The measures will include withholding taxes on, or non-deductibility of, outbound payments. Dividends are already non-deductible, so the appropriate measure will be a withholding tax. The tax will also apply to royalties and dividends, with associated changes to the underlying charge to Irish tax on recipients in jurisdictions listed by the EU as non-cooperative, low-tax or zero-tax, aligning with Ireland’s existing controlled foreign company (CFC) legislation.
However, the measures are intended to apply only to connected, related or affiliated entities, where one entity has ‘definite influence’ in the decision-making activities of the other entity or where a third entity controls the decision-making activities of both. They will not apply to jurisdictions that are not low- or zero-tax, but that provide a participation exemption where the relevant conditions apply. Anti-avoidance measures will be introduced in parallel.
Ireland is not planning to renegotiate any of its current tax treaties. However, the administrative procedures may have to be amended, so that tax will be withheld where the proposed withholding taxes apply to a payment and the recipient will have to claim a refund under the relevant treaty. Outbound payments will not be taxed where the amount is taken into account for the purposes of calculating a CFC charge or a top-up tax under the OECD Global Anti-Base Erosion rules.
The consultation closes on 8 August 2023.
Source: STEP