Contributing Firms:
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?

Angela Fleming, Partner & Head of Financial Services Tax, BDO: Section 40 of the Finance (No. 2) Act 2023 introduced a new Section 76E of the Taxes Consolidation Act 1997 (“TCA 1997”).
Angela Flemming
Angela Flemming


This new section provides for the introduction of the concept of a “qualifying financing company”. In short summary, a qualifying financing company is one which obtains third-party finance and advances this finance to a subsidiary for a qualifying business purpose. Like all good tax legislation, there are a number of qualifying conditions that need to be met, and the section is subject to strict anti-avoidance rules.

In order for a company to qualify as a “qualifying financing company” the following conditions must be met:
• The financing company holds a direct ownership of 75% or more of the ordinary share capital of one or more qualifying subsidiaries, or an intermediate holding company,
• The financing company borrows money for the purpose of on-lending that money by way of the making of qualifying loans to one or more (direct or indirect) qualifying subsidiaries, and
• Apart from (a) and (b) above, the financing company does not carry on any other activities (other than ancillary activities).

A “qualifying subsidiary” means a trading company which is tax resident in an EU, EEA or tax treaty country. In order for a loan to be qualifying it must be on arm’s length terms and used by the qualifying subsidiary for trading purposes.

Section 840A TCA 1997 is an anti-avoidance provision that denies a trading deduction for interest payable on intra-group borrowings to purchase assets from a connected company. The Finance (No. 2) Act 2023 also amends section 840A so that it does not apply to interest payable to a qualifying financing company.

In his Budget Day speech, the Minister for Finance announced his commitment to engaging with stakeholders in the period ahead on Ireland’s current regime for interest deductibility, noting its complexity. More recently, the Minister for Finance indicated that while the review will commence this year, it will require a significant body of work over potentially a multi-year timeframe.

While the introduction of these new rules for qualifying financing companies is a very welcome development, we are hopeful that it merely represents a first step in the simplification and modernisation of Ireland’s interest deductibility rules.

Lorna Fox, Manager, Corporation Tax, Deloitte: Finance (No.2) Act 2023 introduced a welcomed opportunity for non-trading financing companies to benefit from an interest deduction under Case III or Case IV principles.
Lorna Fox
Lorna Fox


For the purposes of this new legislation, a qualifying financing company is defined as a company that holds at least 75% of the ordinary share capital of a qualifying subsidiary and borrows money for the purpose of on-lending that money to a qualifying subsidiary as a relevant loan.

Broadly, a qualifying subsidiary is a company carrying on a trade and is resident in an EU, EEA state or DTA country. A relevant loan means a loan which is entered into by way of a bargain made at arm’s length, advanced by a qualifying financing company to a qualifying subsidiary. The loan must also be used wholly and exclusively for trade purposes and not for the redemption or subscription of shares or any other payment relating to shares or the capital structure of any company.

For companies in scope, they will be entitled to deduct the amount of external interest paid by that company, to the extent the external loan matches the relevant loan when computing profits chargeable under Case III or Case IV. There are additional considerations required whereby the loan is repaid or replaced, as well as strict anti-avoidance provisions.

During the Budget 2024 speech, the Minister announced that a review of the current interest deductibility rules will take place. Ireland has a complex regime (even more so now with the interest limitation rules) so modernising it will be important to see. The new rules introduced for these qualifying financing companies is a step in the right direction, however, the conditions that need to be satisfied need to be relaxed to broaden the application of the relief to more companies.

This article appeared in the March 2024 edition of the Irish Tax Monitor.