On Thursday 14 September, the Minister for Finance announced a dividend participation exemption to come into effect on 1 Jan 2025. As part of the announcement the Department of Finance published a roadmap and a public consultation. The public consultation sought input on the design features of the legislation, and in particular, how it will interact with other legislative provisions such as those enacted pursuant to the Anti-Tax Avoidance Directives (ATAD 1 and ATAD 2).

In principle, we support the introduction of a participation exemption but have advocated for some time that it should be introduced earlier.  In our view it should have been introduced when CFC rules were brought in and failing that, in tandem with the Pillar Two on 1 January 2024 (at least for in-scope companies).  Arthur Cox LLP has been advocating more generally over several years for the simplification and modernisation of the Irish corporate tax code, with the introduction of a participation and a branch exemption and simplification of the rules on interest deductibility seen as critical to ensuring that Ireland’s overly complex tax code does not impede its competitiveness in attractive foreign direct investment.  As non-Irish dividends usually result in no incremental Irish tax, there will be no loss of tax revenue to Ireland and as such, no downside to introducing a dividend participation exemption.  In addition, the current complex regime may be non-compliant with EU law in parts. 

Arthur Cox LLP’s submission advocates for:

1. A simple and full dividend exemption (as many of other countries have and based on the UK model given the similarities in the tax systems). If the new rules are a complex partial exemption, then all that will have been achieved is to change from one complex system that raises no tax to another complex system, that raises no tax – a futile exercise.
2. Urgent introduction of the dividend exemption, on the basis that Ireland has robust, ATAD compliant anti-avoidance legislation already in place, in addition to one of the most modern transfer pricing regimes in the EU and from 1 January 2024 also Pillar Two legislation implemented across the EU and beyond.
3. Optionality, so that taxpayers could elect into the existing tax credit regime, which should also be subsequently simplified in due course.

A feedback statement will be published by the Department in March and July 2024.