267M Tax rate applicable to certain deposit interest received by individuals

Summary

This section provides that, in respect of EU sourced deposit interest, tax will be charged at the rate set out in section 256 (i.e. 39% in respect of interest paid or credited on or after 1 January 2017).

This section also sets out how non-EU sourced deposit interest, which is comparable with Irish-sourced deposit interest, tax will be charged.

Details

Definitions

“foreign deposit interest” means interest arising in a non-EU territory which would be deposit interest subject to deposit interest retention tax (DIRT) if it were payable in Ireland.

(a) Under the DIRT provisions in section 256, relevant deposit takers are defined as certain lending institutions. These hold relevant deposits (also defined), which are subject to DIRT. For the purposes of “foreign deposit interest” the definitions of “relevant deposit taker” and “relevant deposit” are adapted to apply to interest arising from any source (as distinct from an EU or Irish source).

“foreign territory” means a territory other than a EU Member State.

“specified interest” means interest arising in a EU Member State which would be deposit interest subject to deposit interest retention tax (DIRT) if it were payable in Ireland.

Under the DIRT provisions in section 256, relevant deposit takers are defined as certain lending institutions. These hold relevant deposits (also defined), which are subject to DIRT. Subsection (1) adapts the definitions of “relevant deposit taker” and “relevant deposit” to an EU, as opposed to an Irish-only, situation.

The definition of “relevant deposit” for the purposes of “specified interest”:

• (1)(a)(i) Section 256(1)(c) excludes deposits held at non-Irish branches of Irish lending institutions from the scope of the section (e.g. UK branch of Irish bank). The equivalent paragraph (c) for the new provision excludes deposits held at non-EU branches of EU lending institutions from the scope of the new section (e.g. the Australian branch of a French bank).
• (1)(a)(i) Section 256(1)(d) excludes deposits held at non-Irish branches of non-Irish lending institutions from the scope of the section (e.g. UK branch of UK bank). The equivalent paragraph (d) for the new provision excludes deposits held at non-EU branches of non-EU lending institutions from the scope of the new section (e.g. Australian branch of Japanese bank).
• (i)(a)(ii) Section 256(1)(g) relates to Irish currency deposits of foreign residents – this is not relevant to the new provision.

(1)(b) The definition of “relevant deposit taker” is adapted for the purposes of “specified interest”. Section 256(1) defines this as meaning a bank (which already includes EU banks), a building society (which is defined separately in section 256(1) to include EU building societies), a trustee savings bank, a credit union or the Post Office Savings Bank. The provisions of section 256(1) are extended to provide that bodies in other EU Member States that are equivalent to trustee savings banks, credit unions or Post Office Savings Banks are also brought within the definition of “relevant deposit taker”.

(1) “Tax”, for the purposes of determining residence of the lending institutions in the replacement paragraphs (c) and (d) of the definitions of “relevant deposit” above, means tax in a Member State that is equivalent to income tax or corporation tax in the State.

EU sourced deposit interest

(2)(a)(i) Tax paid under section 256 is a final liability tax. This is achieved by charging the part of taxable income equal to the EU sourced interest (“specified interest”) at the rate of DIRT specified in the definition of “appropriate tax” in section 256 (

• 39% in respect of paid or credited on or after the 1^st January 2017
• 37% in respect of paid or credited on or after the 1^st January 2018
• 35% in respect of paid or credited on or after the 1^st January 2019
• 33% in respect of paid or credited on or after the 1^st January 2020

However, the provisions of subsection (2)(a)(i) only apply where the taxpayer has discharged his or her tax liability by the return filing date for the year concerned.

Non-EU sourced deposit interest

(2)(a)(ii) Non-EU sourced deposit interest (“foreign deposit interest”) is charged to tax as follows-.

• in the case of a standard rate taxpayer, at the rate specified in Section 256(1):
• 39% in respect of paid or credited on or after the 1^st January 2017
• 37% in respect of paid or credited on or after the 1^st January 2018
• 35% in respect of paid or credited on or after the 1^st January 2019
• 33% in respect of paid or credited on or after the 1^st January 2020
• in the case of a non-standard rate taxpayer at the higher rate of 40%

The extent to which the Non-EU sourced deposit interest of a standard rate taxpayer is taxed at the rate specified in section 256(1) is limited to the amount of the unutilised standard rate band available for offset against the Non-EU sourced deposit interest. Accordingly if the Non-EU sourced deposit interest exceeds the unutilised standard rate band the amount of the Non-EU sourced deposit in excess of the unutilised standard rate band will be taxed at the higher rate of 40%.

However, the rate specified in Section 256(1) only applies where the taxpayer has discharged his or her tax liability by the return filing date for the year concerned. Where it has not, the interest will be charged at the higher rate of 40%.

Relevant Date: Finance Act 2021