The Finance Bill introduces a participation exemption for foreign dividends which will be available for relevant distributions received on or after 1 January 2025 from subsidiaries in EU/EEA and tax treaty partner source jurisdictions. The introduction of the exemption ends Ireland’s outlier status in the EU and amongst major OECD countries and is a welcome development for international businesses operating in Ireland and those using Ireland as a holding company location.

Writing in this month’s roundtable BDO’s Yvonne Diamond writes that the introduction of the exemption simplifies Ireland’s ‘double taxation relief provisions by providing an alternative method of double tax relief for qualifying foreign dividends’ and notes that entities will still have the option to continue to use the existing relief under Schedule 24.

There have been improvements suggested in relation to the participation exemption, notably with regards to its geographic scope, however the development as it stands is a significant step forward in the simplification of the Irish corporate tax system. The next step forward could be the introduction of a foreign branch exemption. The introduction of one would complement the new foreign dividends exemption but remains to be seen if such a move will be on the incoming Government’s list of tax priorities.

Diamond, in her review of the Finance Bill from an IFS perspective highlights a number of other elements including a number of amendments regarding leasing. ‘These include clarification of the timing and value of balancing events, treatment of cross border leases for associated enterprises, as well as the introduction of general anti-avoidance tests,’ she writes and also highlights updates around ILR and outbound payment rules. The Bill also ‘aims to remove standalone investment undertakings (e.g. unit trusts, ICAVs, investment limited partnerships, or common contractual funds) from the scope of Ireland’s domestic top-up tax.

How Ireland’s domestic top-up tax, or Qualifying Domestic Top-up Tax (QDTT), will affect securitisation vehicles also features this month. Grant Thornton’s Peter McGeoghegan, writing on the partial exemption for securitisation entities introduced in the Finance Bill, says Ireland has chosen an OECD option that includes ‘securitisation entities within the scope of its QDTT, but contains provisions to impose any top-up tax relating to the securitisation entity on either another constituent entity of the MNE Group that is not a securitisation entity, or the securitisation entity itself if the top-up tax cannot be otherwise collected’ which allows a multi national group to apply the QDTT Safe Harbour.

Also writing on this topic BDO’s Tatheer Fatma says ‘Under Finance Bill 2024, any securitisation entity that is part of a large multinational group subject to Pillar II will no longer be liable for QDTT although being under the scope of QDTT. This reflects the “Inclusion with Tax Collection” approach put forward by the OECD. In this scenario, the QDTT liability will be borne by other constituent entities of the MNE group. The tax burden is to be pro-rated based on the income of the entities within the jurisdiction, excluding the securitisation entity. If there are no other constituent entities in the group, the QDTT will apply to the securitisation entity in the same way as it applies to other entities.’

Major VAT developments at EU level also feature this month with Grant Thornton’s Emma Broderick providing an update on the EU’s ViDA project.

She writes, ‘Following a very extended period of consultation and deliberation, the European Commission’s VAT in the Digital Age (ViDA) proposal was unanimously agreed at the EU Finance Ministers’ ECOFIN meeting on November 5, 2024’ a development that ‘is expected to bring about major changes to the EU VAT system.’ These include developments around E-invoicing and Digital Reporting, VAT requirements for platform economy companies and single VAT registration.

On the pensions front Grant Thornton’s Liam Naughton provides an insightful update on changes to the Standard Fund Threshold contained in Finance Act 2024 and the implications for tax payers and the importance of understanding crystallisation events and how the new rules may impact financial planning.

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