Opportunities are opening at home and abroad

Good times on the horizon to create tax opportunities for business owners, say Matheson tax experts

Davinia Brennan, Caroline Kearns, Rory O'Keeffe and Niamh Mulholland, who have all recently begun new roles with Matheson, the law firm advising business owners to make the most of upcoming tax opportunities.

Mark O’Sullivan and Philip Tully, of Matheson, assess the national and global financial landscapes

Mark O'Sulivan and Philip Tully, tax partners with Matheson.

As we begin a new year, one which we hope will see our society and economy at a local and global level move on from the Covid-19 pandemic, there is undoubtedly a sense of opportunity for Irish businesses and the economy at large.

This opportunity will be informed by the performance of 2021, a year that despite the many disruptions and hardships caused by the pandemic, was one of significant change that will shape this year and beyond.

For almost 20 years, Ireland’s calling card from a foreign direct investment (FDI) perspective has been the 12.5% rate of corporation tax.

However, agreement was reached by 140 member jurisdictions of the OECD’s inclusive framework jurisdictions last year, which will result in the introduction of a 15% minimum rate of tax which will apply to large multinationals with revenues in excess of €750m. While this has understandably garnered headlines, these changes by no means signal the end of Ireland’s attractiveness to multinationals.

The Irish Government has reiterated that the 12.5% rate will remain in place for companies below the €750m threshold and Minister Paschal Donohue was keen to emphasise the research and development tax credit would continue to exist within the new minimum tax regime.

While tax has undoubtedly been an important component in Ireland’s success in attracting foreign investment, our corporate tax rate has never been the only point of attraction for companies investing in Ireland. The availability of talent, access to the EU marketplace (particularly post-Brexit) and the stable regulatory environment have arguably been more significant forces of attraction in recent years.

Although 2021 was a difficult year for many sectors within the domestic economy, Ireland retained its competitiveness from an FDI perspective. In its end of year report, the IDA announced that the numbers directly employed in the multinational sector in Ireland had reached 275,000 — the highest number ever.

Despite the impact of the pandemic, 2021 saw substantial growth in FDI, with the highest employment creation figures ever in a single year (29,000+).

While the outlook for 2022 is uncertain and Ireland’s corporation tax regime is facing a number of changes in the coming years, there continues to be reasons for optimism when it comes to continued growth.

While the country retains several foreign direct investment (FDI) selling points, it is important that the Government continues to support investment, engaging with and working collaboratively with businesses.

Given the increased exchequer returns collected from corporate taxes last year, now is an opportunity to review personal income taxes and to further incentivise highly skilled mobile workers to relocate and / or remain in Ireland.

As the pandemic has accelerated the transition to remote and decentralised workforces, competition for talent has never been stronger.

Much of Ireland’s success has been built on attracting talent to our shores and that will need to continue if we are to retain our position as a leading destination for FDI.

Tax supporting growth

The Commission on Taxation and Welfare was established to review how the tax and welfare systems can support economic activity and promote employment. The commission’s report is due to be finalised in July 2022 and recommendations to make our personal tax system more attractive would be greatly welcomed.

There is also a need to continue to enhance and improve the R&D tax credit regime and explore other incentives which are permitted within the proposed global minimum tax regime. Another important aspect of Government support that will benefit businesses is a simplification of the corporate tax system.

The proposed global minimum tax and other new rules, which will allocate profits to affiliated entities based on formulaic apportionments, will introduce new layers of complexity into our tax laws. In this regard, the potential introduction of a participation exemption for dividends would be welcomed, and consideration needs to be given to modernising and simplifying our foreign tax credit system.

While 2021 was a year of uncertainty, we can look forward to 2022 with greater confidence with the hope that the coming year is marked by growing stability for businesses as society reopens.

Key to this will be the continuing relationship between Ireland and the US that has benefited both countries and which offers new opportunities in established and emerging areas of research and industry.

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