On 5 September 2024, Matheson responded to a public consultation document issued by the Department of Finance on the introduction of a participation exemption in respect of foreign dividends. While the introduction of a participation exemption is welcomed, Matheson considers that the current proposal does not deliver a best in class participation exemption and can be significantly improved.
In particular, the proposed geographic scope of the exemption is overly restrictive. The first iteration of the proposal issued in April 2024 was similarly designed to only apply to dividends received from subsidiaries that are resident in an EU, EEA or treaty partner jurisdiction. Despite all of the submissions made in response to that proposal advocating in favour of extending the geographic scope of the exemption, no adjustment to geographic scope has been made. This is widely viewed as a missed opportunity.
Matheson welcomed the change in commencement date for the participation exemption. It is now proposed that the exemption will apply to all relevant distributions made by a relevant subsidiary on or after 1 January 2025. In the previous iteration it was proposed that the exemption would only apply for accounting periods beginning on or after 1 January 2025 (which would have disadvantaged those with financial years that did not coincide with the calendar year).
Matheson also commented on other technical aspects of the exemption which risk making the operation of the exemption unnecessarily complicated and suggested how they might be improved. The full submission is available here.