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Response to the Feedback Statement on Participation Exemption in Irish Corporate Tax System for Foreign Dividends

8 May 2024


The Minister for Finance published a Feedback Statement last month which contains a Strawman proposal setting out a hypothetical approach to a participation exemption regime for foreign dividends and distributions in the Irish corporate tax system. This is in line with the Roadmap which committed to the introduction of the participation exemption in Finance Bill 2024, and it is expected to come into effect in 2025.

The purpose of this feedback statement was to further progress work on the key building blocks of the participation exemption. It included a strawman proposal that set out a hypothetical example for how a participation exemption for foreign dividends might work in Ireland, so that individual elements could be discussed within the context of a regime as a whole. The design of the Strawman Proposal was informed by stakeholder submissions received in response to the Roadmap consultation which included Deloitte’s submission

As part of Deloitte’s commitment to continuous dialogue on matters of tax policy, we provided our views to the Department of Finance. 

Core recommendations

We in principle agree with the proposal for a participation exemption for dividends and distributions as set out in the Strawman Proposal, but we made several points for the consideration of the Department of Finance. 

In summary, in our view

  • Any design for an Irish participation exemption regime for dividends and distributions must be broad and as simple as possible and provide certainty to taxpayers.  At the same time, Ireland’s competitiveness for FDI should be protected and so the exemption should apply to all shares.
  • The participation exemption should at least include all companies within the scope of the Pillar Two rules, as well as Inclusive Framework countries who have signed up to the OECD BEPS Pillar Two rules, EEA countries, tax treaty countries, and countries that have signed up to the Convention on Mutual Administration in Tax Matters.
  • Taxpayers should not be adversely impacted by the participation exemption, for example, where the taxpayer elects in error with a negative impact on its application of the Interest Limitation Rule.
  • It is not clear to us why, if a minimum shareholding requirement is necessary, that a position which differs from that in section 626B TCA 1997 is adopted.
  • The participation exemption will remain in law simultaneously with Schedule 24 TCA 1997 and therefore it would be appropriate for the latter to be simplified at this time.

Overall comments

We welcome the proposed introduction of a participation exemption into domestic legislation in Finance Bill 2024 so that foreign sourced dividends and distributions are fully exempt from tax in Ireland.  This, we feel, is an important step towards an enhanced competitive tax system. 

We ask the Department of Finance to continue with the detailed consideration of proposals to introduce a foreign branch exemption into the Irish tax system and to engagement on this important issue during 2024. 

In our submission we provide our views and comments on the Strawman Proposal. We acknowledge the caution for any proposal to observe international best practice and maintain a robust tax regime.  The necessity for any Irish participation regime for distributions to be as simple as possible and provide certainty to taxpayers while enhancing our competitiveness underlies our views and comments. 

Next steps 

The Department of Finance will consider the responses to this Feedback Statement and may invite key stakeholders to meet with them and with Revenue officials to discuss the responses. 

We also understand this it is planned that a second Feedback Statement will be published in mid-2024, to contain draft approaches to the legislation required to introduce a participation exemption for foreign dividends in Finance Bill 2024.

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