Corporate Tax measures

Oct 22, 2018

Finance Bill 2018 covers a number of corporation tax measures which include Controlled Foreign Company rules, the new Exit Tax rules taxing unrealised gains of assets located in Ireland at 12.5 percent, amendments to capital allowances on energy efficient equipment and capital allowances on childcare and fitness facilities and the three year start up relief for companies.

Controlled Foreign Company (CFC) Rules

As outlined on budget day and last month in Ireland’s Corporation Tax Roadmap, the Bill introduced Controlled Foreign Company (CFC) rules with effect from 1 January 2019. The CFC rules are an anti-tax abuse measure, designed to prevent the diversion of profits to offshore entities in low- or no-tax jurisdictions and are required by the EU’s Anti-Tax Avoidance Directive (ATAD) rules. The rules operate by attributing undistributed income of CFCs to the controlling company in Ireland for taxation purposes where the income arises from non-genuine arrangements put in place for the purpose of avoiding tax to the controlling company in Ireland for taxation, where that controlling company has been carrying out ‘significant people functions’ (SPFs) in Ireland i.e. the Irish company bears the risks and economic ownership of the assets. Furthermore the Bill outlines that SPFs shall be constructed in a manner consistent with the use of the term in the OECD Report.

For CFC purposes a company is considered to have control of a subsidiary where it has direct or indirect ownership of or entitlement to more than 50 percent of the share capital, voting power or distributions.

The Bill provides a number of exemptions to CFC rules:

  • Exemptions for CFCs with low profits or a low profit margin.
  • Exemption where the CFC pays a comparatively higher amount of tax in its territory than it would have paid in Ireland.
  • A one year grace period is allowed in respect of newly-acquired CFCs where certain conditions apply.
  • CFC rules will not apply where the arrangements under which SPFs performed have been entered into on an arm’s length basis.

A credit will be available against the CFC charge for foreign tax paid on the same income.

Exit Tax

As announced on Budget day a new exit tax regime of 12.5 percent operates on any unrealised capital gains arising when companies migrate or move assets offshore. This came into effect from midnight on Budget night 9 October 2018.

The new exit tax rules are similar to the old rules where that exit event triggers a deemed disposal of assets at market value for CGT purposes, resulting in a potential CGT charge. The rules include an anti-avoidance provision where the 33 percent rate rather than the 12.5 percent rate will apply if the event that gives rise to the exit tax charge forms part of a transaction to dispose of the assets and the purposes of the transaction is to ensure that the gain is charged at the lower rate. The rules also include transitional provisions relating to the administration of the pre-existing exit charge.

 

 

Accelerated allowances for employer provided childcare and fitness facilities

The Bill introduces sections 285B and 843B TCA 1997 to provide for a scheme of accelerated capital allowances for equipment and buildings used by employers for the purposes of providing childcare services or a fitness centre to employees. The relief will now be available to all employers by removing the restriction that the relief is only available to trades consisting wholly or partly of the provision of childcare services or fitness facilities. A restriction is now placed on the relief, such that the facilities provided cannot be accessible or available for use by the general public. It is intended that the relief will take effect from 1 January 2019.

Accelerated allowances for energy efficient equipment

The Bill provides an amendment to the scheme of accelerated capital allowances for capital expenditure incurred on certain energy-efficient equipment included in Section 285A TCA 1997. The amendment will allow the Sustainable Energy Authority of Ireland (SEAI) to maintain the list of products eligible under the scheme on their website with the aim to enhancing the administrative effectiveness of the scheme.

Capital allowances for intangible assets

The Bill has made a technical amendment to Section 291A TCA 1997.  The amendment clarifies the operation of the 80 percent cap, introduced in Finance Act 2017, on the total amount of capital allowances and related interest expense that may be offset against trading income of the relevant trade on capital expenditure incurred on a specified intangible assets on or before 11 October 2017.

Extension of start–up relief for companies to 2021

The Bill extends the three year tax relief for start-up companies under Section 486C TCA 1997 to 2021.

Professional Services Withholding Tax (PSWT)

Section 59 of the Bill amends Schedule 13 TCA 1997 to remove six entities that are no longer accountable persons required to operate PSWT; being the Harbour Authority, Dublin Docklands Development Authority, Irish Sports Council,  National Sports Campus Development Authority, Railway Procurement Agency, and The National Consultative Commission on Racism and Interculturalism..  The amendment also adds four entities that are now accountable persons; those being Policing Authority, Educational Research Centre, Sport Ireland and “a company to which section 7 of the Harbours Act 1996 applies”.

Anti-avoidance – loans to participators

Section 18 of the Bill, as published, contains what is referred to in the Explanatory Memorandum as an anti-avoidance provision which extends the income tax charge under section 438 TCA 1997 to loans made by companies controlled by close companies

The draft clause also catches scenarios where a company subsequently comes under the control of a close company, where such loans would otherwise not give rise to a charge under section 438.

This section therefore inserts a new anti-avoidance provision into section 438A to ensure that certain tax avoidance arrangements, which are not currently caught, will fall within the scope of the section 438 charge.

Mutual Agreement Procedures

Finance Bill 2018 extends Revenue’s powers for the making or amendment of an assessment beyond the four-year limit set out under section 957AA TCA 1997 in the case of a bilateral Mutual Agreement Procedure (MAP) case.  The MAP is a means through which competent authorities consult to resolve disputes regarding the application of double taxation conventions.