1. What is the most significant change to your region/jurisdiction’s tax legislation or regulations in the past 12 months?
The introduction of pillar two has been the most significant change. It was introduced across most EU member states, as required by the EU directive, as well as in a number of other countries in EMEA, including the UK.
2. What has been the most significant impact of that change?
The pillar two rules are a once-in-a-generation change in the international tax landscape. The rules are very complex, with OECD guidance still evolving; some of that guidance is retroactive, which can be challenging.
We have been advising clients on the impact of the new rules on their business model, as well as the impact of the rules on proposed transactions (such as M&A transactions). We have also been assisting clients to prepare for the significant additional compliance obligations that pillar two brings.
3. How do you anticipate that change impacting your work and the market moving forwards?
In the last few years, clients have been increasingly focused on improving the quality of the data required for tax compliance and decision making. Given the significant number of data points required to meet pillar two requirements, we are seeing more clients invest in technology solutions, automation, and AI to satisfy their various tax compliance (including pillar two) requirements.
The introduction of pillar two may impact the foreign direct investment [FDI] landscape. For groups in the scope of pillar two, the minimum effective tax rate should be 15% going forward. In an Irish context, this somewhat erodes the advantage of Ireland’s 12.5% corporation tax rate, resulting in non-tax factors, including non-tax incentives, becoming ever more important.
4. How has this changed the way you offer tax advice?
While the accounting treatment of a transaction is often important to the tax analysis, the accounting treatment and, in particular, the deferred tax treatment is very important for pillar two purposes. As mentioned earlier, pillar two compliance requires significant amounts of data. Therefore, we are seeing more tax and accounting engagements, as well as a greater number of projects where tax technical and tax technology are involved.
In an FDI context, there is an increased focus on understanding the wider offering that Ireland (and other countries) can offer and the availability of refundable tax credits, such as the Irish R&D tax credit regime, and non-tax incentives such as financial grants.
5. What potential other legislative/regulatory changes are on the horizon that you think will have a big impact on your region/jurisdiction?
The digitalisation of VAT, including e-invoicing and e-reporting, is a developing area that gained increased focus following the publication of the EU’s VAT in the Digital Age Directive (ViDA). Some countries have already introduced such requirements, and many others across the region have signalled their intention to introduce e-invoicing or real-time reporting in the coming years.
6. What are the potential outcomes that might occur if those changes are implemented?
Companies will need assistance in assessing the potential impact of the change; understanding the requirements of the changes, determining if they already have the necessary data, and, if not, any changes to the company’s systems and processes that are required. Support will be required in determining the governance structure relating to an implementation project, as well as the ongoing adherence to the rules.
7. Do you think that change will have a positive effect on both your practice and the wider regional/jurisdictional market?
Digitalisation of VAT will bring opportunities to advise clients on the significant changes. Our VAT and tax technology teams will collaborate to support our clients on this journey.
8. Are there any regulatory/legislative changes you believe should be implemented in your region/jurisdiction?
A particular focus in Ireland has been on the simplification of the tax system, which has become more complex due to EU and international tax changes. A participation exemption for qualifying dividends was introduced in Ireland from January 1 2025 and we hope that the exemption will be extended to foreign branches in due course.
The Irish Department of Finance recently held a public consultation on the tax treatment of interest. We have made several recommendations aimed at simplifying the rules relating to the deductibility of interest.
Separately, a review of the Irish R&D tax credit regime will be held later this year. We would like to see the regime enhanced both in relation to the qualifying activities (recognising the increasing focus by companies on digitalisation and sustainability) and qualifying expenditure.
9. How do you believe those changes would help improve the tax landscape in your market?
A simplification of the Irish tax system would be welcomed by taxpayers and practitioners alike and would help in making Ireland more attractive as a location for investment.
The enhancement of the R&D tax credit regime is important for a number of reasons. In a post-pillar two world, refundable tax credits can be an important factor in decision making on locations for investment. In an age where digitalisation and sustainability are two very important business priorities within organisations, an enhanced regime/new specific credit regimes could play an important role in incentivising behaviour and accelerating action.
10. How are issues surrounding the taxation of the digital economy affecting your work?
There have been a number of developments in recent years that we have been supporting clients with:
Many of our clients are subject to digital services taxes [DST] in a number of countries and are ensuring that they have robust procedures in relation to their DST compliance;
We have assisted a number of clients in relation to DAC7 and OECD platform operator reporting rules, providing advice on not only the tax technical aspects but also the data collection and practical aspects;
Pillar one – amount B has been implemented in Irish legislation and is applicable to some of our clients.
11. How would you describe the tax authorities’ approach in your region/jurisdiction?
Irish Revenue is quite active in relation to interventions. A revised code of practice in relation to Revenue interventions has been effective since May 2022. Taxpayers must take care to ensure that interventions are managed appropriately and, in particular, that the timelines and procedures set out in the code of practice are adhered to.
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