IRELAND Law and Practice Contributed by: Philip Tully, Emma Doherty, Alice Duffy, Simon Shinkwin and Marie McGinley, Matheson LLP
and records used to prepare the intellectual property valuation. Participation Exemption for Certain Foreign Distributions A participation exemption for certain foreign distribu - tions was introduced in Finance Act 2024 and applies to distributions received after 1 January 2025. The key conditions are, broadly, as follows: • the parent company must hold at least 5% of the ordinary share capital of the foreign subsidiary for at least 12 months; • at the time of the distribution and for the previ - ous three years, the foreign subsidiary must have been resident for the purposes of a foreign tax in a “relevant territory” and not have been generally exempt from tax; and • the distribution must be made out of profits or, if not, made out of the assets of a company in respect of which a disposal of that company’s shares would qualify for the substantial sharehold - ers’ exemption from capital gains tax. The new exemption sits alongside Ireland’s existing tax and credit regime and must be claimed by a tax - payer in its corporation tax return. 5.4 Tax Consolidation Tax consolidation is not available under Irish tax law, and a company subject to corporation tax must pre - pare and file its tax return for corporation tax purposes for each assessment period. However, Irish tax law does provide for group relief, which permits compa - nies within the same corporate group to surrender certain losses to other profitable group companies. 5.5 Thin Capitalisation Rules and Other Limitations Ireland does not have any specific thin capitalisation rules, but there are a number of circumstances where interest payments may be considered non-deductible in calculating the taxable profits of a company. Ireland has introduced anti-hybrid rules and anti- reverse-hybrid rules, in accordance with the EU Anti- Tax Avoidance Directives (ATAD I and II). These rules can deny tax deductions in respect of certain arrange -
ments between associated enterprises, giving rise to tax mismatches as a result of hybrid instruments or entities. These rules can also apply to treat certain transparent Irish entities as subject to tax. Ireland has also implemented interest limitation rules in accordance with EU ATAD. These rules apply to cap deductions for net interest expense at 30% of earn - ings before interest, taxes, depreciation and amortisa - tion (EBITDA) in certain circumstances. In addition, Ireland has introduced defensive meas - ures in respect of certain outbound payments made after 1 April 2024. These measures operate to remove exemptions from withholding taxes on certain out - bound payments of interest, royalties and distributions to an associated entity who is resident in a “zero-tax” or “no-tax” jurisdiction or in a jurisdiction listed on the EU Blacklist. 5.6 Transfer Pricing Irish transfer pricing rules apply the arm’s length principle to trading transactions between associated enterprises. In this context, “arm’s length” is to be construed in accordance with OECD guidelines. The Irish transfer pricing rules were significantly amended from 1 January 2020 to align with the 2017 OECD guidelines, including enhanced documentation requirements. Ireland’s transfer pricing rules are cur - rently to be construed in accordance with the 2022 version of the OECD guidelines. Broadly, Ireland’s transfer pricing rules require that if the actual consideration payable or receivable by a trader in a transaction with an associated enterprise is other than at arm’s length, then any understatement in the trader’s profit will be reversed so that the full arm’s length profit of the trader will be taxed. Ireland’s transfer pricing rules have also been extend - ed to non-trading transactions (save for certain non- trading transactions between two Irish residents). The Irish transfer pricing rules can now also apply to capi - tal transactions where the market value of the asset exceeds EUR25 million.
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