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Tax Legislation Changes Impacting Businesses in 2024

The 2023 Finance Act introduces a number of changes which will impact on Irish businesses and the economy. Our Tax team reviews some of the main changes, focusing on those which may affect businesses operating in the Energy sector.

The Finance Act 2023 introduced a number of important changes to Irish tax legislation, including changes to integrate policies that have been driven at an EU and OECD level. We examine the scope of the most significant changes that businesses should be aware of for the coming year and beyond.

Pillar Two

Perhaps the biggest talking point from the Act is its transposition of the EU Minimum Tax Directive 2022. This Directive introduced a framework for the implementation of the OECD Pillar Two agreement, known as the Global Anti-Base Erosion (GloBE) rules. The GloBe rules provide for a global minimum effective tax rate (ETR) of 15% on profits for businesses that have an annual global turnover in excess of €750 million. The provisions apply to multinational and domestic businesses that meet this threshold in at least two of the preceding four years. They come into effect for in-scope businesses with accounting periods beginning on or after 31 December 2023.

Generally, to satisfy the minimum 15% ETR on a jurisdictional basis, group entities located in countries where their ETR is less than 15% will pay a top-up tax to ensure the minimum level of tax is reached. Ireland has elected to operate a top-up tax, known as a QDTT under the Pillar 2 rules, given the standard trading 12.5% rate of corporation tax is below the 15% minimum. This acts as a safe harbour and ensures that Irish based group entities which are in scope will pay any top-up tax due, to the Irish Exchequer, rather than to a tax authority outside of Ireland.

Intra-group financing

The Act introduces new measures to deal with the double non-taxation of income related to the payment of interest, royalties or distributions made to associated entities/companies located in non-EU, no-tax or zero-tax rate jurisdictions. This is also applicable for countries that are on the EU non-cooperative list. It does this by disapplying the usual exemptions from withholding tax on these payments from 1 April 2024. From 1 January 2025, it will also impose a reporting obligation on the payor in instances where there are certain pre-existing arrangements. It is expected that this rule change will apply in a limited number of cases but where it is applicable, the effect of the measures could be significant. Where these measures are applicable, restructuring may be considered.

In the case of listed debt or wholesale debt instruments, there is a limited carve-out from the application of these measures for interest payments where “it is reasonable to consider that the payor was not, and should not be, aware that the payment is made to an associated entity” which is helpful.

Distributions will be caught by the new measures and will be subject to Irish withholding tax where, broadly speaking:

  • The distribution is made to an associated entity/company located in non-EU, no-tax or zero-tax rate jurisdiction, and
  • The income, profits or gains from which the distribution is made were not subject to taxation

Separately, the Act introduces a new measure providing for interest tax deductibility for a “qualifying financing company”. This measure applies to a company which raised third party finance to on-lend to a qualifying subsidiary for that subsidiary’s trade. This is a welcome change designed to assist certain financing and leasing activities.

Relief for investors

An Angel Investor Relief has been introduced by the Act. This reduces the 33% rate of CGT for gains. Qualifying investors may avail of an effective reduced rate of CGT of 16%, or 18% where the investment is made through a partnership, on a gain up to twice the value of their initial investment. There is a lifetime limit of €3 million on gains to which this reduced rate will apply.

The key conditions for investments to qualify are that the investment must:

  • Be made in a start-up which is an SME certified by Enterprise Ireland
  • Be in the form of fully paid up newly issued shares of at least €20,000, or €10,000 - €20,000 where the investor holds a stake of at least 5%
  • Represent not more than 49% of the ordinary issued share capital of the company, and
  • Be held for 3 years

One noteworthy change for business owners nearing retirement age is that from 1 January 2025, the age limit for qualifying individuals for the maximum amount of CGT retirement relief is being increased from 65 years to 69 years. In addition, a new maximum limit of €10 million will be introduced for disposals to a child up to the age of 70. The age limit for disposals to third parties has also been increased from 65 to 69 for the existing applicable thresholds of €750,00 and €500,000.

The Act introduces a number of changes to the Employment Investment Incentive which provides tax relief for investments in qualifying companies. The required investment period is reduced to four years (previously it was seven) and the amount an investor can claim relief for is increased to €500,000. However, the rate of relief available is being reduced from the standard rate of 40% to 20% – 50%. This rate will depend on the status of the company seeking investment, and on whether the investment is made directly or through a qualifying investment fund. These changes apply from 1 January 2024.

Relief for R&D expenditure

The R&D tax credit, available to companies for qualifying spend on research & development activities, has been increased from 25% to 30% from 1 January 2024. This means that for businesses within the scope of Pillar Two, the value of the tax credit is maintained at previous levels.

Revenue compliance changes

The Act introduces a significant change to the taxation of share option schemes. From 1 January 2024, employers are obliged to operate income tax, USC and PRSI on share option gains through the real-time PAYE system and to report on the exercise (and/or grant) of share options. This change is likely to result in a significant burden for affected employers operating existing share option schemes in this year and beyond and we would advise employers to review their obligations.

In addition, new rules on the enhanced reporting of employee benefits by employers, which were legislated for in Finance Act 2022, have come into effect from 1 January 2024. This represents an additional unwelcome compliance burden for employers and we would advise employers to familiarise themselves with the new rules.

Separately, another important change introduced by the Act is the possibility of a joint audit by the Revenue Commissioners and a tax authority of another EU Member State. Upon request by the other tax authority, Revenue may authorise a foreign tax official to be a ‘nominated officer’ for the purposes of a joint audit only. There are detailed measures in the Act in this regard, and we would recommend that any business with cross border activities should be aware of these measures.

Ones to watch

There are two other material developments in Irish tax on the horizon, namely a proposal to bring in a dividend participation exemption and new country-by-country reporting requirements.

A participation exemption will be introduced for inbound dividends in 2024. A public consultation is in progress, with a feedback statement due by the end of March 2024. Adoption of a full dividend participation exemption regime in line with other EU and OECD countries is envisaged. This would represent a significant improvement in Ireland’s competitiveness and its reputation as a jurisdiction in which to invest and do business.

The EU (Disclosure of income tax information by certain undertakings and branches) Regulations 2023, commonly referred to as public country-by-country, or CbC tax reporting obligations will apply from 22 June 2024. This means that corporate groups with an annual turnover of €750 million or more in each of the two consecutive financial years will be obliged to publish certain information if they are either EU parented or otherwise have EU subsidiaries or branches of a certain size. The report must include information on all members of the group (i.e. including non-EU members) and contain certain tax and other financial information of the activities performed in each country. However, importantly, the CbC reporting obligations will not apply to groups operating solely within a single EU Member State or to Irish branches where the net turnover does not exceed €12 million in the preceding two consecutive financial years.

For more information and expert advice on understanding and navigating the potential impact of these changes in 2024, contact a member of our Tax team.

The content of this article is provided for information purposes only and does not constitute legal or other advice.

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