Contributor: Angela Fleming, Partner & Head of Financial Services Tax, BDO
In their joint response, made public in August, to the Department of Finance’s ‘Feedback Statement for Phase One of Reform of Ireland’s Taxation Regime for Interest’, the Irish-headquartered MNEs Johnson Controls, Eaton Corporation and Medtronic wrote ‘the Feedback Statement is very disappointing from a business community perspective. It is unclear what tangible benefits the proposed measures would bring to taxpayers, aside from potentially addressing some very specific or limited circumstances.’ How have plans to reform Ireland’s taxation regime for interest evolved in 2026 and what are the key changes that would result in ‘tangible benefits’ for Irish corporate taxpayers?
The plans to reform Ireland’s taxation regime for interest have evolved significantly during 2026. The Department of Finance’s original Phase One Feedback Statement, published in November 2025 following a public consultation and Action Plan, proposed a fundamental redesign of the interest regime. The “strawman” proposals included a new principle-based interest deductibility test based on a “profit motive”, alignment of the tax treatment of trading and passive interest income, extension of transfer pricing rules to medium-sized enterprises, changes to the Interest Limitation Rules (ILR), and a broader concept of “interest equivalents” for tax purposes.
However, the consultation responses published by the Department of Finance in August 2026 revealed considerable concern from taxpayers, advisers and business groups about the breadth and complexity of the original proposals. In their joint submission, Johnson Controls, Eaton and Medtronic were particularly critical, describing the Feedback Statement as “very disappointing from a business community perspective” and questioning what practical advantages it would deliver. Similar themes emerged across other submissions, with stakeholders arguing that reform should focus on simplification, certainty and competitiveness rather than creating additional layers of compliance. Responses from industry groups such as the Irish Debt Securities Association and Irish Funds welcomed the objective of a simpler regime, but expressed reservations regarding the proposed profit motive test, matching rules and the potential expansion of transfer pricing and interest-equivalent concepts.
As a result, the reform agenda appears to have shifted during 2026 away from wholesale redesign and towards more targeted modernisation measures. The aspects of the project that have attracted the broadest support are those that would simplify existing legislation and reduce compliance costs. These include broadening the availability of interest deductions in non-trading situations, simplifying the operation of section 247 TCA 1997, improving the interaction between domestic interest deduction provisions and the ILR, and providing a clearer and more consistent framework for financing costs. The Department’s stated objective has been to create a regime that is internationally competitive, provides greater certainty to taxpayers, and reduces administrative complexity.
For Irish corporate taxpayers, the most obvious “tangible benefits” would arise from these simplification measures. A broader and more principle-based interest deduction regime could reduce the need to navigate multiple overlapping provisions and eligibility tests. Simplification of section 247 could lessen administrative burdens for acquisition and holding company structures. Improvements to the ILR, including changes supported by stakeholders such as smoothing the de minimis threshold and extending election deadlines, could reduce the risk of unexpected restriction of financing costs. Alignment of the tax treatment of trading and passive interest income could also create a more coherent system, reducing distortions between different forms of investment and financing activity. Finally, greater certainty around the deductibility of financing costs and their interaction with transfer pricing and anti-avoidance rules would make Ireland a more attractive location for both multinational and domestic investment.
In short, the 2026 consultation process has pushed the debate away from introducing entirely new tests and concepts, and towards delivering the simplification, certainty and reduced compliance costs that many stakeholders regard as the real “tangible benefits” of interest reform. Those outcomes, rather than additional complexity, are likely to determine whether the final Finance Bill 2026 proposals are viewed as a success by Irish corporate taxpayers.
Content adapted from Finance Dublin Irish Tax Monitor.