Finance Bill 2025 introduces a suite of updates that will affect international businesses operating in Ireland.
The Bill’s technical clarifications and expansions, especially in areas like foreign dividends and Pillar Two compliance, signal a continued commitment to international tax cooperation, but also present fresh challenges for companies seeking clarity and operational certainty in an increasingly complex environment.
The Bill introduces a new section on the tax treatment of foreign body corporates which provides that where a foreign body corporate has characteristics (including rights and obligations of its members) which are “substantially similar” to those of an Irish partnership established under Irish law, it will be treated as a partnership for Irish tax purposes.
Therefore, each member of the body corporate will be considered a partner in a partnership and chargeable to Irish tax accordingly on their share of income, profits or gains.
The use of the phrase “substantially similar to” in the Bill leaves a degree of uncertainty, as the term is neither defined within the Bill nor referenced elsewhere in the Taxes Act.
The capital allowances regime for intangible assets provides for a tax deduction for capital expenditure incurred on the acquisition of intangible assets used for the purposes of a trade. The Bill sets out a number of technical clarifications to the regime.
As part of the Financial Resolutions on Budget day, an immediate change was made to provide that balancing allowances arising on the disposal of qualifying intangible assets fall within the normal rules that restrict capital allowances for intangible assets (and related interest expenses) to 80% of the trading income arising from such assets. Any balancing charge that cannot be offset is carried forward as part of the normal pool of ‘excess allowances’ available for future years.
The Bill also clarifies that capital allowances which are claimed in the tax return but which are restricted from offset against trading income due to the 80% limitation are treated as ‘made’ for capital allowance purposes. This means that such restricted allowances cease being part of the tax written value of the intangible asset, but instead form part of a pool of ‘excess allowances’ carried forward to future years.
The Bill includes a number of clarifications regarding how the intangible asset regime interacts with other company reconstruction reliefs. The Taxes Acts provide that where a trade transfers between companies within the same 75% ownership, the transfer of assets does not trigger balancing allowances or charges, and the successor company ‘steps into the shoes’ of the predecessor company for the purposes of claiming future tax relief on the assets transferred. The Bill clarifies that the same rules apply to intangible assets that transfer as part of a qualifying reconstruction.
The Bill also includes new rules on how ‘excess allowances’ and ‘excess interest relief’ are treated as part of a company reconstruction. Under these new provisions, the successor company is entitled to claim the amount of ‘excess allowances’ and ‘excess interest’ of the predecessor company that relate to intangible assets that are transferred from the predecessor company to the successor company on the transfer of the trade.
The new provisions have effect for accounting periods starting on or after 1 January 2026 in respect of a qualifying company reconstruction which occurs on or after 1 January 2026.
Based on the updated provisions, carried forward amounts arising from company reconstructions which have occurred in prior accounting periods are not covered within the new provisions.
The new rules do not provide detail on how companies are to calculate the amount of the relevant ‘excess allowances’ and ‘excess interest’ of the predecessor company. In some cases, companies may have ‘excess allowances’ and ‘excess interest’ carried forward that relate to assets that have been sold by the business, and it appears that those allowances would not transfer on a qualifying reconstruction.
In other cases, where only some assets of the predecessor company transfer, it states that any ‘excess allowances’ and ‘excess interest’ are to be allocated between the assets transferred and the assets retained on a ‘just and reasonable basis’.
Finance Act 2024 introduced a dividend participation exemption. Currently the regime applies to subsidiaries resident in the EEA or a country with which Ireland has concluded a Double Taxation Agreement. The Bill includes a number of welcome updates to improve the scope of the exemption. Notable changes, which will apply with effect from 1 January 2026, include:
There was also a technical clarification to confirm that an exemption for distributions made from profits is not conditional upon the relevant subsidiary meeting the eligibility requirements for the capital gains tax participation exemption.
In addition, the Bill includes changes to provide that distributions from a company will not be excluded from exemption where during the “reference period” that company has acquired shares in a company, moved residence from Ireland, was formed through a merger with an Irish resident company, or acquired a business or business assets from an Irish resident company. These amendments apply retrospectively to distributions made on or after 1 January 2025.
The Bill provides for amendments to country-by-country reporting (CbCR) to reference revised guidance issued by the OECD in May 2024. The updates provide that CbCR reports shall be prepared in accordance with the updated OECD guidance, and that Irish CbCR legislation should be interpreted in a manner consistent with the OECD CbCR model legislation and guidance, save where that would be inconsistent with the EU Directive.
In addition, updates have been made for the purposes of assessing whether the €750 million threshold has been met to determine if a group is an MNE group:
The Pillar Two Global Anti-Base Erosion (GloBE) rules seek to ensure that large groups with consolidated global revenues in excess of €750 million pay a minimum 15% effective rate of tax in each jurisdiction in which they operate.
The rules were implemented into Irish law in Finance (No. 2) Act 2023, with subsequent technical amendments in Finance Act 2024. The Bill proposes various technical amendments and clarifications to these rules, including:
The Committee Amendments amended Irish GloBE rules, which generally require the use of UPE financial accounts rather than local financial accounting standards in certain situations.
Specifically, a new section has been added to allow the continued use of local accounts when an Irish entity is incorporated, liquidated, undertakes a merger or division (cross border or domestic) or acquired during a relevant period. In such circumstances, the accounting period is deemed to align with the group’s consolidated fiscal year.
For entities acquired during a relevant period, the accounting period of the entity will be deemed to align with the group’s consolidated fiscal year in the year of acquisition and in the subsequent fiscal year. A grace period is therefore effectively provided to allow MNE groups to bring the accounting period of the acquired entity into line with the group’s fiscal year.
This is a welcome amendment and should mean that local GAAP can be used to calculate Irish QDTT liabilities in most cases. The amendment also reduces the risk of groups “flip-flopping” between accounting standards for QDTT calculation purposes (e.g., where an entity needs to be liquidated for commercial reasons in a future period). The amendment applies in respect of accounting periods commencing on or after 31 December 2023.
The Companies Act 2014 provides for a merger or a division of companies by operation of law in certain circumstances. Tax legislation provides that the relevant successor company or companies succeeds to the tax filing, reporting and payment obligations of the transferor company and must file returns and make payments in like manner to the transferor company.
The successor company effectively ‘steps into the shoes’ of the transferor company with regard to the tax filing and reporting obligations of the transferor company.
The Bill includes an update to include any obligations arising to the transferor company under Pillar Two legislation to be transferred to the successor company.
In general, Revenue have five years from the end of the fiscal year in which to make or amend an assessment. The Bill provides for updates to allow for amendments outside of the general time limit to give effect to a Mutual Agreement Procedure (MAP) reached with foreign jurisdictions under a Tax Information Exchange Agreement (TIEA). TIEAs are bilateral agreements entered into by Ireland with foreign jurisdictions under which the territories agree to co-operate in tax matters through exchange of information.
It should be noted that Finance Act 2018 had previously updated the time limit for Revenue to make or amend an assessment to give effect to the conclusion of a MAP under a Double Taxation Agreement. The extension to MAPs formed under TIEA provides certainty for taxpayers currently engaged with MAP within foreign tax jurisdictions with which Ireland has a TIEA.
The measures unveiled in Finance Bill 2025 will have far-reaching implications for businesses across Ireland. If you have any enquiries, comments, or wish to explore further, we are here to assist.
Contact Cillein Barry of our Tax team today.
