Revenue Note for Guidance

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Revenue Note for Guidance

Chapter 10A

Reverse hybrid mismatches

Summary

Chapter 10A provides for the reverse hybrid rule. The purpose of the rule is to address non-taxation where an entity is a reverse hybrid entity. In broad terms, a reverse hybrid entity is an entity that is regarded as tax transparent in the territory in which it is established but as tax opaque by one or more of its investors.

835AVA Interpretation (Chapter 10A)

Summary

This section is the interpretation section for the chapter.

Details

Definitions

(1) “collective investment scheme” is defined in section 835AVB.

“relevant ownership interest”, in relation to a reverse hybrid entity, is to be construed in accordance with subsection (4).

“relevant participator”, in relation to a reverse hybrid entity, means a participator with a relevant ownership interest in the reverse hybrid entity.

“reverse hybrid entity” means a hybrid entity established in the State—

  1. that, for the purposes of the Acts, is not chargeable to tax in respect of its profits or gains, because those profits or gains are treated, or would be so treated but for an insufficiency of profits or gains, as arising or accruing to the participators in the hybrid entity (treated as tax transparent in Ireland), and
  2. some or all of the profits or gains of which are regarded, for the purposes of the tax law of the territory in which a participator in the hybrid entity is established, as arising or accruing to the hybrid entity on its own account (treated as tax opaque in an investor territory).

“reverse hybrid mismatch outcome” is defined in section 835AVD.

(2) For the purposes of this chapter, “associated entities” has the same meaning as ‘associated enterprises’ as defined in section 835AA, subject to the following modifications –

  1. a reference, in that section, to ‘enterprise’ shall be construed as a reference to ‘entity’,
  2. a reference, in subsection (2) of that section, to ’25 per cent’ shall be construed as a reference to ’50 per cent’, and
  3. two entities shall not be treated as acting together with respect to voting rights, share ownership rights or similar ownership rights solely because they are partners in a partnership.

(3) The territory in which a reverse hybrid entity is established shall mean the territory in which the reverse hybrid entity is registered, incorporated or created.

(4) A participator shall have a relevant ownership interest in a reverse hybrid entity where—

  1. the participator possesses or is beneficially entitled to or the participator and its associated entities possess or are beneficially entitled to, directly or indirectly, 50 per cent or more of the ownership rights in the reverse hybrid entity,
  2. the participator is, or the participator and its associated entities are, entitled to, directly or indirectly, exercise 50 per cent or more of the voting power in the reverse hybrid entity, or
  3. the participator holds, or the participator and its associated entities hold, directly or indirectly, rights giving rise to an entitlement to 50 per cent or more of the profits of the reverse hybrid entity.

Relevant Date: Finance Act 2021