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Ireland: Ireland improves tax offering for international companies with Finance Bill

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Gerry Thornton


Padraig Twomey

The Irish government published the Finance (No.2) Bill 2013 on October 24 2013. It contains a number of features designed to bolster Ireland's attractiveness for international companies doing business in and through Ireland. An overview of the most relevant changes is as follows.

Corporate residence rules

The Bill proposes measures to curb the existence of stateless companies. The proposed legislation is along expected lines and has a narrow application to deal with mismatches which can arise as a result of the different tests for residence which exist in Ireland and in, for example, the US. The proposed change to the residence rules would, if enacted, treat an Irish incorporated entity as being resident in Ireland in the following circumstances:

  • The entity is managed and controlled in a jurisdiction which has a treaty in place with Ireland and that entity would only be resident in that treaty jurisdiction if it were incorporated in that jurisdiction.

  • The entity is not otherwise treated as resident in Ireland under Irish domestic rules, but would be if it were also managed and controlled in Ireland.

  • The entity is not, apart from this amendment, regarded as resident in any territory.

The proposed changes to the residency rules will have effect from the following dates:

  • October 24 2013 for companies which are formed on or after that date.

  • January 1 2015 for all companies incorporated prior to 24 October 2013.

R&D tax credit

The Bill contains a number of amendments to the existing R&D tax credit regime, including:

  • An increase to the amount of expenditure which is eligible for the credit without reference to the 2003 base year from €200,000 ($273,000) to €300,000.

  • An increase to the proportion of expenditure which can be outsourced to third parties from 10% to 15%.

  • Certain amendments to the administration of the claw-back provisions in circumstances where relief has been surrendered to employees.

Foreign tax credit relief for leasing companies

The Bill includes proposals to permit the carry-forward of foreign tax on leasing income, not otherwise claimed as a credit in Ireland in the year it arose, for offset against Irish corporation tax on leasing income from the same leased equipment in subsequent accounting periods.

Stamp duty: exemption for shares listed on ESM

The Bill introduces an exemption from Irish stamp duty on transfers of shares of companies which are listed on the Enterprise Securities Market (ESM) of the Irish Stock Exchange.

Interest withholding tax: extension of treasury company exemption

The Bill extends an existing exemption from interest withholding tax which is applicable to Irish treasury companies (companies that advance money in the course of a trade which includes lending of money).

Corporate migrations: deferral of exit tax

Where a company ceases to be Irish tax resident, it can, in certain circumstances, be subject to an exit tax.

The Bill includes proposals which will allow migrating companies otherwise subject to this exit tax to defer the payment of this tax where the company migrates its tax residency to another EU of EEA member state. The exit tax may instead be paid in six equal annual instalments or, alternatively, within 60 days of the disposal of the migrated assets (provided they are disposed of within 10 years).

Enactment

The Bill is expected to be enacted by December 31. Changes may be introduced as the Bill progresses through the various parliamentary stages.

These improvements to Ireland's tax regime underline Ireland's continued commitment to be a leading jurisdiction to attract and retain inward investment.

Gerry Thornton (gerry.thornton@matheson.com)

Tel: + 353 1 232 2000

Padraig Twomey (padraig.twomey@matheson.com)

Tel: + 353 1 232 2000

Matheson

Website: www.matheson.com

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