The measures under consideration are a denial of deduction of costs or the imposition of withholding taxes. These measures would apply to no-tax, zero-tax jurisdictions, and to the EU list of non-cooperative jurisdictions for tax purposes (known as “the EU Blacklist”). Arthur Cox LLP has made a submission to the Department in respect of the proposed new measures which you can access here. The key issues are as follows:

Outbound interest payments

Ireland, unlike most EU jurisdictions, applies a withholding tax on interest – with exemptions for residents of treaty countries. Hence, in principle, action is not needed in respect of interest. In relation to outbound interest payments, we strongly advocate that any measures should exclude publicly traded instruments such as listed bonds or commercial paper.
Revenue authorities should be responsible for identifying instances of avoidance (on foot of the information at their disposal or in their power or possession) and giving notice to the payer of the interest to take remedial action. This remedial action should only occur in the case of actual avoidance of tax and not simply as a matter of course. In our view, a withholding tax is a better approach than a denial of deduction for a number of reasons, including that the payee may be entitled to treaty benefits and have a right of refund against the Irish Revenue.  To impose a denial of deduction means that a refund would not be available.

Outbound payment of royalties

We are of the view that many of the recent international tax measures are already having an impact in changing the structures used by multinational groups and profit allocation within those groups. We consider it premature to consider the introduction of additional measures in respect of outbound royalty payments until a thorough assessment is made on the effect of the existing and proposed international measures.
Once more, if a change is being made (which we do not consider to be needed) it should only be a withholding tax on payments to EU Blacklist countries in circumstances where there is no direct or indirect tax in another jurisdiction.

Outbound dividend payments

We do not accept that any of the proposed taxation measures should apply to dividends. Since dividends are already paid from previously taxed income, there can be no double non-taxation. The profit out of which the dividend has been paid has already been taxed once.  The imposition of further withholding taxes would be an additional administrative burden for no policy benefits.

In summary

  • To avoid layering complexity upon complexity when a simple enforcement of rules by the tax administration achieves the same ends, we consider that no changes should be made.
  • If any new regime is to be introduced in respect of interest (which we do not accept as necessary), public instruments must be excluded.
  • Interaction with existing international tax measures and new proposals including Pillar Two of OECD BEPS 2.0 should be considered.
  • Any new measures should only apply to EU Blacklist countries.

If you would like to discuss this topic, please contact a member of the Arthur Cox Tax Team.