Tom Reynolds was inaugurated as the Institute’s 48^th President at the AGM on 7 September. Tom has worked in senior tax roles in multinational manufacturing industries for the last 28 years including Kerry Group where he started his career. He is currently Vice-President of Tax, M&A and Business Structuring at Schneider Electric, a global specialist in energy management and automation.  Before taking up his role as President, he spoke to Tax Talk host, Samantha McCaughren about his experience of working large global companies, and the uncertainty facing businesses as Pillar Two comes into effect on 1 January 2024. You can listen to Tom’s interview here.

In his acceptance speech, the President warned about the increased risk of tax disputes and Revenue audits in the initial years of Pillar Two and the need for forbearance as the new rules bed down.

Irish Tax Institute President warns new global tax rules will lead to ‘worrying’ disputes

The new President of the Irish Tax Institute has warned that large multinational businesses who will be required to pay a minimum effective corporation tax rate of 15% from 1 January 2024 will face tax disputes and revenue audits.

Speaking at the Institute’s AGM today (Thursday), Tom Reynolds, who is the Global Vice President of Tax at Schneider Electric, said apart from knowing the rate that will apply globally under the OECD Two Pillar Solution, businesses have little clarity on how this exceptionally complex and untested reform will work.

“Some countries, including China and India have yet to make provisions in their tax systems to accommodate the new global rules. With large economies like these still not aligned, we are in very uncertain waters and tax disputes and Revenue audits across the globe are inevitable. That’s bad for business and it’s also bad for governments.”

In Ireland, the Institute and other stakeholders have been in close consultation with the Department of Finance and Revenue on the legislation to give effect to the EU’s Pillar Two Directive. But with updated guidance and clarification still coming from the OECD, there are many moving parts.

“Most worrying for Ireland are the growing indications that the US will reject the OECD reforms. Given the large number of US multinationals headquartered here, it is critical that any additional tax paid by these companies, under Ireland’s qualified domestic top-up tax mechanism, can qualify as a creditable tax for US tax purposes,” said the Institute President.

He added that the cost of complying with Pillar Two would be significant. He called for a phased introduction of the rules and forbearance from Revenue as they bed down.  “Hundreds of new data points from across the HR and accounting functions will have to extracted and interrogated by businesses to comply with the reporting requirements. So, it’s important that transition arrangements recently recommended by the OECD to simplify the process and reduce compliance burdens are fully adopted by Revenue.”

Mr Reynolds also reiterated the Institute’s long held belief that Ireland should move to a territorial system of taxation that allows a participation exemption for the foreign earnings of large multinationals based here. It is now the only country in the EU that doesn’t offer an exemption for foreign dividends and Mr Reynolds says there are two reasons why this makes no sense.

“First, the availability of foreign tax credits means that the yield from Revenue’s assessment of the foreign earnings of multinational companies is negligible, while the burden it imposes on those businesses is onerous. Second, the Pillar Two rules are designed around the assumption that a participation exemption applies to foreign dividends.

“The Government needs to end this antiquated approach in tandem with the implementation of Pillar Two.” He warned that failure to do so will give the affected businesses reason to rethink their approach. “We shouldn’t be deluded: in a globalised, digitised world where remote working is now commonplace, it is easy for a business to move location.”

The Minister for Finance, Michael McGrath has said he will make a significant statement on corporation tax in advance of the budget. “It’s fair to say that that his statement is eagerly awaited in the tax functions of our multinational sector. They will be expecting a move to a territorial system from the Government,” said Mr Reynolds.

He also said the implementation of Pillar Two strengthens the case for a wholesale simplification of our corporate tax code. “In a world where competition on rate is no longer an option, a strong focus on tax simplification and reducing compliance complexity would greatly enhance Ireland’s ability to offer tax certainty and consistency to both domestic and multinational businesses.”

Editors’ note

Born in Carrick-on-Shannon, Co Leitrim and currently living in Kerry, Tom Reynolds has worked in senior tax roles in multinational manufacturing industries for the last 28 years.

He qualified as a Chartered Tax Adviser in 1992 and was elected to the Council of the Irish Tax Institute in 2008. Tom in the 48th President of the Institute