Irish tax treatment of some intra-group payments to change from 1 April

Dublin-based tax expert Robert Dever of Pinsent Masons said businesses may be able to restructure their arrangements to mitigate the change, which will come in the form of withholding tax obligations and reporting requirements.

Dever was commenting before reforms to the so-called outbound payments regime in Ireland begin to apply from the beginning of April.

The change affects distributions, royalties and interest payments made by entities in Ireland to connected, related, or affiliated entities in no-tax and zero tax jurisdictions, such as the Cayman Islands or Bermuda, as well as those based in countries listed by the EU as being non-cooperative jurisdictions for tax purposes, like Russia or Panama.

Dever said that, up until now, a broad range of exemptions have applied to payments of the kind that are now in scope. This has meant that, for example, interest paid on certain types of instruments, such as quoted Eurobonds, regardless of where the holder of the instrument has been based, was exempt from Ireland’s withholding tax regime.

He said that will change from 1 April for in-scope arrangements put in place since 10 October 2023 as well as arrangements implemented before that time which do not qualify for grandfathering provisions. Where those grandfathering provisions apply to arrangements put in place prior to 10 October 2023, the change will take effect from 1 January 2025. An associated reporting obligation also arises in respect of the in-scope payments.

The change is given legal effect by the Finance (No. 2) Act 2023 and was trailed in a feedback statement issued by the Irish Department of Finance in July last year. The reform is part of a wider suite of measures that the department has outlined to address what it calls “aggressive tax planning”.

Dever said: “The intention behind this change is to prevent what is known as double non-taxation – where profits in Ireland are not subject to tax and are then paid to a connected, related, or affiliated entity in another jurisdiction where the recipient will not pay tax on those funds either. The strengthening of Ireland’s anti-avoidance regime in this regard is part of a broader global effort aimed at addressing base erosion and profit shifting, which is being led by the OECD.”

“For businesses, the task is to review their existing arrangements to determine whether they are within the scope of these changes. For legacy arrangements put in place prior to 10 October 2023, there is still time to restructure certain arrangements to mitigate the effect of the changes before 1 January 2025. This will be a commercial decision that will need to be taken on a case-by-case basis and with reference to the operation of similar anti-avoidance regimes in other jurisdictions through which the finance arrangements could route,” he said.

“While we await clarity from Irish Revenue in relation to the reporting requirements associated with the change, it is expected that this will be primarily wrapped in with existing corporation tax filing obligations in Ireland and so will be relevant for business’ accounting periods which commence on or after 1 April 2024, or 1 January 2025, depending on when the in-scope payment arrangements were put in place,” he said.