PAYE Settlement Agreement for 2024
It is getting close to that time of year when employers need to consider whether they are required to make an application to Revenue in relation to a PAYE Settlement Agreement (PSA) for 2024.
A new interest deduction for qualifying finance companies was introduced in Finance (No.2) Act 2023. The new interest deduction applies to non-trading financing companies. Subject to certain conditions and anti-avoidance provisions, a deduction will be available for interest borrowed by a non-trading company from a third-party lender, which is onward-lent to certain 75% subsidiaries provided that the funds are used wholly and exclusively for the purposes of their trades. The new interest deduction is being welcomed as an interim measure aimed at simplifying Ireland’s rules on interest deductibility.
The new measure provides interest deductibility for a “qualifying financing company”, or “QFC” for short, once certain criteria are satisfied.
Who qualifies and what are Qualifying Finance Companies?
A ‘qualifying financing company’ or ‘QFC’ is a company that obtains third-party finance and advances that loan to certain direct 75% subsidiaries, which, in turn, use the funds for a qualifying business purpose that is wholly and exclusively for their trades (working capital purposes) and not for the redemption or subscription for shares or any other payment relating to shares or the capital structure of the company. This is subject to anti-avoidance and detailed conditions.
The relief consists of a Schedule D Case III or Case IV deduction (that is, non-trading) for external interest on the element of the third-party loan that is matched with the relevant loan provided to the subsidiary. For external loans in place on 1 January 2024, these will be matched with any relevant loans existing at that time as if, at or about the time the external loan was borrowed, they were onward-lent as relevant loans to subsidiaries.
Qualifying finance companies (QFCs) can obtain a deduction for interest paid to an external or third-party financier on a loan from that financier where:
subject to strict qualifying criteria and anti-avoidance rules being met.
A qualifying subsidiary of a QFC refers to a company that meets all three of the following conditions:
A ‘relevant loan’ is defined as a loan that must be entered into between the QFC and its subsidiary at an arm’s length price, so any groups considering availing of this new provision should ensure that they are satisfied with their transfer pricing.
In summary, these new rules allow QFCs to claim a Case III or Case IV deduction for third-party interest paid, where the interest is on-lent to a qualifying 75% direct or indirect subsidiary for working capital purposes.
DAC 6
The Finance Act contains technical amendments that clarify the powers available to Revenue to make enquiries into the accuracy of a return made, or the failure to make a return, concerning the mandatory disclosure of certain reportable cross-border arrangements (commonly referred to as DAC6 reporting).
Under DAC 6, intermediaries and, in certain cases, impacted taxpayers are required to file returns of information with Irish Revenue regarding reportable cross-border arrangements. The term ‘arrangement’ is broadly defined for this purpose and includes all types of arrangements, transactions, payments, schemes and structures, whether or not legally enforceable. An arrangement could involve more than one step, for example, the various steps around entering into a loan agreement. A ‘cross-border arrangement’ is one concerning an EU Member State and any other jurisdiction where at least one of five conditions are met.
Conditions that may be regarded as reportable cross-border arrangements include situations where:
DAC 7
In order to meet its obligations under the EU Directive on Administrative Co-operation 2021/514, referred to as DAC 7, Finance Act 2022 introduced EU-wide automatic reporting obligations on digital platform operators in respect of certain sales made via their platform under DAC 7. DAC 7 also introduced a common legal basis by which EU Member States are obliged to facilitate other Member States in conducting joint tax audits.
Finance Act 2023 includes technical amendments to the FA 2022 legislation and also introduced the legal framework and procedural arrangements for the Irish Revenue to conduct joint tax audits with the competent authorities of other EU Member States. A person subject to a joint audit should have the same rights and obligations as currently applies to a taxpayer subject to an audit by the Irish Revenue only. With effect from 1 January 2024, Irish Revenue can facilitate joint audits by other EU Member States.
Defensive measures on outbound payments are to come into effect on 1 April 2024 to prevent double non-taxation outcomes.
Finance (No.2) Act 2023 introduced defensive measures to certain outbound payments of interest, royalties and distributions paid to associated entities in specific territories to prevent double non-taxation. Where the measures apply, existing exemptions from income tax for a non-resident entity receiving a distribution and from the requirement to deduct withholding tax do not apply.
The new measures apply from 1 April 2024, unless arrangements relating to payments were in place on or before 19 October 2023, in which case the measures apply from 1 January 2025.
The payment must be included in the company’s income tax or corporation tax return for the year to include the following details:
What outbound payments are in scope?
The new measures apply to associated entities who are resident in the following specified territories:
Entities are associated if one entity, directly or indirectly, possesses more than 50% of the issued share capital of the other entity, is entitled to exercise more than 50% of the voting power, is entitled to more than 50% of the profits available for distribution, or a third entity holds more than 50% of the issued share capital, voting power or entitlement to profits of two other entities.
Two entities are also associated if one entity has a definite influence on the management of the other entity.
Excluded payments
An excluded payment that should fall outside the scope of the new withholding tax measures includes cases where the payment should be within the charge to a supplemental tax, being either a Pillar Two top-up tax or a CFC charge, a foreign tax rate that is greater than 0%; or a domestic tax other than the new withholding tax.
Payments made to pension funds, government bodies, or other tax-exempt entities should also be excluded from the scope.
Interest
Irish tax resident companies are generally required to deduct withholding tax at 20% from payments of yearly interest. This general requirement is subject to a range of exemptions, though, including where the interest is paid in the course of a trade or business carried on in Ireland to a company that is resident either in another EU Member State or in a tax treaty country, provided the country in which the recipient of the interest is resident imposes a tax on interest earned from outside that jurisdiction.
Where the recipient of a payment of interest, both yearly and non-yearly, is resident in a specified territory or is a permanent establishment of an associated entity in a specified territory, the defensive measures for outbound payments of interest will dis-apply the existing Irish domestic interest withholding tax exemptions.
For example, non-resident entities that recieve Irish source interest will no longer be exempt from Irish income tax. Also, the payor company will be required to deduct a withholding tax of 20% on the payment of the interest and pay this over to Revenue. The payee company will be given credit for tax withheld when filing their Irish tax return.
The new measures will apply equally to ‘short’ interest payments, defined as interest payments on loans with a term of less than 12 months, where the interest is paid to an entity in a specified territory so that short interest will be brought within the scope of Irish withholding tax.
The defensive measures will not apply to any portion of an interest payment:
(i). where the recipient entity in the specified territory pays a corresponding amount of interest to another entity in an accounting period that commenced within 12 months of the end of the accounting period in which it was received.
(ii). The corresponding amount would have been an excluded payment if it had been made directly to that entity (for example, the payment would have been subject to tax).
(iii). The payments were made for bona fide commercial purposes.
Royalties
Ireland currently imposes a withholding tax at 20% on payments of patent royalties and other annual payments, subject to the availability of relief where the payments are made to recipients resident in an EU or tax treaty jurisdictions once certain conditions are met.
The new legislation will disapply the existing withholding tax reliefs and expand the categories of royalty payments that are subject to Irish withholding tax where the recipient of a royalty payment is resident in a specified territory or is a permanent establishment of an associated entity in a specified territory, to the extent that the royalty payment is not an excluded payment.
The new withholding tax provisions should not apply if the payment is not deductible for Irish corporation tax purposes.
The defensive measures deem the payment to be profits arising to the non-resident entity from property in Ireland and a charge to income tax arises.
The exclusions outlined in relation to interest should apply equally to royalties.
Distributions
Generally, where an Irish tax resident company pays a distribution (generally, a dividend but not necessarily a cash dividend) to a company or individual resident in a tax treaty jurisdiction then subject to the necessary certification being in place and that the recipient of the dividend is beneficially entitled to it, there is an exemption from the requirement to withhold dividend withholding tax at 25% on paying the dividend.
Where an Irish tax resident company pays a distribution to an associated entity that is tax resident in a specified territory (or a permanent establishment of an associated entity which is situated in a specified territory), existing domestic reliefs from Irish dividend withholding tax at 25% will be disapplied.
Furthermore, a company resident in a specified territory, or is a permanent establishment of an associated entity in a specified territory, receives a distribution paid out of income, profits or gains which have not been charged to tax, income tax exemptions are disapplied.
The exemptions disapplied include distributions paid out of profits from greyhound & stallion fees or profits from woodlands and mining. Dividend Withholding Tax must also be deducted from these distributions.
In addition to the exclusions noted above from the Outbound Payments provisions generally, the provisions should not apply to distributions made out of foreign branch profits that are subject to foreign taxation.
Other points of note
As a relationship of more than 50% is required, investments in joint ventures may fall outside the scope of the new measures. Transactions with third parties should not be impacted.
Where a company makes an interest, royalty or distribution payment to an associated entity that is tax resident in a specified territory or a permanent establishment of an associated entity situated in a specified territory, the company will be required to disclose the following details in its Irish corporation tax return:
i. The amount of the payment or distribution.
ii. The amount of tax withheld.
iii. The specified territory where the recipient of the payment is tax resident or situated.
In respect of the Employment Investment Incentive Scheme (EIIS), Finance (No.2) Act 2023 introduced several necessary adjustments to ensure compliance with the EU rules referred to as General Block Exemption Regulation or “GBER”, in order to conform with the recently revised EU State aid legislation.
One of the most significant modifications to the Act concerns the tax relief rate applicable on the qualifying investment. Previously, the income tax relief was granted at the marginal rate (40%) under all events. However, starting on 1 January 2024, differing rates of relief will be applied depending on the eligibility criteria met by the investee company and whether the investments are made directly into the company (20%, 35%, or 50% based on eligibility criteria) or indirectly via a financial intermediary (30% in all instances).
The definition of ‘eligible shares’ previously included shares with a preferred right to dividends or assets on a winding up. The definition has been revised to specify that eligible investments now only include full-risk ordinary shares.
In addition, the Finance Act enacted the following amendments effective from 1 January 2024:
Finance (No.2) Act 2023 introduced amendments to relief for certain income from leasing of farmland. These amendments were introduced in order to ensure that the relief does not become “immediately available” to anyone who buys land.
The measures were introduced to end a practice which “had an impact on farmers in pushing up land prices for genuine active farmers”.
Minister McGrath has told the Dáil that the “requirement to own the farmland for seven years prior to letting it out under a ‘qualifying lease’ will not apply to individuals who have acquired the land other than by way of purchase, for example, by inheritance or gift”.
“These individuals will still be in a position to make a claim without a seven-year holding period once all the other conditions for claiming the relief are met,” the minister stated.
He also said that it is proposed “to introduce a provision which will override the application of the seven-year holding rule in the specific circumstance involving the death of a spouse”.
Summary of Finance (No. 2) Act 2023 amendments re leasing of farmland
How the relief operates
S664 TCA 1997 provides for an income tax exemption for certain income arising from the leasing of farmland.
Subject to an upper limit, a deduction in determining total income for income tax purposes will be available to individuals where the following conditions are met:
There must be a qualifying lease – a lease of farmland which:
The individual must be a qualifying lessee:
A qualifying lessor is an individual who has not after 30 January 1985 leased the farmland from a person connected to them on terms that are not considered arm’s length.
For qualifying leases taken out on or after 1 January 2015, the specified amount is:
Where a lease period covers part of a full year, the exemption limit is apportioned accordingly on a time basis.
Where a husband and wife or civil partners are jointly assessed (section 1017/1031C) or separately assessed (section 1023/1031H) and both are involved in qualifying leasing, each is entitled to a separate exemption. This is arrived at as if they were not married or in a civil partnership. Unused balances of the relief are not, therefore, transferable from one spouse or civil partner to the other.
If you have any questions in relation to the above, or if you would like to discuss the above topics further, please contact a member of the Mazars corporate tax team below:
Staff Member | Position | Telephone | |
Frank Greene | Tax Partner | fgreene@mazars.ie | 01 449 6415 |
Nóirín Cahalane | Tax Director | ncahalane@mazars.ie | 01 449 4414 |
Paul Hegarty | Tax Senior Manager | paul.hegarty@mazars.ie | 01 449 4465 |
Jeff Johnston | Tax Manager | jeff.johnston@mazars.ie | 01 449 4469 |
Sean Oliver | Tax Manager | sean.oliver@mazars.ie | 01 512 5557 |
March 2024
This website uses cookies.
Some of these cookies are necessary, while others help us analyse our traffic, serve advertising and deliver customised experiences for you.
For more information on the cookies we use, please refer to our Privacy Policy.
This website cannot function properly without these cookies.
Analytical cookies help us enhance our website by collecting information on its usage.
We use marketing cookies to increase the relevancy of our advertising campaigns.