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Ireland: Changes to Irish corporate residence rules

AUTHOR(S): Joe Duffy, Shane Hogan, John Ryan
PRACTICE AREA GROUP: Tax
DATE: 16.12.2014

On October 14 2014, Ireland's Minister for Finance (the Minister) announced changes to Ireland's corporate residence rules. Following much speculation, the Minister confirmed that Ireland would change its rules to restrict the ability of Irish incorporated companies to be treated as non-Irish resident.

Under existing Irish law, an Irish incorporated company that satisfies certain conditions is treated as non-Irish resident if it is managed and controlled in another jurisdiction.

Proposed change

Finance Bill 2014 (the Bill) replaces the existing corporate residence rules. Under the new provisions:

  •  the general rule will be that an Irish incorporated company will be treated as Irish tax resident; and
  • that general rule will not apply to companies treated as tax resident in another jurisdiction by virtue of the terms of a double tax treaty.

In summary, following the change, an Irish incorporated company may only be treated as non-Irish resident if it is managed and controlled in a jurisdiction with which Ireland has agreed a double tax treaty and is considered tax resident in that jurisdiction under the terms of the relevant treaty.

Grandfathering provisions
 
The new rules will apply from January 1 2015. However, a grandfathering period is available to companies incorporated before January 1 2015 and the existing rules will continue to apply to those companies until December 31 2020.
The grandfathering period will end earlier for companies incorporated before January 1 2015 if there is both:

  •  a change of ownership of the company; and
  • a major change in the nature or conduct of the company's business.

The early termination of the grandfathering period is an anti-abuse measure designed primarily to prevent new entrants availing of grandfathering. However, those provisions should also be considered carefully by those restructuring their business in particular in advance of a sale to a third party.

Enactment

The Bill is due to be enacted during December 2014.

Other developments

In addition, the Minister confirmed Ireland's commitment to the 12.5% corporation tax rate describing it as "settled policy". He also announced a series of measures designed to maintain Ireland's status as a location of choice for foreign direct investment. Key among those proposals is the launch of a consultation process with a view to introducing an intellectual property tax regime known as the Knowledge Development Box (which will be legislated for next year).
The Knowledge Development Box will be similar to a patent or innovation box. The Minister's stated intention is that it will be "best in class" offering a sustainable and competitive tax rate and will comply with applicable EU and OECD standards. The launch of the consultation process is expected before the end of 2014.

This article first appeared online at International Tax Review, 16 December 2014

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