On 18 October 2018, Ireland's Finance Bill 2018 (the "Bill") was published. The Bill will be debated in the Oireachtas over the coming weeks and is expected to be signed into law before the end of the year. The key changes included in the Bill affecting multinational organisations operating in Ireland are:
the introduction of controlled foreign company rules as required by the EU Anti-Tax Avoidance Directive; the implementation of a 12.5% exit charge on company migrations from Ireland and the allocation of assets from an Irish permanent establishment to the head office or a permanent establishment in another jurisdiction; a technical clarification to Ireland's rules on the amortisation of intellectual property assets requiring taxpayers to separately stream income from assets acquired before 11 October 2017; and the ability to re-open tax years outside the four year time limit to make an adjustment that has been agreed under a mutual agreement procedure. Other provisions are likely to be included in the Bill as it passes through the legislative process and we will keep you updated of any relevant changes. In the meantime, more detail on the key changes for multinationals operating in Ireland are included below.
The introduction of CFC rules
Controlled foreign company ("CFC") rules are being introduced for accounting periods beginning on or after 1 January 2019 in accordance with the requirements of the EU's Anti-Tax Avoidance Directive ("ATAD").
Under the Irish rules a company will be regarded as a CFC if (a) it is not resident in Ireland and (b) it is under the control of an Irish resident company (or companies). For this purpose, 'control' is defined broadly and includes both direct and indirect control.
However, just because a company is regarded as a CFC does not of itself result in a CFC charge arising. A CFC charge will only arise to the extent that:
the CFC has undistributed income (it is important to note that the term 'undistributed profits' for this purpose does not extend to include capital gains); and the CFC generates income by reference to activities carried on in Ireland (in very general terms, if the CFC relies on people in Ireland to manage assets or risks which generate income for the CFC, the CFC will be regarded as generating income by reference to Irish activities). In cases where the CFC relies on Irish activities to generate its income, no CFC charge will arise if it can be established that: