The Finance Bill 2024 (the “Finance Bill”) has been published and completed the first Stage of the legislative process. The high possibility of an election at the end of November means that the Finance Bill will move quickly through the various legislative stages before the Finance Act 2024 is enacted.

The following is an overview of the key sections affecting business tax.

Introduction of a participation exemption on foreign distributions

The long-awaited legislation for the introduction of a participation exemption for non-Irish dividends and distributions was included in this year’s Finance Bill. Where the qualifying conditions are met, a company can elect to apply the exemption on distributions made on or after 1 January 2025. This is an optional regime; therefore, Ireland’s current ‘tax and credit’ system of rules will remain applicable to taxpayers not falling within the new regime, or for those who choose not to elect to avail of the new regime.

The new rules will apply to distributions made from a relevant subsidiary. A relevant subsidiary must be resident in an EU/EEA country, or a jurisdiction with which Ireland has a double tax treaty tax (excluding a territory that is on the EU list of non-cooperative tax jurisdictions) and it must not be generally exempt from the non-Irish tax.

These residency requirements must be fulfilled on the date the distribution is made and for five years prior to the distribution or since the subsidiary was incorporated or formed. It is hoped that the geographical scope will be expanded in the future so that no geographical limitations will apply for those companies within the scope of the Irish Pillar Two legislation. 

The payment of the distribution must be made to a relevant parent company. A relevant parent company is within the scope to Irish corporation tax (or if not resident in Ireland, resident in an EU/EEA jurisdiction and subject to a tax equivalent to Irish corporation tax and not be generally exempt from tax).  It must hold five per cent of the ordinary share capital of the relevant subsidiary or be beneficially entitled to not less than five per cent of the profits available for distribution to equity holders or beneficially entitled to not less than five per cent of the assets available to equity holders on a winding up.

The parent must satisfy the holding requirement for an uninterrupted period of at least twelve months. The ordinary share capital ownership requirement will not be met where the holding is through an intermediary that is not resident in a relevant territory.

The distribution must be treated as income of the recipient parent company for corporation tax purposes (taxable under Schedule D Case III TCA or Schedule D Case IV in respect of dividends paid on certain preference shares in accordance with Section 138 TCA ) and be made either out of the ‘P&L’ profits or out of the assets of the relevant subsidiary so long as the cost of the distribution falls on the relevant subsidiary, and the conditions for the capital gains tax exemption in Section 626B TCA are satisfied.

Several types of distributions are excluded such as one that is deductible for corporation tax purposes in the foreign subsidiary’s jurisdiction, any interest or other income from debt claims providing rights to participate in a company’s profits or any amount considered interest equivalent under interest limitation rules. Equally, the relief cannot be claimed if the distribution is made from an offshore fund. Broadly speaking, the relief cannot be claimed if the recipient company is a section 110 company, an assurance company, or an undertaking for collective investment.

If the conditions are met the relevant corporation tax that would otherwise be chargeable on the Irish parent company will not arise.

To avail of the new regime, the taxpayer must make a claim in its corporation tax return for the accounting period in which the relevant distribution is made, and the election will relate to all relevant distributions in that accounting period.

The legislation contains specific anti-avoidance for arrangements or parts of arrangements that are considered not genuine to the extent they were not put in place for valid commercial reasons which reflect economic reality. This mirrors the exemption in Irish law that implements the Parent/Subsidiary Directive.

For more information on the exemption, please read the latest briefing from our Tax Group on the subject.

OECD Pillar Two updates

The Finance Bill contains changes to the Irish legislation implementing the EU Directive ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups in Europe (the “Irish Pillar Two Legislation”). The Finance Bill incorporates elements of the third set of OECD Administrative Guidance published on 18 December 2023, particularly The Finance Bill incorporates elements of the third set of OECD Administrative Guidance published on 18 December 2023, particularly those provisions regarding the operation of the Country-by-Country Reporting Safe Harbour.

The Guidance addresses some technical issues with the application of the safe harbour and introduces anti-avoidance for certain hybrid arbitrage arrangements. The OECD Guidance applies to such arrangements that were entered into after 15 December 2022. The Irish legislation incorporating this anti-avoidance for certain hybrid arbitrage arrangements will apply to fiscal years beginning or after 31 December 2024 to hybrid arbitrage arrangements entered into after 15 December 2022.   

In June of this year, the OECD published a fourth set of Administrative Guidance (the June OECD Guidance), which included options for how to apply the Pillar Two rules to securitisation entities, in recognition of the fact that issues arise in respect of the application of these rules while ensuring the integrity of the purpose of using securitisation entities.

It must be noted that securitisation entity has a specific meaning for the purposes of the legislation, and it therefore may not apply to all special purpose vehicles and Section 110 companies. Two scenarios are covered under the new Irish legislative provision.

First, the Irish qualified domestic top-up tax (“QDMTT”) will not apply to securitisation entities in Ireland if there are other Irish group entities that are not securitisation entities. Any top-up tax of the securitisation entity would be allocated proportionally amongst these other Irish group entities and the QDMTT safe-harbour status would be preserved.

Second, if there are no non-securitisation entities in Ireland, the securitisation entity is subject to the normal rules for the calculation and imposition of QDMTT. The QDMTT safe-harbour status would be preserved in this instance also. Therefore, group entities outside of Ireland would not be subject to an income inclusion (“IIR”) top-up tax in respect of the Irish securitisation entity.

The new approach to securitisation vehicles will be effective for fiscal years commencing on or after 31 December 2023.

The Finance Bill contains an amendment to clarify that standalone investment undertakings (as defined in section 246 TCA 1997) are expressly excluded from the QDMTT to standalone entities. The definition is broad and includes a unit trust, a common contractual fund, investment limited partnership and Irish collective asset-management vehicles (ICAVs).

The Finance Bill contains a number of clarifications relating to the application of the rules on deferred taxation incorporating elements of the June OECD Guidance. A number of amendments are also included to provide clarity on the operation of the existing legislation such as the rules for the calculation rules for the QDMTT to ensure that the rules operate as intended.

OECD Pillar 1 Amount B on transfer pricing simplification

The Finance Bill includes changes to Irish transfer pricing legislation to include the agreed text of the OECD Pillar One, Amount B Guidance that is intended to simplify the application of the arm’s length principle to baseline marketing and distribution activities.

The new simplified approach applies when a double taxation agreement exists with a covered jurisdiction (i.e. a low-capacity jurisdiction) and both parties have elected to apply the simplified approach for calculating the arm’s length consideration in respect of a qualifying arrangement.   

Additional documentation requirements and an anti-avoidance measure to ensure the section operates as intended are also included. The new rules will apply to arrangements for fiscal years commencing on or after 1 January 2025.

Unlike the OECD Pillar One Amount A initiative, no revenue threshold applies for the application of Amount B. The Amount B Guidance is already incorporated into the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2022.

Amount B should be distinguished from the reattribution of taxing rights to market jurisdiction that is envisaged under Pillar One Amount A, which although agreed at political level has not been implemented, and without the U.S. may never be implemented in practice.

Amendment to outbound payments legislation

New additional defensive measures on certain outbound payments of interest, royalties and distributions came into effect from 1 April 2024. The rules seek to prevent double non-taxation on such payments by denying the benefit of an exemption from withholding tax, that may otherwise apply on payments made to associated entities in zero and no tax jurisdictions or jurisdictions on the EU list of non-cooperative jurisdictions.

The Finance Bill contains several technical amendments to the rules.  The Explanatory Memorandum explains that the changes are intended to remove unnecessary duplication in certain definitions and to ensure that the rules operate as intended – principally, where payments are made to entities that are treated as transparent for tax purposes. In order to achieve this a “foreign company charge” (i.e. one that is similar to the Irish CFC charge) has been removed from the definition of “supplemental tax” for the purposes of identifying a payment that is excluded from the operation of the rules.

In addition, the approach in the rules to look through transparent entities to the entity to which the payment is ultimately arising or In addition, the approach in the rules to look through transparent entities to the entity to which the payment is ultimately arising or accruing is extended to where the transparent entity and ultimate entity are in the same jurisdiction. The rules currently require that these two entities must be in different jurisdictions in order to “look-through”.  The changes will have effect to in-scope payments or distributions made on or after 1 January 2025.

Amendment to interest limitation rule

Some technical amendments have been made to the interest limitation rule and definitions relating to finance leases to align with changes made in Finance Act (No 2) 2023 to the classification of leases for tax purposes.

Corporation tax relief for SMEs first listing on an EEA stock exchange

A new tax deduction for expenditure incurred by a company wholly and exclusively in respect of a fist listing on an EEA stock exchange has been included in the Finance Bill. The deduction will be available as a trading expense or where the company is an investment company, as an expense of management. A cap of €1 million applies to the amount of the deduction. The new deduction will be available in respect of listings that take place from 1 January 2025 – 31 December 2029.

R&D Tax Credit

As part of Budget 2025 the Minister for Finance announced the increase in the amount of the first-year payment from €50,000 – €75,000. The Finance Bill incorporates this change. It will apply to claims made for accounting periods commencing on or after 1 January 2025.

A review of the R&D tax credit was also announced by the Minister for Finance in the Budget speech.

New corporation tax credit for unscripted productions and increase in credit for small film productions

A new corporation tax credit for qualifying expenditure in the making of unscripted productions that meet certain cultural tests has been included in the Finance Bill.

The credit will be 20% of the lowest of:

• eligible expenditure;
• 80% of the total cost of production; or
• €15 million

The section is subject to EU state aid approval and a Ministerial commencement order.

A higher rate or 40% of qualifying expenditure will be introduced to the film tax credit relief to smaller feature film productions with qualifying expenditure is less than €20 million.

Revenue powers during joint audit

The Finance Act (No 2) 2023 transposed the law in relation to joint audits by EU Member States pursuant to the EU Directive on Administrative Cooperation (DAC 7).

Finance Bill includes rules on the rights and obligations of Revenue officers when conducting a joint audit.

Where an Irish Revenue officer is participating in a joint audit in another EU Member State their rights and obligations will be determined by reference to the laws of that other Member States where the joint audit takes place, and the Revenue officer shall not exceed those powers.

Correlative Adjustments or mutual agreements in case of companies that have ceased to exist

A new provision will mean that where a repayment of tax is due as a result of a correlative adjustment or mutual agreement procedure to a company that has ceased to exist, the repayment of tax can be made to another group company where the relevant conditions are satisfied.

The new provision will apply to repayments of tax arising from a correlative adjustment determinations made by Revenue or mutual agreement reached on or after the date of passing of the Finance Act.

Extension of certain reliefs for investments in corporate trades

In line with increases to the thresholds for permissible State aid the amount of relief available under Employment Investment Incentive Relief (EII), the Start-Up Relief for Entrepreneurs (SURE) and the Start-Up Capital Incentive (SCI) will be increased. The term of the reliefs will also be extended so as to apply until the end of 2028.

New “Angel Investor Relief”

In addition, the Angel Investor Relief from capital gains tax that was included in last year’s Finance Bill yet never commenced, has been included with some updates and improvements.  The relief reduces the CGT rate applicable on qualifying disposals of qualifying shares in an innovative startup. The reduced CGT rate is 16% for individual investors or 18% when investment is made through a qualifying partnership. The relief can be claimed on a gain of up to twice the value of the investor’s initial investment and is subject to a lifetime limit of €10 million.  

Increase in stamp duty rates on certain residential property

The Finance Bill has brought some clarity to the application of the 6% “mansion tax” rate of stamp duty to residential property. The increased rate of stamp duty on bulk purchases of residential units has also been included in the Finance Bill.

The new 6% rate will apply to consideration over €1.5 million when the consideration is attributable to two or less apartments in an “apartment block” (one which has three or more apartments in it).

For consideration that is attributable to three or more apartments in an “apartment block”, the previous rules will continue to apply so that a rate of stamp duty of 1% will be chargeable on consideration up to €1 million and 2% on the balance.

The new 6% rate will also apply to consideration over €1.5 million when it is attributable to “residential property” which does not fall within the “bulk purchase” provisions for certain property.

The rate of stamp duty on “bulk purchases” of certain residential units has increased from 10% to 15%. This rate applies when ten or more residential units (or interests deriving their value therefrom) are acquired in a twelve-month period. This rate does not apply to apartments in apartment blocks.

These new rules will affect instruments executed on or after 2 October 2024, subject to a transition period of three months for instruments executed before 1 January 2025 where the instrument contains a prescribed statement, certifying that the instrument was executed solely in pursuance of a binding contract entered into before 2 October 2024.

VAT

As announced in the Budget speech, the rates of VAT thresholds have been increased so that the threshold for the provision of goods will be increased from €80,000 to €85,000 and services from €40,000 to €42,500 from 1 January 2025.

A clarification is contained in the Finance Bill that the VAT exemption for the management of EU Alternative Investment Funds (AIFs) is applicable to all EU AIFs including where the AIF manager is registered with a relevant competent authority.

Tax aspects of the new Pension Automatic Enrolment Retirement Savings Scheme (“AE System”)

The Finance Bill contains the new legislative provisions necessary to provide for the taxation measures relating to the new AE System. The AE system is governed by the Automatic Enrolment Retirement Savings System Act 2024.

The key features of the new provisions are:

• employer contributions to AE will be exempt from tax
• income and gains of AE funds while held by an AE provider will be exempt from tax
• amounts paid from the fund (after any tax-free lump sum) will be subject to tax

The AE system is scheduled to come into operation in September 2025. For more information on the AE system please see this update from the Arthur Cox Pensions Team.

The content of this briefing is provided for information purposes only and is not legal or other advice.