The Irish Finance Bill 2019 was published on 17 October 2019 and contains a series of legislative tax measures. The Bill will now progress through a number of stages in the Irish Dáil (the Irish Parliament) before being signed into law by the Irish President by the end of December 2019 (he has signed it on 25 December for the past number of years, presumably mid-festivities).
The Bill contains several significant new tax measures which will affect international investment and securitisation structures located in Ireland and managed by investment firms based around the world. A number of these measures are the result of international tax initiatives such as OECD BEPS and the EU Anti-Tax Avoidance Directive ("ATAD"). These have been anticipated for some time, and the Bill provides for the enactment of these measures into Irish domestic legislation. The measures include "anti-hybrid" rules from ATAD, extended OECD transfer pricing provisions and the EU "DAC 6" tax reporting requirements for certain cross border transactions by intermediaries and in certain cases the taxpayer.
Ireland is the leading jurisdiction in Europe for the location of debt issuance vehicles based on European Central Bank figures. Section 110 of the Irish Taxes Consolidation Act 1997 ("TCA") is the Irish provision that underpins the tax treatment of these companies (known as "qualifying companies" or "Section 110" companies). Section 110 companies are widely used in international financing and fund structures. The Finance Bill has introduced changes to this legislation which become effective on 1 January 2020 and will need to be carefully scrutinised as regards existing and future structures.
Section 110 Companies - New Provisions
The Finance Bill proposes certain changes to Section 110 TCA to strengthen the existing anti-avoidance provisions contained in the section.
The most significant change is to the existing definition of "specified person". This is an important definition because certain results dependent or excessive interest payments to a specified person may not be tax deductible unless, broadly, they are subject to tax in an EU country or a country which has a tax treaty with Ireland. The proposed changes mean that a person will also now be considered to be a specified person where they have significant influence over the company and hold more than 20% of any of (i) the share capital of the company, (ii) the principal value of any results dependent securities or (iii) the right to more than 20% of the interest payable on results dependent securities. These changes will become effective on 1 January 2020.
In addition, the existing anti-avoidance provision within Section 110 has been replaced by an objective test which applies to payments or securities entered into as part of a transaction which has as its main purpose, or one of its main purposes, the avoidance of tax. Previously, the anti-avoidance provisions were confined to the avoidance of tax by specified persons.
Finally, as part of the general updating of Ireland's transfer pricing rules, transfer pricing will now apply to Section 110 companies where they transact with associated persons. There is an exclusion for loans where the interest payable exceeds a reasonable commercial return, or is to any extent dependent on the results of the company's business. This is a sensible carve-out as the existing Irish legislation provides that the Section 110 "arm's length test" does not apply to such loans, so transfer pricing requirements would have led to two contradictory legislative provisions. For Section 110 companies which have entered into fixed rate loans or other agreements with associated enterprises, the impact of the transfer pricing regime will need to be considered. This will be relevant in particular to "multi-tiered" company structures.
As expected, a number of changes have been made to Ireland's transfer pricing rules. These changes are being introduced, in part, to...