The Irish Finance Bill 2025 (the “Bill”) was published on 16 October. For large international groups operating in Ireland, the key changes to be aware of are:
- Amendments to the regime that applies to transfers of IP where capital allowances have been claimed in respect of that IP;
- Improvements to the R&D tax credit;
- Improvements to Ireland’s participation exemption for foreign dividends;
- A new provision that specifies how certain foreign bodies corporate should be classified for Irish tax purposes;
- A new exemption from dividend withholding tax for investment limited partnerships; and
- Amendments to Ireland’s Pillar Two rules.
We have included detail of each of the changes below.
Transfers of IP where capital allowances have been claimed
The Minister for Finance confirmed in his Budget statement that on the sale of IP which has been the subject of a capital allowances claim (under section 291A of the Taxes Consolidation Act 1997 (“TCA”)), any balancing allowances arising will be subject to the same 80% ring-fencing rule as capital allowances claimed under section 291A.
The Bill adjusts the treatment of intra-group sales of IP. Under the existing rules where an IP trade is transferred intra-group, the transferee assumes the capital allowance position of the transferor, such that no balancing charge or balancing allowance arises to the transferor and the transferee continues to claim capital allowances in the same way as they would have been available to the transferor had the transfer not taken place (section 400 TCA). For future transactions, that provision is now adjusted to provide that the transferee will only succeed to the transferor’s capital allowances position if the IP asset that was the subject of the capital allowance claim also transfers to the transferee.
The updated legislation now expressly confirms in section 291A TCA that a capital allowance is treated as made in the first year that it is disallowed under the 80% ring-fencing rule, even if that capital allowance is carried forward and utilised in future years. This confirms the treatment that must be applied when calculating balancing allowances and balancing charges on sale of IP.
The Bill makes a number of other adjustments that will have the effect of tightening the regime that applies on the sale of IP where capital allowances have been claimed. Taxpayers contemplating sales of such IP (acquired on or after 14 October 2020) will need to carefully consider those changes.
Improvements to the R&D tax credit
As announced in the Budget statement, the value of the R&D tax credit has been increased to 35% making the credit one of the most generous regimes in Europe.
In addition, a technical change has been introduced to confirm that the full cost of an employee who spends at least 95% of their time on R&D will qualify for the relief. The relief has also been extended to cover the costs incurred in building a laboratory.
More improvements to the R&D tax credit are under consideration and the Minister for Finance will issue an “R&D Compass” in the coming weeks setting out what improvements are under consideration along with a proposed timeline.
Improvements to the participation exemption for foreign dividends
The participation exemption for foreign dividends introduced last year has been amended to address some practical challenges with applying the exemption and some technical issues. Some of those changes will apply to distributions made during 2025.
The Bill also extends the geographic scope of the relief to capture dividends paid by subsidiaries resident in jurisdictions that apply a non-refundable withholding tax to the dividend.
Most of the practical challenges in applying the current version of the participation exemption arise from the provision that disallows relief if the company paying the dividend has within the previous five years made what is now described as “an excluded acquisition”. An excluded acquisition means the acquisition of a business or part of a business where that business was carried on by a company that was not resident in an EU, EEA or double tax treaty partner jurisdiction. The Bill amends the concept so that it only applies to acquisitions made in the previous three years; it does not apply to acquisitions of shareholdings; and it does not apply to acquisitions of assets carried on by an Irish resident company.
A new provision has been included to ensure that when a new double tax treaty is signed, companies resident in those jurisdictions will immediately be capable of qualifying as relevant subsidiaries. Under the current version of the exemption a five year waiting period applied.
A provision that assists in determining where a foreign company is resident when the foreign jurisdiction does not have a concept of residence has also been included.
Classification of foreign bodies corporate
A new provision will be included in Irish law requiring a foreign body corporate that has characteristics that are substantially similar to an Irish partnership to be taxed in the same way as a partnership. That treatment will also extend to its members, so that an Irish taxpayer that has an interest in such an entity will tax the income of such a foreign body corporate on an arising basis.
While the provision will be helpful for transactions involving assets held through certain foreign limited partnerships and limited liability foreign partnerships, it will require Irish taxpayers to review their holdings in foreign bodies corporate to consider whether the provision applies.
DWT exemption for ILPs
A new exemption from Irish dividend withholding tax was included for dividends paid to Irish investment limited partnerships (“ILPs”), or equivalent partnerships, that hold at least 51% of the ordinary share capital of the company paying the dividend. An equivalent partnership is a partnership that would be an investment limited partnership but that it is authorised by an EEA country. The Irish funds industry has been calling for such a change for a number of years.
Distributions made to ILPs and equivalent partnerships will continue to be subject to the outbound payment rules.
Amendments to Pillar Two legislation
Ireland’s Pillar Two rules have been updated under the Bill. For the most part, the amendments addressed three broad themes:
- They implemented exchange of information provisions for GloBE information returns to facilitate exchange of information with other EU Member States under DAC 9 and with non-EU Member States under the OECD Multilateral Competent Authority Agreement.
- They incorporate aspects of the OECD administrative guidance issued in January 2025. That guidance sought to address arrangements entered into between in-scope MNEs and foreign governments that generated deferred tax assets by reference to tax credits or basis steps-ups in advance of the Pillar Two rules or a domestic top-up tax coming into force. Those deferred tax assets will be limited for Pillar Two purposes in accordance with that guidance. A number of clarifications were made with respect to securitisation entities:
-
- confirmation that orphan entities are not UPEs where there is another entity in the group that is not a UPE;
- confirmation that an orphan entity can be a minority-owned constituent entity; and
- confirmation that a securitisation entity will be not liable for top-up tax if there is another entity in the group that is not a securitisation entity.
Other technical amendments were made including a flexible UTPR allocation rule which permits Irish entities in a group to agree between themselves how the UTPR top-up tax should be allocated.
Next Steps
The Bill must pass through the Irish legislative process. If amendments are to be made to any of the proposals included in the Bill, they are expected to be published and debated during the week beginning 3 November 2025. The Finance Bill is expected to be signed into law before the end of the year.
Should you wish to discuss any aspect of the Finance Bill, please speak to your usual Matheson contact or to any of our Tax partners.