Ireland has become a destination of choice for holding companies due to its capital gains participation exemption, generous foreign tax credit system, membership of the EU, ever expanding double tax treaty ("DTT") network (72 signed, with 70 in effect), lack of controlled foreign companies legislation, thin capitalisation rules and the general ability to pay dividends free of withholding tax. The ability of US companies migrating to Ireland to continue to use US generally accepted accounting practice ("GAAP"), the broadening of the application of the 12.5% rate to foreign dividends received from companies based in non EU/DTT countries and the simplification of the administrative requirements which must be satisfied in order for an Irish company to pay a dividend to a non-resident company free of withholding tax can be seen as continuing evidence of the Irish Government's commitment to attracting holding companies to Ireland.
It is for some or all of the above reasons that many of the world's leading multinational companies have, and continue to, establish holding companies in Ireland.
The Irish tax issues associated with establishing an Irish holding company are reviewed below under the following headings:
- Establishment of an Irish holding company;
- Taxation of an Irish holding company;
- Disposal of shares in an Irish holding company;
- Ceasing operations in Ireland; and
- Tax treaty network.
ESTABLISHMENT OF AN IRISH HOLDING COMPANY
A holding company incorporated in Ireland must take one of the forms provided for by Irish company law. The most commonly used structures are a private limited liability company or a private unlimited liability company. There are no minimum equity requirements for an Irish private company.
Financial statements must be prepared in accordance with GAAP in Ireland and with Irish corporate law comprised in the Companies Act 2014 (the "2014 Act"). The 2014 Act came into effect on 1 June 2015 with certain aspects affecting financial statements being deferred and taking effect only in relation to financial years beginning on or after 1 June 2015.
Section 279 of the 2014 Act replaces the equivalent provision in the Companies (Miscellaneous Provisions) Act, 2009, and permits, in limited cases, certain parent undertakings to use US GAAP in preparing their accounts and was implemented to assist companies migrating to Ireland.
The ability to use US GAAP is available to parent companies incorporated in Ireland where their securities are not traded on a regulated market in the EEA. The company's securities must be registered with or subject to reporting to the US Securities and Exchange Commission ("SEC") and the company must not have incurred on 4 July 2012 an obligation to file accounts with the Registrar of Companies, or, alternatively it must have, on or after 23 December 2009 (but prior to 4 July 2012) used US GAAP in the preparation of its accounts.
The Minister may also approve the use of other internationally recognised accounting standards in similar arrangements. The arrangements were originally to apply for a maximum of four financial years after the undertaking's incorporation in Ireland and to expire on 31 December 2015 however the four year cap has been removed and the period extended to 31 December 2020.
Companies incorporated on or after 1 January 2015
By virtue of recently revised Irish corporate tax residency rules, companies incorporated in Ireland on or after 1 January 2015 will be regarded as Irish tax resident unless the company in question is, by virtue of a DTT between Ireland and another country, regarded as resident in a country other than Ireland (and thus not Irish tax resident).
The residence of a company under a DTT normally depends on the location of central management and control. As such, it is also possible to establish an Irish tax resident holding company which is incorporated in another country. There is no statutory definition of central management and control however one factor that the Irish courts generally place considerable emphasis on when determining the location of central management and control is where the board of directors meetings are held.
Companies incorporated before 1 January 2015
For companies incorporated before 1 January 2015 the revised residency rules will not come into effect until 1 January 2021 (except in limited circumstances). The "old" residency rules will apply in the intervening period and state that i) a company which has its central management and control in Ireland is resident in Ireland irrespective of where it is incorporated and ii) a company which does not have its central management and control in Ireland but which is incorporated in Ireland is resident in Ireland except where:-
- the company or a related company
carries on a trade in Ireland, and either the company is ultimately
controlled by persons resident in EU Member States or in countries
with which Ireland has a DTT, or the company or a related company
are quoted companies on a recognised Stock Exchange in the EU or in
a DTT country under a DTT between Ireland and that country. However
where an Irish incorporated company is managed and controlled in a
relevant territory (other than Ireland), but is not considered
resident in that relevant territory (e.g. as not incorporated
there), then that company will be resident in Ireland.
- the company is regarded as not resident in Ireland under a DTT between Ireland and another country.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.