|Joe Duffy||Shane Hogan|
Under existing Irish law, an Irish incorporated company that satisfies certain conditions is treated as non-Irish resident if it is managed and controlled in another jurisdiction.
Finance Bill 2014 (the Bill) replaces the existing corporate residence rules. Under the new provisions:
- the general rule will be that an Irish incorporated company will be treated as Irish tax resident; and
- that general rule will not apply to companies treated as tax resident in another jurisdiction by virtue of the terms of a double tax treaty.
In summary, following the change, an Irish incorporated company may only be treated as non-Irish resident if it is managed and controlled in a jurisdiction with which Ireland has agreed a double tax treaty and is considered tax resident in that jurisdiction under the terms of the relevant treaty.
The new rules will apply from January 1 2015. However, a grandfathering period is available to companies incorporated before January 1 2015 and the existing rules will continue to apply to those companies until December 31 2020.
The grandfathering period will end earlier for companies incorporated before January 1 2015 if there is both:
- a change of ownership of the company; and
- a major change in the nature or conduct of the company's business.
The early termination of the grandfathering period is an anti-abuse measure designed primarily to prevent new entrants availing of grandfathering. However, those provisions should also be considered carefully by those restructuring their business in particular in advance of a sale to a third party.
The Bill is due to be enacted during December 2014.
In addition, the Minister confirmed Ireland's commitment to the 12.5% corporation tax rate describing it as "settled policy". He also announced a series of measures designed to maintain Ireland's status as a location of choice for foreign direct investment. Key among those proposals is the launch of a consultation process with a view to introducing an intellectual property tax regime known as the Knowledge Development Box (which will be legislated for next year).
The Knowledge Development Box will be similar to a patent or innovation box. The Minister's stated intention is that it will be "best in class" offering a sustainable and competitive tax rate and will comply with applicable EU and OECD standards. The launch of the consultation process is expected before the end of 2014.