EU TAX: Ireland proposes to impose withholding taxes on payments to EU-listed jurisdictions

The country says it is committed to eliminating opportunities for base erosion and profit shifting, in accordance with multilateral discussions at the OECD and European Union. It recently published a National Recovery and Resilience Plan (NRRP), setting out a series of commitments to be delivered in relation to tackling aggressive tax planning. It has also enacted corporation tax reforms to the same end.

Its final remaining commitment under the NRRP is to introduce legislation applying to outbound payments, in order to prevent double non-taxation. This is a critical part of the legal commitment made by Ireland to secure funding under the European Union's Recovery and Resilience Facility, set up in 2021 to make EUR723.8 billion in loans and grants available to EU Member States. Ireland's Department of Finance launched an initial public consultation on this commitment in November 2021 and is now ready to draft the legislation, which will be included in Finance (No. 2) Bill 2023.

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.