Deloitte responds to New Taxation Measures to apply to Outbound Payments

We responded to the ‘New Taxation Measures to apply to Outbound Payments - Feedback Statement July 2023’ from the Department of Finance. As part of our response we commented on the draft legislation which aims to prevent double non-taxation applying to outbound payments of interest, royalties and dividends. Our comments include:

• In our view the scope of the proposed legislation is unnecessarily broad and goes beyond what is proportionate to satisfy Ireland’s commitment under the National Recovery and Resilience Plan.
• Ireland’s competitiveness with respect to inward investment must be a key consideration to ensure the significant role of the Financial Services Industry in Ireland and Ireland’s position as a key hub for inward investment is maintained.

• Bona fide commercial arrangements of which the main purpose or one of the main purposes is not the avoidance of tax, should not be within scope of the new measures.

• We recommend that a grandfathering provision be included in the legislation so that the new measures only apply to arrangements the terms of which are agreed on or after 1 January 2024.

• Consideration should be given to bringing the rate of withholding tax in line with the 12.5%/ 15% rate of tax.

• In the case of interest and royalties, regard should be given to introducing provisions which will allow the payor to elect to withhold tax on the payment or to deny a deduction for the payment.

• The withholding tax exemption for interest payments in respect of Quoted Eurobonds and wholesale debt instruments should not be restricted nor within scope of the new measures.

• The legislation should consider including a form of “main purpose test” or “Principal Purpose Test” (PPT) such that the existing withholding tax exemptions should only be denied where such a PPT test is not satisfied.

• Any amendment to the existing Dividend Withholding Tax (DWT) provisions contained in Irish tax law would arguably not achieve the stated aim in Ireland National Recovery and Resilience Plan to tackle aggressive tax planning.

•  In our view the proposed measures should not go beyond what is necessary to prevent double non taxation.