Chartered Accountants Ireland under the auspices of the CCAB-I provided a high level response to the Department of Finance’s consultation on anti-hybrid and interest restriction rules stemming from the Anti-Tax Avoidance Directive (ATAD). The submission calls for consideration for the tax burden that further rules will place on already compliant taxpayers:

Dear Sir/Madam

In this letter, the CCAB-I sets out a number of general points for consideration in respect of this consultation. Our member firms will make detailed submissions on the complex and technical questions posed in the consultation document in respect of proposed anti-hybrid and interest limitation tax rules.

1. Implementation of Anti-Tax Avoidance Directive measures into Irish law

International standards in tax transparency have been progressively incorporated into the fabric of Ireland’s tax laws over the past number of years. Ireland has been an early adopter of EU and OECD initiatives and best practice recommendations, such as Country by Country Reporting, the modified nexus rule in our Knowledge Development Box legislation, and the CFC rules. While the desire to implement tax policy to confirm that Ireland is a good international corporate tax citizen is understandable, it should not place additional compliance burdens on already compliant taxpayers.

The deadline for implementation of the Anti-Tax Avoidance Directive (ATAD) compliant exit tax is not until 1 January 2020 under the terms of the Directive. However, these rules were incorporated into Irish law on Budget Day in October 2018 which was more than a year earlier than necessary. The early adoption of these rules creates uncertainty among businesses located here and among companies considering investing in Ireland as to the manner and timing of other ATAD related measures. Ireland should not accelerate the introduction of any measures beyond the dates for implementation set out in the Anti-Tax Avoidance Directive. In particular, if Ireland is required to adopt interest limitation rules because its existing regime is not considered to afford equivalent protection to the ATAD interest limitation rule, Ireland should ensure that appropriate time is taken to draft measures, consult on their detailed implementation and design supporting online tools (including implementing guidance) to enable businesses and practitioners to understand and comply with the measures.

2. Anti-Hybrid rules

The anti-hybrid rules have the potential to be very complicated, particularly around the areas of defining hybrid entities and assessing whether a payment can be viewed as having been subject to tax. It is very important that the application of these rules is not made administratively burdensome. For example, in the asset management sector many companies have a multi-tiered investment structure whereby there are multiple intermediate investment vehicles in the overall structure.

In seeking to insert the concept of whether a payment has been subject to tax into domestic legislation, care will need to be taken that the mechanism for doing so takes account of the practicalities with regard to attaining the necessary level of evidence that a payment has been included where it passes through a number of intermediate holding structures, which could be considered as transparent or opaque.

We suggest that, as part of the implementation process, draft legislative measures should be made available for review and comment so that their operation can be tested, in practice, against a range of real life holding structures. In this way, the risk should be reduced of measures resulting in unintended double taxation outcomes which could adversely affect the asset management sector.

3. Interest limitation rules

The interest limitation rules represent a significant change in the application of Ireland’s corporation tax regime to taxing interest and other financial payments. It is critical that implementation is delayed to allow time for taxpayers to prepare and to align our existing complex interest rules with them. From the outset the Minister announced that implementation would be delayed until 1 January 2024. Where this commitment cannot be met, sufficient time should be allowed for adoption and, at a minimum, no earlier than 1 January 2021.

As Ireland’s existing regime affords equivalent protection to the ATAD interest limitation rule, Ireland should review and redesign its existing regime for deducting interest and other financing expenses to ensure that adding the additional protection of an ATAD interest limitation rule does not, in practice, result in undue restrictions of expense.

When the rules are introduced it is very important that all of the carve outs provided for in the Anti-Tax Avoidance Directive are catered for and most particularly that the definition of “economically equivalent taxable revenues” is sufficiently broad to recognise income and gains in the nature of financing such as derivative income, discounts, capital gains on financial assets, and leasing income.

4. Transfer pricing

We understand that Ireland is to consult on the future of its transfer pricing regime in 2019. The November 2018 consultation highlights the interlinkage between base erosion protections which are provided by transfer pricing, anti-hybrid rules and interest limitation measures. Clear and timely transfer pricing guidance should be available to taxpayers for the purposes of managing and documenting transfer pricing policies that are likely to be relevant on the introduction of anti-hybrid and interest limitation rules into Irish tax law. To ensure there are no unintended consequences from a transfer pricing perspective and that the interaction of transfer pricing adjustments do not have an unintended impact upon adoption of anti-hybrid and interest limitation measures, transfer pricing guidance should address the following issues:

1. how any potential grandfathering provision should be applied in practice;
2. the effects of disregarded payments (as under the hybrid rules or for payments from a branch to a head office) on existing transfer pricing analyses/documentation and
3. the effects on analyses where counterpart jurisdictions are impacted by disregarded payments.

5. About CCAB-I

The Consultative Committee of Accountancy Bodies-Ireland is the representative committee for the main accountancy bodies in Ireland. It comprises Chartered Accountants Ireland, the Association of Chartered Certified Accountants, the Institute of Certified Public Accountants in Ireland, and the Chartered Institute of Management Accountants. Dr Brian Keegan, Director of Public Policy and Taxation (brian.keegan@charteredaccountants.ie, 01-6377347) or Norah Collender (Norah Collender @charteredaccountants.ie, 01-6377206) at Chartered Accountants Ireland may be contacted if any further details in relation to any points made in this submission are required.

Yours faithfully

Sharon Burke

Chair of the CCAB-I Tax Committee