-Aaron, and then it will move
to our second parliament, Shannad-Aaron. Ireland has always been a strong proponent
of unanimity in tax matters at EU level, and so we found ourselves in a nuanced position
when the file was politically deadlocked for a period of time. While we were initially
slow to join the agreement at the OECD, once we joined, we supported swift agreement of
the EU directive so that we could continue with our own implementation process. And while
agreement on this directive was hard fought, it has shown that unanimity can continue to
deliver on important taxation files at an EU level. We have always and continue to view
tax as a sovereign matter within the European Union. Ireland has shown, however, that we
are willing to engage with and agree EU tax directives that seek to implement agreed international
best practices in a consistent manner across our Union. Through negotiations, Ireland will
always maintain the principle that matters of direct taxation remain a member state competence
under the treaties, and tax harmonisation is contrary to that principle. Taxation remains
one of the most effective policy levers available to any government, and each member state has
developed a tax mix appropriate to their particular economy, including us here in Ireland. We
fundamentally believe that tax competition is an important policy tool, particularly
for smaller member states, provided the competition is fair and is based on substance. Ireland
is obliged to transpose the minimum tax directive into our domestic law by the 31st of December
this year. The directive closely follows the OECD pillar 2 model rules and makes reference
to OECD pillar 2 guidance as being a source of interpretation for the directive to the
extent that those sources are consistent with the directive and with EU law. With discussions
relating to numerous outstanding implementation issues ongoing at the OECD, it is expected
that new pillar 2 guidance will be published on a rolling basis into the future as issues
are agreed at the OECD inclusive framework. And it is important that Ireland as an active
participant at the OECD discussions incorporates such future guidance in a timely manner to
provide certainty and stability for in-scope businesses here. Pillar 2 will be a global
tax, so an application of the rules in harmony with other countries will be required. Our
implementing legislation provides that it will be interpreted as much as possible in
accordance with published OECD pillar 2 guidance, including future guidance. This will ensure
that Ireland will continue to have an interpretation and application of the pillar 2 rules which
is in line with other jurisdictions. It's acknowledged that the new pillar 2 rules are
novel and indeed complex and will take some time to bed in with in-scope companies and
indeed their professional advisors. And for that reason, my department has engaged in
extensive consultation with all stakeholders over the past two years since the EU directive
was first published. And I want to thank everyone who has engaged with the process and provided
valuable feedback which is key to shaping the rules to ensure that they operate as intended
and without causing unintended consequences. Following on from an initial public consultation
in the middle of last year, this year two feedback statements were published, one in March and
one in July, where draft approaches to the bulk of the legislative provisions were published.
And this gave the opportunity to you and other stakeholders to familiarise yourselves with
the broad shape of the new rules and identify at an early stage any potential issues arising.
The large number of responses received to both feedback statements reflected continued
strong engagement from all of our stakeholders. And again, I say thank you for that. That said,
the government fully recognises that these changes introduced yet another layer of complexity
on business, which creates a significant burden. That's why as part of my budget speech, I've
announced that it is a priority for government to seek to simplify the tax system over the
period ahead, including legislating for a participation exemption for foreign source dividends in the
coming year as a first step. This work is well underway and we will continue to engage
with stakeholders to address other areas of complexity over the period ahead. Throughout
the negotiations at the OECD and the EU, Ireland has sought to protect its strategic interests
and to ensure that we remain an attractive location when multinational enterprises look
to invest, while recognising that the international tax system must evolve to meet the needs of
the 21st century economy. And I can assure you all that in the post-pillar to world,
it will continue to offer a competitive tax system aided by what we regard as a best-in-class
tax administration system. We will also continue to play to the strengths of our wider offering
beyond the tax system, including a dynamic and well-educated English-speaking workforce,
common law legal system, and business-friendly environment to ensure that our continued
competitiveness is safeguarded and protected into the future. Thank you so much, Noel and
Andrew, for giving me the opportunity and the space there to set out some opening remarks
and our perspective in the Irish government on what is a transformative change in our
taxation system. And I look forward now to our discussion on related issues. Thank you
very much. Thank you very much, Minister, for that
tour de force and really comprehensive opening remarks. And hopefully, Minister, I'm sure
we'll get a copy of the remarks later, because I have no doubt the audience will be really
interested in getting a copy of those. But thank you very much for setting the scene in
such a comprehensive way. And I suppose now I'm moving on, ladies and gentlemen, to our
panel discussion with questions from those of you joining us this afternoon. A reminder,
of course, you can email those questions into us,
[email protected], or through
our live event centre, Q&A button, where my colleagues are on hand, and going to send
those questions on to me. And of course, you can continue to post about today's conversation
on social media using the hashtag #EMIMaple. And just if I may, Minister and Andrew, starting
off, you talked very comprehensively about how Ireland prepared for the directive, and
I know the public consultation process. Minister, were there some highlights and takeaways that
you have as part of how you and your department and your officials prepared for the directive,
and what you kind of look back on with pride from that consultation process, and equally,
perhaps, what were the challenges? Well, I think one of the strengths of our system
in Ireland and our reputation is track record of delivery, that when we make a commitment
in any area of public policy, we will do whatever it takes to ensure that we deliver. And so,
having that period of extensive consultation, the issue of the feedback statements, genuinely
listening to the voice of business, to the voice of stakeholders and professional advisers,
it played a huge part in smoothening the process of transposing what is a very, very complex
piece of legislation into Irish law. So, for me, it underlines that collaborative approach
that I think is fundamental to Ireland's economic success. We are, you know, a small country,
a small member state. We have very well-established processes of engagement before this online
event. I attended virtually the Labour Employer Economic Forum, where the trade unions, the
employer bodies, the Taoiseach and key government ministers were all sitting down, whether virtually
are those who are present in the department of Taoiseach this afternoon, discussing issues
of vital importance to the country's future. So, for me, that is the big takeaway is that
when we engage properly, when we listen to each other, when we hear each other's perspectives,
when we hear the concerns, and we try to address them, and then we deliver and we stand over
the commitments that we have made. And this was a very, very big step for Ireland to move
away from, you know, decades-long certainty that we had in terms of the 12.5% rate. But
that buy-in and that support from the FDI community and wider stakeholders was absolutely
vital in giving us the confidence that this was the right decision. So, consultation, feedback,
engagement, collaboration, for me, is the big takeaway once again from the process of
the last year or so in particular. - Great. Thanks, Minister. And, Andrew, you'd have
a very interesting perspective as well from a Maples group more broadly. How would you
assess the Irish approach and if you were to give a report card, I suppose, where would
you be seeing that? - Yeah, I mean, Noel, as the Minister says, it was really an exemplary
dialogue between government and industry. The precedent was set with another EU directive,
the EU anti-tax avoidance directive that came in back in 2016. That was the first part of
the OECD BEPS process. And again, the Department of Finance there had excellent dialogue and
consultation. So, for pillar two for the global minimum tax, as the Minister said, there were
two highly technical feedback statements published over the course of this year, lengthy technical
documents going into issues in a lot of detail, a very transparent and public process where
submissions that were made by multinationals, by advisers, are all published. Anecdotally,
I hear that organisations in other countries were even keen to engage in that process because
they didn't have a similar process going on in their home country. And then, as the timing
approached to the Finance Bill, which was published in October, we had a series of meetings
every two weeks all the way through the course of the summer. Again, between industry and
the Department of Finance officials, lengthy technical meetings in Dublin Castle, while
the tourists were visiting Dublin Castle outside, people zooming in from their vacation and
so on. So, really, a lot of engagement leading to a very final set of regulations then that
were published in the bill.
Great. Thank you, Andrew, for that. And I'm sure whenever that was happening was probably
during the rainy summer holidays that we've just had. Minister, if I may, just moving
briefly momentarily from the minimum tax directive too, I know what is another important matter
on your already packed agenda and to-do list, but I'm just back from Brussels where there
was a course. Well, in the European Parliament, there was a huge amount of talk on the parliamentary
constituency boundary revisions, so a lot of talk on that. But more broadly, in some
of our conversations that we were having with officials and various institutions and member
states, there was a lot of talk on the AMLA bids and a compare and a contrast on the various
country submissions. And I know it's something that you and Minister Carl MacNeill and indeed
a priority for the whole government have really put a huge amount of work in. Can you give
us a little bit of an up-to-date on the Ireland's bid to host the EU's anti-money laundering
authority in Dublin? And why do you feel we should be frontrunners for that?
Thanks very much, Noel. And we are really excited by this process. We believe that we
have a very strong case. As you know, Ireland came incredibly close to winning the bid to
host the European Banking Authority a few years back and unfortunately lost out to Paris
following the casting of lots in the end. So we're hoping to go one better on this occasion.
Our application is now in. And as you know, the European Commission will initially do
a technical appraisal of the various applications. And there are nine member state applications
submitted. So competition is really intense. And this is going to be a challenge. But it's
one that we're up for it because we do believe that we have strong arguments in our favour.
Ireland, of course, is well-recognised now as a major centre for international financial
services. Our system of regulation and our regulators are now highly respected. We believe
we have the talent pipeline here in Ireland. We have the skills that we're investing in
education and in research. And of course, in Dublin, we have a highly diverse multicultural
city now that is very, very well connected to the world. So we're going to make our
case passionately over the weeks and months ahead. And hopefully we can go one better
on this occasion. Absolutely. And the next rugby World Cup as well. Thank you, Minister,
for that. Andrew, did you want to come in on that? Like from a maple's perspective, I
assume, having an EU body like Amla, located in Dublin, has to be good for business. Am
I right? Well, that's right. And I mean, Ireland is a centre for the global investment fund
world, a centre for the Irish, for an EU securitisation world. So anti-money laundering
is key to that. So absolutely, there's huge know-how already here among our central bank
and advisers. And it makes sense, you know, Ireland, midway between the EU and the US
to have that important EU authority here in Dublin. Great. Thank you very much for
that. If I can add one point, it would be interesting to see how the role that has been
given to the European Parliament in the selection process, how that will play out, because so
both the council and the Parliament will have a say in this decision. And I think that would
be really interesting. But it is all part of enhancing the democracy in the European
Union. And the other point that we will be keen to emphasise is the importance of smaller
member states being given the opportunity to host significant EU institutions. And, you
know, that will, if Ireland is successful, it will also give hope to other small member
states who haven't yet had an opportunity to host an agency. So I do think that is an
important point as we make the case that all member states are equal, that we back that
up in the decisions that we take as a union when it comes to allocating what countries
are going to host major new institutions. Absolutely, Minister. And I think you can
count on all of us involved on the Brussels Circuit to be championing, of course, Team
Ireland and Donning the Green Jersey in whatever way we can on this. And if I may, just moving
on to some of our questions, and I think we have a question in on corporate tax and
a couple of them, actually. So with my distinguished panel's understanding and permission, I'm
going to group these questions together on corporate tax. And, Minister, I'll go to you
first and then to Andrew, if he wishes to come in on that. So in terms of the questions
on corporate tax, firstly, Ambassador Thucson from Denmark is wondering, why does Ireland
need a lower corporate tax rate than most of the other EU countries? And then, Minister,
can you answer what is the expected impact of pillar two on inward investment on innovation,
job creation in Ireland, and then more broadly, in terms of giving us your thoughts on the
recent developments from an Irish government perspective about the advocate general's
opinion in the recent Apple case? So if I could just, I might go to you, Minister, first,
a sort of a corporate tax three question, and then, Andrew, I'll ask you to jump in
as well. Thank you, Minister.
Sure. Thanks, Noel, and thanks to all of those who have submitted questions so far. On the
Apple case, there's not a whole lot I can say except that the opinion from the advocate
general is that, is an opinion, which will now form part of the consideration by the
European Court of Justice of the case. And we await the judgment from the ECJ, which will
almost certainly happen next year. And we will then consider that judgment. And, of course,
it all depends, really, whether or not the ECJ does decide to send the case back to
general court, or they could definitively deal with the matter. But it does remain our
case and our position that there was no state aid here, that the correct amount of tax was
paid by Apple, and we will continue to defend the state's interests as we see it. So we
are studying the opinion from the advocate general, but it's not something that we have
an opportunity to more formally respond to, because it will now be considered by the
court itself in making and arriving at its final judgment in this matter. In relation
to the impact of Pillar 2, so I think we have to acknowledge that in the round it does narrow
the relative tax advantage that Ireland has had over many other member states for a number
of decades. And that's why it's important that we use the other levers that are at our
disposal. And as you know, we did secure a carve out of the research and development
tax credit regime, for example. And that's why I moved in the budget to protect the attractiveness
of that regime by increasing the rate to 30%. That was important. And we have also made changes
to our enterprise tax system that we think will help to spawn a whole new generation
of startup and scale up businesses, some of whom may well become the multinationals of
the future. And we think that that is important. But also there are non tax issues. And that's
why we have to continue to prioritize investment in education in our third level sector or
further education and training sector, emphasize the importance of the STEM subjects of research,
support all of the state organizations that are working with the FDI community, as well
as implementing a whole range of other reforms, such as in our planning system, for example,
to make sure that public infrastructure projects, private infrastructure projects can get approval
more quickly, and that there's more certainty around the timeline. So I think all of those
issues are factors when it comes to Ireland's attractiveness as a country for foreign direct
investment, alongside many, many more such as energy security, the green transition,
the investment in renewables, all of which we are implementing through our national development
plan and our climate action plan. In relation to Ambassador Thuesson's question from Denmark,
so we have had a 12.5% rate in Ireland for a number of decades. It has been a very important
part of our offering, not the only reason why companies have decided to locate in Ireland.
There are real substantive operations here. The FDI companies employ directly now over
300,000 people in our economy and many, many more indirectly. So it is the rate that we
have believed for a long time to be the appropriate rate for Ireland. But we felt on balance that
being part of a global agreement was the right thing to do because it does offer certainty
in the future. And that's why we want both pillar one and pillar two to be fully agreed
and implemented. Otherwise there will remain questions being put in terms of global taxation.
So Ireland believes in tax competition. As I said in my remarks earlier on, once it's
fair, it's transparent and it's based on substance and real operations in the country. Tax competition
is legitimate and we continue to support it and to support the unanimity basis of decision
making when it comes to tax files in the EU. Because I think we've shown in the case of
ATAD and a whole range of other corporate tax reforms, and not least the minimum tax
directive on which there was full agreement in the end, we have been able to reach agreement.
Sometimes it's taken longer than we might have liked at the EU level, but we have reached
agreement on quite thorny and difficult taxation issues. And I think Ireland has always been
to the fore and has been a progressive member state in seeking to advance those issues at
the EU level.
Great. Thank you, Minister, for that. Andrew.
Yeah, thanks Noel. So, I mean, the Apple case, I'd regard that really as dealing with something
that is historic. You know, the set of facts from the Apple case, I really have no relevance
today with the global minimum tax, and indeed with similar US tax reforms. So, back in 2017,
in the Trump administration, the US Tax Cuts and Jobs Act brought in new rules for US companies,
so taxing them in respect of their profits outside of the US. And that was really a game
changer in how US companies were taxed. So, it's historic. It's a pity that it will continue
on now for some time. As the Minister said, it is an opinion from a court official, so
of a different legal system to what we have in the Irish courts. This is an opinion. It
still has to go to the court, and then, you know, could in fact have to work its way through
the courts for some time. But as I say, I think really the worldwide system of taxation has
moved on since then. In terms of Ireland and the ambassador's good question, I heard a
comment recently from one of the top EU officials who, you know, said that you go back a number
of years, and Ireland and its tax rate was the subject of discussion, and that that has
really gone away with the EU directive and with global minimum tax initiative. So, really
now with this multilateral consensus around this 15% place rate, that question about tax
competition in terms of rate, you know, is really something again that has been superseded
by the directive and by the wider OECD initiative.
Great. Thank you, Andrew. And our next question comes in from Jude Webber in the Financial
Times. And Minister, I might get you to comment on this. And Jude's question is that some
large companies pay an effective tax rate currently of well under 10%. So what impact
will lifting the effective minimum tax rate to 15% have in terms of revenues for Ireland?
Minister, sorry, you're on mute. Yeah. Can you hear me now? Yeah. So the way that we have
approached this is by examining the combined effect of pillar one and pillar two. We acknowledge
that pillar one is not yet fully agreed, but it remains our objective that an agreement
would be reached. And so we did this assessment back in 2020, and it does remain under review,
but the assessment concluded that there would be a net cost to Ireland of the combined impact
of pillar one and pillar two, that that net cost would be of the order of 2 billion euro.
And so we have that factored into the calendar year 2026 in the forecast that we set out
in our documentation on budget day. We are continuing to work through that. And next
April we will be publishing once again the annual stability program update. And we will
be setting out what our forecasts are in terms of taxation revenues for the years ahead.
So we haven't differentiated the impact of pillar one and pillar two, because of course
they interact with each other. And overall, we do believe that the combined agreement
does come at a net cost to Ireland, but you have to weigh against that the benefits of
being part of a global agreement, of there being settlement on the issue of global corporate
tax and the certainty that that gives to Ireland and indeed to all of the companies who have
operations here in this jurisdiction.
Great, thanks minister. And questions coming in thick and fast, and maybe one that I might
ask both of you on this one, but we often hear about the Brussels effect obviously in
terms of the EU's regulatory powers. And will the likes of the US, of India and China, will
they sign up to pillar two? And what are the implications for pillar two and the directive
if they do not? Sorry, minister, I might go to you first and then.
Sure, of course. Yeah, thanks very much, Noel. And I think the way that the agreement
has been designed, there is an inbuilt incentive there for jurisdictions to implement pillar
two, because of the makeup of the globe rules that are there. And if any jurisdiction doesn't
implement the rules, then other jurisdictions will collect any top up tax due in respect
of companies in that jurisdiction through the income inclusion rule or the under tax
profits rule. We have, of course, the one year lag in terms of the UTPR and then in
certain jurisdictions a further year beyond that, but it is for a time limited period.
And we do believe that those inbuilt incentives will help all of those countries that have
yet to sign up to do so and to implement provisions.
Great, thanks minister. Andrew, did you want to come in on that?
Yeah, no, I just echo that point that really there is an incentive for countries to come
in within this framework. The UTPR that the minister mentioned to me is really the secret
weapon under the pillar two rules, this under taxed profits rule, and that will allow the
country that has implemented the pillar two and the directive basically to tax the profits
of an affiliate wherever they arise in the world. So that's very, very significant. Already
we're seeing some traditionally low tax countries sign up to implement pillar two. So Bermuda,
for example, Jersey have both announced they will be implementing the pillar two rules.
And then some very large economies, Japan, Korea and others have also signed up. So absolutely
the directive has and the OECD minimum tax has critical mass at this stage. And we'll
see where some of the other big economies go. China, you mentioned the US and so on,
but absolutely there is critical mass now for the directive to function.
And just to take that a step further, Andrew, minister, I might come to you on this, that
we've heard some speculation that in a post global minimum tax environment that the countries
now around the world will start competing for that crucial inward investment by offering
non tax incentives. And minister, from your perspective, do you think that Ireland and
the European Union, could we be at a disadvantage because of EU state aid laws?
So this is an issue that is under discussion now frequently at Eurogroup and Ecofin, which
I attend monthly. But I do believe that the EU has demonstrated its capacity to respond
when you look at the EU Green Deal, the EU CHIPS Act, for example, and we are seeing
more state aid being permitted in the European Union than we have in recent years. And that
is a response to global development. But we certainly as a small member state, we don't
want to see a subsidies race. We don't want to see a prolonged loosening or relaxation
of state aid rules because it could impact on the level playing field across the EU.
And I think that is a fundamental pillar of the fairness at the heart of how the EU operates.
So we do want to maintain that level playing field. But I do believe that the EU has demonstrated
its ability to respond. And then within the individual jurisdictions, I think that the
points that I made earlier on about having to focus on those non-tax levers is an important
one. The need to protect competitiveness. And that's an issue that we have to be very
alive to and alert to in Ireland, make sure that there's no complacency, that just because
we've had extraordinary success in winning foreign direct investment for the past number
of decades, it doesn't mean that it's going to continue. So we do have to continue to
invest in the parts of the offering that have also given us an H in addition to corporate
tax. And we will still have a very attractive offering when it comes to corporate tax, the
15% rate, a very good research and development tax credit system, and the benefit of predictability
and stability. So while other countries may offer different incentives to companies, their
ability to deliver isn't always there. In Ireland, we have a very good track record
of doing what we say we will do. And that's why when it comes to tax reform, I think the
approach that we have taken so far, I think has paid dividends because companies view Ireland
as a trusted and reliable partner with which they can do business. And I think in a world
where there is so much conflict, we're seeing rising geopolitical tensions all over the
world. I do think Ireland has an incredible opportunity. We will be seen and are being
seen as a safe harbour in so many respects, a trusted partner where businesses can do
business. And I think we have to play to our strengths in that regard.
Great. Thanks, Minister. Andrew, did you want to come in briefly on that?
Yeah, definitely. So I think the EU, you know, it's playing a balancing act here in terms
of keeping the EU competitive, making sure that projects come to the European Union broadly,
but also making sure that the large member states do not unfairly attract projects vis-à-vis
the smaller member states naturally. So it is that balancing act. But I think the EU
is very, very alive to this. You know, one very important new development is a new EU
regulation, the EU foreign subsidies regulation, which will basically start policing non-EU
state aid to the extent companies are benefiting from that and operating within the EU. It
will include, by the way, foreign tax measures, which is kind of a first of its kind. So
that's very welcome to see that companies will not be able to, I suppose, operate within
the EU with the benefit of unfair overseas subsidies or overseas tax measures. The other
piece as well is a pillar two global minimum tax angle here, which is that if a subsidy
is granted by a certain country outside the EU, that could impact the calculation of this
effective tax rate of 15%. So in other words, it could be added back and effectively taxed
under the new directive as well.
Great. Thank you, Andrew. And I'm very conscious of time and cognizant of the Minister having
a hard stop at 3.30. But I am, if I may, Minister, going to give the last question to you, and
I think it's a fantastic one, as we always try and encourage our secondary school students
to get involved in these debates. And fair play to Leo Kudigan, who is a secondary school
student in Glenstall Abbey. And Leo says he is a leading sort of economic student currently
completing his project on FDIs. Does the Minister think that the minimum tax directive rate
at 15% may only be a starting point? And does he think that we could be faced with further
increases as time goes on? So, Minister, I think you've competition there for an up and
coming Minister for Finance following after you.
I think that's for sure, yeah. And it's a fantastic question. Well done, Leo, and delighted
that you're on the call and just want to wish you all the very, very best in your leaving
certificate year. But based on your question there and how conscientious you are being
part of this event, I think you'll do very, very well and have a great future ahead of
you. And to answer your question, from an Irish perspective, 15% is it. And our focus
now is on implementing this agreement. There may well be others who will wish to reopen
issues down the line. But it has been an arduous process to get to this point. Really, really
difficult negotiations, hard fought over many, many years. So we now have an agreement and
the focus should be on implementing the agreement. And that's not to say that there won't be
other proposals that impact on corporations and impact on member states. The European
Union, for example, has brought forward as part of a package of own resource proposals
and measure that would result in member states paying more by means of their contribution
to the EU budget based on corporate profits reported in their jurisdiction. So there will
be different proposals at different points in time. But when it comes to a global agreement
on changing the tax rate, you know, we've all invested an awful lot now to get to this
point. And I think the focus should be on implementing it and certainly not changing
it. Ireland would not be interested in any new negotiation that would result in changing
the rate again. But thank you for a great question.
Great. Thank you, Minister. And I hope, Leo, you've managed to transcribe all the minister's
notes and you can include that in your Leaving Cert economics projects for top marks. So
shepo to you. If I may just thank you all, ladies and gentlemen, I'm very conscious we're
going into the red in terms of our timing. So I'm afraid the clock is against us. But
in drawing proceedings to a close, may I thank our fantastic and stellar panel of speakers
to Minister for Finance, Michael McGraw and to Andrew Quinn, Head of Tax with Maples
Group. A fantastic discussion. I think we got through about 15 questions, gentlemen.
So fair play to you both for answering them so constructively and engaging so comprehensively
with two really, really brilliant keynote addresses. We've had a great discussion, great
Q&A. And I would like to thank the Minister for taking the time out of his incredibly busy
schedule to be with us this afternoon. I know you've an awful lot on your plate, Minister,
but continued success to you and your colleagues. And we look forward to keeping in touch.
And as well, my thanks to Andrew and all his colleagues in the Maples Group. We were delighted
to work with you on this really timely and important seminar. And hopefully our audience
have found it useful, have found it informative. But if I may as well thank my own hardworking
team here in European Movement Ireland for all their work and effort behind the scenes
for today's event. And to technology for holding up for the hour is always a relief to all
of us. And thank you to our audience.
So it's Andrew back to you. Hope you enjoyed that wonderful discussion with the Minister
and Noel. I certainly enjoyed the conversation. We covered a lot of ground. We're certainly
excited to see 2024 and the developments that we will not outsee in the EU global minimum
tax directive now that it's law and live. Please do listen back on any podcast that
you may have missed from this tax and coffee series. And please do like and follow us on
Spotify or wherever you get your podcasts. So until the next time, bye for now.
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