Contributing Firms:
As if the roll-out of change springing from the OECD’S BEPS process were not enough to disturb the status quo for financial services industry tax, a series of not unrelated developments are happening in parallel, a number of them springing from the Finance Act, enacted in late December. One of these are changes in the approach of Revenue to the taxation of aircraft leasing, and members of the Panel in this month’s issue address these. The Roundtable shows that the scope of change is wider than aircraft leasing, and indeed leasing companies in general; it encompasses the application of interest deductibility rules and the new concept of ‘qualifying finance companies’ introduced in the Act. The Roundtable also provides overviews in other key and linked areas, such as the introduction of new ‘qualifying finance companies’, the implications of a move to a territorial tax system, and reverberations in the areas of investment (for example ETFs, which are treated unfavourably for Irish-resident investors). Other issues coming into scope will be the definition of ‘trading’ in Irish tax law, which has implications for funds, insurance and the tax treatment of many other Irish corporate structures.structures.
In this month’s roundtable the panel looks the new concept of ‘qualifying finance companies’, introduced in the Finance Act as are changes to rules, and Revenue practice that have implications for Ireland’s aircraft leasing sector. The Irish domestic tax concept of ‘trading’ and how it could interact with new territorial tax elements being introduced to the Irish tax code are examined, as are model elements of the UK’s participation exemption. The portfolio dividend exemption and the taxation of Irish investors also features, as does the changes to Revenue’s Tax Debt Warehousing scheme announced by Minister Michael McGrath in February, which will have an impact on the c.58,000 companies still availing of the scheme.
The Finance (No.2) Act 2023 contained a number changes that aim to give clarity around areas including capital allowances and the calculation of profits for both lessors and lessees. Can you outline the changes and the implications for aircraft leasing companies operating from Ireland?
The concept of a ‘qualifying financing company’ has been introduced in the Finance (No.2) Act 2023, signed into law on 18th December 2023. Can you outline what a ‘qualifying financing company’ is and the implications for entities potentially affected as being in scope, and their interest deductibility? In your view, what would be the most impactful changes that could be made to simplify Ireland’s rules around interest deductibility?
In its response to the Department of Finance’s Consultation on the introduction of a participation exemption(s) to the Irish corporation tax system the American Chamber of Commerce Ireland (AmCham) writes that it ‘believes it would be unwise to use the Irish domestic tax concept of ‘trading’ to frame access to the exemption’. Can you explain the concept of ‘trading’ in relation to the Irish tax code (which AmCham describes as ‘a concept which is largely unique to the Irish tax code relative to Ireland’s OECD counterparts’) and what impact would its use have for the effectiveness of Ireland’s move towards a territorial tax regime?
A number of respondents to the consultation highlighted the UK’s legislative framework for participation exemptions and foreign branch profits exemptions, which was implemented in 2009, as a good model from which to develop Ireland’s legislation. Please discuss, with reference to elements that could be adopted and as well as areas the prospective Irish regime should/will need to deviate from the UK’s model?
What is the Portfolio Dividend Exemption (PDE) and how does it work?
In its mid term update on its Funds Sector Review, the Department of Finance said of the 140 responses submitted by private individuals, a considerable number were concerned exclusively with taxation. More specifically, many submissions by private individuals referred to the taxation regime for Exchange Traded Funds (ETFs). The Department said the submissions convey a general perception that the taxation of investment products, and of ETFs in particular, is a major barrier to increasing retail investor participation in Ireland. It added these views were also reflected in the submissions received from industry participants and the Central Bank which highlighted the apparent disconnect between Ireland’s role as a global hub for the funds industry and the low levels of domestic household investment into investment funds. Can you discuss the taxation of investments in Ireland and why they are perceived as ‘a major barrier’ in increasing retail investor participation?
In early February the Minister for Finance announced changes to the Tax Debt Warehousing scheme. Can you outline these changes, the Revenue Commissioners’ renewed approach and the implications for companies that have availed, or continue to avail, of the scheme?
Transfer pricing audits have been one of the highest yielding areas for Revenue compliance interventions in recent years and in-scope corporates need to pay heed to the latest guidance around TP documentation writes Deloitte’s Richard Lombard. He analyses the changed operational policy and says now is the time for corporates to review their own policies to ensure their TP documentation remains fit for purpose.
Aircraft Leasing: The Finance (No.2) Act 2023 contained a number changes that aim to give clarity around areas including capital allowances and the calculation of profits for both lessors and lessees. Can you outline the changes and the implications for aircraft leasing companies operating from Ireland?
Interest deductibility rules: The concept of a 'qualifying financing company' has been introduced in the Finance (No.2) Act 2023, signed into law on 18th December 2023. Can you outline what a 'qualifying financing company' is and the implications for entities potentially affected as being in scope, and their interest deductibility? In your view, what would be the most impactful changes that could be made to simplify Ireland's rules around interest deductibility?
Territorial Tax Regime: In its response to the Department of Finance's Consultation on the introduction of a participation exemption(s) to the Irish corporation tax system the American Chamber of Commerce Ireland (AmCham) writes that it 'believes it would be unwise to use the Irish domestic tax concept of ‘trading’ to frame access to the exemption'. Can you explain the concept of ‘trading’ in relation to the Irish tax code (which AmCham describes as 'a concept which is largely unique to the Irish tax code relative to Ireland’s OECD counterparts') and what impact would its use have for the effectiveness of Ireland's move towards a territorial tax regime?
Participation Exemption - UK model?: A number of respondents to the consultation highlighted the UK's legislative framework for participation exemptions and foreign branch profits exemptions, which was implemented in 2009, as a good model from which to develop Ireland's legislation. Please discuss, with reference to elements that could be adopted and as well as areas the prospective Irish regime should/will need to deviate from the UK's model.?
Portfolio Dividend Exemption: What is the Portfolio Dividend Exemption (PDE) and how does it work? What types of companies benefit from the PDE?
Taxation of investment in Ireland : In its mid term update on its Funds Sector Review, the Department of Finance said of the 140 responses submitted by private individuals, a considerable number were concerned exclusively with taxation. More specifically, many submissions by private individuals referred to the taxation regime for Exchange Traded Funds (ETFs). The Department said the submissions convey a general perception that the taxation of investment products, and of ETFs in particular, is a major barrier to increasing retail investor participation in Ireland. It added these views were also reflected in the submissions received from industry participants and the Central Bank which highlighted the apparent disconnect between Ireland’s role as a global hub for the funds industry and the low levels of domestic household investment into investment funds. Can you discuss the taxation of investments in Ireland and why they are perceived as ‘a major barrier’ in increasing retail investor participation?.
Tax Debt Warehousing: In early February the Minister of Finance announced changes to the Tax Debt Warehousing scheme. Can you outline these changes, the Revenue Commissioners renewed approach and the implications for companies that have availed, or continue to avail, of the scheme?