While Finance Bill 2020 ("the Bill") includes measures to support the domestic economy during the COVID-19 crisis and in the context of Brexit, the Bill includes no fundamental changes to Ireland's international tax regime. A number of the provisions announced in the Bill offer helpful clarification in relation to measures introduced last year.
Key Points on Ireland's tax regime
Corporation tax rate
The Minister for Finance reaffirmed Ireland's commitment to the 12.5% corporation tax rate for trading activities in his recent Budget speech.
As expected the ATAD interest limitation rules were not included in this Finance Bill and are expected to be introduced with effect from 1 January 2022. A consultation on the rules is expected next year.
Many of Ireland's anti-hybrid rules are applicable only where there is a transaction between associated enterprises. Finance Bill 2020 proposes a new provision that a transaction between associated enterprises shall not include a transaction between enterprises who were associated at the time the transaction was entered into or formed, but are neither (a) associated enterprises at the time the payment arises under the transaction, nor (b) associated enterprises at the time a deduction in respect of the payment arises.
This provision will apply only where it is reasonable to consider that the arrangement as a result of which those enterprises ceased to be associated enterprises was entered into for bona fide commercial reasons and does not form part of any arrangement of which the main purpose, or one of the main purposes, is to avoid the application of the anti-hybrid rules.
The Bill also includes a number of technical amendments to Ireland's anti-hybrid rules including a correction in the definition of associated enterprises.
Controlled Foreign Company ("CFC") Regime
The Bill proposes denying the application of certain exemptions from Ireland's CFC rules for an accounting period where the CFC is resident in a jurisdiction which is included on the EU blacklist. The denied exemptions are the "effective tax rate exemption", "the low profit margin exemption" and the "low accounting profit exemption". The denial of these exemptions should have limited application in practice.
Under Finance Act 2019, Ireland's transfer pricing regime was extended to include non-trading transactions with effect from 1 January 2020 but certain domestic transactions remained exempt. This domestic exemption, and in particular its application to interest free loan transactions, which are a feature of many multinational groups with an Irish presence, had been the subject of differing interpretations. Finance Bill 2020 includes a replacement provision clarifying the circumstances in which the exemption will apply to such transactions.
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.