The Finance Bill 2012 (the “Bill”) includes a number of positive measures to deliver on this promise. These changes demonstrate the continued commitment of the Irish Government to the international financial services industry.
International Funds Industry
Ireland experienced the highest net inflows of UCITS of all fund domiciles in 2011- the €62 billion inflow was nearly twice as much as the other jurisdictions put together during 2011.
The Bill should assist in attracting further funds (both UCITS and non UCITS) to Ireland by reducing the already limited obstacles to funds establishing in or redomiciling to Ireland. The clarifications/enhancements include the following:
- A legal basis for administrative arrangements previously operated by Revenue whereby funds redomiciling to Ireland from certain offshore jurisdictions can dispense with the requirement to obtain non resident declarations from each investor. Under the simplification rules, the fund can provide a list of those who are Irish resident and any investor not on the list will not suffer Irish exit taxes
- The Bill further enhances Ireland’s attraction as a location for master funds under UCITS IV. Amalgamation relief will be extended to allow the issue of units in a master fund directly to a foreign feeder fund in exchange for the assets of that foreign fund. Previously, the relief only applied where the assets of the foreign fund were transferred to the Irish fund in exchange for the issue of units to the investors in the foreign fund
- The Bill clarifies the tax exemption for non-resident investors who dispose of units to someone other than the investment undertaking. This is a useful clarification for Exchange Traded Funds
- A number of Stamp Duty reliefs relevant to funds have been introduced-for example in relation to cross border mergers.
Corporate Treasury Sector
One issue faced by Irish “cash pooling” companies until now is that interest paid to group companies who are not in an EU or Tax Treaty country were generally regarded as a “distribution” for Irish tax purposes. This led to a denial of a corporation tax deduction for the Irish paying company and the possible application of 20% dividend withholding tax. The Bill provides that the Irish company will now be entitled to a tax deduction for interest payable to a group company in a non-Treaty jurisdiction, provided that jurisdiction taxes such foreign source interest income. In cases where the foreign country taxes the interest at a rate of less than 12.5%, the Irish company will receive relief at the effective tax rate.
International Insurance Industry
Insurance industry lobbying helped secure a change of benefit to a wider audience. Previously a tax group for corporation tax purposes would not exist, for example, where there was a US parent with two Irish subsidiaries. This meant that the profits of one Irish subsidiary could not be sheltered by losses in the other. The Bill extends the definition of a corporation tax group so that a group can be formed with companies resident outside the EU but in a Tax Treaty country and with companies, wherever resident, that are publicly listed (and their 75% subsidiaries).
The Bill introduces unilateral credit relief for withholding tax suffered in countries with which Ireland does not have a Tax Treaty in connection with leasing income which is taxed as trading income of the recipient company.
Following from last year’s Strategy for the International Financial Services Industry in Ireland 2011-2016, the Bill is further evidence of the continued Irish commitment to the financial services industry.