Financial Services Ireland

Interest Limitation Rules

Read more

What are interest limitation rules, and what do they mean?

The EU Anti-Tax Avoidance Directive (“ATAD”) required European Union Member States to implement a fixed ratio interest limitation rule. This limits the ability of entities to deduct net borrowing costs in a given year to a maximum of 30% of EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation).

EBITDA is used as a guide to the ability of an entity to meet its obligations to pay interest. It is also a measure of earnings often used by lenders in deciding how much interest expense an entity can reasonably afford to bear.

Ireland has implemented the interest limitation rules (“ILR”) for accounting periods beginning on /after 1 January 2022 via the Finance Act 2021. The rule is an important and significant change in Irish tax law. Financial services businesses need to consider how it will impact their operations.

The fixed ratio rule only limits an entity’s net interest deductions – interest expense in excess of interest income. Some multinational groups raise third-party debt centrally in one of their entities considering non-tax factors such as credit rating, currency, and access to capital markets. These funds can then be lent onward to an operating company in the group to fund its activities. The fixed ratio rule is not designed to restrict this and there are two “group ratios” in the rules which could mitigate the impact in certain cases. These provide a measure of relief by allowing a higher interest deduction to an individual taxpayer by reference to the position of the wider accounting group.


How EY can help

EY were actively engaged in the consultation process with respect to ILR throughout and so we are well positioned to advise on the impact. We have been reaching out to our clients to discuss the specific implications of the rules and working through the impact on their structures. EY have also been assisting clients in undertaking modelling exercises to better understand the impact of ILR on current business operations, including:

  • Analysing the impact on a single entity basis.
  • Implications associated with the use of notional group provisions regarding Irish entities.
  • How to apply the various reliefs and exemptions contained in the rules.

EY has also been advising on the potential impact of ILR on new structures or transactions that are currently in progress.

We have issued tax alerts containing detailed commentary on the impact and considerations around ILR across various sectors. Our most recent set was released on publication of the Finance Bill in November 2021, and they can be downloaded below:

Interest Limitation Rules and Insurance and Banking – November 2021 Update 

Interest Limitation Rules and Aviation Finance – November 2021 Update

Interest Limitation Rules and Wealth & Asset Management – November 2021 Update

Interest Limitation Rules and Structured Finance – November 2021 Update


Contact us today to discuss how we can support your ILR requirements in 2022.  

John Hannigan

Aviation Finance, Sector Leader
John's Full Profile

Ciarán Conroy

FS Partner, Business Tax Advisory
Ciarán's Full Profile

How We Help