Friday 20 September 2019

New multinational exit tax 'not tit-for-tat measure against US'

Briefing: Finance Minister Paschal Donohoe with Dearbhail McDonald and INM CEO Michael Doorly at the Westbury Hotel
Photo: Mark condren
Briefing: Finance Minister Paschal Donohoe with Dearbhail McDonald and INM CEO Michael Doorly at the Westbury Hotel Photo: Mark condren

Dearbhail McDonald Group Business Editor

FINANCE Minister Paschal Donohoe has said that his surprise decision to introduce an exit tax for multinationals (MNCs) is not a retaliatory strike against sweeping changes to the US tax code that are aimed at luring foreign intellectual property and services back to America.

The new exit tax, which has already been passed by the Dáil, will tax unrealised capital gains at 12.5pc where companies migrate residence or transfer assets offshore.

The 12.5pc rate was widely seen as a disincentive to US-based MNCs to repatriate intellectual property to the US to take advantage of the special new 13.125pc federal tax rate on foreign derived intangible income (FDII).

However Mr Donohoe, speaking yesterday at Independent News & Media's Budget 2019 Breakfast Briefing, said that he introduced the tax a year ahead of an EU wide anti-tax avoidance deadline, to ensure that Ireland was in compliance with the OECD's Base Erosion and Profit Shifting (Beps) process.

"In terms of messages I'm sending out… it is absolutely not my intention to be sending out a signal to any other country in relation to our tax code," said Mr Donohoe. "The reason why we picked the 12.5pc rate is because the anchor that many other jurisdictions use in relation to determining their exit tax rate, is their corporate tax rate.

"So for most other EU countries that we look at, their exit tax rate is consistent with their corporation tax rate. That is what we have done."

The new exit tax regime, which is not expected to yield any revenue in its first year of operation, is a mandatory, Europe-wide measure - pursuant to the European Union's Anti-Tax Avoidance Directive (ATAD).

Member states are obliged to implement an exit tax by January 1, 2020. It had been feared that the exit tax, one of five legally-binding anti-abuse measures to prevent aggressive tax planning, could have been applied in Ireland at the current capital gains tax rate of 33pc rather than the announced 12.5pc.

Mr Donohoe said during his Budget speech that the early introduction of the exit tax will "provide certainty to businesses currently located in Ireland and considering investing in Ireland in the future".

The forthcoming Finance Bill, due to be published next Tuesday, will also provide for the introduction of a Controlled Foreign Company (CFC) regime as required by the ATAD.

Together, the new CFC and exit tax rules will prevent the diversion of profits to offshore entities in low- or no-tax countries. Mr Donohoe has also committed to a review and update of Ireland's transfer pricing provisions next year.

Irish Independent

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