Publication:

BDO Response to ATAD Consultation

21 January 2019

Department of Finance’s Public Consultation – ATAD Implementation – Hybrids and Interest Limitation

The international tax landscape has been rapidly evolving over the last few years as individual countries consider whether or not their tax regime is fit for purpose and aligned with modern day business structures. In 2012 the G20 identified the need to prevent base erosion and profit shifting as a matter that the OECD should formulate a strategy on. The OECD’s Base Erosion and Profit Shifting (“BEPS”) Project was announced in 2015 and contained 15 ambitious actions that were aimed at modernising international tax law and double tax agreements whilst also reducing the need for individual countries to implement tax changes unilaterally.

Not to be outdone by the OECD, the EU Commission put forward its Anti-Tax Avoidance Directive (“ATAD”) in 2016. The ATAD is designed to ensure consistent implementation of a number of the BEPS initiatives across the EU.

The ATAD requires the implementation of the following anti-tax avoidance measures by Member States within the following timeframes:

 

ATAD Measure Deadline for Implementation
Interest Limitation Rule 1 January 2019 / 1 January 2024
Exit Tax Regime 1 January 2020
General Anti-Abuse Rule 1 January 2019
Controlled Foreign Company Rule 1 January 2019
Hybrid Mismatches / Reverse Hybrids 1 January 2020 / 1 January 2022

 


A new ATAD compliant Exit Tax regime was introduced with effect from 10 October 2018. New Controlled Foreign Company legislation was introduced in Finance Act 2018. No action was taken in relation to the introduction of an ATAD compliant General Anti-Abuse Rule as it was considered the no legislative changes were required due to the robustness of Ireland’s existing and longstanding General Anti-Avoidance Rule.

In November 2018, the Department of Finance launched a public consultation on the implementation of Anti-Hybrid and Interest Limitation rules.

On behalf of our clients we have made a submission on the consultation which you can find here.  A summary of our recommendations is outlined below.

  • The drafting of the legislation to implement both the anti-hybrid and interest limitation rules must be clear and unambiguous.
  • Given the complexity involved, draft legislation to implement changes should be introduced as early as possible and to allow for further consultation and discussion with industry and practitioners to ensure that legislation does not have unintended consequences. Draft legislation should be released outside of the current budgetary process as October to December is too restrictive a timeframe for such extensive legislative changes.
  • The anti-hybrid and interest limitation provisions should be adopted in such a way as to give the greatest level of flexibility permitted under the Directive to taxpayers.
  • In the interest of maintaining Ireland’s competitiveness internationally, Ireland should opt for all exemptions permitted under the Directive.
  • At the commencement of the ATAD discussions, the Minister noted that it was expected that the interest limitation rules will apply from January 2024, the implementation date included in the Directive. For credibility and certainty, it is necessary that the implementation date be January 2024.
  • We consider that the introduction of interest limitation rules gives Ireland an opportunity to overhaul the existing rules with regard to the qualification of interest for tax deduction purposes and remove any existing anti-avoidance provisions which, combined with an ATAD-compliant interest limitation rule, would be duplicitous. 

If you have any queries or wish to discuss this submission or any other international tax matter with BDO Ireland, please contact Kevin Doyle – kdoyle@bdo.ie or Angela Fleming – afleming@bdo.ie