On 10 January 2024, the Irish Revenue released eBrief No. 014/24, which includes updated guidance (TDM 35D-01-01) related to the interest limitation rule (ILR). In accordance with Article 4 of ATAD, the ILR limits the interest deductibility of corporate entities to up to 30% of a taxpayer’s taxable earnings before interest, tax, depreciation, and amortization (EBITDA).
The ILR applies to all corporate taxpayers but with specific exemptions and reliefs provided in ATAD, where the risk of base erosion and profit shifting is considered minimal. The ILR applies to the accounting periods of a taxpayer (whether that is a single company or an interest group) commencing on or after 1 January 2022.
The guidance has been updated with a new section 15 dealing with the interaction of the ILR and foreign currencies.
Foreign currency interactions
Where a company must prepare its calculations for the ILR in a currency other than the Euro, then amounts carried forward of deemed borrowing cost or spare capacity are to be maintained in that currency, thereby preserving their value in those currency terms.
Where the currency in which a company must prepare its calculations for the ILR changes, the amounts of deemed borrowing cost or spare capacity carried forward must be translated into the new currency to determine the amounts available for the future. The exchange rate to be used in these translations is the average rate in operation between the old and new currencies in the accounting period in which the deemed borrowing cost or spare capacity arose.
To satisfy reporting obligations under Part 35D, the Euro equivalent amount should be reported on Form CT1. The exchange rate to be used for this purpose is the average rate in operation between the currency used for the calculations and the Euro for the accounting period.
For example, Company P prepares calculations for the purpose of Part 35D for the year ending 31 December 2022 in US dollars. A disallowed amount of $1m is calculated and is available for carry forward to the next accounting period. Assuming an average foreign exchange rate of $1.1: €1, a Euro equivalent of the disallowed amount is €909,090 for the accounting period. The disallowed amount of $1m is carried forward as a deemed borrowing cost per section 835AAD. The amount of €909,090 will be reported on Form CT1 for the accounting period under section 835AAF or section 835AAM as required.