Ireland Inc. and Foreign Direct Investment

What has changed since Budget 2027?

The Finance (No. 2) Bill 2026 (“the Bill”) details several of the Budget 2027 commitments affecting multinational groups. 

The principal development for internationally headquartered groups is the Bill’s proposed amendments to Irish Pillar Two law. These include provisions implementing the safe harbours introduced by the OECD side-by-side package, which Ireland had signalled in the Budget that it intended to adopt. The Bill also reflects the OECD Administrative Guidance published in May and September 2026, including several important updates, and amends the penalty and filing provisions and other aspects of the legislation to ensure they operate as intended.

The OECD side-by-side package includes several safe harbours, including the side-by-side safe harbour. Where its conditions are met and an election is made, the group’s top-up tax under the Income Inclusion Rule (IIR) and Undertaxed Profits Rule (UTPR) is treated as zero. The ultimate parent entity must be located in a qualifying jurisdiction recognised for the relevant fiscal year and listed on the OECD’s central record of qualified side-by-side regimes, which currently lists only the United States. The safe harbour does not switch off qualified domestic minimum top-up taxes (‘QDMTT’), so Irish constituent entities in eligible groups remain subject to Ireland’s QDMTT where applicable. As expected, the Bill provides for the safe harbour to apply to fiscal years commencing on or after 1 January 2026.

The Bill also extends the transitional country-by-country reporting safe harbour, in line with the OECD side-by-side package, to fiscal years beginning on or before 31 December 2027 and ending by 30 June 2029. It also introduces the expected enhanced safe harbours: the Simplified Effective Tax Rate Safe Harbour, the Substance-based Tax Incentive Safe Harbour and the Ultimate Parent Entity Safe Harbour.

Following the announcement on Budget Day, there are also proposed provisions included in the Bill in respect to simplification of “interest as a charge” relief for borrowing used to fund investments and lending in certain companies. The Bill revises the conditions for claiming and retaining relief, including changes to the common director and defray money applied conditions, how a loan is linked to its qualifying use, currency swaps and certain connected-party arrangements. The Bill also includes some simplifications with respect to how subsequent capital recoveries and multiple capital recoveries are treated and relaxation of these rules in case of certain re-investments within six months. The definition of a “company” for these provisions has been narrowed to exclude a body corporate that is incorporated, or formed, outside of Ireland, and is akin to a partnership.

With respect to the interest limitation rules, there was a clarification included which specifies that an interest group may be formed within 2 years after the end of the accounting period in which the return is due.

The Bill details the preliminary tax changes announced on Budget Day. These changes apply from accounting periods beginning 01 January 2027. The threshold for large company preliminary tax rules is proposed to rise from €200,000 to €350,000, and there is also a change included for late-payment relief where a company has paid at least 80% of its final tax liability on time and tops this up to 100% within four months of year-end.

Budget 2027 proposed further enhancements to the R&D credit regime including increases to the limits for qualifying outsourced R&D from the greater of 15%/€100k to 20%/€200k, and the Bill includes these changes. It also introduces a 5% uplift for qualifying R&D employee remuneration for any accounting periods where the specified return date is on or after 23 September 2028, subject to a 5% minimum non-R&D trade-expenditure condition and increases the first payable R&D credit instalment from €87,500 to €105,000. 

Furthermore, the Bill clarifies that R&D credit instalments treated as an overpayment of corporation tax will also reduce the corporation tax liability used to calculate preliminary tax in subsequent periods, extending to include the second and third instalments, which takes effect from the date the Finance Act is passed. 

Finally, the Bill also extends the Knowledge Development Box (“KDB”) regime by a further five years and introduces an elective opt-out for companies with existing claims for accounting periods commencing on or after 1 January 2027 and before 1 January 2028, providing greater flexibility where continued relief is not required.

Who is affected, and when?

These changes principally affect internationally financed groups, R&D claimants and multinationals within the scope of Pillar Two rules. 

Most interest-relief changes are proposed for accounting periods beginning on or after 1 January 2027, subject to exceptions. 

What does this mean for businesses?

Groups planning acquisitions, refinancing or internal reorganisations should test proposed funding structures against the Bill’s interest-relief conditions. The treatment of recovered capital, connected-party funding and loans initially used for another purpose could affect the relief available. Clear records of how borrowing and capital returns are applied will be important. A review by Irish companies of any existing financing arrangements in place should be completed to determine whether the “interest as a charge” rules continue to be satisfied, particularly in light of the revised definition of a “company” for the purposes of the relief and should be actioned in advance of year end.

For groups where Pillar Two is relevant, there are many updates that will need to be worked through. The first question for many groups will be whether the ultimate parent’s jurisdiction qualifies for the side-by-side safe harbour. 

R&D teams should reconcile expected credit instalments with preliminary-tax forecasts. 

Our view

The Bill largely delivers the detail signalled at Budget however, the deferral of the timing with respect to the uplift on non-qualifying R&D expenditure is disappointing. For FDI, its most significant clarification may be the proposed incorporation of the OECD side-by-side package, and additional Pillar Two developments, into Irish legislation. That gives affected groups a more concrete basis for assessing their position than the Budget announcement alone.

The interest amendments are a welcome first step in the Government’s ongoing review to simplify Ireland’s tax regime for interest and we would welcome further simplifications in light of the significant taxpayer engagement as part of the public consultation process. 

The R&D and preliminary tax proposals may also improve cashflow planning, especially for businesses with qualifying outsourced research or R&D credit instalments. 

Taken together, these changes are broadly positive for Ireland’s investment offering without being transformational to the FDI offering from a tax perspective. As ever the final legislative text and its practical application will be important.