Coffey report – A summary

The Department of Finance today released an independent report on Ireland’s corporation tax code. The report was prepared by Seamus Coffey, a senior independent economist from University College Cork.

The over-arching message from the report is that the current corporate tax system is transparent and appropriate for enterprise in Ireland. However, it does include a number of recommendations which the Department of Finance will now consider and consult upon.

While it’s important to note that the report and its recommendations are non-binding, it will likely be given due consideration by the Department of Finance and in welcoming the Report the Minister for Finance stated that the “review provides a clear road map and timeframe for Ireland to implement important international reforms.”

The Report confirms that the Irish corporation tax code is fair, competitive, sustainable and certain. This reaffirms the Government position that Ireland will play fair but play to win when supporting and attracting investment from a tax policy perspective.

The Report is set against the backdrop of a number of EU directives and agreements reached during the BEPS project. As such, there are few surprises in the recommendations.

It is important for companies to view all proposed changes in a holistic manner, rather than looking at any given proposal in isolation. That way, they will ensure appropriate decisions are made for the medium to long term and take account of all Irish and international developments over the coming years.

Three key recommendations

Modernise Transfer Pricing (TP)

The Report recommends that Ireland should update our TP rules to follow the current OECD TP guidelines. Our rules currently reference the 2010 guidelines. As part of this, it also recommends that transfer pricing should apply to all transactions including non-trading, capital transactions and transactions of SMEs. Furthermore the report recommends that Ireland adopt the transfer pricing documentation requirements set out as part of BEPS action 13.

From a timing perspective the report recommends that these changes are made by the end of 2020. Given the number of measures that Ireland must introduce in the coming years as a result of BEPS/the EU’s Anti-Tax Avoidance Directive, it appears unlikely that the Department of Finance would move in advance of that date.

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Intellectual Property (IP) Regime

The Report recommends a recalibration of Ireland’s existing IP regime to ensure some smoothing of corporate tax revenues over time. The recommendation is for the reintroduction of a cap such that, in any given year, only 80% of income could be offset by IP amortisation and related financing expenses. Any excess deductions would be carried forward to subsequent years without limit and hence this proposal would be unlikely to have any impact on a company’s effective tax rate but could affect cash taxes in any given year.

It is possible that the Minister for Finance may introduce this cap in the upcoming Budget. However, it is currently unclear as to whether the cap will apply to all IP (as the report suggests) or only to IP acquired after a date in the future. 

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Competitive Territorial Regime

In line with ATAD, a CFC regime must be introduced by 2019. The Report recommends that Ireland should move to a territorial tax system and/or enhance our foreign tax credit regime to maintain Ireland’s competitiveness internationally.

The various other recommendations in the report either don’t require significant change or are merely calls for Ireland to maintain its current commitment to implement BEPS/EU initiatives.

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What happens now?

The Report recommends proactive consultation as this would enhance certainty and better inform policy making. In his statement the Minister has said that he will launch such a consultation process on Budget day.

Overall, the key message coming out of this extensive and broad ranging review is a thumbs up for Ireland's corporate tax regime from both a competitiveness and fairness perspective.

How can I find out more?

We are holding a webcast for clients next Monday, 18 September at 4.30pm to provide more information on the recommendations of the Coffey Report and its possible impact on business. If you would like to sign up to the webcast please get in touch with your regular PwC contact for details.

Contact us

Joe Tynan
Tel: +353 1 792 6399

Peter Reilly
Tel: +353 1 792 6644

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