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Matheson US Offices Update
Happy New Year and welcome to our US Offices Update.
In the first of our regular updates, we look at the taxation of dividends, Irish FATCA compliance, an overhaul to Irish company law, the recent Irish Budget announcement and Ireland’s implementation of the new Transfer Pricing Regime, amongst other things.
Last Summer, we were pleased to announce a further expansion of our US presence, with a significant appointment made at our office in Palo Alto, California. Mark O’Sullivan, a partner in the firm’s tax department, is again based full-time in our offices in Silicon Valley. This means we now have senior, partner-level tax expertise on both coasts of the US, reflecting Matheson’s market-leading position in Irish tax law.
Please do not hesitate to contact us if you would like to discuss any of the issues we address here. We look forward to working with you in 2013.
- John Ryan, Head of US Offices
The European Court of Justice (ECJ) recently delivered its judgment in the long running FII Litigation Group case. The decision may impact on how future dividends received by an Irish company from an EU resident company are taxed in Ireland. The ECJ ruled that the UK's historic discriminatory treatment of dividends received from non-UK subsidiaries was contrary to EU law, on the basis that domestic dividends were treated as franked investment income (FII) and therefore exempt. Current Irish rules still recognise a distinction between dividends received from another Irish resident company (which are exempt) and dividends received from companies resident outside of Ireland (taxable). The attached article provides a summary of the decision and its likely impact on the taxation of dividends in Ireland.
In December 2012 the Irish Revenue Commissioners announced that they would commence carrying out transfer pricing compliance reviews (TPCRs) in 2013 to monitor transfer pricing compliance of Irish companies. This follows the introduction of transfer pricing legislation for Irish resident companies, for accounting periods beginning on or after January 1, 2011. Taxpayers should expect to receive notifications pursuant to the TPCR system in the coming weeks. Further information is contained here.
The Irish Government published the Companies Bill 2012 (the "Bill") on December 21, 2012. The Bill will, when enacted, consolidate, reform and modernise Irish company law. The Bill will have a number of positive impacts for international clients. One of the more welcome changes will see the introduction of a domestic merger regime for private companies. Under current rules mergers are only possible where an Irish entity is merging with an entity registered in different EU member state, under the EU merger directive regime.
Ireland and the United States signed an intergovernmental agreement (IGA) in December 2012 which will facilitate future compliance with FATCA. The Irish government is expected to publish a first draft of enabling legislation in the Finance Bill 2013 which we expect to be published over the coming weeks. It is expected that the publication of domestic legislation will prompt Irish financial institutions to sharpen their focus on their FATCA compliance obligations. A copy of the IGA is contained here.
The Irish Minister for Finance, delivered his annual budget speech on December 5, 2012. The Minister once again reaffirmed Ireland's primary tax policy and reiterated the government's position as being "100% committed to maintaining the 12.5% corporation tax rate". As well as changes to personal income tax, the introduction of a residential property tax and increases to capital gains tax and capital acquisitions tax the Minister also announced that the government is currently working on proposals to introduce a regime for real estate investment trusts (REITs).
Financial Transactions tax to proceed without Ireland
On January 22, 2013 the Economic and Financial Affairs Council of the EU (ECOFIN) announced that they will adopt a decision authorising 11 Member States of the European Union to proceed with the introduction of a financial transactions tax (“FTT”) through enhanced cooperation. The 11 Member States which requested the proposal for enhanced cooperation were Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovenia, Slovakia and Spain. In making this request for enhanced cooperation, the Member States specified that the scope and objective of the FTT will be based on ECOFIN’s 2011 proposal, namely a harmonised minimum 0.1% tax rate for transactions in all types of financial instruments except derivatives (0.01% rate).
The EU Commission are expected to shortly publish a proposal outlining the substance of the FTT measures, which will have to be adopted by unanimous agreement by the 11 participating Member States. Ireland, along with the UK, Sweden and Finland, has been strongly opposed to FTT from the outset, and is not a party to the enhanced cooperation procedure. However, the decision of the 11 Member States to proceed with the FTT is of relevance to and will impact upon counterparties in other jurisdictions transacting with companies and financial institutions resident in any of the 11 Member States.
For further commentary on FTT and its possible implications please click here.
Two recent opinions from the Advocate General of the ECJ have affirmed the Irish tax Revenue Commissioners' interpretation of the rules in two important areas - the exemption for fund management services and in the context of holding companies forming part of VAT groups. While both cases are awaiting final judgement from the ECJ, the Advocate General's opinion are generally considered to be influential on the final outcome.
Following recent changes to the Section 110 (Securitisation) regime it is now possible to finance aircraft transactions using a Section 110 company. This has proved to be extremely popular, particularly among those investors seeking to acquire aircraft in a tax efficient manner. In other positive news the Irish Revenue Commissioners have also clarified the tax treatment of debt issuance costs of Section 110 SPVs.
Commission publishes "action plan" for aggressive tax planning
The European Commission published an action plan in December 2012 to combat tax evasion and tax fraud. The action plan contains two recommendations to encourage EU member states to take immediate and coordinated action. The first recommendation encourages member states to blacklist certain tax havens to persuade them to apply minimum standards of good governance. The second recommendation calls on member states to adopt domestic anti-abuse rules to prevent the use of double tax treaties in abusive double non-taxation structures. The next step is that the action plan will be considered by EU Finance Ministers and the European Parliament. Given Ireland already has extensive anti-avoidance measures on its statute books it is not anticipated that the action plan will have much of an effect, if any, on future Irish tax law.
The Irish Competent Authority had another busy year with three new tax treaties signed with Egypt, Qatar and Uzbekistan. This brings the total number of treaties signed to 68, with 63 currently in full effect. A full list of treaties is available here.