835N Adjustment to amount of foreign tax

Summary

Section 835N sets out the rules for determining the amount of foreign tax which is paid or borne by a CFC in its jurisdiction of residence for the purposes of calculating the Effective Tax Rate (‘‘ETR’’) test. In relation to the ETR test, adjustments to the hypothetical Irish tax computation, when computing the corresponding Irish tax, will be required where inconsistencies arise between the treatment of income and expenditure in the State and the CFC’’s jurisdiction of residence. This could arise, for example, where a stream of income

that is taken into account in the CFC jurisdiction would not normally be taken into account in the State or where an amount of expenditure that is typically allowed in calculating chargeable profits in the State is not allowed in the jurisdiction of the CFC.

Details

(1) Where an amount of foreign tax, that is the tax paid or borne by the CFC in respect of its profits, is paid by another company on the aggregate profits of the CFC and one or more other companies the amount of tax paid by the company on the aggregate profits shall be apportioned between the consolidated companies on a just and reasonable basis in order to calculate the amount of foreign tax, relevant to the CFC.

(2) & (3) Income that is taken into account in calculating the CFC’’s foreign chargeable profits but would not be taken into account in determining the corresponding chargeable profits for Irish tax purposes should be excluded when determining the amount of foreign tax paid or borne by the CFC for an accounting period. Excluding the income in determining the foreign tax paid ensures that the amounts of foreign tax and Irish tax being compared arise on an equivalent basis.

(4) & (5) Expenditure of the CFC that is not normally taken into account in calculating its foreign chargeable profits but would be taken into account in calculating the corresponding chargeable profits in the State should be taken into account when calculating the amount of foreign tax paid or borne by the CFC for the accounting period. Including the expenditure as a deduction when calculating the foreign tax where a deduction would typically be taken in calculating the Irish tax ensures, as far as possible, that the amounts of foreign and Irish tax being compared are calculated on the same basis.

Relevant Date: Finance Act 2021