835W Exempt period exemption

Summary

The purpose of this exemption is to provide controlling companies with a ‘‘grace period’’ for newly acquired CFCs during which the controlling company can organise or reorganise its business so that a CFC charge does not arise. In order to avoid the CFC charge, the controlling company must re-structure the affairs of its subsidiary during the grace period of 12 months so that it is not considered to be a CFC in the subsequent period. If this condition is not satisfied, the exemption is lost and the CFC charge becomes payable in the subsequent period. Subject to certain exceptions, newly formed CFCs are excluded from the exemption.

Details

(1) “exempt period” and “subsequent period condition” have the meanings given to them by subsection (3) and (4) respectively.

(2) The CFC charge shall not apply where the CFC’’s accounting period ends during the exempt period and the CFC satisfies the subsequent period condition.

(3) The exempt period begins when the Irish parent would be subject to the CFC rules for the first time in relation to that CFC. It ends 12 months later.

(4) The subsequent period condition is satisfied where:

• the company ceases to be considered a CFC in accordance with Chapter 1, or
• the CFC charge does not apply

in the first accounting period that follows immediately after the exempt period.

(5) The CFC’’s undistributed income should be apportioned on a just and reasonable basis where the accounting period of a CFC begins but does not end during an exempt period. The portion that arises during the exempt period and would otherwise be subject to the CFC charge, is exempt from the charge.

(6) & (7) The exempt period exemption will not be available for a CFC where the CFC was not carrying on a business before the beginning of the exempt period or the controlling company was subject to the CFC provisions in relation to the CFC on 1 January 2019. An exception to this exclusion provides that the controlling company will not be prevented from availing of the exempt period exemption where newly formed CFCs (CFCs incorporated or formed immediately before the exempt period begins), are formed for the purpose of controlling a company or companies, and the company or companies controlled by the CFC would qualify for the exempt period exemption.

This exception to the exclusion is intended to cover acquisition vehicles that are set up prior to acquiring other companies from a third party.

(8) This anti-avoidance measure is designed to ensure that the exemption cannot apply where the CFC enters into arrangements and it is reasonable to consider that the main purpose of the arrangements is to secure a tax advantage or the exempt period exemption.

Relevant Date: Finance Act 2021