Ireland’s Department of Finance has announced the initiation of a public consultation regarding the tax treatment of interest on Friday, 27 September 2024.
Irish tax legislation includes a number of provisions allowing for the deductibility of an interest expense. In the first instance there are gateway tests which determine if there is entitlement to relief for interest. These tests generally determine entitlement based on the purpose of the borrowing. Once it is established that an interest deduction is available, rules may apply to limit the amount of that relief, i.e., the interest limitation rules. These rules were implemented as a result of, and in accordance with, the Anti-Tax Avoidance Directive (ATAD as amended by ATAD2), which apply an income-based deferral of interest deductibility to companies as a further measure to tackle intra-group tax avoidance practices. Finally, there are a number of additional interest deductibility rules in Ireland which have evolved over time in response to specific instances of identified tax avoidance.
The provisions, and any proposed changes thereto, must be considered in the context of the significant number of changes taking place in the corporate tax space, including the implementation of the Pillar Two minimum tax rules and upcoming legislation for a participation exemption for dividends. Accordingly, the review will require a significant body of work to be carried out over a multi-year timeframe.
The feedback to this consultation will inform future policy decisions, in what is a multifaceted topic.
Stakeholders are invited to:
- Identify aspects of the existing interest related tax rules which pose difficulties, and outline those difficulties
- Identify aspects of existing interest related tax rules which could be simplified, and how these simplifications might be implemented
- Identify and describe any bona fide commercial scenarios where tax relief for interest expense is not currently available for businesses under existing legislation, where tax relief should be available
- Identify and explain the benefits that would be expected to flow from any new approach to the taxation and deductibility of interest
- Identify and explain possible adverse consequences of any proposed changes
Structure of this Public Consultation
Section 2 sets out the features of the existing tax regime for interest. It outlines the rules regarding the taxation of interest, the deductibility of interest, related anti-avoidance rules, specific rules relating to financial services, withholding taxes and reporting obligations. Stakeholders are invited to provide observations on the existing tax regime in response to the questions set out in Section 2. These observations will assist to identify areas of complexity in existing legislative provisions which may form the basis for recommendations for simplification arising from the review.
Section 3 requests observations from stakeholders on more wide-ranging reform of the existing tax regime for interest, in the context of both Ireland’s existing schedular tax system and any observations made in Section 2. Based on the responses to section 3, consideration will be given as to whether the existing tax regime for interest could, or should, be reformed.
Consultation period
The consultation period will run to four months, ending on Thursday, 30 January 2025. Any queries or requests for clarification regarding the review can be directed to interestreview@finance.gov.ie.
