Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

The tax code taxes persons on the profits which they earn. Profits are calculated after taking account of deductions incurred wholly and exclusively in the course of the business from which the profits arise.

The Irish tax code does not generally disallow a transaction between connected persons where that transaction is carried out on the same terms as a transaction with an unconnected person, simply because it is with a connected person. A marked example of where the tax code does distinguish such transactions is section 817C, a specific anti-avoidance provision whose avoidance can trigger the 30% tax avoidance surcharge I introduced in the Finance Act 2014.

Interest paid to a connected person is deductible only in calculating the profits of the trade where, on receipt, that interest would be part of the taxable profits of the trade of the connected person. The issue of interest deductibility is currently under review internationally, for example, with the recent EU anti-tax avoidance directive. The anti-tax avoidance directive was agreed by member states following ECOFIN on 17 June 2016. The directive contains five significant corporate tax anti-avoidance measures, one of which relates to interest deductibility.

Broadly, the interest limitation rule proposes that the tax deductions for interest which a company can claim are limited to 30% of a company’s earnings, subject to certain exceptions. The interest limitation rules must be implemented by member states by 1 January 2019. However, the provisions may be deferred until 2024 for countries that already have strong targeted interest rules. Therefore, I cannot commend the Deputy’s amendment to the House.

On the issues raised by Deputies Doherty and Burton, I agree with Deputy Doherty that we should see what the report of the charities regulator contains and determine how we move forward from there. I do not believe the report will be to the Department of Finance in the first instance, but we will see where it goes.

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