In November, the Department of Finance launched a public consultation on the strawman proposal for the reform of the taxation regime for interest in Ireland. The public consultation forms part of what is expected to be a multi-phase project to reform the taxation regime for interest with the aim of ensuring our tax system is resilient, supports competitiveness, protects the tax base and aligns with our commitments to our international trading partners. Last week, the Institute submitted our response to this initial phase of this wide-ranging and ambitious project.
We have provided a detailed response to the strawman proposal where we set out, among other things, the need for careful consideration of any changes to how interest is currently taxed, both in the hands of those receiving interest income and those incurring interest expenses. The strawman proposal includes a recommendation to move to an accruals basis for interest arising under Case III/IV activities as well as a move to a new test for determining deductibility in the form of a ‘profit motive’ test.
Broadly, our comments urge the Department to reconsider the trajectory of the project and to consider whether such changes simply alter existing rules without any clear benefit to taxpayers rather than actually progressing the tax system towards once which is fully adapted to international best practices. Presently, our system has layered complex anti-avoidance driven by the EU Anti-Tax Avoidance Directive on top of an existing system of anti-avoidance that is already complex.
The proposals also include a recommendation to activate transfer pricing rules for SMEs. In our response, we have in fact recommended for the repeal of these rules. In our view, these rules are not required for such entities. The benefit, if any, to the integrity of the tax base is totally outweighed by the added cost and complexity in the administration for SMEs.
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