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14 July 2023 Ireland launches consultation on new taxation measures to apply to certain outbound payments — comment period closes on 8 August
The Irish Department of Finance (the Department) has released a Feedback Statement (FBS) outlining possible draft legislative approaches to certain outbound payments. The new legislative provisions would apply to certain payments of interest or royalties or the making of a distribution on or after 1 January 2024. In July 2020, in response to the COVID-19 pandemic, the Council of the European Union agreed to an historic €750 billion recovery package for Europe. As part of this, a Recovery and Resilience Facility (RRF) was created, one of the main purposes of which was to provide funding to address the economic and social impacts of the pandemic. To access funding from the RRF, EU Member States were required to submit a National Recovery and Resilience Plan to the EU Commission. Ireland's National Recovery and Resilience Plan was formally adopted in August 2021 and included four commitments to be delivered in relation to tackling aggressive tax planning. Three of these commitments have been fulfilled in recent years with the final remaining commitment being the introduction of legislation applying to outbound payments to prevent double non-taxation. The Department launched an initial public consultation, "New Taxation Measures to apply to Outbound Payments," in November 2021. Building on that initial consultation, the Department has now issued an FBS, which includes possible legislative approaches on such outbound payments. The proposed approach is to introduce new legislation in Finance (No. 2) Bill 2023 that will apply to certain payments of interest or royalties or the making of a distribution on or after 1 January 2024. As discussed in more detail below, the discussion draft legislation in its terms applies only to certain payments between associated entities where the recipient is tax resident in a "black list" territory or "zero-tax territory" (as defined below). The draft would also apply to certain payments to permanent establishments in such territories and stateless/transparent entities formed under the laws of a such a territory. The discussion draft legislation is limited to in-scope payments between certain associated entities, specifically:
The discussion draft legislation provides that two entities will be "associated entities" in respect of each other where:
A "definite influence" is defined in the FBS as "where one entity has the ability to participate, on the board of directors or equivalent governing body of the entity, in the financial and operating policy decisions of that entity, where that ability results, or could result, in the affairs of the entity being conducted in accordance with the wishes of the first mentioned entity." A "specified territory" is defined in the FBS as "a territory, other than an EU Member State, which is a listed territory or a zero-tax territory." A "listed territory" is defined as "a territory included in Annex 1 of the Council conclusions on the revised EU list of non-cooperative jurisdictions for tax purposes." A "zero-tax territory" is defined as "a territory that, in respect of interest, royalties, or distributions receivable or received by an entity from sources outside that territory or derived by an entity from a source in that territory imposes a tax at a nominal rate of zero percent, or does not impose a tax that generally applies to such income." The discussion draft law explicitly excludes from the scope of withholding tax any payments that would otherwise be in-scope but are taken into account in calculating a (non-Irish) Controlled Foreign Company (CFC) charge, or a top-up-tax under Organisation for Economic Co-operation and Development's (OECD) Global Anti-Base Erosion (GloBE) rules. The FBS notes the intention is that these new measures will not apply to jurisdictions with a participation exemption if the relevant conditions for availing of that exemption are satisfied, although for now the mechanism to achieve that remains unclear. The FBS also notes that although it is not intended to renegotiate any of Ireland's double-taxation agreements as part of this process, treaty relief will continue to be available where applicable. If the discussion draft law were implemented without amendment, the following domestic exemptions from interest withholding tax would not apply to in-scope payments:
The discussion draft law proposes that for in-scope payments withholding tax would be extended to non-yearly interest payments as well as annual interest. If the discussion draft law were implemented without amendment, the implications for in-scope royalty payments would include:
If the discussion draft law were implemented without amendment, the relevant domestic exemptions from dividend withholding tax would not apply for in-scope distribution payments. The discussion draft legislation contains an anti-avoidance provision applicable where an arrangement is entered into by any person and the main purpose or one of the main purposes of the arrangement or any part of the arrangement is to avoid the new measures. EY will continue our extensive engagement with the Department and other stakeholders on the implementation of the proposed measures to outbound payments to avoid unintended consequences such as actual double taxation and to help minimize administrative burden. EY can assist taxpayers in evaluating their perspectives and responses to the FBS ahead of the 8 August deadline.
1 Countries on the black list include: American Samoa, Anguilla, Bahamas, British Virgin Islands, Costa Rica, Fiji, Guam, Marshall Islands, Palau, Panama, Russia, Samoa, Trinidad and Tobago, Turks and Caicos Islands, US Virgin Islands, Vanuatu. See https://data.consilium.europa.eu/doc/document/ST-6375—2023-INIT/en/pdf. 2 Under the discussion draft law, a "'relevant royalty' means a payment of any kind paid in consideration for -
Document ID: 2023-1242 | |
