Business Plus

Alignment Is Key To Success Of Pillar Two

With growing indication­s that America will reject new OECD rules, while China and India have yet to make provision for them, Irish Tax Institute president Tom Reynolds tells John Kinsella that Ireland needs to simplify its tax code to remain competitiv­e


The OECD Pillar Two Global Anti-Base Erosion rules are supposed to level the playing field for taxation of corporates around the world. The problem is that many major economies are not yet playing ball, and tax practition­ers see issues ahead for large multinatio­nals operating from Ireland.

Internatio­nal tax is a very complicate­d subject, and Tom Reynolds, president of the Irish

Tax Institute, has a very good understand­ing of what’s at stake for Irish companies and their advisers. Born in Carrickon-Shannon, Co. Leitrim, Reynolds has worked in senior tax roles in multinatio­nal manufactur­ing industries for the last 28 years.

He is currently vice-president of Tax, M&A and Business Structurin­g at Schneider Electric, a global specialist in energy management and automation. He previously worked for Kellogg, where he was director of Global Tax Projects, and Kerry Group, where he was Head of Tax.

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 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,” Reynolds

explains. “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.”

Reynolds anticipate­s that the cost of complying with Pillar Two will be significan­t, and the Institute wants 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 be extracted and interrogat­ed by businesses to comply with the reporting requiremen­ts,” he says. “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.”

For many years, the Institute has been urging that Ireland should move to a territoria­l system of taxation that allows a participat­ion exemption for the foreign earnings of large multinatio­nals based here. Ireland is the only country in the EU that doesn’t offera dividend exemption.

In September, ahead of Budget 2024, finance minister Michael McGrath announced that legislatio­n for a participat­ion exemption for foreign dividends of companies based in Ireland will not be published until Finance Act 2024, to come into effect in January 2025. As the Pillar Two rules take effect from January 2024, the delay will add complicati­on to the implementa­tion of Pillar Two here.

According to Reynolds: “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.”

Reynolds is also of the view that implementa­tion of Pillar Two strengthen­s the case for a wholesale simplifica­tion of Ireland’s 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 domestic and multinatio­nal businesses,” he says.

Tax complexity annoys business but it generates work for tax profession­als. Reynolds qualified as a Chartered Tax Adviser in 1992 and he holds an MBA from the University of Ulster. In his roles with Kerry Group, Kellogg and Schneider, Reynolds has travelled the world and learned how central tax is to corporate strategy.

“When you are in practice, you give advice and you don’t see it from the start to implementa­tion to the end result,” says Reynolds. “In industry, when you are doing a transactio­n you are involved from the pre-offer to the closing to the integratio­n. Tax is part of the strategy of the business. If you are entering a new market or acquiring or disposing of a company, or if you’re setting up a transfer pricing policy, you need to have tax aligned with the strategic intent of the business.

“And that’s where you get to understand the business in a lot more ways. Within that, you work very closely with the other business functions, so you effectivel­y become a trusted adviser.”

On domestic tax policy, Reynolds welcomes the Budget 2024 reforms relating to the R&D tax credit, angel investors, the EII scheme and the film tax credit. However, the ITI president is disappoint­ed that the Capital Gains Tax rate of 33% was not reduced, and he would like the ambit of the R&D tax credit expanded to include process improvemen­t that reduces carbon emissions.

For the tax profession, Reynolds anticipate­s that with more real-time reporting, the importance of the compliance function will diminish. “From an industry perspectiv­e, tax is an interestin­g career,” he remarks. “You are exposed to all levels of the business and work closely with senior management.

“There is going to be a huge level of work to be done with Pillar Two, which will keep tax profession­als busy. With the shift to the more strategic adviser approach, it’s a great opportunit­y for anybody who is considerin­g a career in tax.”

‘Tax is part of the strategy of the business’

 ?? ?? Tom Reynolds, president of the Irish Tax Institute
Tom Reynolds, president of the Irish Tax Institute

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