Dáil Éireann Debate, Tuesday - 22 June 2021
214. Deputy Róisín Shortall asked the Minister for Finance the estimated additional revenue that would be raised through the introduction of the interest limitation rule as per the EU Anti-Tax Avoidance Directive for which Ireland currently has a derogation; and if he will make a statement on the matter. [32911/21]
View answerDrafting of the legislation to transpose the interest limitation rule or ILR mentioned by the Deputy is ongoing, which makes it difficult to provide a definitive estimate of its likely Exchequer impact. I would also note that the primary purpose of the measure is to improve the robustness of the international corporate tax system as a whole by preventing base-erosion and profit shifting through the use of excessive interest expenses. Therefore, while it is expected that the measure will generate some yield, a measure of its success will also be the prevention of BEPS activities rather than the raising of Exchequer revenue.
A number of other factors set out below also give rise to difficulty in estimating a yield.
First, the ILR is a generic, fixed ratio-based limit on current year interest deductibility, without general or targeted anti-avoidance rules. By contrast, Ireland’s existing comprehensive set of rules on borrowings and interest deductibility have evolved over time to combat abusive practices and provide strong protection to the Exchequer. For this reason I have decided to largely retain our underlying interest rules and introduce the ILR as an additional measure, which is designed to work with the continuing protections afforded by existing domestic legislation.
In addition, our transfer pricing legislation ensures that tax relief is only available for an arm’s length amount of interest. The “arm’s length principle” is an internationally agreed standard that requires related party transactions to be priced as if they were carried out by unrelated parties dealing at arm’s length.
Furthermore, while our existing interest rules permanently disallow non-qualifying interest, the ILR permits the deferral of excessive interest charges, so that amounts disallowed in one year may qualify as a deduction in a later year, subject to conditions.
Finally, Ireland’s long-standing general anti-avoidance rule ensures that Revenue is empowered to counteract tax avoidance in Ireland that is not caught by a specific anti-avoidance provision.
Having regard to the measure's objective of preventing excess interest charges, and taking into account the protections afforded by pre-existing domestic legislation, the ILR carry-forward provisions and the fact that drafting of the ILR legislation is still ongoing, it is not possible at this time to predict a specific yield from the ILR.
