As part of the announcement the Department of Finance have published a roadmap and a public consultation. The public consultation will run until 13 December 2023. It seeks input on the details of the design features of the legislation, and in particular, how it will interact with other legislative provisions such as those enacted pursuant to the Anti-Tax Avoidance Directives (ATAD 1 and ATAD 2).

While the introduction of a dividend participation exemption is certain, with a definite timeline for implementation set out, the introduction of a foreign branch participation exemption is less certain, with the public consultation being used to investigate how such an exemption would look and what it would be used for.

The announcement on the introduction of the dividend exemption is welcome, and it is something that Arthur Cox LLP has been advocating for over several years.  As non-Irish dividends usually result in no incremental Irish tax, there will be no loss of tax revenue to Ireland and as such, no downside to introducing it.  The measure is a welcome simplification of the current complex regime which we consider may be non-compliant with EU law in parts. 

Arthur Cox LLP will advocate to move to a simple and full exemption (as many of other countries have).  If the new rules are a complex partial exemption, then all that will have been achieved is to change from one complex system that raises no tax to another complex system which raises no tax – a futile exercise. 

On the negative side, a participation exemption for foreign dividends has been inevitable for several years, and even more pertinent in light of the introduction of the Pillar 2 regime which is premised on a territorial system of taxation. It is therefore disappointing that there is further delay, and that the introduction could not be timed to coincide with the introduction of the new Pillar 2 regime.  Many fulsome submissions have been made to Department of Finance over the years exploring the policy and technical issues related to a dividend participation exemption.  Draft legislation has been furnished.  As a result, we struggle to see what will be achieved by this current further consultation over the coming year. 

It was also very disappointing not to see a full commitment to a foreign branch participation exemption nor to a process for reforming Ireland’s rules on interest deductibility which are no longer fit for purpose.  Like the dividend participation exemption, these changes are inevitable and so we fail to see any need for further delay.

Baby steps…..