Today, the Minister for Finance (the “Minister”) announced the Irish budget statement for 2015 (the “Budget”). Following much speculation, he confirmed that Ireland would change its corporate tax residency rules to restrict the ability of Irish incorporated companies to be treated as non-Irish resident. This change will affect certain companies that have implemented the so-called “double Irish” arrangements. For existing companies, the Minister has confirmed that a grandfathering period will apply until the end of 2020 (ie, for six years) allowing companies considerable time to revisit their current arrangements. The change will be applied to all new companies from 1 January 2015.
In addition, the Minister confirmed Ireland’s commitment to the 12.5% corporation tax rate describing it as “settled policy” and announced a series of measures designed to maintain Ireland’s status as a location of choice for foreign direct investment (the “Road Map for Ireland’s Tax Competitiveness”). Key amongst those proposals is the launch of a consultation process with a view to introducing a “Knowledge Development Box”.
Corporate Tax Residency Rules
Under existing Irish law, certain companies incorporated in Ireland are not treated as tax resident in Ireland if they are managed and controlled outside of Ireland. Some changes were made to the rules last year to prevent Irish incorporated companies being regarded as “stateless”. Further changes to the Irish corporate tax residency rules have been announced in the Budget.
The draft legislation will be contained in the Finance Bill due to be published on 23 October. Based on the Minister’s written budget statement we expect:
- the general rule will be that an Irish incorporated company will be treated as Irish resident;
- the general rule should not apply to companies treated as tax resident in another jurisdiction under the terms of a double tax treaty;
- from the applicable date of the new rules, it will no longer be possible for Irish incorporated companies managed and controlled in non-treaty partner jurisdictions to be treated as non-Irish resident;
- the rules will apply to new companies from 1 January 2015;
- for pre-existing companies, grandfathering provisions will apply until the end of 2020.
Road Map for Ireland’s Tax Competitiveness
In addition, the Minister announced a series of measures designed to further enhance Ireland’s offering as a location of choice for foreign direct investment. These measures include:
- launching a consultation process on the introduction of a “Knowledge Development Box” similar to a patent or innovation box and offering a sustainable and competitive low tax rate;
- improvements to Ireland’s tax amortisation regime for intellectual property. This will include expansion of the list of qualifying assets and abolition of the 80% cap on the aggregate amount of allowances and interest expense that may be offset against income derived from exploiting intellectual property;
- improvements to the research and development tax credit rules designed to incentivise multinational companies to undertake their research and development in Ireland. This will include removing the base year restriction;
- amendments to the special assignee relief programme which is designed to attract senior executives in multinational companies to locate in Ireland. Under these proposals the upper salary threshold will be abolished. The residency requirement will be amended to only require Irish residency. The exclusion of work abroad will also be removed;
- amendments to the foreign earnings deduction regime which provides income tax relief to Irish employees who undertake some of their activities abroad. The list of qualifying countries will be extended to include Mexico, Chile and certain countries in the Middle East and Asia. The number of qualifying days an employee will be required to work abroad will be reduced to 40. The minimum stay in the foreign country will be reduced to three days and for this purpose days spent travelling will be included; and
- continued expansion of the double tax treaty network and bolstering Irish Revenue’s competent authority resource.
Overall the package is viewed by the Minister as being positive for multinational companies investing in Ireland. Further detail of the proposed measures will be contained in the Finance Bill to be published on 23 October 2014.