Financial Services Ireland

Finance Bill (No.2) 2023 – Tax Alert

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Impact for Financial Services

On 19 October the Government published Finance (No.2) Bill 2023 (“the Bill” as initiated). The Bill primarily seeks to implement the tax elements of Budget 2024 measures announced on 10 October. It also introduces the necessary legislation to implement BEPS Pillar 2 measures, including the provisions for what will be a Qualified Domestic Top-up Tax. The Bill also contains previously unannounced measures. We have outlined below a summary of the more important measures relevant for Financial Services and provided sector specific commentary where relevant.

All section references below are to the Taxes Consolidation Act 1997 unless otherwise stated.

1. BEPS Pillar 2.0

Background and overview
The Bill transposes the EU Minimum Tax Directive (Council Directive (EU) 2022/2023) commonly referred to as the BEPS Pillar 2 rules into Irish law. These rules fundamentally change the international and domestic tax landscape for in-scope groups as well as introducing additional reporting obligations.

Impact for Financial Services (‘FS’)
Many financial services entities in Ireland are part of a multinational group with consolidated revenues of at least €750m and therefore such Irish entities will be in scope of the Qualified Domestic Top-Up Tax (‘QDTT’) and will have to file a QDTT return in Ireland. See some specific comments below by sector:

Wealth and Asset Management

  • The Bill included changes from the second Feedback Statement on BEPS Pillar 2 including some helpful clarifications. While the Bill continues to include certain standalone entities within the scope of QDTT, where the relevant revenue threshold is exceeded, a specific carve-out for standalone “investment entities” had been added.
  • The Bill has also removed investment entities that are members of a consolidated group from applying the QDTT rules. These amendments are a welcome result of the consultation process, re-enforcing the tax neutrality of Irish investment fund structures and maintaining competitiveness of the Irish fund industry as a whole.


  • The inclusion of deferred tax in covered taxes results in the possibility of “scaling up” of deferred tax assets (‘DTAs’) on tax losses carried forward at the first effective date of Pillar 2, to the extent it can be shown that the loss is attributable to a GloBE loss. The effect of revaluing such losses at the higher rate of 15% should increase the jurisdictional ETR for years when these losses are being used.
  • The impact of foreign withholding taxes in a Pillar 2 scenario can be quite different to purely mainstream corporation tax effects, which can alter the economics of providing finance to counterparties in some countries.



  • The implementation of Pillar Two so close to that of IFRS 17 creates challenges as further data and system enhancements on legacy systems may be required for reporting and compliance. In addition, the detailed data required for Pillar 2 calculations may not be currently available.
  • Material top-up taxes may impact commercial pricing (e.g., reinsurance, speciality business) and potentially capital requirements in instances where the top-up tax paid in one jurisdiction is derived from profits of another jurisdiction.
  • DTAs on losses will be an important tax attribute for Pillar 2.

Aviation Finance

  • The Substance Based Income Exclusion Rule will also be an important consideration for lessors in mitigating the impact of Pillar 2.
  • As with banking and insurance above, deferred tax arising in leasing entities should generally be a covered tax for Pillar 2 purposes and should help mitigate top-up taxes arising.


Structured Finance

  • The accounting treatment for Irish entities will be important. It is possible that some Irish entities (such as those not consolidated on a line-by-line basis) may fall out of scope of the rules on the basis that they are not Constituent Entities for Pillar 2 purposes.


Key considerations now

Some of the key considerations for financial services groups now in assessing the impact of Pillar 2 are as follows:

  • Jurisdictions that are expected to qualify for a safe harbour and the impact on those that would not qualify.
  • The required note disclosure in the 2023 financial statements.
  • Current data environment and the adoption of new technology or enhancement of current systems.
  • Identification of tax attributes to transition into Pillar 2 and thereafter the impact of future business on the ETR.
  • Internal control processes around provisioning (from 1 January 2024) and filing of the GloBE Information Return.
  • Considering the impact of Pillar Two on acquisitions, divestments, mergers, refinancing and reorganisation transactions.
  • Pillar 2 impact of irrecoverable foreign withholding tax deducted from trading revenues (e.g. interest).

2. Outbound Payments

As expected, the Bill includes provisions in relation to “Outbound Payments”, the intention of which is to impose withholding tax on interest, royalties and distributions to certain “associated” entities in “specified territories” (namely zero tax territories or territories on the EU list of non-cooperative jurisdictions). The proposed approach outlined in the Bill is to remove existing Irish domestic law withholding tax exemptions on such in scope payments. Note – third party payments are specifically not in scope of these new measures.

Impact for Financial Services
See comments below on the new rules in turn by sector.

Structured Finance / Investment Funds

  • Many s.110 companies will not be an ‘associated’ entity of the noteholder and consequently in those cases the rules should normally not be applicable. Our expectation is that public securitisation transactions should not be impacted given the Irish company should not generally be associated with the noteholder for this purpose.
  • The Bill includes a “knowledge-based” test, the intention of which is to disapply withholding tax under the new rules for payments of interest on a Quoted Eurobond or Wholesale Debt Instrument where it is reasonable to consider that the paying company is not, and should not be, aware that any portion of the interest payment is made to an “associated entity” as defined in the provisions. This is a welcome provision from a financial services perspective in the context of Quoted Eurobond / Wholesale Debt structures which are common in Ireland.
  • The withholding tax on dividends does not impact on distributions made by regulated funds such as an Irish Collective Asset-management Vehicle.
  • The rules do not apply where the income / profits / gains in Ireland are within the charge to a foreign tax but the payment itself is disregarded for tax purposes in the payee jurisdiction. This could be relevant where the payee is disregarded for US tax purposes for example.


  • The comments above regarding the use of s.110 entities will also be relevant for certain banking groups with s.110 entities.
  • The structures and financing arrangements in banking groups will need to be reviewed in the context of these new measures on a case-by-case basis.


  • Aviation holding structures could be impacted with respect to upstream interest payments to intermediate holding companies and aggregator entities where they are located in specified territories.
  • Where the aggregator entity is a partnership, we note there are effectively “look through” provisions for payments to an entity which is transparent (like a partnership) and some or all of that payment is treated as arising or accruing to a partner in another jurisdiction. In such cases it may be possible to regard the payment from Ireland as being made directly to the partners for this purpose, mitigating the impact where the partners are subject to tax on receipt.

Other Important Provisions

Corresponding Payments

The payment of interest by a company to an entity will be not in be in scope of the rules where the payee subsequently pays a corresponding amount of interest to another person in the tax period which commences within 12 months of the end of the tax period in which the payment is made by the original paying company. In these cases, the rules are applied on the basis the payment is direct from Ireland to the second mentioned person. This could warrant consideration in the context of payments to (for example) intermediatory holding companies in financial services groups.


Dividends – Subject to Tax

The making of a distribution will not be subject to the Outbound Payment rules where income out of which the payment is made has been subject to tax, directly or indirectly. Consequently, on the basis that an Irish company is subject to corporation tax on its profits and makes a distribution of all/ part of such profits to its parent, the Outbound Payments rules should not apply.

The inclusion of “indirectly” here means that an Irish company in receipt (for example) of a tax-exempt (Franked Investment Income) dividend from an Irish resident subsidiary can onward distribute that dividend upstream and the Outbound Payments rules will not apply; provided that the profits from which the dividend was paid in the lower tier subsidiary were subject to tax in Ireland.


The Bill states that the Outbound Payments rules will apply to payments of interest or royalties or the making of a distribution, on or after 1 April 2024, or alternatively on or after 1 January 2025 in respect of structures in place on/before 19 October 2023.

Anti-Avoidance Rules

The Outbound Payments rules include specific anti-avoidance provisions in the Bill which apply where an arrangement is entered into, and it is reasonable to consider that the main purpose or one of the main purposes of the arrangement is to avoid the application of these rules.


The Bill includes reporting requirements for an Irish company which makes a payment which falls within the Outbound Payments rules including the amount of the payment, the tax withheld and the residency status of the payee.

3. Banking / Credit Institutions

Bank Levy

The Bill includes details of the revised Bank Levy announced by the Minister in the Budget on 10 October, to replace the levy in place since 2014. The key features are:

  • The levy will be confined to the banks that benefitted from State assistance following the financial crisis: AIB (including EBS), Bank of Ireland and Permanent TSB.
  • The revised levy calculation is based on the amount of customer deposits, that are in scope of the Deposit Guarantee Scheme, held with the liable banks at 31 December 2022.
  • The rate of stamp duty on the assessable amount is 0.112%. This rate has been set to achieve the targeted yield of €200m for 2024, as announced in the Budget statement. This is a substantial increase on the €87m yield in 2022 and 2023 and the €150m annual yield between 2014 and 2021.
  • The levy will apply in 2024, payable by 20 October of that year. However, it will be considered further in 2024 for possible extension.
  • The Bill also brings the extended levy in scope of the surcharge and tax-geared penalty provisions applicable to other financial levies (such as stamp duty on credit cards, insurance premium levy).

The revised levy provisions provide an element of certainty to the international banking sector in Ireland, which now falls entirely outside of the levy’s scope.

Mortgage Interest Relief

The Bill confirms the announced 1-year mortgage interest relief provision, being introduced for tax year 2023. Relief will be available to borrowers at the standard 20% tax rate, for the increase in mortgage interest from 2022 to 2023, subject to a €1,250 cap on the relief. Only mortgages with an end-2022 balance of between €80,000 and €500,000 will qualify.
It should be noted that the relief must be claimed by the borrower rather than requiring lenders to apply relief at source. The format and content of the claim (which will be through electronic means) will be determined by Revenue.

4. Leasing Changes

The Bill included significant changes to the rules around taxation of leasing in Ireland (summarised below). This is part of a broader exercise to update Ireland’s tax legislative regime for leasing and provide clarity on the treatment of items which had been previously covered through historic rulings and practices which have expired.

  1. Taxation of Leases

The Bill provides that in general a lessor carrying on a leasing trade will be taxed on the income from the lease evenly over the course of the lease, regardless of how its treated for accounting purposes. This may result in additional complexity for operating lessors in modelling out the relevant lease income for tax purposes where previously the starting point would have been the lease income recognised in the accounts.

There is an exception to this general rule where the lease falls within the definition of a “relevant lease”. A “relevant lease” is a finance lease or alternatively an operating lease where the operating lease means the following conditions:

  1. The discounted present value of the lease payments arising at least 80% or more of the fair value of the leased asset;
  2. The lease term equals or exceeds 65% of the leased asset’s predictable useful life; and
  3. The lease is granted on such terms that the use and enjoyment of the leased asset is obtained by the lessee for a period at the end of which it is considered likely that the leased asset will pass to the lessee.

In those cases, subject to certain anti–avoidance provisions and conditions, the lessor is taxed based on the financing return arising on the lease; which in the case of a finance lease should equate to the income recognised in the financial statements. This codifies (in legislation) a previous practice whereby a finance lessor that did not claim capital allowances on the asset was only taxed on the financing return; and not on the entire lease income.

II. Leasing Ringfence

The Bill also includes changes in relation to s.403. This section provides for a restriction on the use of capital allowances in respect of certain leased assets. The changes include an expansion of the leasing ringfence to include certain income streams common to leasing groups:

  • Inter-group financing (via certain intermediary entities)
  • Disposal of a right to acquire plant and machinery similar to that used in a leasing business (subject to certain conditions)
  • Disposal of a part of an item of plant or machinery where the plant or machinery was used for a leasing business.

The Bill also expands the concept of a leasing group for the purposes of s.403, to include entities in an Irish Corporation Tax loss group. There are also new reporting requirements for companies which are subject to restrictions in s.403 around ringfencing including details of “specified capital allowances” and how these are utilised in the company and certain details around balancing charges / allowances arising in the period.

III. Other “Leasing” Matters

As referenced above, a number of historic leasing rulings / practices have expired; some of which relate to trading treatment of lessors and related matters. It will be important that the tax treatment of such items are clarified in guidance (which is expected later this year) particularly in relation to “trading” and also the treatment of gains on the sale of an asset used in the course of a leasing trade.

5. Qualifying Financing Companies

The Bill introduces a new interest deduction for 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 on-lent to certain 75% subsidiaries for use in their trades. This is a welcome initiative which will be of benefit to groups where there may be uncertainty over the trading status of a financing entity.


6. Hybrid Rules – Technical Amendment

The Bill has broadened the scope of anti-hybrid mismatch rules introduced in Finance Act 2019, by amending the definition of “entity” to include any legal arrangement, of whatever nature or form, that is within the charge to tax. The definition was previously limited to legal arrangements that own or manage assets which were subject to tax. Additionally, there have been few technical updates to clarify how the reverse anti-hybrid rules (brought in by Finance Act 2021) apply to a collective investment schemes both during start-up and wind-down phases, to bring in line with existing Revenue guidance.

7. Automatic Exchange of Information (AEOI): FATCA / CRS / DAC6 / DAC7

The updates in the tax transparency space in the Bill indicate continued expansion and increased enforcement in tax information reporting for cross border accounts and transactions. The most notable implications for financial institutions include:

Liable Person under Partnerships/Trusts
The Bill clarifies that when determining the liable person in relation to obligations to provide certain financial information subject to exchange under agreements with other jurisdictions. In the context of partnerships and trusts, Revenue Commissioners will determine the Liable Person as follows:

i. For Partnerships – the precedent Partner
ii. For trusts:

  • The trustee where a trust is not an investment undertaking
  • Where the trust is an investment undertaking, it could be the trustee, the management company or any other persons that has authority to act on behalf of the investment undertaking or habitually does so.

Revenue Enquiries under DAC6

There are provisions in the Bill enabling Revenue officers to make necessary enquiries to confirm that a return under DAC6 is correct, complete and verify any reporting information that may have been omitted. This also includes allowing Revenue to enter premises and place of business of an intermediary or relevant taxpayers for the purpose of carrying out the enquiries.

Joint Audits – EU Tax transparency Regimes

The Bill outlines the pre-agreed and coordinated manner by which joint audits will take place involving other EU Member States. It also contains details of these will be authorized and rights and obligations of those carrying out and under the joint audit. Personal penalties for non-compliance will also apply.

8. VAT

Amendment to VAT exemptions

The Bill includes an amendment to remove the issue of stocks, shares, debentures and other securities from the VAT exemption. The purpose of the change is unclear but because CJEU case law confirms that the issue of new shares for the purpose of raising capital is outside the scope of VAT, the change removes a possible contradiction between Irish legislation (which treats the issue of shares as VAT exempt) and CJEU case law. Whilst there should be no impact where the share issue is to raise capital, the proposed change could potentially impact other transactions (e.g., share exchanges, issue of bonus shares etc). We have sought clarification from Revenue on this provision.

VAT Modernisation Measures

As announced in the Budget, Irish Revenue has opened a public consultation aimed at modernising Ireland’s VAT invoicing and VAT return reporting processes, which is part of the European Commission’s VAT in the Digital Age proposals (“ViDA”). The Consultation opened on 13 October 2023 and will remain open until 12 January 2024.

The modernisation focuses on introducing e-invoicing and transaction level real time reporting for Business to Business (“B2B”) and Business to Government (“B2G”) transactions. The deadline to comply with the VIDA proposals is 1 January 2028 at the latest but some jurisdictions have already commenced modernisation projects and are well advanced in this process. The proposals will have a very significant impact on Irish business and are likely to require to significant investment in information systems and finance processes.

9. Stamp Duty

The Bill legislates for an exemption from stamp duty in respect of transfers of uncertified Irish shares which are dealt in on a recognised US or Canadian stock exchange, where those shares are settled through a depositary system. The amendment will put an existing Revenue practice on a statutory footing by treating book entry interests in Irish shares exempt on the same basis as ADRs (American Depositary Receipts).

10. Worldwide System of Taxation

As expected, the Bill does not include legislation to introduce a territorial system of tax in Ireland. However, the Department of Finance has already signalled its intention to make significant changes in this area in the Finance Bill 2024; namely to introduce a participation exemption for certain foreign dividends. The Department of Finance launched a consultation on this matter in September 2023 and it is expected a Feedback Statement will be issued Q1 2024 setting out draft approaches to legislating for this and facilitating detailed consultation. EY will be engaging actively with this consultation on behalf of our clients.

11. Next steps

Below is the timeline in relation to the implementation of the Bill in Ireland.

Timeline for implementation

Publication 19 October 2023
Second Stage 24/25 October 2023
Committee Stage 7/8/9 November 2023
Report Stage 21/22 November 2023
Seanad Stage 28 November – 12 December 2023
Signing into law Expected by end of December 2023

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