The new Minister for Finance, Simon Harris has two budgets, the 2027 and the 2028 ones, to make his mark before departing the Department to take up his scheduled appointment as rotating Taoiseach. Can you provide a list of your top priorities?
Contributor: Angela Fleming, Partner & Head of Financial Services Tax, BDO
Top of the wishlist is reform of Ireland’s interest regime, so the recent publication by the Minister for Finance of the Feedback Statement for Phase One of reform of Ireland’s taxation regime for interest is very welcome. The document outlines a strawman for several fundamental reforms to the current interest taxation regime. In brief, these include:
- New interest deductibility rules for corporation tax include the introduction of a “profit motive” test for interest deductibility;
- Retention of the section 247 regime with taxpayers allowed to elect to apply s.247 on qualifying loans instead of the new interest deductibility rules;
- Extension of Transfer Pricing rules to medium-sized enterprises;
- To amend the Interest Limitation Rules to introduce a group-level de minimis threshold of €6 million but also remove the current cliff-edge restriction for interest in excess of €3 million;
- Alignment of tax treatment between trading and passive interest income by moving to an accruals basis of taxation for non-trading interest income; and
- The application of the new interest deductibility rule to “interest equivalents”.
This is just Phase One of the Action Plan published in October and we look forward to engaging in the consultation process on this important area of tax legislation.
Finance Act 2024 saw the introduction of a participation exemption for foreign dividends, and the exemption regime is to be further enhanced by the passing of Finance Act 2025 by extending the geographical scope of the exemption. However, to date there has been no sign of a foreign branch exemption. Ireland’s current worldwide system of taxation reduces our attractiveness as a location for inward investment due to the complexity and administrative burden of operating the tax and credit model. Thus the introduction of a foreign branch exemption is high up on our wishlist of tax changes for forthcoming budgets.
Finally, while there has been good progress made on the tax recommendations contained in the Fund Sector 2030 report, with the reduction in exit tax on investment funds, and the introduction of a dividend withholding tax for Investment Limited Partnerships, it is important that momentum continues and further changes are introduced. In particular, further reduction of the exit tax to align it with current rates of Capital Gains Tax, and abolition of the 8-year deemed disposal rule are key wishlist items. While Ireland is a key jurisdiction for asset management, we have incredibly low rates of retail investment by Irish households.
These changes, along with the introduction of a Savings and Investment Account (aka an Irish ISA) would help to unlock retail funds that are currently losing money in low-rate deposit accounts and introduce welcome capital into the market for growth.