The European Commission has opened infringement proceedings against Ireland over the Irish tax treatment of gains arising from the disposal of government bonds issued by other EU Member States and European Economic Area (EEA) countries.
Under current Irish tax legislation, capital gains arising from the disposal of certain Irish Government bonds are exempt from Capital Gains Tax (CGT).
By contrast, gains arising from the disposal of comparable bonds issued or guaranteed by other EU Member States or EEA countries are generally subject to the standard 33% CGT rate.
The European Commission considers that this difference in treatment may discourage Irish residents from investing in government bonds issued by other EU and EEA countries. It has therefore issued Ireland with a letter of formal notice, citing the free movement of capital provisions under Article 63 TFEU and Article 40 of the EEA Agreement.
The letter of formal notice is the first stage of the EU infringement procedure and does not represent a final finding that Ireland has breached EU law.
Ireland has two months to respond to the Commission’s concerns.
If the Commission considers the response unsatisfactory, it may issue a reasoned opinion, setting out formally why it believes Ireland is in breach of EU law. Further proceedings, including a potential referral to the Court of Justice of the European Union, could follow.
At this stage, there is no immediate change to the Irish CGT rules.
The Commission has not specified how Ireland should change its legislation. The Government could potentially extend the CGT exemption to qualifying EU/EEA government bonds, or alternatively change the current exemption applying to Irish Government bonds.
Investors should therefore not assume that the tax treatment will change in either direction until the Irish Government responds and any legislative amendments are published.
For now, investors should continue to apply the existing rules when considering purchases or disposals of government bonds. However, those with significant sovereign bond holdings should monitor developments, particularly ahead of future Finance Bills.
We will continue to monitor the position and provide further updates as Ireland responds to the Commission.
Disclaimer: This article is for general information purposes only and does not constitute tax or investment advice. While every effort has been made to ensure the accuracy of information within this publication is correct at the time of going to print, RBK do not accept any responsibility for any errors, omissions or misinformation whatsoever in this publication and shall have no liability whatsoever. The information contained in this publication is not intended to be an advice on any particular matter. No reader should act on the basis of any matter contained in this publication without appropriate professional advice.