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April 8, 2024

Irish Government publishes Feedback Statement on introduction of participation exemption for foreign dividends

  • Ireland's Department of Finance has published a Feedback Statement on the introduction of a participation exemption for foreign dividends.
  • The Feedback Statement includes a "Strawman" proposal outlining the key features of a potential approach to the exemption.
  • Stakeholders are invited to provide responses to the Feedback Statement with the consultation period, running to the close of business on 8 May 2024.
  • The Department has indicated that a second Feedback Statement will be published in mid-2024 containing the draft legislative approaches to implement the exemption.


On 5 April 2024, Ireland's Department of Finance (Department) published a Feedback Statement (FBS) on the introduction of a participation exemption (the exemption or the regime) for foreign dividends.

The FBS includes a Strawman proposal (Strawman) outlining the key features of a potential approach to the exemption. The purpose of the Strawman is "to facilitate a focused debate around key design issues."

In the press release accompanying the FBS, Minister for Finance Michael McGrath reiterated the Irish Government's commitment to maintaining a competitive tax regime stating that "the introduction of a participation exemption for foreign dividends reflects Ireland's commitment to ensuring that our corporation tax code is competitive and attractive to business investment and aligns with international best practice."

Detailed discussion

In September 2023, as part of a consultation process, the Department published a roadmap1 for the introduction of a participation exemption for foreign dividends. The September 2023 consultation also invited stakeholders to respond to a series of questions around the design of the exemption. Upon review of the various submissions received,2 the Department developed the Strawman, setting out "a hypothetical example" of how the exemption might work in Ireland. The purpose of the Strawman is to inform debate around the key design features and policy considerations associated with the exemption. The FBS states that key features of the Strawman should not be considered definitive or final and that the final design of the exemption could be significantly different.

The key features of the Strawman are divided into four sections:

  1. Scope of Relief
  2. Dividends/distributions in scope
  3. Anti-Avoidance
  4. Administration

1. Scope of Relief

  • The regime would apply to Irish tax-resident companies and certain nonresident companies carrying on a trade in Ireland via a branch or agency.
  • The Strawman suggests that only dividends received from companies resident in European Union/European Economic Area (EU/EEA) jurisdictions and jurisdictions with which Ireland has a double taxation agreement in place would fall within the scope of the regime.
  • Dividends paid out of both trading and non-trading profits may qualify for the exemption.
  • The relief would operate by fully exempting the foreign dividend from Irish corporation tax.
  • Ireland's current "tax and credit" system for foreign-sourced dividends would remain the default mechanism for double tax relief, but taxpayers would have the option to elect to apply the participation exemption for a minimum period of three years. This election would cover all in-scope foreign dividends received during the three-year period.

2. Dividends/distributions in scope

  • The exemption would be available for foreign dividends/distributions arising from shares or from other rights to participate in a company's profits.
  • The Irish taxpayer would need to satisfy a control test in respect of the foreign entity (i.e., control at least 5% of the entity's ordinary share capital for an uninterrupted period of 12 months). This 12-month test can be satisfied based on historic ownership up to and including the date of the dividend or on a "go-forward" basis (as with the existing capital gains exemption). Control would be determined based on direct or indirect ownership of ordinary share capital, voting rights, entitlement to profits on distribution and entitlement to assets on a wind up.
  • Where the control test is satisfied, the exemption may also be available for dividends received from other types of shares in that company (e.g., preference shares).
  • Generally, the exemption would be limited to dividends/distributions that are "income" as opposed to "capital" in nature.

3. Anti-Avoidance

To ensure that the exemption does not facilitate double non-taxation of the distributed profits, the Strawman includes anti-avoidance provisions as follows:

  • Dividends that are deductible for tax purposes in any other jurisdiction and dividends received from countries on the EU list of noncooperative jurisdictions (EU blacklist) would not qualify for the exemption.
  • The exemption would only apply to dividends paid for bona fide commercial purposes and not for tax avoidance purposes.

4. Administration

  • The exemption would apply to dividends received in accounting periods commencing on or after 1 January 2025.
  • Taxpayers would be required to "opt in" to the exemption by making an irrevocable three-year election on the Irish corporation tax return.
  • The foreign dividends received that are subject to the exemption would need to be reported on the Irish tax return.
  • Unrelieved foreign tax credits carried forward would still be available for use against dividends outside the scope of the exemption or in future years when the company ceases to remain within the scope of the regime.

Next steps

In general, the key features of the Strawman are welcome developments.

In particular, the Strawman proposal of a 100% exemption, the application of the exemption to dividends from all profits (and not just "trading" profits) and the elective nature of the regime are all welcome. Extending the scope of the regime to all countries other than those on the EU blacklist could help achieve the overarching aim of ensuring Ireland's corporation tax system is competitive and in line with international best practices.

EY will continue its engagement with the Department regarding this FBS and throughout the consultation process. Affected parties wishing to discuss the Strawman ahead of the 8 May 2024 deadline may reach out to the EY Ireland team listed below.

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1 See Roadmap for the Introduction of a Participation Exemption to Irish Corporation Tax including technical consultation.

2 See EY Submission to September 2023 consultation.

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Contact Information

For additional information concerning this Alert, please contact:

Ernst & Young (Ireland), Dublin

Ernst & Young (Ireland), Financial Services, Dublin

Ernst & Young (Ireland), Cork

Ernst & Young (Ireland), Limerick

Ernst & Young (Ireland), Waterford

Ernst & Young (Ireland), Galway

Ernst & Young LLP (United States), Irish Tax Desk, New York

Ernst & Young LLP (United States), Irish Tax Desk, San Jose

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor