The key financial services measures introduced in Finance Bill 2024 include:
Participation exemption for foreign dividends
The introduction of a participation exemption for foreign dividends in Ireland is a positive development, bringing Ireland in line with our international financial services peers as Ireland grows as a centre of excellence for private asset and green transition funds.
The participation exemption will benefit many fact patterns and contains a number of welcome amendments to the proposals contained within the second feedback statement.
Pillar Two
From an asset management perspective, the provision to exclude standalone regulated investment funds from the scope of Ireland’s Qualifying Domestic Top-up Tax (QDTT) is very positive and provides certainty to those taxpayers.
Ireland has introduced an option which removes the QDTT charge from the securitisation entity if there are other non-securitisation entities in the Irish group. However, if there are no such entities, any QDTT due is to be borne directly by the securitisation entity. This ensures the “switch-off” rule does not apply when applying the Qualified Domestic Minimum Top-Up Tax (QDMTT) Safe Harbour.
Leasing amendments
As anticipated, from a leasing perspective, the Bill provides for amendments to the legislation introduced last year. These changes include amending certain aspects of the restriction in relation to cross border leases such that they apply to associated enterprises only, which is positive. However, additional general anti-avoidance tests were also introduced which apply in all scenarios and will need to be considered carefully by taxpayers.
Technical amendments to the outbound payment rules
The Bill provides for a couple of technical amendments to the outbound payment rules introduced in Finance Act 2023. Specifically, the changes include removing the reference to “a different territory” from the look-through provisions and amending the definition of a “supplemental tax”.
Participation exemption for foreign dividends
The introduction of a participation exemption for foreign dividends in Ireland is a positive development from a financial services perspective and will bring Ireland in line with our international financial services peers as Ireland grows as a centre of excellence for private asset and green transition funds.
While the application of the participation exemption is more limiting than we would have initially hoped for, it will benefit many fact patterns and contains a number of welcome amendments to the proposals contained within the second feedback statement. Taxpayers will be required to work through the rules to determine the application on their own specific facts and circumstances.
In particular, the requirement that dividends or distributions be made “out of profits” in order to qualify for the participation exemption is the biggest issue we foresee for financial services taxpayers. However, the Bill does provide for an alternative qualifying condition where the shares would have qualified for the substantial shareholding exemption from capital gains tax (S626B) had they been disposed of. This alternative is a welcome addition for the private assets sector, in particular where taxpayers would typically structure their investments to ensure availability of S626B relief on exit in any case.
We welcome the Minister’s commitment in the Budget that work will continue on the operation of the participation exemption in the coming year, including further consideration of the geographical scope of the regime, hopefully with a view to making Ireland a best-in-class hub for sustainable finance and private asset investment. The commitment to further consider the introduction of a participation exemption for foreign branch profits is also welcomed by the financial services sector as a whole.
Please see further detail on the mechanics and operation of the regime in our participation exemption insight.
Pillar Two
The Bill has introduced extensive new Pillar Two legislation (covered in more detail in our Pillar Two insight), but from a financial services perspective there are two specific points of interest.
The legislation has introduced an additional carve-out from Ireland’s domestic top-up tax (QDTT) where the entity is a standalone entity (i.e. a non-consolidated entity) that breaches the €750 million threshold. This new exemption will remove “investment undertakings” as defined in Section 246 TCA 1997 from the scope of the QDTT. This “investment undertaking” definition is broad and would include unit trusts, common contractual funds (CCFs), investment limited partnerships and Irish collective asset-management vehicles (ICAVs). The introduction of this additional exemption will provide certainty to such investment funds and mitigate the need to monitor their revenues and analyse whether they meet the Pillar Two “investment entity” definition that would otherwise need to be met to be exempt.
Given Ireland’s introduction of the “standalone” provision in Finance Act 2023 originally went beyond the scope of the OECD rules and EU Directive, this broader exemption for regulated investment funds is a welcome addition.
In June 2024 the OECD issued guidance as to how jurisdictions could treat “securitisation entities” that are consolidated into groups where an ownership interest in the entity did not exist. The OECD guidance acknowledged that these securitisation vehicles are typically set up to ensure tax neutrality. In an effort to preserve this neutrality, the OECD provided optionality to jurisdictions regarding the application of a QDTT to a securitisation entity.
Ireland has introduced an option that removes the Qualified Domestic Minimum Top-Up Tax (QDMTT) charge from the securitisation entity if there are other non-securitisation entities in the Irish group. However, if there are no such entities, any QDMTT due is to be borne directly by the securitisation entity. This ensures the “switch-off” rule does not apply when applying the QDMTT Safe Harbour.
The Irish legislation’s definitions of “securitisation entity” and “securitisation arrangement” align to those included in the OECD guidance.
Leasing technical amendments
Last year, Finance Act 2023, introduced a number of changes to the taxation framework of the leasing sector. The Bill proposes a number of changes that are designed around updating these areas to ensure they are fit for purpose. These changes (both last year and this year) follow significant involvement and dialogue by various stakeholders in the broader leasing industry with Revenue and the Department of Finance over the last number of years.
The Bill provides for changes to Section 299, which deals with finance leases and their treatment for Irish tax purposes. The existing legislation includes a requirement that, for the provisions to apply to the lessor, any non-Irish tax resident lessee must not avail of heightened tax deductions in respect of the lease payments and the equivalent of capital allowances in their country of residence. The Bill has limited the scope of this restricting provision to associated enterprises of the lessor only. This update is welcomed by the industry, as the previous updates had placed an unfair burden on third-party commercial leasing transactions. The Section is now also extended to apply in situations where the lessor acquires the asset from a group member in a non-arm’s length transaction. Finally, the Bill also introduces a specific definition of “tax advantage” in a leasing context and uses that definition within the general anti-avoidance requirements of the section. These general anti-avoidance provisions have effectively been expanded this year and apply in both third party and connected scenarios so will need to be carefully considered by taxpayers.
Other amendments to the taxation of leases include clarifications on the timing of balancing events, the introduction of reporting requirements for balloon leases and updates to leasing definitions for interest limitation rules purposes in line with changes introduced in Finance Act 2023.
Technical amendments to the outbound payment rules
The Bill provides for some technical amendments to the outbound payment rules introduced in Finance Act 2023.
The outbound payment rules facilitate a look-through approach in certain cases where the payments are made to an entity, but the relevant payment is treated as arising or accruing to another entity. This provision is helpful for transparent or flow-through structures. However, the existing legislation provides that the look-through approach may only apply where the recipient entity and its owners are resident or situated in different territories. The amendment in the Bill will remove the reference to “a different territory” from the provision, thereby bringing the legislation in line with Revenue guidance.
The definition of a “supplemental tax” will be amended to exclude a charge under the laws of a territory, other than Ireland, which is similar to the controlled foreign company charge under Part 35B TCA 1997 to remove unnecessary duplication in the definition.
These amendments will apply to relevant payments or relevant distributions made on or after 1 January 2025.
VAT measures
The Bill provides welcome clarification by amending the VAT legislation to clarify that the fund management exemption applies to EU alternative investment funds (AIFs) managed by an alternative investment fund manager (AIFM), which is “authorised by or registered with the competent authority of a Member State”. This removes uncertainty arising from a Finance Act 2022 amendment that did not expressly include AIFMs authorised in Ireland.
Irish AIFMs managing AIFs should consider whether the proposed amendments impact on the VAT treatment of the services they provide. The application of the VAT exemption may represent a VAT saving for the fund in question. However, there will also be VAT recovery implications for the AIFM.
Real estate measures
The Bill introduces a 6% rate of stamp duty applying to certain acquisitions of residential property, and a number of positive amendments to the Residential Zoned Land Tax regime. Please see further detail in our separate real estate insight.
Additional measures relevant to financial services
Extension of the banking levy
As flagged by the Minister on Budget Day, the revised bank levy (introduced as part of Finance Act 2023) is to be extended in its current form and has not been extended to banks other than those already identified. In particular, the levy has not been extended to encompass other banks or financial institutions providing retail banking services in Ireland, either physically or digitally. The rate and base year for application of the levy in 2025 remain the same as for 2024.
Stamp duty
The Bill proposes changes to the method by which stamp duty is collected on cash, debit and combined cards, as well as on charge card accounts. In particular, the Bill confirms the application of stamp duty to cards in electronic form.
Consultation on the tax treatment of interest in Ireland
The release of a public consultation on the tax treatment of interest last month is a welcome announcement to the financial services industry, where the implementation of EU anti-tax avoidance directives in recent years, on top of increasingly complex domestic anti-avoidance provisions, have added to the administrative and compliance burden of taxpayers. Ireland’s commitment to reducing this burden is a welcome boost and we look forward to engaging with the Department of Finance throughout the consultation period and beyond.
Interest limitation rules — interaction with foreign currency
The Bill provides for a new subsection to clarify the treatment of deemed borrowing costs and total spare capacity carried forward in a foreign currency in line with the amendments to Revenue’s Tax & Duty Manual, released in December 2023.
Pensions auto-enrolment
The definition of pension schemes in the Stamp Duties Consolidation Act 1999 has been updated to include auto-enrolment scheme providers. Auto-enrolment funds managed by a life insurance company will be considered pensions business.
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