Pillar Two – Global Minimum Taxation & Ireland

• The Irish Pillar Two rules apply to in-scope entities for accounting periods commencing on or after 31 December 2023.  Following the GloBE Rules and the EU's Minimum Tax Directive, the rules introduce a minimum effective tax rate ("ETR") of 15% for large multinational enterprises (MNEs) or large-scale domestic groups with a global turnover of €750 million or more in two of the previous four fiscal years.  The Irish rules can also apply to standalone entities (i.e. entities that are not part of a consolidated group) above the revenue threshold (subject to any applicable exemptions).

• The Irish Pillar Two rules introduce a domestic top-up tax regime which is designed to obtain "qualified" status and to be eligible for the QDMTT Safe Harbour.

• Pillar Two generally applies across sectors and industries, although special rules can apply to certain sectors.  In the context of financial services, the "investment fund" exemption is expected to apply to many Irish regulated funds that may otherwise be in scope/above the revenue threshold.  It is also expected that the significant majority of Section 110 companies should be outside of the scope of the Irish Pillar Two rules.  However, in each case a more detailed consideration will be required to confirm the impact of Pillar Two, if any.

• Further Administrative Guidance and updated Commentary will be issued by the OECD and adopted by implementing jurisdictions over time to address specific fact patterns and as the application of the Pillar Two rules in practice continues to develop.

Pillar Two is one element of an October 2021 agreement by 137 jurisdictions (including Ireland) in the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting, the overall aim of which is to reform the international tax framework as it applies to large corporate groups. 

The Pillar Two rules, known as the Global Anti-Base Erosion Rules (GloBE Rules), are designed to ensure that MNEs pay a minimum level of tax on the income arising in each jurisdiction in which they operate.  The rules seek to impose a top-up tax on profits arising in a jurisdiction whenever the ETR, determined on a jurisdictional basis, is below the minimum rate of 15%.  

Ireland transposed Council Directive 2022/25/23 (the Minimum Tax Directive) into Irish law in Finance (No.2) Act 2023.  The Irish Pillar Two rules are in force for in-scope entities for accounting periods commencing on or after 31 December 2023.  

Read the full guide here.

For more information on this, please contact any member of Walkers' Tax Group in Ireland or your usual Walkers' contact.  Walkers has a team of dedicated professionals in Ireland and across our other offices where legislation implementing elements of Pillar Two is at various stages of implementation such as Bermuda, Jersey and Guernsey.