The international tax landscape has changed dramatically in recent years, following multi-lateral agreement on reforms to increase tax transparency and address weaknesses of the international tax system that created opportunities for base erosion and profit shifting (BEPS). As part of this process, EU Member States are transposing two Anti-Tax Avoidance Directives (ATADs), designed to implement three of the OECD BEPS Actions and two additional measures in a coordinated way throughout the EU.
In Ireland, work on following ATAD measures is now complete:
Ireland’s long-standing General Anti-Abuse Rule (GAAR), in place since 1989, already met the minimum ATAD standard;
Ireland introduced an ATAD-compliant Exit Tax in Finance Act 2018;
Ireland implemented Controlled Foreign Company or “CFC” rules in Finance Act 2018; and
Ireland introduced the first and most substantial part of the fourth measure, Anti-Hybrid rules, in Finance Act 2019. The second element of anti-hybrid rules, additional measures to neutralise Reverse-Hybrid mismatches, will be transposed in Finance Bill 2021 in line with the ATAD schedule.
The remaining ATAD Measure, an Interest Limitation Ratio (ILR) will also be transposed in Finance Bill 2021. This Feedback Statement builds on responses to the November 2018 public consultation on implementation of the ATAD Anti-Hybrid rules and ILR. Most respondents noted the complexity of the ILR and proposed that further detailed consultation would take place during the development of the ILR legislation, to enable companies to comply with the new requirements when implemented. The Department of Finance is therefore publishing this Feedback Statement to respond to the views expressed in replies to the public consultation and to set out possible approaches to some of the technical aspects of the ILR.
Due to the complexity of the ATAD ILR and its interaction with domestic legislation, a two-stage approach to the development of this measure is being taken. It is intended first to develop a robust legislative approach to the operation of the ILR, including carry-forward provisions, on a single company basis. When the framework of the interest limitation and carry-forward on a single company basis is firmly established, legislative approaches will then be developed to consider the notional local group and group ratio options. To assist in this process, this Feedback Statement contains consultation questions on a range of technical and policy issues relevant to the development of those options.
The views of stakeholders will be important in ensuring that Ireland’s ILR, when introduced with effect from 1 January 2022, meets the standards required under ATAD while also being clear and operable in practice and remaining consistent with Ireland’s long-standing focus on the taxation of activities with substance in Ireland.
The closing date for receipt of submissions is Monday 8th March 2021.