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Niamh Keogh, of counsel
T: +353 1 614 5000
E: nkeogh@mhc.ie
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John Gulliver, tax partner
T: +353 1 614 5007
E: jgulliver@mhc.ie
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The Irish budget, delivered on
October 9, saw the introduction of a new exit tax regime
effective from midnight following its announcement.
The new rules impose a tax on
unrealised capital gains where companies migrate their tax
residency or transfer assets offshore, which would put them
outside the scope of Irish tax law. The introduction of the
exit tax regime was not in itself a surprise because it is a
requirement under the EU’s Anti-Tax Avoidance
Directive (ATAD) but the deadline for implementation of the
ATAD exit tax rules is not until January 1 2020 so their
introduction comes more than a year earlier than
anticipated.
While the early introduction of the
regime was not widely anticipated, the good news is that the
rate of the exit tax is 12.5% (the same rate of tax imposed on
trading income) rather than the capital gains tax rate of 33%
(subject to anti-avoidance rules). The rate of tax is a matter
over which Ireland had flexibility in implementing the ATAD and
confirmation of the 12.5% rate will be widely welcomed as this
was a key concern raised by industry in consultations.
The exit tax
The ATAD exit tax regime is
designed to ensure that, where a taxpayer moves assets or
migrates its tax residence out of a member state, the member
state can tax the value of any latent capital gain, even though
the gain has not yet been realised at the time of exit.
The new rules introduced in Ireland
will tax unrealised gains of a corporate taxpayer in each of
the following circumstances:
- A company resident in another EU country transfers assets
from its permanent establishment in Ireland to its head
office or to a permanent establishment (PE) in another
country;
- A company resident in another EU country transfers the
business carried on by PE in Ireland to another country;
or
- A company transfers its tax residence from Ireland to
another country (with an exclusion for gains referable to
assets in Ireland which remain used in a trade or held for
the purposes of a PE in Ireland).
The rate of tax is generally 12.5%
with an exception for scenarios where the event triggering the
tax was part of a transaction designed to ensure that the gain
is taxed at the 12.5% rather than the standard capital gains
tax rate of 33%.
An exception from the exit tax
applies in the case of the transfer of assets relating to
financing of securities, or which are given as security for a
debt or where the transfer takes place to meet prudential
capital requirements or for liquidity purposes, in each case
where the asset is due to revert to the permanent establishment
or company within 12 months of the transfer.
The ATAD provides for rules around
paying the tax in instalments but this was not included in the
Irish legislation published on budget day.
Impact on Ireland
Ireland currently has a limited
exit tax regime that applies to corporate migrations, but it is
subject to a number of exceptions. The introduction of the new
regime from midnight is a material change to the Irish
corporate tax system. It may discourage multinationals who were
considering group restructurings to take advantage of the new
US tax rules and, in particular, the lower tax rate of 13.125%
on foreign derived intangible income.
This article was written by
John Gulliver, Maura Dineen and Niamh Keogh from Mason Hayes
& Curran.
The information contained
herein is of a general nature and is not intended to address
the circumstances of any particular individual or entity.
Although we endeavour to provide accurate and timely
information, there can be no guarantee that such information is
accurate as of the date it is received or that it will continue
to be accurate in the future. No one should act upon such
information without appropriate professional tax and legal
advice after a thorough examination of the particular
situation.
© Mason Hayes & Curran
2018