Budget 2022: Deloitte comments on Interest Limitation Rules announced has been saved
Budget 2022: Deloitte comments on Interest Limitation Rules announced
As expected, Budget 2022 saw the announcement of the highly anticipated Interest Limitation Rules (ILR) to be introduced in Finance Bill 2021. The rules will introduce, for the first time, a restriction to the tax relief available on borrowings in line with the EU Anti-Tax Avoidance Directive and will be of relevance to a wide range of taxpayers. The rules operate by limiting the amount of tax relief on borrowings to a specific percentage of a taxpayer’s EBITDA subject to certain group levels and exemptions.
Commenting on the measures, Pieter Burger, Tax Partner, Deloitte commented:
The changes introduced in recent years to Irish tax law have demonstrated a clear commitment to achieving the progress outlined in Ireland’s Corporation Tax Roadmap published in September 2018 and updated in January 2021. The introduction of the Interest Limitation rules in Finance Bill 2021 represents one of the last remaining changes outlined in the various roadmaps issued and has been the subject of two extensive feedback statements throughout the year. Such rules undoubtedly represent a challenge for taxpayers given their complexity, particularly as they are overlaid over Ireland’s already complex provisions on tax relief on borrowings.
The Anti-Tax Avoidance Directive allows for a range of exemptions and exclusions such as no restriction where net interest deductions are below €3 million in a tax year. Also, Irish taxpayers that form part of consolidated groups that are leveraged with debt to an equal or higher extent may largely be unaffected, depending on the circumstances. While the technical detail of the rules will become clearer in Finance Bill 2021, taxpayers and industry professionals will have to become familiar with the rules quickly in order to apply them for accounting periods commencing on or after 1 January 2022.
The corporate tax landscape has experienced significant change in recent years. The introduction of these Interest Limitation rules is the next step on this journey - early engagement with the new rules will be key to ensuring that they are understood and applied correctly.
Issued by Murray on behalf of Deloitte Ireland
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