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New minimum tax rate on profits in force

New rules introducing a minimum corporation-tax rate of 15% for large companies across the EU came into effect yesterday (1 January).

Ireland signed up to the OECD measures – known as Pillar Two – in October 2021.

They include agreement on a global minimum effective rate of 15% for multi-national corporations by means of a top-up tax, which is added to corporation tax charged under domestic rules to reach the 15% rate.

A statement from the Department of Finance said that Ireland would continue to apply the 12.5% corporation-tax rate, which has been in effect since 2003, for businesses with revenues of less than €750 million a year.

‘Positive effects’

Revenue estimates that around 1,600 entities in Ireland will be affected by the new rules.

The Minister for Finance Michael McGrath said that Ireland’s implementation of the agreement demonstrated its continuing commitment to agreed, multi-lateral reforms of international taxation.

“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,” he stated.

‘Fairer’ system

The European Commission described the new measures as “ground-breaking”.

Paolo Gentiloni (Commissioner for Economy) urged all countries that had signed up to the changes to move quickly to enact the rules.

“The entry into force in Europe and in jurisdictions around the world of this historic reform marks a major step towards a fairer corporate taxation system,” he said.

“By lowering the incentive for businesses to shift profits to low-tax jurisdictions, the new rules will help curb the so-called ‘race to the bottom’ on corporate-tax rates in the EU and globally,” the commissioner added.

The US is among the signatories yet to implement the changes.