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”) requires European Union Member States to implement a fixed ratio 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 is set to implement the rule from 1 January 2022, with legislation expected in the Finance Bill 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. These provide a measure of relief by allowing a higher interest deduction to an individual taxpayer with reference to the position of the wider accounting group.

How EY can help

We’re engaged in ongoing discussions with Revenue and the Department of Finance on these new rules. We are also actively engaged in the consultation process. We are reaching out to our clients to discuss the specific implications of the rules and developments in the consultation in detail as it progresses.


We can help you to undertake modelling exercises to better understand the impact of the interest limitation rules on your current business operations, including:

  • Analysing the impact of the rules 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.


We can also advise you on restructuring options that might become clear as the interest limitation rules are introduced, and their impact on any new structures or transactions that are currently in progress.

Contact us today to discuss how we can support you as the new rules become law.

John Hannigan

Aviation Finance, Sector Leader
John's Full Profile

Petrina Smyth

FS Partner, Business Tax Advisory
Petrina's Full Profile

Sinéad Colreavy

FS Partner, Business Tax Advisory
Sinéad's Full Profile

How I Help