The Irish Minister for Finance today, Thursday, 24 October 2013, published the Finance Bill (No. 2) 2013 (the "Finance Bill").
As announced by the Minister in his Budget statement last week, the Finance Bill contains "a change to Irish company residence rules aimed at eliminating mismatches - that can exist between tax treaty partners in certain circumstances - being used to allow companies to be 'stateless' in terms of their place of tax residence."
Irish incorporated companies which are not resident in Ireland are used in significant international corporate structures, and the concept of a stateless Irish company has recently drawn considerable public and media comment. This new measure can be seen as part of Ireland's proactive approach in ensuring the Irish corporation tax system is robust internationally, such as its recent work in advancing the OECD's Base Erosion and Profit Shifting (BEPS) project and countering cross border 'double no tax' arrangements.
Irish Incorporated Companies - The Current Rules on Residency
In broad terms, an Irish incorporated company will automatically be tax resident in Ireland. The 'place of incorporation' test is subject to two exceptions: (a) the treaty exception; and, (b) the trading exception.
This trading exception is central to what is now commonly referred to as the 'double Irish' structure. By utilising the trading exception, it is possible to create a company which, although Irish incorporated, is not tax resident in Ireland and therefore generally not subject to Irish corporation tax. The company may also not be regarded as tax resident in any other jurisdiction, and this has led some commentators to describe such companies as stateless.
The trading exception is only possible where a number of conditions are satisfied. As an initial step, the company must not be centrally managed and controlled in Ireland. In practical terms this means that its board of directors, as the primary source of such control, must not meet in Ireland and must not exercise their powers in Ireland. In addition, in a typical structure, the stateless Irish company will be affiliated with a company which carries on an active trade in Ireland. The company must also be controlled by persons resident in a double tax treaty partner country, or be a subsidiary of an entity which is listed on a recognised stock exchange in such a country. In the most high-profile cases, the companies will be part of a US or UK listed group....