The Irish government announced its intention to introduce an ATAD1 compliant interest limitation rule into Irish law with effect from 1 January 2022.
As detailed in our previous briefing in March 2021, the first phase in Ireland’s implementation commenced in December 2020, with the publication by the Irish Department of Finance of a feedback statement with some initial drafting of the important provisions of the new legislation. A second round of the consultation, which included drafting on the legislative provisions specific to groups, concluded earlier this week. Arthur Cox made a submission to the Department of Finance which you can access here.
Our submission includes comments on :
- The interaction of the interest limitation rule (“ILR”) with Ireland’s already very complex and restrictive interest deductibility rules coupled with different tax rates applicable to different types of income and gains determined under fairly artificial rules. The ILR (together with the recently introduced anti-hybrid rules and the expanded transfer pricing rules) present an opportunity to simplify the whole area of interest deductibility and tax consolidation. It seems, however, that this opportunity will not be seized.
- The definition of interest and income that is ‘economically equivalent’ to interest and the application of the rules to securitisation vehicles including the exemption for standalone entities and the proposal for a single company worldwide group (“SCWG”). We fully support the proposal to legislate for a SCWG which will be important to the Irish tax regime applicable to asset-backed financing in particular.
- The proposed approach to the computation of the amount of interest which will be restricted.
- How will local notional groups work since Ireland does not have a consolidation option for Irish groups.
- The potential exemptions for interest on ‘legacy debt’, large scale infrastructure projects and ‘financial undertakings’.