On November 5, 2021, the Irish Department of Finance launched a public consultation seeking stakeholder views on the introduction of new taxation measures to apply to outbound payments. The public and interested stakeholders are invited to give their views on the issues detailed in the public consultation document. According to the consultation document it is anticipated that any changes decided upon will be considered in the context of the Finance Bill 2022 or 2023, also taking into account recent developments and ongoing discussions at the OECD Inclusive Framework. The consultation period will run from November 5, 2021 to December 20, 2021.
While it is anticipated that issues raised in respect of outbound payments relate primarily to historical issues which have largely been remedied by recent Irish and US tax reforms, this consultation is to provide an opportunity to consider what further action by Ireland may be necessary and appropriate.
Finance Bill 2021 introduces new measures which will complete transposition of the Anti-Tax Avoidance Directives, through the introduction of anti-reverse-hybrid rules and a new interest limitation ratio to supplement our long standing domestic interest rules.
The Department of Finance is now carrying out a public consultation with the intention of seeking stakeholder views on the introduction of measures to prevent double non-taxation in relation to outbound payments of interest, royalties and dividends. These measures are to apply to no-tax, zero-tax jurisdictions, and to all of the jurisdictions included on Annex I of the EU list of non-cooperative jurisdictions for tax purposes.
The measures under consideration are a denial of deduction of costs or the imposition of withholding taxes. It is anticipated that these measures will be largely preventative in nature and will be introduced through an amendment to the Taxes Consolidation Act 1997. To facilitate the development of any such measures, stakeholders’ views are now sought on the below questions. The questions are not an exhaustive list and if you determine that there are any additional relevant matters for consideration, the Department of Finance would welcome the inclusion of these in any submission.
Consultation Questions
1. General questions
a) Are there any specific criteria that should be considered to identify payors and recipients to which these measures should be applied?
b) In responding to this question, consideration could be given inter alia to the degree of association between the payor and recipient, fiscal transparency of entities, interaction with CFC rules, remittance basis, and worldwide versus territorial systems of taxation.
c) Are there any other legislative, policy or administrative considerations that should be taken into account?
d) Are there any considerations around how interest, royalties or dividends could be defined for these purposes?
e) Are there any other considerations that should be included as part of this process?
f) In your opinion, as regards the potential application of any of the above measures to Ireland’s treaty partners, are there any specific issues or obstacles relating to tax treaty commitments that would have to be considered? If so, how might these be best acknowledged or addressed?
2. Measures in relation to outbound interest payments
a) Where measures are taken regarding outbound payments of interest to no-tax or zero-tax jurisdictions, or jurisdictions included on the EU list of non-cooperative jurisdictions for tax purposes, in your opinion would a denial of deduction or the imposition of a withholding tax be the more effective approach? Please identify the advantages of, and potential issues with, each approach in your response.
b) Where it is your view that a denial of deduction would be the better approach, how should this measure be designed to interact appropriately with other domestic legislation, including the new interest limitation rule which will be implemented from the beginning of 2022? Are there specific amendments to relevant legislation that should be considered?
c) Where it is your view that a withholding tax would be the better approach, how could this measure be designed to interact with other legislation, and/or tax treaties and would this require any amendments to relevant legislation?
3. Measures in relation to the outbound payment of royalties
a) Where measures are taken regarding outbound payments of royalties to no-tax or zero-taxjurisdictions, or jurisdictions included on the EU list of non-cooperative jurisdictions for tax purposes, in your opinion would a denial of deduction or the imposition of a withholding tax approach be more effective? Please identify the advantages of, and potential issues with, each approach in your response.
b) Where it is your view that a denial of deduction would be the better approach, how could this measure be designed to interact with other legislation? In your opinion would this necessitate any amendments to relevant legislation?
c) Where it is your view that a withholding tax would be the better approach, how do you feel this measure could be designed to interact with other legislation? In your opinion would this require any amendments to relevant legislation?
d) Are there any specific considerations necessary in relation to the interaction of a measure applying to the outbound payment of royalties and the existing treatment currently in place?
4. Measures in relation to outbound dividend payments
Are there any amendments necessary to relevant legislation regarding the operation of dividend withholding tax, in respect of dividends to no-tax or zero-tax jurisdictions, or jurisdictions included on the EU list of non-cooperative jurisdictions for tax purposes, in order to ensure no double non-taxation? In your response, you may wish to consider all amounts treated as distributions under relevant legislation.
5. Consequential amendments
In your view are there any existing anti-avoidance rules that may be simplified or eliminated where new denial of deductibility or withholding tax measures are put in place on outbound payments to no-tax or zero-tax jurisdictions, or jurisdictions on the EU list of non-cooperative jurisdictions?
6. Non-cooperative jurisdictions
Are there any further issues that should be taken into account in relation to payments to jurisdictions included on the EU list of non-cooperative jurisdictions for tax purposes?
The full consultation document, in which you can also find more information on how to respond to the consultation, you can download here.
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