Public Consultation: ATAD Implementation Hybrids and Interest Limitation

Deloitte Submission

In November 2018, the Minister for Finance launched a public consultation process in respect of adopting the ATAD provisions dealing with hybrid and interest limitation rules.

Deloitte were pleased to provide our insights to the Government on this important topic.

Key messages in our submission, which you can download on this page, include:

Hybrid Rules

Incorporate the rules into Irish law in a clear manner

In order to improve the legislative scrutiny process we would recommend that Finance Bill 2019 incorporates the anti-hybrid rules into primary legislation consistent with the principles set out in ATAD2 accompanied by mechanical rules included in statutory instruments which can be reassessed periodically to ensure that they meet the objectives of the legislation.

Importance of OECD Action 2 report

We recognise the benefits which can be gained from using the OECD report on Neutralising the Effects of Hybrid Mismatch Arrangement, Actions 2-2015 Final Report as an illustration. However, as a legislative matter and given the complexity of this proposal, we would suggest that proposed legislation recommend regard can be had to the reports in construing the legislation.

Safe harbours

The existence of simplified approaches for tax compliance, such as safe harbours, is recognised by the IMF/OECD as enhancing tax certainty. The anti-hybrid rules would benefit from clearly defined safe harbours which recognise that these rules are being introduced via a consistent multilateral approach.

Insufficiencies in existing legislation

It will be very difficult to draft statutory anti-avoidance measures to deal with circumstances where the underlying provisions are set out in Revenue practice rather than legislation. Consideration should be given to existing Revenue practice being codified in legislation as part of the process of enacting ATAD.

Interest Limitation Rules

The introduction of these rules follows from the OECD BEPS Action 4 report which analysed the extent to which debt-financing and interest costs have been used to erode national tax bases and thereby reduce the corporate income taxes borne by MNE groups. Due to domestic restrictions on the tax deductibility of interest and other finance costs, Ireland has not generally seen its fiscal base eroded in this manner. We know that this has been recognised by the Department of Finance which has notified the European Commission that Ireland’s current rules are equally effective as the ATAD interest limitations. Nevertheless, it is timely that a consultation be now undertaken to consider what changes will be required to Irish law, whether this be for 1 January 2024 or earlier.

In relation to the deductibility of interest generally, we would like to highlight that the purpose of the changes is to limit base erosion through artificial means rather than to necessarily limit the overall deductibility of genuine finance costs. Therefore, consideration should be given to take the opportunity at this time for broad reform of our tax code provisions relating to corporate finance generally.

Download our Submission to view our detailed responses on anti-hybrid and interest limitation rules.  

ATAD Implementation Hybrids and Interest Limitation
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