Introduction
On 7 July 2023, the Department of Finance published a Feedback Statement on proposed new legislation to be introduced later this year applying to outbound payments to prevent double non-taxation.
Background
Ireland’s National Recovery and Resilience Plan sets out a series of commitments to be delivered in relation to tackling aggressive tax planning. Many of these steps have been implemented in recent years, with the final remaining commitment to introduce legislation applying to outbound payments to prevent double non-taxation. Therefore, the implementation of these proposals is a critical part of the legal commitment made by Ireland to secure funding under the Recovery and Resilience Facility.
The Department of Finance launched an initial public consultation on this commitment in November 2021. The draft legislative approach set out in the Feedback Statement reflects the Department’s view on the submissions received to this previous public consultation.
Proposed Legislative Changes
In summary, the proposed changes relate to interest, royalties and dividends paid to “associated entities” in countries on the EU list of non-cooperative jurisdictions, no-tax and zero-tax jurisdictions. An Irish company will be associated with an entity where one holds 50% of the shares, votes or economic interests in the other, or where a third entity holds such rights in respect of both entities.
Where interest, royalty or dividends payments are the subject of these new rules, existing withholding tax exemptions will no longer be available.
The measures are intended only to apply to outbound payments to jurisdictions on the EU list of non-cooperative jurisdictions, no-tax and zero-tax jurisdictions, and are not intended to apply to jurisdictions that are not non-tax or zero-tax, but that provide a participation exemption where the relevant conditions for that exemption are met in that jurisdiction.
The proposed legislation also contains anti-avoidance provisions.
Timing
Comments on the draft legislation are invited by 8 August 2023. It is intended that the legislation will be included in Finance (No. 2) Bill 2023, and will apply to payments made on or after 1 January 2024.
How BDO can help
We can assist potentially affected groups with reviewing their structures to assess the impact of these proposed changes.
For more information on this topic, please contact Angela Fleming, Head of Financial Services Tax, or your usual BDO tax contact.