Deloitte response to the Feedback Statement on Phase One of Ireland’s Taxation Regime for Interest
Background
On 21 November 2025, the Minister for Finance launched the Feedback Statement on Phase One of Ireland’s Taxation Regime for Interest. The consultation process to gather views on the Feedback Statement closed on 16 January 2026, and follows the Public Consultation on the Tax Treatment of Interest in Ireland which closed on 30 January 2025.
Responses received by the Department of Finance to the January 2025 consultation highlighted a broad range of decisions required to reform Ireland’s taxation regime for interest, with many stakeholders requesting that further detailed consideration should take place prior to introducing legislative reforms. The preamble to the Feedback Statement of 21 November 2025 recognises the need to ensure that Ireland’s tax system is resilient, supports competitiveness, protects the tax base and aligns with Government commitments in the field of international taxation. As this is a complex area, the Action Plan for the reform of Ireland’s taxation regime for interest sets out a phased approach that is being adopted, with Phase One addressing some of the primary concerns raised by stakeholders. Addressing additional areas of potential reform will be addressed under subsequent phases.
As part of Deloitte’s commitment to continuous dialogue on matters of tax policy, we provided our views to the Department of Finance. Click here to access our full response.
Core recommendations and Deloitte views in relation to same
As an overall comment, the ease of access to capital in global markets and the related tax deductibility of interest and financing costs is of critical importance in facilitating Foreign Direct Investment (FDI) and Domestic Direct Investment (DDI) and maintaining Ireland’s attractiveness as a location for companies’ operations. The Irish corporate tax landscape has been influenced significantly by global tax reform and international tax developments in recent years. The myriad of existing rules that apply to financing, coupled with recent tax developments has resulted in significant uncertainty and complexity for taxpayers. The interest deductibility provisions in our tax law are complex in their own right, and we would therefore overall welcome a move to a principle-based approach. In our view, simplification of the existing tax treatment for interest is required as a matter of priority, with a focus on removing uncertainty for taxpayers. As part of an ongoing focus on simplification, the EU Commission has stated its aims to simplify EU policies and reduced administrative burdens to boost competitiveness and growth.
In advance of Ireland’s Presidency of the EU in the coming months, any future changes to the Irish tax treatment of interest must in our view give particular consideration to the overall theme of simplification with the Tax Omnibus package forming part of the EU Commission’s commitment to reduce administrative burdens by 25% for all businesses and 35% for SMEs1.
Bearing in mind the overall theme of simplification and taxpayer certainty, we would note a number of technical and practical recommendations with respect to the Strawman proposals.
New Interest Deductibility Rule for Corporation Tax
Under the Strawman proposal, interest would be deductible where it is incurred in respect of borrowings used to fund activities or investments with the intention of directly generating profits or gains within the charge to tax.
Such a “profit motive” test as proposed for the new interest deductibility rule would appear to take a “purpose based” approach, requiring not only the identification of the purpose of the borrowings but whether that purpose has in fact been adhered to throughout the accounting period in which a deduction is sought. We would have an overall concern that such a purpose-based approach would constitute a departure away from the well-established principles with respect to interest deductibility based on section 81 TCA 1997 and the dicta of the Irish Supreme Court decision in Ringmahon. Secondly, we would query whether the third step in the above test wherein an intended direct link between the borrowings and the generation of profits or gains is in fact required, and how this would interact with existing “wholly and exclusively” type principles.
The Strawman proposal notes that Case III loss relief rules are expected to remain as currently legislated for, but that Case III losses that cannot be used in an accounting period would be carried forward in a similar manner to Case IV losses. In our view, such an approach would likely lead to a measure of inflexibility with respect to the new regime on interest deductibility and would not serve to equalise the treatment between trading and passive interest income.
Commencement of transfer pricing rules for medium sized enterprises
In our view, the proposed commencement of the transfer pricing provisions in respect of medium sized enterprises in Ireland would overall negatively impact on Ireland’s competitiveness as a place to do business and we would not recommend such a commencement at this time.
Proposed amendments to Interest Limitation Rules (“ILR”)
We would note the following with respect to the proposed amendment to the ILR:
- We would not recommend the introduction of an additional €6million worldwide group de minimis limit (in addition to the existing €3million entity by entity de minimis). In our view, such an amendment would ultimately have a negative impact in terms of promoting investment activity within Ireland and within specific sectors.
- Lastly, an extension to the timeline for the creation of an interest group would be a positive development and would provide greater certainty for taxpayers prior to making such an election. However, caution should be exercised to ensure that the extended timeframe does not result in unintended consequences in connection with the Equity and Group ratio elections provided for in legislation.
Transitional and simplification measures for section 247 TCA 1997
In our view, simplification of section 247 TCA 1997 remains a priority to ensure the continued usefulness of the relief and to ensure that taxpayer uncertainty is mitigated.
The Strawman proposal would place relief under section 247 on an elective basis and so would retain relief for interest as a non-trade charge subject to taxpayer discretion. The Strawman proposals would also provide for specific simplification measures to section 247 including the removal of the “common director” requirement. While retention of relief under section 247 and the simplifications proposed would appear reasonable, further review and reform both to the section itself and to the recovery of capital rules contained in section 249 TCA 1997 should be considered and prioritised. We would reiterate our specific comments previously made as part of our response to the Interest Consultation of January 2025 in this regard.
Simplification measures for section 130 TCA 1997
The Strawman proposal as outlined would appear to move section 130(2)(d)(iv) TCA 1997 from being “reactive” in nature to “proactive” in identifying payments made to non-EU or non-double tax treaty jurisdictions such that an election under section 452, section 452A and section 845A TCA 1997 may no longer be required. However, we would note the following core recommendations:
- The ability to disapply section 130(2)(d)(iv) TCA 1997 by election under section 452(3A) TCA 1997 of vital importance to the Treasury sector and should be retained.
- Consideration should be given to retaining section 452A TCA 1997.
- Where section 130(2)(d)(iv) TCA 1997 is simplified to remove the requirement to make an election under section 845A TCA 1997, caution must be taken to ensure that such an amendment does not narrow the scope for relief which would otherwise be afforded under section 845A TCA 1997.
Repeal of section 76E TCA 1997
We would be in agreement with repeal of section 76E TCA 1997 as part of Finance Bill 2026 once the necessary changes are made.
Taxation of Interest Income
The Strawman proposal would look to treat Case III interest as taxed on a net basis under the new interest deductibility rules, and for such interest to be taxed on an accrual’s basis as opposed to a receipt’s basis. However, we recognise that not all taxpayers may wish to be within the scope of this new regime and would prefer to remain within the existing Case III regime on a receipt’s basis. For this reason, the new regime should be optional, including a transition from a receipt’s basis to an accrual’s basis of taxation.
Double Taxation
The proposal to permit returns to be refiled when the foreign tax has ultimately been suffered would in our view give rise to a number of practical challenges including additional complexity.
Such complexity, however, be mitigated by taking a practical approach to the claiming of relief for foreign tax. A practical approach would look to permit relief for foreign taxes not yet paid on the accrual’s basis in so far as this is consistent with the recognition of income.
Taxation and Deduction of Interest Equivalents
Under the Strawman proposal, it is proposed that income and expenses that are economically equivalent to interest income and interest expense, respectively, would have the same tax treatment as if that income or expense were interest. Such amounts would include amounts under derivative instruments or hedging arrangements that are directly connected with the raising of finance, foreign exchange gains or losses on interest or amounts economically equivalent to interest and amounts arising directly in connection with the raising of finance such as guarantee fees, arrangement fees and commitment fees.
In our view, an expansion of “interest” to include “interest equivalents” for both taxation and deduction purposes requires further consideration. In particular, foreign exchange gains or losses and amounts arising under hedging arrangements can give rise to complexity and uncertainty in the application of the Interest Limitation Rules. In our view, further consideration is needed to address the uncertainty posed in such cases prior to widening the definition of interest.
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. It is expected that publication of an outline of draft legislation for further stakeholder feedback will take place on 16 April 2026, with input from stakeholders to be provided on or before 15 May 2026. Subject to the feedback and input received, it is expected that amended legislation for Phase One will be included in Finance Bill 2026 expected to be published in Autum 2026.
