Skip to main content

Ireland Inc. and Foreign Direct Investment

Budget 2024 & Finance (No.2) Bill 2023

Ireland Inc. and Foreign Direct Investment


Finance (No. 2) Bill 2023 introduced a number of legislative measures which will be relevant for multinationals operating in Ireland. We have set out our initial comments in respect of same below. 

Outbound Payments 


  • Finance (No. 2) Bill 2023 provides for changes to withholding tax rules to certain outbound payments. The aim of the new legislation is to prevent double non-taxation applying to outbound payments to jurisdictions on the EU list of non-cooperative jurisdictions, no-tax and zero-tax jurisdictions and is being introduced under Ireland’s commitment made to secure EU funding under the Recovery and Resilience Facility.
  • The release of the legislation under the Finance (No. 2) Bill 2023 follows a public consultation earlier in the year, our response to which can be found here. We recommended a number of amendments to the proposed legislation included in the consultation. We welcome that a number of those recommendations are included in the Bill.

Proposed Legislative Changes

  • In summary, the new measures apply to outbound payments of interest, royalties and dividends made to a “specified territory”, which means a territory other than a relevant Member State, which is a listed territory (i.e. on the EU blacklist of non-cooperative jurisdictions) or a zero-tax territory.
  • Broadly a zero-tax territory is one which generally subjects entities to a nominal rate of zero percent on income, profits and gains or does not generally subject entities, where on a remittance basis or otherwise, to a tax on income, profits and gains.
  • The rules do not apply where the payment is an excluded payment e.g. the recipient is subject to a foreign tax at a nominal rate greater than zero per cent, ‘supplemental tax’, i.e. a foreign company charge, or a top up tax under the OECD Pillar 2 Global Anti-Base Erosion Rules.
  • Furthermore, the rules are intended to apply only to ‘associated entities’, i.e., entities that are associated through one entity having control of the other or both are under the control of another entity or where one entity has “definite influence” in the management of another entity.
  • The potential impact of these rules in respect of interest, royalties and dividends is set out below: 

1. Interest

Where the rules apply to the payment of interest to an associated entity in a specified territory, the withholding tax exemptions available under Irish tax legislation in respect of interest payments on quoted Eurobonds, interest to certain non-resident companies and wholesale debt instruments will not apply, subject to certain exceptions (e.g. the rules should not apply where the payment is an excluded payment). It is important to note that withholding tax should also extend to short interest that is not yearly interest where the new rules apply.

2. Payment of royalties

In the case of the payment of royalties to an associated
entity in a specified territory, the legislation provides that withholding tax
may apply, subject to certain exceptions. Currently the only royalties
potentially subject to Irish withholding tax are patent royalties or annual
payments (i.e. where the royalties are considered “pure income profit” in the
hands of the recipient). The proposed legislation extends withholding tax to a
broader definition of royalties where they are paid to an associated company
resident in a specified territory and is not an excluded payment.

3. Payment of dividends

The proposed legislation provides that the withholding tax exemptions on dividends to certain non-residents, relevant intermediaries and certain other exemptions under Irish tax legislation may not apply where the payment of dividends is to an associated entity in a specified territory and are not an excluded payment and are not paid out of income, profits or gains which have not been chargeable, directly or indirectly, to domestic tax, a foreign tax at a nominal rate of greater than zero per cent, a CFC charge, a “supplemental tax” or any similar tax. 

Finance (No. 2) Bill 2023

While the legislation released under Finance (No. 2) Bill 2023 is broadly in line with what was previously released under the public consultation, there are a number of notable amendments:

o  A number of welcome amendments to the definition of “zero-tax territory”

o  With respect to interest and royalty payments, the new rules will only apply to the extent the paid amount has been taken into account in computing a charge to corporation tax (i.e. a deduction has been claimed or may be claimed in a subsequent period in respect of same).

o  A new definition of “excluded payment” which is helpful in reducing the scope of these changes

o  Dividends should not be subject to the new rules where they are paid out of income chargeable to Irish or foreign tax.

o The definition of royalties does now not include payments in respect of software.

o Also, for payments made to hybrid entities, the legislation clarifies that the
application of the rules should apply to the entity to which the payment is ultimately treated as accruing or arising.

o  With respect to interest payments, the new rules will not apply where the entity to whom the interest was made, subsequently makes a payment of a corresponding amount (within a tax period which commences within 12 months of the end of the tax period in which the initial payment was made) to a person to whom such payment (had it been made directly by the Irish company) would have been considered an excluded payment. This is also subject to a bona fide commercial purposes test. While this is welcome, it is disappointing that a similar provision is not included in respect of royalty and dividend payments.

o  A further exclusion is provided for interest payments in respect of certain quoted Eurobonds or wholesale debt instruments where such Eurobonds or wholesale debt instruments are held on a recognised clearing system. This exemption only applies however for payments where the company is not (and should not be) aware that any portion of the interest is made to an associated entity. This amendment was likely introduced specifically with the Financial Services sector in mind to ensure efficient functioning of the capital markets in which listed debt and the payment of interest is often made through custodial and settlement systems where the payor may not know the identity of the ultimate recipient of the payment.

o  In addition, the application of the new rules will now not apply until on or after 1 April 2024 (where previously it was expected that the rules would be
effective for payments made from 1 January 2024). Furthermore, a grandfathering period is available for arrangements in place on or prior to 19 October 2023. For such payments, the rules will apply for payments made from 1 January 2025.

Pillar Two

Finance (No. 2) Bill 2023 has provided for the long awaited Pillar Two legislation which will increase the minimum effective tax rate for companies that are part of groups with revenues of €750M and above to 15% through the introduction of a Qualifying Domestic Minimum Top-up Tax and Income Inclusion Rule (with the Undertaxed Profits Rule applying a year later). Our comments in respect of this can be found separately here. 

R&D Credit

As announced in the Minister’s Budget 2024 speech, Finance (No. 2) Bill 2023 provides for the increase in the R&D tax credit from 25% to 30%. This increase will maintain the net benefit for companies within scope of Pillar Two rules while also offering an increased benefit for those companies not subject to these rules. In addition to the increase in the credit, the first-year payment threshold has been doubled from €25,000 to €50,000.

Digital Gaming Credit

Although not previously announced as part of his Budget 2024 speech, Finance (No. 2) Bill 2023 has also introduced a number of amendments to the digital gaming tax credit. Of particular note is the amendment to how the digital gaming credit is to be claimed. This change ensures that the credit meets the definition of a qualifying refundable tax credit for Pillar Two and US FTC purposes. Again, this is a welcome change for international companies who may be seeking to avail of this credit.

Share Options

Also relevant for companies is the changes introduced in respect of the taxation of gains realised on the exercise, assignment or release of a right to acquire shares or other assets. Previously it was the obligation of the employee to self-account for the tax arising on these gains. However, as a result of the changes introduced under Finance (No. 2) Bill 2023, the taxation of such gains will become the responsibility of the employer, who will have to account for the income tax, USC and employee’s PRSI through the payroll of the company. These changes will apply for any gains arising on or after 1 January 2024.

Next Steps
  • The draft legislation will be subject to change as it passes through the committee stages but should be approved before the end of the year.
  • However, companies should consider how they may be impacted by the above measures. Of particular note will be companies who will be subject to the new Pillar Two rules but also companies who were previously relying on domestic exemptions from withholding tax in respect of outbound payments of interest, royalties or dividends will need to review these arrangements to see if they can continue to rely on same.
  • Please reach out to any of the contacts below or your regular Deloitte contact to discuss these proposals in further detail.

Our view


From an international perspective, the introduction of the Pillar Two rules as part of Budget 2024 represents some of the most fundamental changes we have seen to Ireland’s corporate tax system and the complexities involved in respect of same cannot be underestimated. Companies in scope should prepare now to ensure they are adequately prepared for the impact of same.

Given the significant changes that the Pillar Two rules will bring about for international business operating in Ireland, it is vital that active steps are taken to ensure Ireland continues to be regarded as an attractive location for FDI, both in terms of tax and non-tax matters.

In this regard, enhancements in Budget 2024 to the R&D tax credit regime and the corporation tax film credit will be welcomed by businesses.

Furthermore, businesses will welcome the commitment by the Minister to introducing a participation exemption regime in respect of foreign sourced dividends and a simplification of Ireland’s complex interest deductibility rules which will help to ensure Ireland’s tax system is less burdensome and costly to administer for businesses. We would welcome active engagement with all stakeholders on these matters.

Following a Feedback Statement issued by the Department of Finance during the summer on “New Taxation Measures to apply to Outbound Payments”, the Minister did not mention the proposed changes to Ireland’s withholding tax regime for outbound payments in respect of interest, royalties and dividends. We anticipate the release of this detail as part of the Finance Bill next week.

Did you find this useful?

Thanks for your feedback

If you would like to help improve further, please complete a 3-minute survey