Ireland releases tax bill, announces plan to enact interest deduction limits from 2022

By Warren Novis, BDO Ireland, Dublin

On 22 October, the Irish government published Finance Bill 2020, which contains legislation to enact tax measures. The tax bill includes several provisions affecting multinational enterprises with operations in Ireland. The release of the tax bill follows Ireland’s budget announcements, which described Ireland’s plans to enact EU-compliant interest deduction limitations from 2022.

Finance Bill 2020 continues a trend in recent years to implement broad corporate tax measures affecting multinational investment and activity in Ireland. Many tax measures adopt international standards resulting from the OECD/G20 base erosion and profit shifting (BEPS) project and the EU Anti-Tax Avoidance Directive (ATAD).

The publication of Ireland’s Finance Bill 2020 came nine days after the Irish government announced Budget 2021 measures on 13 October. Irish finance bills pass through review and amendment stages before laws are finalised as finance acts.

The Finance Bill 2020 provisions primarily take effect from 1 January 2021, though certain measures took effect from 14 October, the day after the government held its budget, when the specific measures were announced.

In most years, Ireland’s Department of Finance held consultations with business and other stakeholders to develop Irish tax policy objectives that would be set out in Finance Bill 2020. COVID-19 restricted the ability for the Department of Finance to hold such consultations this year.

Intellectual property ownership, disposals, and exit charges

Under existing tax legislation, Irish companies that acquire qualifying intangible assets can claim capital allowances/tax depreciation against trading profits arising from the exploitation of those same intangible assets. If an Irish company holds the qualifying intangible asset for at least five years, any subsequent disposal would not be subject to a balancing charge/clawback of allowances claimed.

Finance Bill 2020 proposes to remove this five year clawback period such that any subsequent disposal of qualifying intangible assets is subject to the balancing event legislation.

Finance Bill 2020 proposes to remove this five year clawback period such that any subsequent disposal of qualifying intangible assets is subject to the balancing event legislation.

However, the proposed removal of the exemption is only applicable to intangible assets acquired by Irish companies on or after 14 October, thereby grandfathering intangible assets already owned by Irish companies.

On a positive note, the government formally extended until 2023 Ireland’s Knowledge Development Box regime aimed to attract local R&D investment and exploitation of IP.

Ireland transfer pricing amendments

Ireland’s transfer pricing legislation effective from 1 January 2020 granted limited exemptions to certain, wholly domestic transactions between Irish taxpayers.

Finance Bill 2020 proposes amendments to the pre-existing legislation based on stakeholder feedback, such that the amended legislation ensures the original intent of the transfer pricing exemption is reflected in the legislation effective from 1 January 2021.

ATAD – anti-hybrid, CFC, exit tax

In recent years’ finance acts, the Irish government legislated anti-hybrid, controlled foreign company and exit tax rules in-line with EU ATAD requirements.

These rules prevent tax advantages from exploiting differences in the tax treatment of certain financial instruments or legal entities, allocating certain income streams to lightly-taxed subsidiaries that are wholly dependent on significant people functions in Ireland, and the artificial migration of valuable assets out of the scope of taxation in Ireland.

Finance Bill 2020 amends aspects of these rules to align the outcome of these legislative provisions to the core objectives of the ATAD regimes.

ATAD – interest limitations

The Irish government has not yet introduced a general interest limitation rule as mandated by ATAD. 

In the budget, the government announced it will consult with stakeholders in 2021 with the intent to enact ATAD-compliant interest limitation rules in Finance Bill 2021, taking effect from 1 January 2022. The rule limits current period tax deductions for related party interest up to 30% of taxable EBITDA (with certain exceptions).

–Kevin Doyle, Tax Partner, BDO Ireland, Dublin, contributed to this article.