Financial Services

Pillar 2

Deloitte have prepared a separate update relating to Pillar 2. Please refer to that section for our commentary.

Taxation of outbound payments

• Following a public consultation during the summer, Finance (No.2) Bill 2023 introduces the outbound payment legislation. The legislation introduces new measures to outbound payments of interest, royalties and distributions (including dividends) made to associated entities in jurisdictions on the EU list of non-cooperative jurisdictions and zero-tax jurisdictions. “Associated entities” are specifically defined in the new proposed legislation.
•  There are exemptions available where the interest payment is made on a Quoted Eurobond or Wholesale Debt Instrument subject to the satisfaction of a number of conditions. However, such exemptions would not apply where the company is aware that any portion of the interest is made to an associated entity.
• The legislation shall apply to a payment of interest, royalties or the making of a distribution on or after 1 April 2024. However, a grandfathering provision has been introduced whereby if the arrangement is in place on or before 19 October 2023, in respect of a payment of interest or royalties or the making of a distribution, the legislation shall apply to such payments made on or after 1 January 2025.

Interest deductibility for qualifying financing companies

• Finance (No.2) Bill 2023 introduces a new Section 76E which covers the taxation of certain qualifying financing companies. A qualifying financing company is, at a high level, a company that holds at least 75% of the ordinary share capital of a qualifying subsidiary and borrows money for the purpose of on-lending that money to a qualifying subsidiary as a relevant loan. A qualifying subsidiary, at a high level, is a company carrying on a trade and is resident in an EU or EEA state. A relevant loan means a loan which is entered into by way of a bargain made at arm’s length, advanced by a qualifying financing company to a qualifying subsidiary and the money so advanced has been used by the qualifying subsidiary wholly and exclusively for the purpose of the trade and not for the redemption or subscription for shares or any other payment relating to shares or the capital structure of the company.
  
• For the purposes of computing profits chargeable under Case III or Case IV in respect of each relevant loan, at a very high level, the company shall be entitled to deduct the amount of external interest paid by that company, to the extent the external loan matches the relevant loan. There are a number of further provisions which detail the deductibility position where such a loan is repaid, or a replacement loan is made. This section is subject to strict anti-avoidance rules which would need to be considered in detail.
• The Irish anti-debt pushdown provisions in Section 840A are also disapplied in the case of interest payable to a qualifying financing company.

Anti-Hybrids and Reverse Anti-Hybrids

An amendment has been made to the definition of an “entity” for the purpose of the anti-hybrid and the reverse hybrid rules. Broadly, the amendment reflects a requirement for a legal arrangement to be within the “charge to tax” as opposed to being “subject to tax”. The amendment also removes the requirement for the legal arrangement to own or manage assets. A further amendment was made which seeks to clarify how the reverse hybrid rules apply to a collective investment scheme both during its start-up and wind down phases.

Leasing

• Finance (No.2) Bill 2023 introduces an amendment to Section 76D to confirm that in calculating the profits of a trade, the income from a lease and the lease rental payments are generally to be spread evenly over the life of the lease irrespective of how the transaction is recorded in the company’s accounts. These amendments apply to both the lessor and the lessee.
• A number of further amendments have been introduced to Section 299 to allow accounting rules to be used for computing taxable profits from leases that meet a threshold for being treated essentially as financing transactions (i.e. such leases are regarded as similar to a loan and therefore only the interest margin should be taken into account in computing taxable profits as opposed to the gross lease payments). Broadly, these are leases (so called “relevant leases”) where the burden of wear and tear falls to the lessee, rather than the lessor, and the provisions are subject to the satisfaction of a number of requirements. It includes not just finance leases but also operating leases that meet certain criteria. A number of consequential amendments are required and have been introduced to other sections to ensure the provisions operate as intended, including amendments to the circumstances that give rise to a balancing allowance or charge. Amendments are also introduced to the making of elections and claims in respect of such relevant leases for certain tax treatments to apply, together with a number of additional reporting and disclosure requirements.
• Section 403 provides for a restriction on the use of capital allowances in respect of certain leased assets. A number of amendments have been introduced to Section 403.

Bank Levy

As was announced on Budget Day, a revised bank levy is being introduced for 2024. The revised levy will apply to AIB, Bank of Ireland, ESB and PTSB. The levy will be applied at the rate of 0.112% of the value of the deposits held by each bank on 31 December 2022.

FATCA/CRS

Finance (No.2) Bill 2023 introduces an amendment which relates to FATCA, CRS and DAC2 to ensure Revenue can apply penalties in certain situations where a reporting financial institution is a legal arrangement, such as a trust or partnership.

DAC7

DAC7 or the EU Directive on Administrative Co-operation 2021/514 is introduced in Section 891L. The measure introduces a common legal basis by which EU Member States are obliged to facilitate other Member States in conducting joint audits.