On Monday, 7 March the Institute, under the auspices of the CCAB-I, responded to the public consultation on a territorial system of taxation. Our response was formulated on the basis that an elective territorial-based system of taxation should be introduced in Ireland, with a participation exemption and exemption for branch profits included. The move to a territorial system of taxation should be implemented by 1 January 2023.
A territorial system of taxation operates by exempting foreign income of branches and/or subsidiaries, as well as exempting capital gains referable to those overseas activities. Most countries in the EU and OECD operate a predominantly territorial system of taxation, and so the introduction of such a regime in Ireland is critical in maintaining Ireland’s competitiveness as a destination for investment.
The CCAB-I response included the following points:
- In recent years the Irish tax system has introduced several measures which in fact underpin a territorial system of taxation. Such measures include Controlled Foreign Company rules, Interest Limitation rules, and Anti-Hybrid rules.
- The proposed move to a predominantly territorial-based system should be fiscally neutral given that Irish taxes on foreign branch profits are typically sheltered by foreign taxes paid on those profits.
- The current credit-based system of taxation is complex and administratively burdensome. While that system should continue to exist to fill the gaps where an exemption-based model is not feasible (e.g. where offshore investment is in a ‘black-listed’ jurisdiction’), that system would also need to be simplified as part of the overall aim of enhancing Ireland’s competitiveness.
For more information read the full response.