Financial Services

Key updates

• Section 831B outlines the participation exemption for foreign dividends from qualifying subsidiaries in EU/DTA territories where certain conditions are met. The participation exemption regime has been the subject to a number of consultations with taxpayers and practitioners and was most welcome, and the Finance Bill legislation in this regard was broadly in line with the expectations of respondents.
• While there have been a number of amendments to the Pillar Two legislation, of particular relevance for the Financial Services sector is the clarification that a standalone investment undertaking (as defined per Section 246) should not be subject to the domestic top-up tax. There is also a proposed update to the definition and allocation for a “hybrid entity”.
• A provision of significant importance to the Irish securitisation industry is legislation to deal with securitisation entities which may be part of an MNE group. The Finance Bill provides for the insertion of a definition for “securitisation entity”, “securitisation arrangement”. Broadly, the changes provide that where the members of the MNE group include a securitisation entity located in Ireland, the Irish securitisation entity is not chargeable to a domestic top-up tax unless the only entity the MNE group has in Ireland is a securitisation entity. In determining the top up tax payable in Ireland by an MNE group (and assuming other non securitisation entities in Ireland), the securitisation entity is not itself subject to a domestic top up tax , rather the relevant top up tax will be picked up by other constituent group members.
• Finance Bill 2024 introduces a number of amendments to the taxation of leases. The updates to Section 299 outline the circumstances in which a lessor can broadly follow the accounting treatment in taxing its income from a “relevant lease”, including in scenarios where the leased asset was acquired from a member of the same group. Further, this section also introduces new anti-avoidance criteria for those lessors seeking to use the section 299 computational rules, broadly aimed at ensuring there is not excess relief in the hands of the lessee. The criteria to be considered changes depending on whether the lessee is an associated enterprise or not. Amendments have also been included in respect of section 288 to confirm the timing of balancing allowances for section 299 leases. There have also been minor updates to section 403 and 404 which relate to the restriction on the use of capital allowances in respect of certain leased assets/balloon leases. There have also been attempts to streamline provisions and remove obsolete sections within the taxation of leasing provisions.
• The Interest Limitation Rules provisions contained within section 835AY have also been amended such that the definitions of the finance element of lease payments (both finance and operating) now reflects the position where section 299 or 80A apply. The proposed provisions also address the position for disallowable amounts or spare capacity carried forward where such amounts are carried forward in a non-Euro currency.
• There are also proposed updates to the Outbound Payments legislation in section 817U to ensure the provisions operate as intended with respect to transparent entities.
• As mentioned in the Budget, the revised bank levy, which was introduced by Finance (No. 2) Act 2023 will also apply for 2025. The levy applies at the rate of 0.112% of the value of deposits held by each relevant bank on 31 December 2022.
• There were clarifications made to ensure stamp duty can be levied on cash, combined and debit cards even where the card is in electronic format.
• From a VAT perspective, section 84 provides for the application of penalties where a Payment Service Provider does not comply with his or her obligations under Part 9A of the VATCA 2010. Further, section 85 clarifies that the VAT exemption for the management of EU Alternative Investment Funds (AIFs) applies to the management of all EU AIFs including where the Alternative Investment Fund Manager (AIFM) is registered with a relevant competent authority.

What was unexpected?

Many of the provisions introduced have been well signposted. As such, none of the changes were particularly unexpected. It will, however, be important to consider further whether the provisions as drafted have the intended impact.

Who will be affected?

The provisions in the Finance Bill impact the Financial Services industry as a whole. In particular, the targeted updates for the Leasing industry and to the Pillar 2 provisions for the Funds industry should be well received.

When? What to do now?

For the majority of provisions it is expected that that the legislative updates should be effective from 1 January 2025, even where an existing provision is being updated. It is important at this stage for taxpayers to carefully consider the provisions as drafted in advance of committee stage and feedback any comments accordingly.

Our view 

Overall, the provisions introduced are welcome changes for the Financial Services industry as a whole. The clarification provided on the taxation of leases, specifically the provisions of section 299, are welcome, however this continues to be a complicated area for taxpayers. The introduction of the participation exemption is a definitive positive however the further expansion of geographical scope and the introduction of an exemption for foreign branches would be widely welcomed. The clarifications with respect to Pillar Two, Outbound Payments and the Interest Limitation rules are welcome. While the inclusion of securitisation entity specific references in the Pillar Two rules is welcome further consideration needs to be given to its effectiveness and whether ultimately a longer term solution can be agreed and reflected in future legislation.