Finance (No. 2) Bill 2026 introduces a broad set of tax changes for international businesses operating in Ireland.
The measures include targeted amendments to, inter alia, interest deductibility, elections under the interest limitation rules and Ireland’s Pillar Two regime.
The Bill offers practical improvements but underlines a wider challenge: preserving Ireland’s competitiveness as international tax rules become more complex and established advantages narrow.
The Bill proposes several amendments to the rules governing interest as a charge under section 247. These rules provide a corporation tax deduction for interest on borrowings used for qualifying purposes, including acquiring shares in, or lending to, certain trading or rental companies.
The changes propose certain clarifications and simplifications, although the rules around interest deductibility remain complex.
With respect to the core requirements to avail of interest as a charge relief, the Bill provides that:
The interest as a charge rules currently include an archaic provision which limits relief to situations where a loan is used to “defray money applied” in acquiring share capital in, or lending to, certain qualifying companies.
This requirement will now be replaced with a simpler test based on how the loan is “used” which is expected to simplify the flow of funds following drawdown of a loan. In addition, there is a helpful clarification that the conversion of a loan from one currency to another, prior to using the funds for a qualifying purpose, will not result in the denial of relief.
Where a borrower “recovers capital” (for example on a sale of shares in a subsidiary) or is deemed to have done so, relief is curtailed unless the funds recovered (or deemed to have been recovered) are used in a prescribed manner.
The Bill provides for certain changes that will broaden the circumstances in which a curtailment of relief can be avoided. In particular, the Bill provides that no curtailment will arise where the capital recovered by the borrowing company (or deemed to have been recovered) is appropriately reinvested within a period of six months. Notwithstanding some additional record-keeping obligations, this is a welcome change.
The Bill provides for a further legislative amendment that will permit interest as a charge relief to be claimed in respect of connected party debt used to fund certain connected-party asset acquisitions.
In broad terms, relief should be available where the connected seller of the asset originally borrowed to acquire the asset, the connected lender is appropriately taxed on the interest income earned from the loan to the borrower, and the arrangements in question are bona fide commercial transactions.
Relief will be capped by the historic third-party acquisition debt relating to the asset in question and should apply to acquisitions on or after 1 January 2024.
The Bill also introduces an exemption from certain connected-party lender restrictions for loans advanced by a group finance company whose only business (other than holding shares in a borrowing company) consists of borrowing from unconnected parties to on-lend to the borrowing companies.
This amendment should facilitate relief in cases where a group uses a special purpose vehicle to raise external debt on its behalf.
The deadline for making group ratio and equity ratio elections, domestic interest group elections and withdrawals of domestic interest group elections under the Interest Limitation Rules will be extended to two years after the end of the relevant accounting period to which the election or withdrawal applies.
The reporting company will be required to file the interest group return by the later of the specified return date and the date the election is made (which can now be up to two years after the end of the accounting period in question).
The changes are stated to apply for accounting periods beginning on or after 1 January 2027. The longer window may improve decision-making once data is available, but groups should not delay modelling where an election affects tax provisioning or reporting.
The Pillar Two rules apply to large groups with consolidated annual revenue above €750 million and are intended to secure a minimum 15% effective tax rate in each jurisdiction in which they operate.
The Bill incorporates amendments including safe harbours agreed by the Organisation for Economic Co-operation and Development (OECD) and G20 Inclusive Framework on 5 January 2026, together with later developments as referenced in the Bill.
The Bill provides for the introduction of the Side-by-Side Safe Harbour which may apply where the ultimate parent entity of a multinational group is in a jurisdiction recognised as operating a qualifying Side-by-Side regime.
On the making of an election, top-up tax that would otherwise arise under the income inclusion rule or undertaxed profits rule for the group would be deemed to be nil.
The United States is currently the only jurisdiction with a qualifying Side-by-Side regime in the OECD Central Record. For US-headed groups, this may materially change the top-up tax analysis for fiscal years beginning on or after 1 January 2026.
However, prior fiscal years remain subject to the existing framework and do not benefit from the Side-by-Side Safe Harbour
The proposed permanent ultimate parent entity (UPE) Safe Harbour is narrower in scope. Where the UPE is located in a jurisdiction designated by the OECD as having a qualifying UPE regime, the safe harbour would deem the top-up tax for that jurisdiction to be zero for UTPR purposes.
The UPE Safe Harbour would apply only to profits arising in the UPE jurisdiction and would not shelter profits of subsidiaries or permanent establishments outside the UPE jurisdiction.
It also would not impact the application of a qualified domestic minimum top-up tax in the UPE jurisdiction. No jurisdiction has yet been designated as qualifying for the safe harbour.
Where eligible, an election for application of the Simplified Effective Tax Rate Safe Harbour deems jurisdictional top-up tax to be zero where the effective tax rate as calculated under the “simplified” computational rules is at least 15% (or where the jurisdiction has a similarly “simplified” loss).
The “simplification” measures largely encompass changes to the types of adjustments that otherwise need or may be made to compute an MNE group’s income and covered taxes.
Although this may avoid a full GloBE calculation, it still requires financial-accounting data and numerous prescribed adjustments. Groups should compare its data burden with the ordinary calculation before assuming it will reduce compliance work.
The Transitional Country-by-Country Reporting Safe Harbour will be extended by one year to fiscal years beginning on or before 31 December 2027, provided they do not end after 30 June 2029. The simplified effective tax rate threshold will remain at 17% for fiscal years that commence during 2027.
The Bill also introduces a Substance-based Tax Incentive Safe Harbour. It is intended to reduce or eliminate top-up tax attributable to a qualifying incentive linked to substantive expenditure or quantity of local production output, subject to a cap based on the group’s substance in the jurisdiction (tested by reference to local employees and assets).
It may be relevant to certain research and development and other expenditure-based incentives, but detailed conditions must be tested.
The Bill provides that where a designated local entity has not been appointed, a group will be subject to a maximum aggregate penalty of €1 million for failing to file a top-up information return or notification of filer for the fiscal year.
Where a designated local entity has been appointed, the Bill provides that only that entity would be subject to the relevant penalty for a failure to file a top-up information return or notification of filer.
The Bill also addresses cases where a qualifying entity that has been acquired, liquidated, merged, incorporated or otherwise reorganised has a local accounting period that differs from the period used in the MNE group’s consolidated financial statements.
In those circumstances, the entity’s accounting period would be deemed to align with the MNE group’s consolidated financial statements for the relevant fiscal year and the immediately following fiscal year.
Previously, the alignment only also applied to the immediately following fiscal year in the case of entities acquired during the current fiscal year.
The Bill provides for an update to the controlled foreign company (CFC) exemption for companies resident in jurisdictions on the EU list of non-cooperative jurisdictions for tax purposes.
For accounting periods beginning on or after 1 January 2025 and before 1 January 2027, certain exemptions from a CFC charge would not apply where the CFC is resident in a jurisdiction included in Annex I of the Council conclusions published in the Official Journal on 18 October 2024.
For accounting periods beginning on or after 1 January 2027, these particular exemptions also would not apply where the CFC is resident in a jurisdiction included in Annex I published on 6 March 2026.
Groups with CFCs in listed jurisdictions should therefore check which version of the EU list applies to each accounting period and assess the potential Irish tax impact.
For amended returns giving effect to advance pricing agreements reached by Competent Authorities, any additional tax arising would only be treated as due and payable within one month of the amendment, provided the original return contained a full and true disclosure of all material facts.
This helps ensure that no interest exposure should arise due to an increase in tax following an APA.
The Bill also adds the 2026 Ireland treaties with Liechtenstein and Sweden to the list of double taxation agreements that may be relied upon when applying relevant provisions of Irish domestic law.
The measures unveiled in Finance (No.2) Bill 2026 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.
