The Irish Finance Bill was signed into law by the Irish President on 19 December 2018. From an international tax perspective, key features were as follows:
Article 5 of the EU Anti-Tax Avoidance Directive required Ireland to introduce an exit tax by 1 January 2020. The Irish tax regime applies a 12.5% corporate tax rate to income from a trade carried on in Ireland and a 33% tax rate on chargeable gains. Whilst the Irish Finance Act introduces an exit tax with effect from 10 October 2018, it applies a rate of 12.5% to gains arising where a company ceases to be resident in Ireland, or a non-resident company transfers the assets or the business of its Irish branch or permanent establishment to another EU country.
The exit tax would not apply to a company which ceases to be tax resident in Ireland where the company’s assets which were used for the purpose of its trade prior to the exit continue to be situated in Ireland or used for the purposes of the trade of the company in Ireland through a branch or a permanent establishment after the exit.
Special Assignment Relief
Ireland has a special assignee relief programme that enables employees assigned by an overseas company to work in Ireland to obtain relief from Irish income tax at 40% on earnings. The relief is given by way of a deemed tax deduction at 30% of earnings in excess of €75,000. Section 15 Finance Act 2018 caps the maximum earnings at €1m.
Controlled Foreign Companies (“CFC”)
For accounting periods commencing on or after 1 January 2019, the Finance Act introduces CFC legislation. The rules operate by attributing undistributed income of the CFC, arising from non-genuine arrangements put in place for the essential purpose of avoiding tax, to the controlling company, or a connected company in Ireland, for taxation, where the controlling company or the connected company have been carrying out “significant people functions” (“SPFs”) in Ireland. The rules require an analysis as to the extent to which the CFC would hold the assets or bear the risks that it does were it not for the controlling company undertaking the SPFs in relation to those assets and risks.
Important exemptions include a 10% low profit margin exemption, any CFC with a tax rate of more than 50% of the Irish equivalent and importantly, the absence of a charge where a subsidiary of an Irish company has low tax profits but such profits are generated in the subsidiary not for the purposes of avoiding Irish tax. For M&A acquisitions by an Irish parent there is a 12 month reprieve.
This article was first published in the International Tax Review.