Section 13 of Finance Bill 2017 proposes significant changes to Irish tax anti-avoidance legislation for offshore structures.
Irish resident non-domiciled participators of offshore closely-held companies, and trustees of offshore trusts with Irish resident non-domiciled settlors and beneficiaries, should consider the implication of these changes, and potentially reorganise these arrangements before the changes become law which may occur as soon as 18 December 2017.
The current Irish tax anti-avoidance legislation for offshore structures, provides for the following:
Income arising within an offshore trust can be taxed on an Irish resident settlor who has power to enjoy (broadly defined) such income, irrespective of his or her domicile; Capital gains arising within an offshore trust can be taxed on an Irish resident non-domiciled settlor to the extent that they are attributable to Irish resident and domiciled beneficiaries; Beneficiaries of an offshore trust can also be taxed on the trust income and gains to the extent that they receive distributions from the trust; and Capital gains of an offshore closely-held company can be attributed to the participators of such company, who may include the trustees of an offshore trust. Prior to Finance Bill 2017, the anti-avoidance legislation in respect of capital gains was disapplied where it could be shown that the offshore trust or company was engaged in a bona fide commercial activity, and there was no Irish tax-avoidance motive behind the establishment of the trust or company, or the disposal giving rise to the gain. The legislation was disapplied in respect of income where it could be shown that the trust was carrying on a 'genuine economic activity' within the EU / EEA, and there was no Irish tax-avoidance motive behind the establishment of the trust (which meant that a charge to income tax would arise in respect of non-EU / EEA structures).
Going forward, the motive for establishing a trust or disposing of an asset are irrelevant, and the anti-avoidance provisions will only be disapplied where it can be shown that the offshore trust or company is carrying on 'genuine economic activity' within the EU / EEA. This is quite a significant restriction. The relieving provisions...