The European Commission has opened an “infringement procedure” against the Republic for exempting capital gains on Irish government bonds from tax, while profits on the sale of other EU sovereign debt are taxable at a rate of 33 per cent.
Brussels says the favourable tax treatment of Irish government bonds is not in line with EU rules governing the free movement of capital.
The Irish exemption also includes capital gains tax on bonds issued by certain State-owned entities, including ESB, Bord Gáis and DAA.
“The European Commission decided to open an infringement procedure by sending a letter of formal notice to Ireland for failing to bring its legislation on the tax treatment of capital gains arising from the disposal of government bonds in line with the rules on the free movement of capital,” the commission said.
“This difference in tax treatment discourages Irish residents from investing in bonds issued or guaranteed by other EU member states or EEA countries.” The EEA refers to the European Economic Area, which includes non-EU states Iceland, Liechtenstein and Norway.
The Government has two months to respond to the concerns raised by the Commission and to address the identified shortcomings.
“Ireland notes the Letter of Formal Notice and will review and respond as required,” a spokeswoman for the Department of Finance said.
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In the absence of a satisfactory response, the Commission may decide to issue a reasoned opinion where it formally sets out why it considers the Republic to be in breach of EU rules and gives the country a further period to comply.
If the Commission is not satisfied by the Government’s response to that, it can bring proceedings before the Court of Justice of the European Union.
There are currently 58 EU infringement cases against Ireland, according to Commission data. Denmark has the lowest number of such cases, at 38, while Spain has the highest, at 124.
The National Treasury Management Agency (NTMA), which manages funding for the Government, currently has €137.1 billion of bonds outstanding. The agency plans to carry out its next bond auction on October 15th.