Revenue Note for Guidance

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Revenue Note for Guidance

835AG Permanent establishment deduction without inclusion mismatch outcome

Summary

This section sets out what is meant by a permanent establishment deduction without inclusion mismatch outcome and provides the rules to neutralise such an outcome.

Details

Permanent establishment deduction without inclusion mismatch outcome

(1) A permanent establishment deduction without inclusion mismatch outcome shall arise where –

  • (a) there is a tax deduction in the payer territory and a corresponding amount is not included in the payee territory, and
  • (b) the reason why the income is not included in the payee territory is because;
    1. the payment is being made to a disregarded permanent establishment,
    2. payments are allocated differently between the head office and a permanent establishment of that entity, or between two or more permanent establishments of an entity, or
    3. the payment is a disregarded payment under the laws of the payee territory.

Dual inclusion income

A mismatch outcome shall not arise under subsection (1)(b)(iii) (where the payment is a disregarded payment under the laws of the payee territory) where the payment is deductible against an amount of income that is included in both the payer territory and the payee territory.

(2)

The rule(s) for neutralising the permanent establishment deduction without inclusion mismatch outcome.

(3)(a) The primary rule.

Where the State is the payer territory, notwithstanding any other provision of the Tax Acts and the Capital Gains Tax Acts, the payer shall be denied a tax deduction for the payment, to the extent a corresponding amount has not been included for the purposes of foreign tax;

(3)(b) The defensive rule

Where the mismatch outcome arises where a payment is made to a disregarded permanent establishment, where -

  1. the State is the payee territory,
  2. the disregarded permanent establishment is as defined in Article 5 of the Model Tax Convention on Income and Capital, published by the Organisation for Economic Co-operation and Development, as it read on 21 November 2017, and
  3. a deduction has not been denied in the payer territory

then notwithstanding section 25, the profits and gains of the disregarded permanent establishment shall be charged to corporation tax as if the business carried on in the State by the disregarded permanent establishment was carried on by a company resident in the State.

Relevant Date: Finance Act 2021