Institute responds to the public consultation on the tax treatment of interest in Ireland

Last week, the Institute, under the auspices of the CCAB-I, responded to the public consultation on the tax treatment of interest in Ireland. In our response, we stated the need for significant reform in order to remain competitive within the global race for talent and investment. As such, our most important proposal was our recommendation for a direction of travel which ends in a system which allows all commercial interest as a tax-deductible expense, whether trade-related or not, subject to the limitations described in the Interest Limitation Rule and the Anti-Hybrid Rules. The key policy rationale for such a move is the inherent protection afforded to the tax base in these rules. In our view, such a move presents an opportunity for a world-class and robust system to govern the taxation of interest in Ireland.

The consultation looked at the taxation of both interest income and interest expenses, with every aspect of the Taxes Consolidation Act 1997 relevant to interest considered. The overall structure of the consultation was twenty-seven questions across the following broad headings:

• Taxation of Interest Income
• Interest Deductibility
• ATAD Interest Limitation Rule
• Anti-avoidance provisions and other restrictions
• Financial Services Transactions
• Withholding Tax
• Reporting Obligations
• Reforming Existing Interest Regime

We made recommendations under each heading, however we have also been conscious of the need for caution in what is a complex and carefully balanced area of taxation. Our proposal for a system based around the Interest Limitation Rule and the Anti-Hybrid rules reflects the opportunity to choose a new way of taxing commercial interest which should not prejudice taxpayers and their existing arrangements.