Revenue Note for Guidance

The content shown on this page is a Note for Guidance produced by the Irish Revenue Commissioners. To view the section of legislation to which the Note for Guidance applies, click the link below:

Revenue Note for Guidance

111AS Eligible distribution tax systems

Summary

This section allows certain distribution tax regimes to be accommodated within the structure of the Pillar Two Rules, subject to certain safeguards and recapture rules. A distribution tax regime is a tax system that generally imposes income tax on a corporation when the corporation’s income is distributed or deemed to be distributed to its shareholders, rather than when it is earned.

Details

(1) This subsection allows a filing constituent entity to make an annual election in respect of a constituent entity that is subject to an eligible distribution tax system to include the amount of deemed distribution tax, determined in accordance with subsection (2), in the adjusted covered taxes of that constituent entity for the fiscal year. An “eligible distribution tax system” means a corporate income tax system that was in force on or before 1 July 2021, that imposes tax at a rate equal to, or in excess of, the minimum tax rate, and imposes income tax on profits only when those profits are distributed or deemed to be distributed to shareholders, or when the company incurs certain non-business expenses;

(2) The amount of the deemed distribution tax shall be the lesser of:

  • (2)(a) the amount necessary to increase the effective tax rate as calculated in accordance with section 111AC for the jurisdiction of the constituent entity referred to in subsection (1) for the fiscal year to the minimum tax rate, and
  • (2)(b) the amount of distribution tax that would have been due if the constituent entities located in that jurisdiction had distributed all of their income that is subject to the eligible distribution tax system during the fiscal year.

(3)(a) A deemed distribution tax recapture account shall be established for each fiscal year in which an election was made.

(3)(b) The amount of deemed distribution tax for the jurisdiction shall be added to the deemed distribution tax recapture account for the fiscal year in which it was established.

(3)(c) At the end of each subsequent fiscal year, the outstanding balances in the deemed distribution tax recapture accounts established for prior fiscal years shall be reduced in chronological order by the taxes paid by the constituent entities during the fiscal year in relation to actual or deemed distributions, but such reduction shall not exceed the amount of the outstanding balances.

(3)(d) Any residual amount in the deemed distribution tax recapture accounts remaining after the application of paragraph (c) shall be reduced in chronological order by an amount equal to the net qualifying loss of a jurisdiction for the fiscal year multiplied by the minimum tax rate but such reduction shall not exceed the residual amount.

(4) Any residual amount of net qualifying loss multiplied by the minimum tax rate after the application of subsection (3)(d), for the jurisdiction, shall be carried forward to the following fiscal years and shall reduce in chronological order any residual amount in the deemed distribution tax recapture accounts remaining but such reduction shall not exceed the residual amount.

(5) This subsection provides that the outstanding balance, if any, of the deemed distribution tax recapture account, on the last day of the fourth fiscal year after the fiscal year for which such account was established shall be treated as a reduction to the adjusted covered taxes previously determined for such fiscal year in respect of which the deemed distribution tax recapture account was established and the effective tax rate and top-up tax for that fiscal year shall be recalculated in accordance with section 111AF.

(6) Provides that only distribution taxes paid after all deemed distribution tax recapture accounts have been reduced to zero are treated as covered taxes for the fiscal year.

(7)(a) Where a constituent entity leaves the MNE Group or large-scale domestic group, or transfers substantially all of its assets to a person that is not a constituent entity of the same MNE group or large-scale domestic group located in the same jurisdiction, any outstanding balance of deemed distribution tax recapture accounts in previous fiscal years in which such account was established shall be treated as a reduction to the adjusted covered taxes for each of those fiscal years in accordance with section 111AF.

(7)(b) In determining the additional top up tax amount due for the jurisdiction, any additional top up tax amount that would be due pursuant to paragraph (a) shall be multiplied by the following ratio:

A /_B

Where-

A is the qualifying income of the constituent entity for each fiscal year in which there is an outstanding balance of the deemed distribution tax recapture accounts for the jurisdiction, and

B is the net qualifying income of the jurisdiction determined in accordance with section 111AC(3) for each fiscal year in which there is an outstanding balance of the deemed distribution tax recapture accounts for the jurisdiction

(8) The election referred to above shall be made in accordance with section 111AAAD and shall apply to all constituent entities located in the same jurisdiction for the fiscal year in which the election is made.

Relevant Date: Finance Act 2024