The Department of Finance seeks feedback on Pillar Two implementation in Ireland

The feedback statement seeks input from stakeholders under three main headings:

1. The general approach to legislation
2. Qualifying Domestic Top-Up Tax (QDTT)
3. Administration

1. The general approach to legislation

The feedback statement confirms that the EU Minimum Tax Directive will be the primary basis for transposing the Pillar Two rules in Ireland.

The feedback statement outlines a proposed draft legislative approach to implementing the Directive. It also seeks feedback on how the OECD Model Rules, Commentary and Administrative Guidance should be referenced in legislation.

2. QDTT

The Directive gives Member States the option of applying a QDTT. This effectively means that any top-up tax arising under the new rules for Irish constituent entities should be paid in Ireland and not collected by another jurisdiction.

The current policy proposal is for Ireland to introduce a QDTT. The feedback statement also seeks feedback on its implementation.

3. Administration

The feedback statement outlines several important points concerning the proposed approach to the administration of the regime.

The proposed approach is to keep Pillar Two separate from the existing corporation tax regime. This is in line with submissions to last year’s public consultation, and it is encouraging to see stakeholder input reflected in the draft rules.

The standardised format of the GLoBE Information Return (GIR) remains under discussion at OECD level. Under the Directive, each Irish constituent entity within the scope of the new rules must file a GIR in Ireland in the absence of any derogation.

The feedback statement notes that it is possible to have one appointed entity (that meets the required definition under the rules) file a GIR on behalf of other group entities. In this scenario, the group entities whose information is included in a GIR filed by another group entity must notify Revenue (similar to Country-by-Country Notifications). 

The GIR or notification would be due for filing no later than 15 months from the end of the reporting fiscal year. Special provisions allow the GIR to be filed 18 months after the end of the first fiscal year to which the rules apply (i.e. the transition year).

The GIR is designed to be an “information return” as opposed to a tax return or self-assessment. There will therefore be a need for constituent entities to file domestic returns in order to declare their top-up tax liabilities.

This is noteworthy as, depending on the final format of the domestic return, it will place further administrative requirements on businesses. However, the feedback statement notes that only limited additional information should be required as part of the domestic return - this will continue to be discussed at EU level in the coming months. The due date for the domestic return is expected to align with the GIR filing deadline.

The Directive does not provide any deadlines for paying the top-up tax liabilities arising. It is proposed that any additional tax due would be paid at the same time as filing the GIR (i.e. 15 months after the end of the fiscal year, with similar exceptions in a transition year).

The above-proposed administration of the new rules is yet to be finalised, however. PwC Ireland, as part of our response to the feedback statement, will highlight the need to ensure that businesses are not overburdened with administrative processes as they work to come to terms with new and complex tax legislation.

The three key actions to take now

If you will be affected by these new requirements, consider this three-step process:

1. Familiarise yourself with the challenges Pillar Two will bring

Pillar Two is a significant change to the tax landscape. Its implementation and effect present many challenges for business, including data requirements, global coordination and getting to grips with complex legislation. Some of the many questions requiring consideration are:

• Do you have all the required data to perform the Pillar Two calculations and complete the new tax return?

• Do you understand how the legislation will interplay between each jurisdiction in which you operate?

• Are your business’ stakeholders aware of the coming changes, and do they understand the challenges your team will face in complying with the rules?

2. Identify areas of concern for your business

Ireland is required to transpose Pillar Two provisions into domestic legislation by 31 December 2023 - less than nine months away. Before the final legislation is published in the 2023 Finance Bill, extensive consultation with the Department of Finance will be needed.

Not only will businesses need to understand the Pillar Two rules, they will also need to identify where the existing and new rules interact and determine how their business will respond.

3. Engage with the feedback statement

Do you have questions or concerns? Now is the time to communicate these to the Department of Finance. You can raise issues directly with the Department or via PwC, who will engage with the Department continuously throughout 2023 regarding the implementation of the rules.