Revenue Note for Guidance

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Revenue Note for Guidance

Repayment of tax in case of ceased company: double taxation relief

Summary

Included within Ireland’s double taxation treaties are provisions which allow for an adjustment to the profits of a company where those profits have been subject to tax in both jurisdictions that are party to the agreement. Such an adjustment can be made by:

  • correlative adjustment; or
  • mutual agreement procedure,

upon which it may be the case that a repayment of tax is found to be properly due to a company.

This section provides, subject to satisfaction of all the relevant conditions, that where:

  • a correlative adjustment or mutual agreement reached gives rise to a repayment of tax, and
  • the company that would have been entitled to that repayment of tax has ceased to exist,

then that repayment of tax may be made to another group company.

This section ensures that Ireland can give effect to outcomes arising from certain specified procedures that are provided for in Ireland’s double tax treaties.

Details

Definitions

Key definitions include:

(1) ‘chargeable period’ has the meaning assigned to it by section 321;

‘controlling interest’ has the meaning assigned to it by section 111A;

‘correlative adjustment’ means an adjustment of profits under the terms of an arrangement having the force of law by virtue of subsection (1) or (1B), as the case may be, of section 826;

‘effective 90 per cent subsidiary’ must be construed in accordance with subsection (2);

‘mutual agreement reached’ means an agreement reached between the competent authority of the State and a competent authority of another jurisdiction in accordance with a mutual agreement procedure under an arrangement having the force of law by virtue of subsection (1) or (1B), as the case may be, of section 826;

‘ultimate parent entity’ means a company that owns, directly or indirectly, a controlling interest in any other company and that is not owned, directly or indirectly, by another company with a controlling interest in it;

‘valid application’ must be construed in accordance with subsection (4).

Subsection (2) provides the meaning, for the purposes of section 826B, of ‘effective 90 per cent subsidiary’ of another company, referred to as the parent company.

(2)(a) In order for a company to be considered an effective 90 per cent subsidiary of the parent company the following three conditions must be satisfied:

  • (2)(a)(i) the company must be a 90 per cent subsidiary, within the meaning of section 9, of the parent company (i.e. the parent company must own 90 per cent of that company’s ordinary share capital) and subject to the requirement of paragraph (b) which is outlined below (i.e. the ordinary share capital can be held directly or indirectly);
  • (2)(a)(ii) the parent company must be beneficially entitled to not less than 90 per cent of any profits available for distribution to equity of holders of that company; and
  • (2)(a)(iii) the parent company would be beneficially entitled to not less than 90 per cent of the assets available for distribution to equity holders of that company in the case of a winding up.

(2)(b) For the purposes of paragraph (a)(i) of subsection (2) the ordinary share capital can be held directly or indirectly.

(2)(c) For the purposes paragraph (a)(ii) and (a)(iii) of subsection (2) sections 413, 414, 415 and 418 will apply, with any necessary modifications, but without regard to section 411(1)(c), in determining the percentage of profits or assets to which a company is beneficially entitled.

(3)(a) Paragraph (a) of subsection (3) sets out, for the purposes of the section, the conditions for a company to be considered a ‘ceased company’, which are as follows:

  • (3)(a)(i) the company has ‘ceased to exist’,
  • (3)(a)(ii) the company, but for its cessation, would be entitled to a repayment of tax and the repayment arises following either a correlative adjustment or mutual agreement reached,
  • (3)(a)(iii) the company is not a transferor company for the purposes of section 865(10), and
  • (3)(a)(iv) immediately prior to the company ceasing to exist that it was an ‘effective 90 per cent subsidiary’ of an ultimate parent entity (referred to as a “group parent company”).

(3)(b) Paragraph (b) of subsection (3) sets out, for the purposes of the section, the conditions to be considered eligible to be a ‘group repayment company’, the first condition of which is that the company is resident in the State. In addition, the company must be:

  • (3)(b)(i) the group parent company,
  • (3)(b)(ii) an effective 90 per cent subsidiary of the group parent company, or
  • (3)(b)(iii) where the company that was the group parent company at the time the ceased company ceased to exist, has itself ceased to exist, and at time the group parent company ceased to exist, it was an effective 90 subsidiary of another ultimate parent entity (referred to as “the successor group parent company”), the nominated group repayment company is either the successor group parent company or an effective 90 per cent subsidiary of the successor group parent company.

Provided the conditions of paragraph (a) and (b) are satisfied then the group parent company or the successor group parent company may submit a ‘valid application’ (the conditions of which are outlined subsection (4)) to the Revenue Commissioners to have sections 864 and 865 apply as if the group repayment company was in fact the ceased company (i.e. the group repayment company would effectively “step into the shoes” of the ceased company for the purposes of the repayment) only in respect of the repayment arising as a result of the correlative adjustment or mutual agreement reached.

(4) Subsection (4) sets out when an application will be considered a valid application for the purposes of section 826B.

A valid application is an application that:

  • is submitted by the group parent company or successor group parent company, and
  • includes all the information that Revenue may reasonably require to determine whether the conditions in paragraphs (a) and (b) of subsection (3) have been satisfied.

(5)(a) Subsection (5) provides that where the Revenue Commissioners (or an officer authorised by them) are of the opinion, having received a valid application, that it would be appropriate, in order to give effect to a correlative adjustment or mutual agreement reached, for sections 864 and 865 to apply, in respect of the chargeable period as if the group repayment company were the ceased company, then:

  • (5)(b)(i) sections 864 and 865 shall apply on that basis, and
  • (5)(b)(ii) the Revenue Commissioners (or an officer authorised by them) shall notify the group parent company, or successor group repayment company, or where it is a different company the group repayment company that sections 864 and 865 will apply on that basis.

(5)(b)(iii) The ceased company shall not be entitled to a repayment of tax for the chargeable period arising from the correlative adjustment or the mutual agreement reached.

(6) Any repayment to which this section applies shall not exceed the amount which would have made to the ceased company had it not ceased to exist.

(7) The Revenue Commissioners may authorise any of their officers to perform any functions or duties required by this section.

(8) Subsection (8) contains a ‘main purpose’ anti-avoidance rule to ensure that this section operates as intended.

(9) This section shall apply to mutual agreements reached, and correlative adjustments in respect of which a determination has been made, on or after the date of passing of Finance Act 2024.

Relevant Date: Finance Act 2024