On 8 October 2021, agreement was reached on the OECD two-pillar global tax reform ('OECD agreement'). Previously, Ireland had shown support for pillar one, which proposes to reallocate a proportion of corporate tax to market jurisdicitons, but was reluctant to agree to pillar two, due to the wording "at least 15%" regarding a global minimum corporate tax rate. However, since the removal of "at least", Ireland has agreed to both pillars and will be introducing a corporate tax rate of 15% in due course, but only for companies with a global annual turnover in excess of €750 million. Pillar two should become effective in 2023, pending the outcome of the US tax reform package incorporating the OECD agreement through the US Congress.
Ireland's low corporation tax rate has been a great tool in expanding inward investment and maximising global presence here, but is by no means Ireland's only selling point. Irish governments have endeavoured to ensure that FDI into Ireland has brought benefits to the Irish economy, in addition to highlighting the country as a place to invest. Instant access to the European marketplace and the common travel agreement with the UK, as well as being the only English-speaking EU member state, have all contributed to making Ireland home to some of the world's most innovative companies. The increase in corporation tax for companies with the requisite turnover will not affect these aspects of what makes Ireland so attractive for FDI.
On 19 March 2019, an EU regulation establishing a screening mechanism for FDI was adopted. This entered into force in Ireland from 11 October 2020. Although FDI screening has not yet been formally adopted by way of domestic legislation, Ireland must now provide information on relevant transactions involving FDI when requested and give "due consideration" to any comments from other EU member states or an opinion from the European Commission.
A recently published Bill will, when enacted, subject certain third country transactions based in Ireland to government reviews. Under the terms of the Screening of Third Country Transactions Bill 2022, parties to Irish transactions would have to notify the minister for enterprise, trade and employment about transactions involving third countries outside of another EEA jurisdiction or Switzerland with a value of up to €2,000,000, or that relate – directly or indirectly – to Ireland’s critical infrastructure, including energy, transport, water, processing of personal data and health.
Parties must also notify the minister if such a transaction involves the use of critical technologies such as artificial intelligence, cybersecurity, and defence, as well as the supply of energy, raw materials or food. If a transaction is notifiable, the parties must inform the minister of it at least 10 days before its anticipated completion.
On 1 January 2019, the controlled foreign company (CFC) rules became operative in Ireland for the first time. This is an anti-abuse measure designed to prevent the diversion of profits to offshore entities in low-tax or no-tax jurisdictions. It works by subjecting the controlling Irish parent company in such cases to immediate taxation unless certain conditions are met.
A CFC is a company that is non-tax resident in Ireland but controlled by a company or companies that are tax resident in Ireland. These measures apply to an Irish company with a CFC, where there are non-genuine arrangements in Ireland to divert the profits to the CFC and the essential purpose of these arrangements is the avoidance of tax.
The net effect is that where an Irish company or company connected with it which carries on relevant Irish activities artificially diverts income to a non-resident company that is under its control, the Irish company will be subject to Irish tax on those profits unless the profits are distributed back to the Irish company.
As mentioned, Ireland has joined 135 other countries in signing up to the OECD agreement, implementing a global tax rate of 15%. Despite the looming increase in Ireland's corporation tax, Ireland shall remain a key European hub for multinational technology companies and will continue to attract FDI. An educated and skilled talent pool, pro-enterprise initiatives and a globalised economy provide strong incentives for investment from abroad into Ireland.
The Irish government's 2022 Budget contains some exciting initiatives for boosting FDI. From an incentive perspective, corporation tax relief for certain start-up companies has been extended through to 2026, and will be amended to extend the available period from the first three years of a company's trading to the first five. The scheme was due to cease by the end of 2021. In addition, the Budget includes a new refundable corporate tax credit for expenditures on digital gaming design, production and testing with the aim of enhancing Ireland's competitiveness in the rapidly growing gaming industry through research and development. These initiatives will help to further harness Ireland's innovative and creative economy.
The Industrial Development Agency Ireland (IDA) has launched its strategy for 2021-24 (57-page / 9.5MB PDF). This seeks to maximise the impact of FDI in Ireland through five 'pillars': growth, transformation, regions, sustainability and impact. Underpinning the 'regions' pillar, the Irish government launched Project 2040 as a major component of Ireland's plan to boost its regional economy. Ireland's regions have become increasingly popular as locations for FDI. The ambition of this initiative is the enhancement of the attractiveness of Ireland's regions as future hubs for FDI - a strategy which should further strengthen the presence of FDI in Ireland.
The contribution of FDI to Ireland's economy is integral. Having multinational tech companies such as Google, Facebook, Twitter, LinkedIn, Indeed and, most recently, TikTok with their European headquarters in Dublin highlights the strength and growth of FDI in Ireland. Notwithstanding the unprecedented challenges these multinational companies faced throughout the pandemic, as well as the impending increase in regulation and rise in corporation tax, Ireland should remain a prominent hub for FDI with much to offer.