With the recent uncertainty arising from the direction corporate tax regime change may take in the US, multinational group structures face challenging times. That uncertainty is prompting some groups, where the circumstances permit, to look at redomiciling (for corporate law and tax purposes) the listed top company in the group out of the US. When considering a new jurisdiction, the beneficial tax regime for holding companies, coupled with the favourable corporate law regime, puts Ireland at the forefront.
In the past, redomiciliations into Ireland by US companies were carried out by simply moving from the home jurisdictions - which were generally in the Caribbean, e.g. Covidien and Ingersoll-Rand by implementing a court sanctioned scheme or arrangement. More recently, US companies are re-incorporating into Ireland through an acquisition of an Irish incorporated company whereby the end result is a new Irish holding company for the group which is listed on a US stock exchange. For example, Jazz Pharmaceuticals Inc.’s acquisition of Azur Pharma, Alkermes’ acquisition of Elan Corporation’s drug delivery business, and Eaton Corporation’s acquisition of Cooper Industries plc were all structured in this way.
There are many potential corporate law benefits and tax efficiencies that can be achieved by using an Irish holding company. The principal ones are:
- Full exemption from capital gains tax in respect of the disposal of qualifying shareholdings, or assets relating to such shareholdings, in subsidiaries that are resident in an EU country or in a country with which Ireland has a double tax treaty.
- Beneficial regime in respect of the taxation of foreign dividends. By way of background, foreign dividends paid out of the trading profits of (i) subsidiaries resident in the EU, (ii) subsidiaries resident in a tax treaty country or in a country which has ratified the Convention on Mutual Administrative Assistance in Tax Matters, or (iii) subsidiaries, regardless of its location, where that subsidiary is itself, or is related to, a company quoted on a recognised stock exchange in either Europe or in a jurisdiction that has entered into a double tax treaty with Ireland, can be taxed at 12.5%; with other foreign dividends being taxed at 25%. In both cases, it is generally possible to claim a foreign tax credit which in many cases is higher than the Irish rate, so that generally no further charge to Irish tax should arise on receipt.
- Wide domestic exemptions from withholding tax on dividends and interest – although Ireland imposes a dividend withholding tax and withholding on interest payments (both at a rate of 20%), domestic law provides for wide exemptions from these obligations.
- 12.5% corporation tax rate on any trading income generated in Ireland and enhanced research and development credits - in many cases ancillary activities of the holding company such as IP management or treasury functions will also be based in Ireland.
- Wide tax treaty network – Ireland currently has 69 signed tax treaties, of which 64 are in effect, and several more are in the process of being negotiated.
- Limited thin capitalisation legislation and no relevant transfer pricing/controlled foreign companies (CFC) rules.
- An Irish holding company can be financed in a tax-efficient manner principally by way of debt, with tax deductions available for interest on monies borrowed to finance the acquisition, and exemptions from Irish withholding tax.
- Ireland is a white-listed jurisdiction for the purposes of the relevant OECD/EU codes.
- Ireland has a similar corporate governance regime to that in the USA, UK and a number of other jurisdictions. Corporate structures familiar in those countries and relevant to public listed companies can be largely replicated in an Irish context.
- Shares in an Irish company can obtain direct listings on US exchanges and clearing of dealings in those shares through DTC is possible.
- Other advantages include Ireland’s membership of the OECD and EU/Eurozone; implementation of IFRS (with the possibility to use US GAAP on a transitional basis); status as an English speaking, common law jurisdiction; and its geographic convenience to the EEA and USA.