Financial Services

Key measures
 

• The highly anticipated participation exemption for foreign dividends is being introduced as a step towards simplifying the tax system where possible while attempting to bring Ireland into line with many competitor jurisdictions. The measures are designed to enhance Ireland’s attractiveness as a location for foreign business. The exemption should result in no Irish tax being applicable on dividends received from EEA/DTA territories where certain conditions are met. It has also been announced that work will continue in the coming year on expanding the participation exemption, including further consideration of widening the geographic scope and the possibility of a foreign branch exemption. 
• The Minister acknowledged the importance of the investment funds and asset management industry in Ireland and that the sector is a significant employer supporting almost 20,000 jobs with half of these located outside of Dublin. To demonstrate the commitment to safeguard Ireland’s leading position in this field globally, a report in relation to the Funds review which was announced last year will be delivered to government shortly and released publicly thereafter.
  
• It was acknowledged that the Department of Finance released a public consultation on the tax treatment of interest in Ireland last week which will seek to further reduce complexity in our tax code. This has pinpointed interest as a key area of consideration for the Department. 
  
• The Bank Levy is being extended for a further year, with a target yield of €200 million.
  
• Other measures which may be of benefit to the industry include the enhancement of start up relief, the introduction of a deduction for listing expenses and measures aimed at reducing the personal income tax burden of employees and addressing shortages in the housing market.

Who will be affected?

While more specific measures impacting financial services sectors are anticipated in the Finance Bill, the announcements and acknowledgements in the Budget should be welcomed by the Financial Services industry as a whole, in particular the participation exemption. The nod from the Minister to the leading position of the investment fund and asset management industry highlights the importance of this industry to Ireland. 

When? What to do now?

The expectation is that we will see further detail in respect of measures relevant for the financial services industry in Finance Bill 2024, including possible amendments to existing provisions with respect to interest deductibility limitations, leasing and Pillar Two. Ultimately the detail therein will be important.

With respect to public consultations, this is an opportunity to advocate for further clarity and simplification of measures. With respect to the Funds consultation, the Minister confirmed that this is expected to be brought to Government shortly. Submissions for the tax treatment of interest consultation will close on 30 January 2025. Deloitte intend to make submissions in this regard for key areas that we believe should be addressed to provide further simplicity for what is currently a very complex area.

The participation exemption will be effective from 1 January 2025. Where clarification is being provided on existing measures, the legislative updates may have immediate effect.

Our view

Overall, the measures and consultations addressed are broadly welcome changes for the Financial Services industry as a whole. The introduction of the participation exemption is a definitive positive however despite this, there was an opportunity missed to widen the geographic scope of the provisions beyond EEA/DTA territories (to bring Ireland further into line with competitor geographies) and we await details in the Finance Bill as to the full scope of the exemption and whether it is available to all taxpayers. It will be important to monitor the position going forward, noting that the Minister did acknowledge that work will continue to consider the widening of the geographic scope and an exemption for foreign branches which we would see as imperative from a competitiveness perspective.

The acknowledgement of the public consultation on the tax treatment of interest presents an important opportunity to engage with the Department of Finance directly on one of the highest matters of significance for the Financial Services industry. In this regard, further simplicity would also be a welcome move.

The update on the Funds public consultation that was announced last year shows that this is still at the forefront of the Department of Finance’s priorities. However, from a timing perspective it is disappointing that this process was not at a sufficiently advanced stage to allow amendments to be made in Budget 2025.