On Monday 8 March, the Institute responded to the Department of Finance’s Feedback Statement on the implementation of the final measure of the Anti-Tax Avoidance Directive (ATAD), Article 4 Interest Limitation Rule (ILR). The ILR, which will introduce a fixed based ratio rule to limit a company’s allowable tax deduction for net interest cost in a tax period to 30% EBIDTA, will be transposed into Irish law in Finance Bill 2021.

In our submission, we urge policymakers to ensure, when implementing the ILR, that the legislation is aligned with ATAD, and that the transposition of the measure should not impose additional, overly complex rules, on top of existing comprehensive provisions. If they don’t, it will likely increase the cost of borrowings and significantly increase the administrative burden for companies, putting Ireland and Irish groups at a competitive disadvantage.

The Government’s stated position, from the outset, has been that Ireland’s existing interest deductibility rules are equally effective to those contained in the Directive. For this reason, we believe Ireland’s existing corporation tax regime for deducting interest should be redesigned to rebalance the effect of the comprehensive protections already afforded with the existing regime.

In our view, policymakers should take the opportunity to consolidate the Irish interest regime to allow for a broad business purpose test for interest and to maximise the optionality permitted within ATAD.

In our submission

We made 28 recommendations and observations on the proposed legislative approach for the implementation of the Interest Limitation Rule (ILR). These included recommendations on the:

• necessary modifications to existing tax legislation in Finance Bill 2021 to ensure the ILR can be integrated into domestic legislation, without imposing significant complex rules on businesses, while maintaining the necessary protections for the corporate tax base.
• proposed definitions of interest equivalent, exceeding borrowing costs and EBITDA for the purposes of the ILR.
• operation of the carry forward of non-deductible exceeding borrowing costs and excess interest capacity under the ILR provision.
• adoption of the exemptions permitted under ATAD in Irish law, including, the de minimis amount up to €3 million, financial undertaking, standalone entity, legacy debt and long-term public infrastructure projects.
• adoption of both group ratio rules in Irish law.
• operation of a notional local group as a single taxpayer for the purpose of the ILR provision.

In view of the very technical nature of this measure and its significant impact on most businesses, the Institute stressed how early and frequent engagement on this issue is crucial to securing a successful outcome that works for business and the Exchequer. This iterative consultative process should happen well in advance of the summer months and the signalled publication of a second Feedback Statement on the ILR.

The Tax Policy & Reps Team would like to thank the members who provided their feedback to help the Institute formulate its response to this important consultation for Irish business.

Read the Institute’s Submission