Revenue Note for Guidance

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Revenue Note for Guidance

634 Credit for tax

Summary

This section provides relief where a company resident in the State transfers a trading operation carried on by it in another Member State to a non-resident company in return for securities in the non-resident company. The company disposing of the trading operation is chargeable to capital gains tax but is entitled to reduce the capital gains tax by the amount of capital gains tax in respect of the transaction in the Member State in which the branch is situated. This applies even where that tax may be deferred under the provisions of the Directive or under the provisions of any domestic law of the Member State in which the trading operation is situated. In order to get relief, the company making the disposal must produce to the Revenue Commissioners a relevant certificate given by the tax authorities of the Member State in which the trading operation is situated. This certificate shows the amount of tax which would be payable in that State but for the deferral provisions of the Directive or the domestic law of that State. Tax neutral treatment is provided for in the case of a transaction covered by the Directive where, unusually, one of the parties to the transaction is regarded as a company by one of the Member States involved but as transparent (such as, for example, a partnership) for tax purposes in the other member State.

Details

Definitions

(1) “law of a Member State which has the effect of deferring a charge to tax on a gain” is the law of the Member State which defers the liability in the Member State in which the branch is situated by providing —

  • that the gain accruing on the disposal of the assets in the course of the transfer of the trade is to be treated as not accruing until the assets are finally disposed of,
  • that the assets are to be treated as disposed of for a consideration that would not give rise to a gain or a loss for capital gains tax purposes in the case of the transferring company, and which would treat the receiving company as having acquired the asset at its original cost and at the original time at which it was acquired by the transferring company,
  • any other type of corresponding deferral of a charge to tax.

“relevant certificate given by the tax authorities of a Member State” is a certificate, given by those authorities, which states whether the gains would have been taxable in the Member State in which the branch is situated but for the Directive or any domestic law of that Member State which would have the effect of deferring the charge. If the gains would have been so chargeable but for the Directive or domestic law, such a certificate would also state the amount of tax which would have been payable under the domestic law of the Member State concerned on any gains or losses on the transfer and after any other deductions and reliefs available to the transferring company.

Relief

(2) Relief is to be given in the case of a transaction which satisfies the following conditions —

  • a company resident in the State transfers the whole or part of a trade carried on by it in another Member State to a non-resident EU company,
  • the transfer involves all of the assets of the branch through which that trade is carried on or all of those assets other than cash,
  • the consideration of the transfer consists wholly or partly of securities in the receiving company.

Where these conditions are satisfied, the tax payable in the foreign jurisdiction is allowable as a credit against the Irish tax arising on the transaction. The foreign tax is allowable even in a case where, by reason of the Directive or by reason of domestic law in the Member State in which the branch is situated, the tax payable in that State is deferred. The amount which is to be allowable as a deduction against Irish tax is an amount which is specified in a certificate given by the tax authority of the Member State in which the branch is situated. Relief is given for that foreign tax irrespective of whether there is a double taxation agreement between Ireland and the Member State concerned, or if there is such an agreement, where the agreement does not cover capital gains tax.

(3) Tax neutrality is provided for in the case of a transaction covered by the Directive where, unusually, one of the parties to the transaction is regarded as a company by one of the Member States involved but as transparent (such as, for example, a partnership) for tax purposes in the other Member State.

This situation can arise where new types of companies are added to the annex to the Directive. These entities will be regarded in their home Member State as a company but in another Member State some of them may be regarded as transparent. Where this arises, the Directive requires that the tax neutrality is given to the partners/shareholders in the transparent entity.

The conditions for relief are that —

  • (3)(a)(i) there is a transfer by a non-resident company of the whole or part of its trade to another company and the consideration consists solely of the issue to the transferring company of securities in the receiving company, and
  • (3)(a)(ii) the income or gains of the transferring company are treated as being income or gains of the shareholder/partner in the transferring company and not as income or gains of the company.

Where the conditions in subparagraphs (i) and (ii) are met, then, for the purposes of double taxation relief, an appropriate part of tax specified in a relevant certificate (i.e. the tax that would have been paid in the other Member State concerned if relief under the Directives had not been available) is to be treated as foreign tax in respect of which credit against Irish tax is to be given.

(3)(b) The amount of appropriate tax in relation to a partner/shareholder in the transparent entity is a proportion of the tax of the transparent entity. The proportion will be the same as the proportion of the entity’s income or gains which is treated as income or gains of the partner/shareholder concerned

Relevant Date: Finance Act 2020