IRELAND Law and Practice Contributed by: Andrew Quinn, David Burke, William Fogarty and Lynn Cramer, Maples Group
2.5 Deduction of Interest In general, trading companies can only take a deduc - tion for interest incurred wholly and exclusively for the purposes of the trade. Interest expenses incurred on funds borrowed to purchase, repair or improve rented premises are allowed as a deduction against the relat - ed rental income. Interest incurred by a company on funds borrowed to acquire shares in, or loan money to, certain other companies can be allowable in full against the total profits of the company (as a charge on income), providing specific conditions are met. While there are no “thin capitalisation” rules that apply in Ireland, it is nonetheless possible in certain limited cases for the interest to be reclassified as a distribution, preventing such interest from being tax- deductible. The EU Anti-Tax Avoidance Directive (EU ATAD) con - tains a fixed ratio interest limitation rule (ILR), and applies to accounting periods commencing on or after 1 January 2022. The ability to claim a tax deduction for the excess interest is restricted to 30% of EBITDA (earnings before tax and before deductions for net interest expense, depreciation and amortisation). The Irish ILR legislation incorporates a number of impor - tant exemptions and exclusions in line with EU ATAD, including an exemption for “standalone entities” and entities whose net interest expense is less than EUR3 million per annum. Companies can elect to operate the ILR on a single entity or on a local Irish group basis. Moreover, where the taxpayer is part of a consolidated worldwide group for accounting purposes, the indebtedness of the overall group at a worldwide level may be considered for the purposes of providing additional relief under one of two grouping rules. 2.6 Consolidated Tax Grouping The concept of consolidated tax grouping for corpora - tion tax purposes does not exist in Ireland. However, trading losses may be offset on a current-year basis against the taxable profits of another group company. Both the claimant company and the surrendering company must be within the charge to Irish corpora - tion tax. To form a group for corporation tax purpos -
es, both the claimant company and the surrendering company must be resident in an EU country or an EEA country with which Ireland has a double tax treaty. In addition, one company must be a 75% subsidiary of the other company, or both companies must be 75% subsidiaries of a third company. The 75% group rela - tionship can be traced through companies resident in a “relevant territory” – ie, an EU member state, an EEA treaty country, or another country with which Ireland has a double tax treaty. 2.7 Capital Gains Capital gains other than gains from development land are included in a company’s profits for corporation tax purposes and are charged to tax under a formula, with the effect that tax is paid at the prevailing capital gains tax (CGT) rate, which is currently 33%. Substantial Shareholder’s Relief Disposals by a company of a substantial sharehold - ing in a subsidiary company that is resident in an EU member state or a country with which Ireland has con - cluded a double tax treaty are exempt from CGT if, at the time of the disposal: • the subsidiary company carries on a trade, or the activities of the disposing company and all of its 5% subsidiaries taken together amount to trading activities; and/or • the disposing company holds or has held at least 5% of the ordinary share capital and economic interest in the subsidiary company for 12 months, beginning not more than two years before the disposal. Intra-Group Relief Relief from CGT is available where both the company disposing of the asset and the company acquiring the asset are within a CGT group. A CGT group consists of a principal company and all its effective 75% sub - sidiaries. In addition, the shares must be within the charge to corporation tax on capital gains both before and after the transfer. The effect of the relief is that both the company dis - posing of and the company acquiring the asset are treated as if the shares were acquired for such consid - eration as would secure that neither a gain nor a loss
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