Key points regarding the Tax Strategy Group 2025 corporation tax paper

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CT Receipts

Overview

• 2024 represented the 13th consecutive year of annual CT growth, in which CT became the largest tax head, contributing €39 billion and accounting for 36% of total tax receipts.
• Net CT receipts grew by 64% in 2024, primarily driven by once-off revenues arising from the Court of Justice of the European Union (“CJEU”) ruling in September 2024. Excluding the CJEU ruling revenue, CT receipts in 2024 were €28.13 billion (increase of 18% on 2023)
• Net CT payments by companies managed by Revenue’s Business and Medium Enterprise divisions increased for the 5th consecutive year to €3.8 billion in 2024. Large companies (i.e. those managed by Revenue's Large Corporates Division) accounted for €24.2 billion or 86% of net 2024 CT receipts, an increase of €3.8 billion (19%) on 2023.
• The increase is partly attributable to a strong performance by the Information & Communication Technology sector (increasing 49% to €6.2 billion). The Manufacturing sector saw a return to growth in 2024, with an increase of 9.8% on 2023 (€419 million).

Volatility

• Strong CT performance in recent years has increased the risk of relying on unpredictable and highly concentrated receipts, with a high proportion coming from multinational enterprises (“MNE”).
• Foreign owned MNEs accounted for 88% of net CT receipts in 2024, up from 83.8% in 2023. In total, MNEs accounted for 92% of net CT receipts in 2024 (up from 89% in 2023).

OECD/G20 Inclusive Framework on BEPS (base erosion and profit shifting)

• Ireland is a member of the OECD/G20 Inclusive Framework, where countries have joined forces to collaborate on the implementation of measures to tackle aggressive tax planning, improve the coherence of international tax rules and ensure a more transparent tax environment.
• Agreement was reached on a two-pillar solution to address the challenges raised by the digitalisation of the economy:
  
  
  • Pillar One will see a reallocation of 25% of residual profits to the jurisdiction of the consumer through Amount A and the streamlining and simplification of transfer-pricing through Amount B.
  • Pillar Two provides for a 15% minimum effective tax rate, on a jurisdiction-by-jurisdiction basis, for businesses in-scope of the Global Anti-Base Erosion (“GloBE”) rules and a Subject to Tax Rule to protect source taxing rights of developing countries.

Pillar One – Reallocation of Taxing Rights

Overview

• Pillar One is a package which consists of Amount A and Amount B as set out below.
• Pillar One negotiations are at a political impasse with Amount A largely agreed but a small number of technical issues outstanding in relation to Amount B. The interrelationship of the Amounts means that neither can proceed without the other.

Amount A

• Amount A will be delivered through a Multilateral Convention (“MLC”), which would require all parties to remove Digital Services Taxes (“DST”) and other similar measures, commit not to introduce such measures in the future and allocate 25% of residual profits (defined as profit in excess of 10% of turnover) of MNEs to market jurisdictions using a revenue-based allocation.
• Amount A’s scope would initially be confined to MNEs with an annual global turnover more than €20 billion and excess profit of 10% or more. After seven years, following a review, the global turnover threshold would drop to €10 billion annually.
• The standstill means that DSTs are back in force in certain jurisdictions and other jurisdictions have initiated procedures to introduce such taxes.
• The MLC will only come into force when it has been signed and ratified by a critical mass of jurisdictions, being at least 30 jurisdictions representing at least 60% of the headquartered companies within scope of Pillar One. The United States must ratify the MLC to achieve a critical mass.

Amount B

• Amount B is intended to streamline the process for pricing marketing and distribution activities in line with arm’s length principles and enhance tax certainty and reduce resource intensive transfer pricing disputes.
  Current Status of Pillar One
• A revised technical text for Pillar One was submitted for adoption in June 2024. There are continuing discussions on outstanding issues and the interdependence between the Amount A and Amount B. Agreement has yet to be found and remains a challenging prospect.
  
  

Pillar Two – Global Minimum Effective Tax

Domestic Implementation

• The Minimum Tax Directive (EU) 2022/2523 was implemented in Ireland in 2023.
• The Directive applies to fiscal years of businesses beginning on or after 31 December 2023. In-scope businesses or groups are those with a turnover of €750 million or more in at least two out of the last four years.
• Though legislative provisions are in place, as the Pillar Two rules consist of entirely new top-up taxes with a unique tax base, work continues on the rules’ practical implementation.

Ongoing Work at the OCED

• Five packages of Administrative Guidance have been released since 2023 to supplement and clarify items within the Model Rules and existing Commentary to the Model Rules.
• Ongoing work at the OECD Working Party has been to design, agree and commence the peer review process for Pillar Two rules as implemented in jurisdictions.
• Work-streams that are ongoing at technical level include discussions on a possible cross-border Pillar Two dispute resolution mechanism, the potential coexistence of the GloBE rules and the US tax system.
• Work is also ongoing towards development of a permanent safe harbour to reduce the administrative burden and number of computations and adjustments that MNEs are required to make in their compliance with the GloBE Rules.

Coexistence of GloBE and US Tax System

• In January 2025 the incoming US administration issued an Executive Order declaring that Pillar Two has no force or effect in the US.
• The US have subsequently clarified that they intend to remain active in OECD discussions, but that they do not intend to implement Pillar Two due to their own minimum tax rules. The US feels they have sufficiently robust rules in place to tackle base erosion issues and are now seeking ‘co-existence’ of the existing US tax regime with Pillar Two.

Future Developments

• Discussions are ongoing at both the OECD and the EU regarding the potential next steps for Pillar Two and how to best address the concerns raised by the US.
• Ireland remains fully committed to the OECD Agreement as the best way to achieve stability in the international tax architecture.

European Tax Developments

 Overview

• The European Commission (“the Commission”) has signalled it may put forward a proposal for a DST and/or other similar proposals as a possible temporary retaliatory trade measure in response to tariffs imposed by the US and as a permanent own resource for the EU budget.

Tax Decluttering

• While the 2025 Work Programme does not outline any new specific CT policy or legislative initiatives, it includes cross-cutting initiatives that include some tax aspects.
• The Commission published the following papers which include non-legislative recommendations and/or planned actions that concern direct tax policy:
  
  • The Competitiveness Compass – a roadmap setting out necessities for a more competitive EU;
  • Clean Industrial Deal – a plan to boost clean energy, quality jobs and concrete actions to turn decarbonisation into a driver of growth; and
  • Saving and Investments Union Strategy – an initiative to channel citizens' savings into productive investments and deepen capital markets integration.
• The Commission is completing an analysis of EU CT Directives to inform tax simplification and proposals are expected in early 2026, including the Directive on Administrative Cooperation and Anti-Tax Avoidance Directives.

Digital Services Tax and Similar Proposals

• While there are no official proposals, the Commission will propose the EU’s Multiannual Financial Framework for 2028–2034 to Member States in July 2025 and it is expected that new own resource proposals will accompany it.

Business in Europe: Framework for Taxation Directive

• The Commission believes that the Business in Europe: Framework for Income Taxation proposal, which is replacing the Common Consolidated Corporate Tax Base proposal, will build on the OECD led international tax reforms, simplify tax compliance and promote competitiveness in the EU.

Other EU Tax Directives

• The Commission proposed other Directives during its 2019–2024 term but were not agreed upon, though these have not been withdrawn. They remain listed in the Annex of legislative proposals to the Commission’s 2025 Work Programme.
• These Directives include:
  
  • Unshell – a proposal to tackle the misuse of shell entities for tax abuse purposes;
  • Debt-Equity Bias Reduction Allowance (“DEBRA”) – a proposal to incentivise the tax treatment of equity over debt;
  • Transfer Pricing – a proposal to harmonise transfer pricing rules in the EU; and
  • Head Office Tax System for SMEs (“HOT”) – a proposal to simplify tax compliance for SMEs operating cross-border in the EU.
• Two further Directives not agreed upon but remaining on the 2025 Work Programme Annex are the DST and the Significant Digital Presence (“SDP”) proposals.

UN – Framework Convention on International Tax Co-operation

•  The terms of reference for the Framework Convention on International Tax Co-operation were adopted at the General Assembly in late 2024. High level commitments and a decision to adopt two optional early protocols were included.
• There are three Workstreams with one dedicated to each instrument of the negotiation:
  
  • Workstream I: The Framework Convention;
  • Workstream II: Protocol I - Taxation of income derived from the provision of services; and
  • Workstream III: Protocol II - Prevention and resolution of tax disputes.
• Ireland is engaging with the development of the Framework Convention on International Tax Co-operation and the two Protocols in cooperation with other EU Member States to ensure that they are as complementary and coordinated as possible with existing bodies of work in international tax cooperation.

Business support measures

Participation Exemption

• A new Participation Exemption (“PE”) for Foreign Dividends was introduced in Finance Act 2024 to simplify the existing double taxation relief provisions. The qualification criteria are as follows:
  • A company can choose which year to claim the PE via their annual CT return. Where claimed, it must apply in respect of all in-scope dividends in the relevant period.
  • Where not claimed, a company may continue to use the existing tax-and-credit relief from double taxation.
  • The PE is available for relevant distributions received from subsidiaries in EU/EEA and tax treaty partner source jurisdictions, made on or after 1 January 2025.
  • The parent company must be Irish resident, or resident in an EEA country and have an Irish trading branch.
  • The parent company must have a holding of at least 5% in the foreign subsidiary, for a continuous period of at least 12 months.
  • The distribution must constitute income in the hands of the parent company and the distribution cannot be deductible for foreign tax purposes.

Section 481 - Film Tax Credit

• The film tax credit allows for relief by way of a CT credit related to the cost of production of certain audiovisual productions at a rate of 32% of the lowest of:
  
  • eligible expenditure;
  • 80% of the total cost of production of the film; or
  • €125 million.
• The minimum amount spent on the production is €250,000 and the minimum eligible expenditure amount to qualify is €125,000.
• The Finance Act 2024 provided for an uplift of 8% to section 481’s rate of 32%, resulting in a total credit of 40%, for feature film, including animation, productions with a maximum qualifying expenditure of €20 million.

Tax Credit for Unscripted Production

• The EU has approved a 20% tax credit for eligible development costs of unscripted programmes, capped at €15 million per project and subject to a cultural test.

Visual Effects

• Following a proposed sector specific measure as part of Budget 2026 in relation to Visual Effects (“VFX”), a specific measure or an amendment to the Section 481 film tax credit would need to be notified to the Commission as part of its state aid approval process. Appropriate options are currently being assessed in line with the Programme for Government commitments.

Digital Games Tax Credit (“DGTC”)

• DGTC provide a CT relief and applies to qualifying expenditure incurred by digital games development companies on the design, production and testing of certain digital games that contribute to the promotion and expression of Irish and European culture as well providing quality employment. DGTC provides for an amount equal to 32% of the lowest of:
  
  • the eligible expenditure amount,
  • 80% of the total cost of development of the digital game, or
  • €25 million.
• The minimum production amount spent is €100,000.
• To avail of the DGTC, a digital game must be issued with a cultural certificate from the Minister for Culture, Communications and Sport.
• The sunset clause for the DGTC is currently 31 December 2025.
• The Finance Act 2023 provided for several amendments to the DGTC, primarily to align the credit with the international definitions of qualifying refundable tax credits under Pillar Two rules. As a result of this, Digital Games Development Companies can now opt to either call for payment of the credit in cash or to request that it be offset against existing tax liabilities.

Research and Development Tax Credit

• The research and development (“R&D”) tax credit allows for credit to be claimed for qualifying R&D expenditure incurred by companies directly, or where they have contracted third parties to conduct R&D activities on their behalf.
• A fixed three-year payment structure was introduced, which provides that 50% of the credit is payable in year one, 30% in year two and the final 20% in year three.
• A new first-year payment threshold of €75,000 was introduced by the Finance Act 2024, with claims for R&D tax credit of up to that amount being payable in full in the first year of claim.
• As announced in Budget 2025, an evaluation of the R&D tax credit is taking place this year, inclusive of a stakeholder consultation which provided the opportunity for stakeholders to give their views on the credit and on options to support innovation.

Review of Ireland’s Interest Deductibility Rules

• The Department of Finance and Irish Revenue have commenced work on a review of Ireland’s interest regime.
• The consultation closed 30 January 2025 officials are working to consider the detailed responses to the consultation.

Update on the Funds Sector Review 2030

• The ‘Funds Sector 2030: A Framework for Open, Resilient & Developing Markets’ sets out recommendations to support growth in the funds and asset management sector.
• Some of the main tax recommendations, are in the following areas:
  
  • Private Assets: Certain tax measures were recommended to support growth in the Private Asset Sector including a Dividend Withholding Tax Exemption for Irish Limited Partnerships.
  • Supporting Retail Investment: Recommendations were made regarding how to unlock retail investment. The 2025 Programme for Government contains a commitment to progress and publish an implementation plan on these matters for consideration in Budget 2026. This is a complex area of taxation and detailed consideration is therefore required on what reforms may be appropriate and necessary and how to bring them forward where relevant.
  • Irish Real Estate Funds (“IREF”): The Funds Review Report recommended consideration of a public consultation to set out potential options for an entity level tax for IREFs. If the recommendation is progressed, consideration is required of the possible ways that such an entity level tax could be designed.
  • Section 110 Regime: The Funds Review Report recommended enhancing transparency to address potential risk arising in respect of section 110.
• Given the Funds Sector 2030 Review, associated tax measures will require delivery over multiple Finance Bills having consideration to developments at an EU level in respect of the Savings Investment Union and the EU Securitisation Framework.