The Finance Bill 2025 includes several measures that will affect international businesses operating in Ireland.
Foreign body corporate
Finance Bill 2025 introduces a new section regarding the tax treatment of foreign body corporates. The Bill 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.
Intangible asset capital allowances
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.
While these new provisions are stated to have effect for accounting periods starting on or after 1 January 2026, it is unclear if they impact carried forward amounts arising from company reconstructions which have occurred in prior accounting periods.
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 is not clear how any 'excess allowances' and 'excess interest' are to be allocated between the assets transferred and the assets retained.
Foreign dividends
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:
- Distributions from a company resident in a territory with which Ireland does not have a double tax agreement will be within scope of the exemption where non-refundable withholding tax has been paid on the full amount of the distribution.
- A company resident in a territory with which Ireland has newly-signed a double tax agreement will be able to qualify as a relevant subsidiary from the date the agreement is concluded.
- The definition of “relevant period” is reduced from five years to three years. This reduces the period in which the company making the distribution must be resident in a relevant territory prior to making the relevant distribution. A similar reduction is provided in respect of the “reference period”.
- A distribution will not be excluded from the exemption solely as a result of being deductible for the purposes of calculating a tax similar to the close company surcharge.
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.
Country by Country reporting
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:
- Where the preceding fiscal year is less than 12 months, the €750 million threshold shall be reduced pro rata.
- Where a group (Group A) was part of another group in the preceding fiscal year, and Group A separated from the other group during the current fiscal year, to the extent that Group A then exists as an independent group, Group A will be deemed to have consolidated turnover of less than €750 million in the previous year.
- Extraordinary income and gains arising from a group’s investment activities must be included in the consolidated group revenue, provided such income is included in the consolidated financial statements of the ultimate parent entity. This provision will not apply where the ultimate parent entity is tax resident in a jurisdiction which does not require such extraordinary income to be included in the consolidated group revenue for determining if a CbCR report must be filed.
Pillar Two
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:
- Incorporation of the OECD’s administrative guidance issued in January 2025. These provisions address, inter alia, the treatment of deferred tax assets and liabilities, existing prior to a company coming within the scope of GloBE rules.
- The January 2025 administrative guidance also provided for the exchange of information of the GloBE Information Return (GIR) in accordance with DAC 9 and the OECD Multilateral Competent Authority Agreement, the Bill included provision to implement these aspects into Irish law.
- An amendment to the definition of ultimate parent entity (UPE) to clarify that it excludes an orphan entity where that orphan entity is included in the consolidated financial statements of another entity in the group that meets the definition of a UPE.
- The definition of minority-owned constituent entity was also amended to clarify that the definition should include an orphan entity that is a constituent entity of an MNE group.
- Various provisions regarding the application of the Pillar Two provisions to securitisation entities.
It was expected that the Irish GloBE rules, which require the use of UPE financial accounts rather than local financial accounting standards in certain situations, would be amended.
Specifically, there was an expectation that the legislation might be relaxed to allow the continued use of local accounts when an Irish entity is incorporated or liquidated during a relevant period. However, the draft Bill published does not include any such changes.
Company mergers and divisions
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.
Time limit on assessments by a Revenue officer
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.
Note 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.
Get in touch
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.
