Revenue Note for Guidance

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Revenue Note for Guidance

633B Formation of SE or SCE by merger – not leaving assets in the State

Summary

This section deals with a situation where assets are transferred to an SE or SCE on the formation of such an entity and where the assets are not left in the State. This arises where an Irish resident company transfers a branch in another EU Member State to a company of another Member State. In this case, the transfer of the assets to the SE or SCE will give rise to a charge to tax.

Details

Application

(1) The section applies where the following criteria are met:

  • (1)(a) an SE or SCE is formed by a merger;
  • (1)(b) each merging company is resident in a Member State;
  • (1)(c) all of the merging companies are not resident in the same Member State;
  • (1)(d) in the course of the merger an Irish resident company transfers all assets and liabilities of a trade carried on by it in a Member Sate (other than Ireland) to a company that is resident in another Member State (that is, it transfers a non-Irish branch to a non-Irish resident company); and
  • (1)(e) there is a net chargeable gain from the transaction.

Losses

(2) Losses arising are to be set off against gains, and the net gains charged to tax.

Credit for tax

(3) Section 634 is to apply where this section applies. If the Member State in which the branch of the Irish company operates gives tax neutral treatment under the Directive, then no tax will be chargeable there on the transaction. Consequently, no foreign tax will be offset against any Irish tax chargeable on the gain. In due course when the assets are disposed of, the foreign tax arising will not be relevant for double taxation relief purposes. This could result in double taxation of the gain, once in Ireland and once in the other Member State. To avoid this scenario, credit is to be given against the Irish tax arising under subsection (2) for the foreign tax that would have been payable on the transfer of assets if relief under the Directive was not available in the other Member State. That is what section 634 does.

Relevant Date: Finance Act 2021