Ireland published Finance Bill 2024 (the "Bill") on 10 October 2024 to implement the changes announced by the Minister for Finance in Budget 2025 together with additional amendments to the Irish tax code.
Many of the changes had been well flagged in advance of publication, including the introduction of a participation exemption for foreign dividends. Other changes were anticipated (although some of the detail of those changes is new) including the changes to the taxation of asset leasing and to Ireland's Pillar Two rules. Some changes, including the adoption of Amount B of Pillar One, were newly announced.
As noted in our update on Budget 2025, some changes that have been discussed for some time have been pushed out for another year at least including, the response to a report of the Funds Review Team, the response to an independent review of share-based remuneration, consideration of a foreign branch exemption and a review of Ireland's rules on the taxation of interest (although a public consultation has recently commenced in that respect).
The Bill will be debated by the Irish Oireachtas over the coming months and is expected to be signed into law before the end of the year. It remains the case that a general election could be called in the coming weeks, in which case, the parliamentary process will be truncated.
We have summarised some of the key changes below.
Participation Exemption
The Bill includes legislation to implement a participation exemption for foreign dividends. The participation exemption has been the subject of a series of public consultations (in which Matheson participated) and the design of the exemption reflects what has been proposed throughout that process.
Despite consistent feedback advocating in favour of a broader geographic scope, the exemption will be limited to dividends received from subsidiaries that are resident in EU / EEA / double tax treaty jurisdictions. In the Budget statement, the Minister for Finance committed to further consider the geographic scope of the exemption in the coming year.
A number of conditions must be satisfied for the participation exemption to apply, including:
- the recipient company must hold a minimum of 5% of the paying company for at least 12 months;
- the dividend must be income in the hands of the recipient; and
- the dividend must either (i) be paid out of profits or (ii) be paid out of assets and in those circumstances, the holding of the recipient company in the paying subsidiary must be one that would qualify for Ireland's substantial shareholding exemption from tax on chargeable gains.
A claim for the relief must be made in the recipient company's tax return and if such a claim is made, it will apply to all qualifying dividends received by that company.
The participation exemption will not be available if the paying subsidiary is resident in a jurisdiction that is included on the EU list of non-cooperative jurisdictions (e.g., Ireland has a double tax treaty with Panama, however, as Panama is currently included on the EU list, dividends received from Panamanian subsidiaries cannot qualify for the exemption), nor will it be available if the subsidiary is generally exempt from tax.
The exemption will not apply in a number of circumstances, including:
- Based on the nature of the dividend, for example if the dividend is deductible, is made on winding-up, is in the nature of interest or an interest equivalent or is paid by an offshore fund;
- Based on the Irish tax categorisation of the dividend, for example, if the dividend is not taxable under Case III, Schedule D or Case IV, Schedule D in accordance with section 138;
- Based on the tax status of the recipient, for example if the dividend is received by a company qualifying under section 110 of the Taxes Consolidation Act 1997 ("TCA"), an assurance company or an undertaking for collective investment;
- Based on a general anti-avoidance provision.
The ability to claim the exemption can also be impacted by transactions or activity of the paying subsidiary in the five years prior to the date the distribution is made. For example, if during that period, the paying subsidiary was resident in a jurisdiction other than an EU / EEA / double tax treaty jurisdiction or acquired a business that was carried on by another company in a jurisdiction other than an EU / EEA / double tax treaty jurisdiction, the exemption will not apply.
The exemption will apply to distributions made on or after 1 January 2025.
Pillar Two
Last year, Ireland implemented Pillar Two for accounting periods beginning on or after 1 January 2024. In the Bill, a number of amendments are made to those provisions. Some of the amendments are designed to incorporate concepts included in the Administrative Guidance issued by the Inclusive Framework in December 2023 and July 2024, while other changes clarify other aspects of the Irish rules.
Of particular note, the Bill legislates for the anti-avoidance provisions applicable to the CbCR Safe Harbour with respect to hybrid arbitrage arrangements included in the Inclusive Framework's December 2023 Administrative Guidance. An effort had been made to incorporate that guidance into Irish law by way of Ministerial Order on 20 December 2023. However, given their nature, it was unclear whether the Ministerial Order was sufficient to effect implementation of the anti-avoidance provisions. The anti-avoidance provisions will be implemented under the Bill which provides that the changes will apply to hybrid arbitrage arrangements entered into after 15 December 2022.
The July 2024 Administrative Guidance issued by the Inclusive Framework included commentary to ensure tax neutral treatment of securitisation entities. The Bill provides that the qualified domestic top-up tax will not apply to a securitisation entity if there are other constituent entities within the group on which the charge can be applied. The charge will be imposed on the securitisation entity if the top-up tax cannot otherwise be collected.
A number of changes are made to implement the July 2024 Administrative Guidance on the application of the recapture rule applicable to deferred tax liabilities, cross-border allocation of current and deferred taxes and allocation of profits and taxes in certain structures involving flow-through entities. Clarifications are also made to confirm how to identify the owner of a flow-through entity that is itself owned by a flow-through entity.
Another welcome change is the amendment to ensure that a standalone investment undertaking is not chargeable to the domestic top-up tax.
Taxation of leases
A number of changes have been made to the Irish provisions that apply to leasing transactions.
Some of those changes are made to section 299 TCA which provides for finance leases (and certain operating leases) to be taxed in accordance with the accounting treatment of the lease where certain conditions are satisfied. The Bill clarifies that the existing requirement for the asset to be owned by the lessor immediately prior to entry into the lease should be satisfied where the asset is owned immediately before the asset is made available to the lessee (ie, when the leasing activity commences). The Bill also introduces new anti-avoidance rules which provide that tax treatment under section 299 would not be available to a lessor in respect of a lease to an associated lessee where the lessee is entitled to an excessive relief from foreign tax (e.g., as a result of claiming capital allowances combined with deductions in respect of rental payments in certain circumstances).
In addition, a general anti-avoidance provision has been introduced to section 299 TCA which applies to all relevant leases and can operate to disapply the treatment if the lease has not been entered into for bona fide commercial reasons and either (i) gives rise to an Irish or foreign tax advantage which is priced into the terms of the transaction or (ii) was designed to give rise to an Irish or foreign tax advantage.
The provisions that apply to balloon leasing (section 404 TCA) have been amended to introduce ring-fencing for balloon-leasing. In addition new reporting requirements are introduced for balloon leases.
R&D Tax Credit
As announced in the Budget, the first year payment threshold will be increased from €50,000 to €75,000. This change will apply to claims in accounting periods commencing on or after 1 January 2025.
Deduction for First Listing on a Stock Exchange in the EEA
A new section will be inserted to provide for a tax deduction on expenditure incurred by a company wholly and exclusively in respect of a first listing on a stock exchange in the EEA. The deduction will be available as a trading expense or, where the company is an investment company, as an expense of management. The deduction will have a cap of €1 million and will apply to listings from 1 January 2025 to 31 December 2029.
Transfer Pricing - OECD Pillar One – Amount B
The Bill confirms that Ireland will respect transfer prices determined under Amount B where the counterparty jurisdiction is a covered jurisdiction (as identified by the OECD) and one with which Ireland has agreed a double tax treaty. Additional documentation requirements are also set out for such arrangements and a notification must be made to the Irish Revenue Commissioners ("Revenue") where the section applies. This section will apply for chargeable periods commencing on or after 1 January 2025.
Rates of Stamp Duty applying on the acquisition of residential property
As announced in the Budget, the rate of stamp duty applicable to residential property valued above €1.5 million will increase to 6%. The existing rate of 1% will continue to apply to values up to €1 million, and 2% will apply on values above €1 million, with the new third rate of 6% to apply to any value in excess of €1.5 million (the 6% rate will apply only to the increment above €1.5 million only). This rate is intended to apply as a 'mansion tax' and will not apply where 3 or more apartments in the same block are acquired. In the case of bulk purchases of apartments, the rate of 1% will apply to the first €1,000,000 and 2% will apply on the balance.
Higher rate of Stamp Duty to apply where 10 or more residential properties (excluding apartments)
As announced in the Budget, the higher rate of stamp duty on bulk acquisitions of houses will increase from 10% to 15%.
Film Tax Credit and Tax Credit for Production of an Unscripted Programme
As announced in the Budget, an enhanced film tax credit will be introduced at a rate of 40% (an uplift of 8% to the existing film tax credit) for lower budget projects with a maximum qualifying expenditure of €20 million. A tax credit of 20% up to a maximum project expenditure of €15m will also be introduced for unscripted programmes that meet a cultural test. Both tax credits are subject to European Commission approval.
VAT registration thresholds
With effect from 1 January 2025, the VAT registration thresholds will be increased from €40,000 to €42,500 for services and from €80,000 to €85,000 for goods.
VAT exemption for management of EU alternative investment funds
The Bill confirms that the VAT exemption for management of EU alternative investment funds ("AIF") applies to all EU AIFs including where the AIF is registered with a relevant competent authority.
Joint audit
The Bill provides that when Irish tax officials participate in a joint audit, their rights and obligations will be governed by the laws of the Member State where the audit takes place. However, the Revenue officer cannot exceed the scope of powers conferred on them by Irish law.
Correlative relief and mutual agreement – repayments of tax where entitled company has ceased to exist
Where a correlative adjustment or mutual agreement gives rise to a repayment of tax, the repayment may be made to another group company where the company that would have been entitled to the repayment has ceased to exist subject to certain holding requirements (ie, the company that ceased to exist was an effective 90% subsidiary of the group parent company). This will apply to repayments from correlative adjustment determinations or mutual agreements reached after the date of passing of the Finance Act.
Double tax treaties and tax information exchange agreements
The double tax treaty with Oman will be ratified as will the Protocol to the tax information exchange agreement with Jersey.
Next Steps
The Bill will be debated in the Houses of the Oireachtas and changes are likely to be proposed as the Bill makes its way through the legislative process. However, if an election is called, the usual process for the Finance Bill is likely to be truncated and amendments will be limited.