Michael McGrath (Cork South Central, Fianna Fail) | Oireachtas source

I thank Deputy Cowen for his contribution. I know he raised this issue on Second Stage in the House. I want to acknowledge that he has written to me and I have responded on the issues which have been raised. It is worth taking a few moments to go through some of the key points of the Government's response to the issues which have been raised by Deputy Cowen.

We can all agree that the decision taken by the Government to sign up to the OECD inclusive framework of the global agreement on the Tax Challenges Arising

from the Digitalisation of the Economy – Subject to Tax Rule (Pillar Two) was not taken lightly. It was a very significant decision and was one taken after very careful consideration, and, indeed, consultation.

In recognising the significance of the decision we made, it is important to recall the very real and substantial risks associated with staying outside this agreement. As a small and open economy, we have strong ties with the EU, US, and other G20 countries and it remains essential for our long-term competitiveness that we remain in line with key partners. At EU level the minimum tax directive has been agreed by all EU member states. The minimum tax directive ensures that there is a consistent application of Pillar 2 of the OECD agreement on the minimum tax across all member states. All EU member states, therefore, are legally bound to transpose the EU minimum tax directive and bring the primary rules into effect by 31 December 2023. This obligation also encompasses the transitional undertaxed profits rule, UTPR, safe harbour as the directive provides for the recognition of agreed safe harbours which are the subject of a qualifying international provision. That is a key point, which is that the obligation does encompass the requirement to provide for the transitional safe harbour.

The Deputy has raised the impact of the situation in the United States and the approach it is adopting to the global tax agreement. As home to many of the world's largest multinational enterprises, the US is an integral part of the implementation of the global minimum tax agreement. The Biden Administration continues to work towards the implementation of Pillar 2. The US introduced the first global minimum tax, the global intangible low-taxed income, the GILTI rules, through the Tax Cuts and Jobs Act of 2017, which were recently supplemented by a corporate alternative minimum tax.

However, due to differences in base rate and scope, these taxes are currently not aligned with the Global Anti-Base Erosion, GloBE, rules. The co-existence of the US alternative minimum tax regimes with the GloBE rules has been one of the many technical issues addressed in the OECD negotiations. The system allows for an integrated application of the GloBE and GILTI rules on an interim basis, allowing for an application of the Qualified Domestic Top-up Tax, QDTT, in priority while not giving rise to double taxation for business through appropriate accrediting mechanisms. This is a significant positive for Ireland and provides stability for businesses as the rules are implemented globally over the coming years.

It is important to underline that the transitional safe harbour will apply for a time-limited period of one year after the implementation of the UTPR, which generally will be introduced one year after the Income Inclusion Rule, IIR. This means that the UTPR will come into effect from the end of 2025. This will allow jurisdictions the opportunity to apply the primary Pillar 2 rules, the IIR, and, where chosen by a jurisdiction, the QDTT, before another jurisdiction has an opportunity to apply a UTPR. This will mitigate complexity and disputes for businesses and tax administrations alike in Europe in year one. The safe harbour also recognises the challenges facing jurisdictions in implementing Pillar 2 by providing a limited additional grace period before the UTPR takes effect. Again, to reiterate, this is a limited period of one year.

That being said, we fully appreciate the concerns by EU-headquartered firms with regard to the potential delay of the application of the Pillar 2 rules globally and the potential distortive impact of the UTPR in the interim. It is important, however, to recognise that for international agreements to work, there must always be compromise. The rules have been agreed by almost 140 jurisdictions and include limited safe harbours with certain guardrails for valid reasons. We must be cognisant of the long-term objective which is to implement a long lasting global tax framework fit for the 21st century and to avoid the significant negative consequences that would ensue should Ireland unilaterally opt out of the agreement.

Throughout these negotiations, Ireland has sought to provide certainty and stability, to protect our strategic interests and to ensure that we remain an attractive location when multinational enterprises look to invest. Ireland will continue to play to the strengths of its wider offering beyond the tax system, the dynamic well-educated English speaking work force, our common law legal system and our business-friendly environment, seeking to ensure our continued competitiveness in light of the impacts of Pillar 2 implementation. Indeed, over the course of the Committee Stage of this Bill, we have discussed other matters which we believe will copperfasten and, indeed, enhance Ireland's attractiveness as a location for foreign direct investment.

With regard to how the UTPR temporary safe harbour operates, I just want to clarify one point. It is only the group entities in the parent jurisdiction and only where the parent jurisdiction tax rate is at least 20% that the safe harbour may apply.