The consultation is a welcome development because Irish holding companies have already waited a long time for this regime to be implemented and any further delays could continue the unnecessary administrative costs of integrating substantive activities in Ireland with holding company requirements.  Although our current regime for foreign dividends and branch profits does not generally give rise to significant tax revenues, complexities and administrative costs can arise in the application of the credit system.  Ireland has the opportunity now to implement an exemption system, which is similar to that which exists in most countries and which is fully compatible with all international tax reforms (including Pillar One and Pillar Two and the proposed EU Unshell directive).  Economically, this would align with the forthcoming group restructurings which are likely to occur as a consequence of international tax reforms.

The following is a summary of the points raised in our response:

  • Ireland should implement a full exemption for foreign dividends and foreign branch profits with effect from 1 January 2023;
  • the regime should be elective on an investment by investment or branch by branch basis so that taxpayers have the flexibility to elect out of the more complex tax credit system and into the exemption system but with the option to remain under the existing system for those companies for whom the election would be disadvantageous;
  • a simplified principles-based foreign tax credit system should apply where the election for exemption is not made;
  • no change is required in the interest deductibility provisions as our interest regime is already sufficiently restrictive (including the recent addition of interest limitation rules).  We would support a full reform and simplification of our interest deductibility provisions in line with other EU/OECD countries;
  • no expansion of Ireland’s Controlled Foreign Company (“CFC”) rules is required given significant tax reform in recent years including ATAD[1], expansion of transfer pricing rules, OECD Base Erosion and Profit Shifting (“BEPS”) measures etc;
  • there should be no conflict between a territorial regime and the OECD BEPS 2.0 proposals given that most OECD countries have a participation exemption and indeed a conflict is more likely to arise where we have a different system; and
  • only minor technical changes are required to Ireland’s CFC, exit tax and anti-hybrid rules to adapt for a territorial regime.

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


[1] EU Council Directive 2016/1164