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Ireland brings changes to exit tax and special assignment relief

24 January 2019

ITR Correspondent

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Ireland's Finance Bill has brought a series of changes to exit tax, special assignment relief and controlled foreign companies.

John Gulliver 90 x 100

John Gulliver,
Head of Tax

  Maura Dineen - Appropriate Format

Maura Dineen, 
Tax Partner     

  Niamh Keogh MCH

Niamh Keogh,
Tax Partner

Ireland’s Finance Bill was signed into law by the President on December 19 2018, bringing changes to exit tax, special assignment relief and controlled foreign companies, among others. From an international tax perspective, key features are as follows:

Exit tax

Article 5 of the EU Anti-Tax Avoidance Directive required Ireland to introduce an exit tax by January 1 2020. The Irish tax regime currently applies a 12.5% corporate tax rate to income from a trade carried on in Ireland, and a 33% tax rate on chargeable gains. While the Irish Finance Act introduces an exit tax with effect from October 10 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 their 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 a tax resident in Ireland in situations where the company’s assets (which were used for the purpose of its trade prior to the exit) continue to be situated in Ireland. Furthermore, the exit tax would not apply in situations where the assets continue to be used for the purpose of trade in Ireland through a company branch or a permanent establishment after the exit.

Special assignment relief

Ireland has a special assignee relief programme that enables employees who are assigned by an overseas company to work in Ireland to obtain relief from Irish income tax at a rate of 40% on earnings.  The relief is given by way of a deemed tax deduction at 30% of earnings in excess of EUR 75,000. Section 15 of the 2018 Finance Act caps the maximum earnings at EUR 1 million.

Controlled foreign companies (CFC)

For accounting periods commencing on or after January 1 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 in situations where the controlling company or the connected company has 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 for 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 that are generated in the subsidiary not for the purposes of avoiding say, Irish tax.  For M&A acquisitions by an Irish parent, there is a 12-month reprieve.

This article was written by John Gulliver (jgulliver@mhc.ie), Maura Dineen (mdineen@mhc.ie) and Niamh Keogh (nkeogh@mhc.ie) of 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






International Correspondents