Tax

IRISH BUDGET 2026

On Tuesday 7 October, the Irish Budget was presented to the Irish Parliament. The Budget focused on investment in housing and infrastructure and increasing the competitiveness of the Irish economy in light of geopolitical tensions. Some welcome announcements include a 5% increase in rate of the R&D tax credit and improvements to the dividend participation exemption. Reform of interest rules will have to wait until next year, with more consultations planned. Read our briefings:

• An overview of the highlights of Budget 2026
• A review of the measures affecting the real estate sector

PILLAR TWO NEGOTIATIONS TO CARVE OUT US PARENTED MULTINATIONAL GROUPS OUT OF PILLAR TWO

In June 2025 the G7 leaders reached a political agreement that US parented multinational groups would not be subject to the extra territorial taxes of Pillar Two; the income inclusion rule (IIR) and the undertaxed profits rule (UTPR). The agreement was reached in return for the U.S. dropping the retaliatory taxes in Section 899 of the One Big Beautiful Bill. While the G7 agreement was welcomed in terms of providing reprieve from the U.S. retaliatory taxes, the repercussions for the integrity of the Pillar Two Framework and the level playing field between EU and US headquartered groups is problematic.

The Statement issued by the G7 leaders sets out a common understanding for the framework of a “Side-by-Side system” that would be developed at the OECD Inclusive Framework so that the US tax system and Pillar Two global minimum top-up tax could co-exist. The G7 Statement contains four grounding principles upon which further discussions at the OECD Inclusive Framework will be based, in formulating a framework for the Side-by-Side system. These are:

• A “Side-by-Side system” should fully exclude U.S. parented multinational groups from the UTPR and the IIR in respect of both their domestic and foreign profits.
• Changes to the Pillar Two treatment of substance-based non-refundable tax credits that would ensure greater alignment with the treatment of refundable tax credits should be considered.
• The “Side-by-Side system” should maintain the level playing field and protect the integrity of Pillar Two structure to protect against base erosion and profit shifting. Protecting the incentive for jurisdictions to maintaining domestic top-up taxes is a challenge in this regard.
• Work to deliver the “Side-by-Side system” should be undertaken in conjunction with the ongoing work to create a simplified Pillar Two framework.

Continuing discussions on a simplified effective tax rate (ETR) safe harbour based on a simplified calculation of an effective tax rate, which have been ongoing since late 2024 are also now being incorporated into this discussion.

The Inclusive Framework comprises more than 140 jurisdictions, the majority of which have not implemented Pillar Two. All members of the Inclusive Framework must agree upon the final proposed solution. The European Commission has indicated that agreement must be reached in November in order to allow Member States adequate time to implement. It was reported in the media that twenty-eight countries, including five G7 members, issued a letter to the OECD criticizing the proposed “Side-by-Side system”. In October, nine EU Member States raised legal concerns about the EU’s ability to integrate the “Side-by-Side system” using the current text of the Directive.

Ireland is bound by the EU Pillar Two Directive and has transposed the OECD Pillar Two Model Rules into its national law, with the rules applying for fiscal years beginning on or after 31 December 2023. Therefore, in-scope taxpayers must meet their obligations notwithstanding the current state of flux.

In light of this great uncertainty and the level playing field concerns arising from the US carve-out, Tax Advisers Europe, the umbrella body of chartered tax advisers in Europe issued an Opinion Statement outlining why European Member States should agree to a pause of the IIR and UTPR for all in-scope groups until a sustainable and equitable solution is reached at the OECD Inclusive Framework.

THE LEGALITY OF THE PILLAR TWO UTPR IS REFERRED TO EUROPE’S TOP COURT

On 17 July 2025, the Belgian Constitutional Court made a preliminary reference to the Court of Justice of the European Union (CJEU) regarding the compatibility of the UTPR under the EU Pillar Two Directive with EU primary law.

The challenge was brought by the American Free Enterprise Chamber of Commerce, a U.S.-based non-profit, arguing that the Belgian implementation of the UTPR imposes a disproportionate burden on Belgian entities of multinational groups as it makes them liable for undertaxed profits realised by other group entities in jurisdictions outside of Belgium without considering the financial capacity of those group entities within Belgium. They claim that this contravenes EU law, particularly the Charter of Fundamental Rights of the European Union, the EU fundamental freedoms of establishment and services, the principle of legal certainty, and the principle of fiscal territoriality.

The CJEU is not expected to give a ruling until late 2026 and could have significant implications for the enforceability of the UTPR, if it is not already severely curtailed under the new Side by Side system.

THE EU CLEAN INDUSTRIAL DEAL & RECOMMENDATION ON TAX MEASURES TO SUPPORT THE GREEN TRANSITION

On 25 June 2025, the European Commission adopted a new State aid framework to support its Clean Industrial Deal, a strategic initiative aimed at accelerating decarbonisation, reindustrialisation, across the EU.

The newly adopted Clean Industrial Deal State Aid Framework (CISAF) is designed to make it easier for Member States to grant aid aligned with the Deal’s objectives, helping fast-track clean energy adoption and industrial transformation. It was complemented by the Recommendation of the European Commission on Tax Incentives, which contains a comprehensive framework for Member States to design cost-effective tax measures that stimulate investment in clean technologies and industrial decarbonisation. Read our briefing: 'Clean Industrial Deal State Aid Framework – An opportunity to accelerate renewable energy development'.

IRISH REVENUE AUTHORITY PROVIDES EMPLOYERS WITH DISCLOSURE OPPORTUNITY TO REGULARISE MISCLASSIFICATION OF SELF-EMPLOYMENT

The Irish tax authority has published guidance to assist employers with correcting payroll tax issues in 2024 and 2025 following the Supreme Court’s decision in Revenue Commissioners v Karshan (Midlands) Ltd t/a Domino’s Pizza, in which the Court clarified the legal framework for distinguishing between employees and independent contractors, introducing a structured five-step test for assessment. Corrections may be made to Revenue on or before Friday, 30 January 2026. Read our briefing: 'Revenue provides employers with disclosure opportunity to regularise misclassification of self-employment'.