Contributing Firms:
Portfolio Dividend Exemption
What is the Portfolio Dividend Exemption (PDE) and how does it work?

Peter McGeoghegan, Director, Financial Services Tax, Grant Thornton: Broadly, Section 21B TCA 1997 provides a tax exemption for dividends from certain portfolio investments. A portfolio investor does not own, directly or indirectly, more than 5 per cent of the dividend-paying company.
Peter McGeoghegan
Peter McGeoghegan

It is a relief which has helped to attract and retain financial trading business in Ireland and is important to the banking and insurance sectors. In practice, it is one of very few relieving provisions relevant to financial/securities trading businesses operating in Ireland and has allowed several banks, insurance companies and other financial institutions to create or enhance their operations in Ireland.

Dividends from portfolio investments that would otherwise be included as trading receipts of a trade (and taxable at 12.5%) are given the same treatment as franked investment income i.e. such dividends are exempt from Irish corporation tax.

The PDE was recently considered as part of the Department of Finance’s consultation on the Introduction of a Participation Exemption to Irish Corporation Tax. This consultation closed at the end of last year and was undertaken as part of Ireland’s intention to introduce a participation exemption for foreign-sourced dividends and ongoing consideration of the potential merits of introducing a foreign branch exemption.
As part of the consultation, the Department of Finance sought responses on certain aspects of the PDE which included, for example, whether the PDE should be retained following the introduction of a participation exemption.

It is our view that the PDE should be retained and the introduction of a participation exemption should not impact the current PDE. In particular, it’s removal could result in double taxation for certain businesses in the financial services industry. The PDE also reduces additional cost and provides administrative ease for those sectors which rely on the exemption. As noted earlier, it is also a relief that has helped attract and retain financial market participants to Ireland.

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