Answer ... Ireland has a number of general anti-avoidance rules (GAAR) in legislation. These provisions effectively give the Revenue the power to apply the ‘substance over form’ principle in an area where the courts have refused to apply it. These provisions are designed to counteract certain transactions which have little or no commercial reality, but are carried out primarily to create an artificial tax deduction or to avoid or reduce a tax charge. They are a hybrid of the non-tax purpose and step transaction doctrines. Different sections will apply depending on the date of the transaction - that is, whether it commenced pre or post 23 October 2014.
Under these sections, the Revenue can form an opinion that a transaction is a tax avoidance transaction and issue a notice to the taxpayer which withdraws the tax advantage.
Irish legislation also contains specific anti-avoidance provisions which are intended to deny the benefit of a loss, relief or exemption which may otherwise be available when a particular type of transaction or series of transactions is undertaken. The targeted anti-avoidance rules are typically used by the Revenue to tackle more specific or limited types of transactions than those to which the GAAR applies.
Where a person enters into a tax avoidance transaction that gives rise to a tax advantage contrary to general or specific anti-avoidance provisions, that person shall be liable to pay a surcharge equal to 30% (20% for transactions which commenced on or before 23 October 2014) of the amount of the tax advantage. However, no surcharge is payable by a person which has made a valid protective notification. In addition, a taxpayer can avail of a reduced surcharge amount if a ‘qualifying avoidance disclosure’ is made to the Revenue.
If a taxpayer has entered into a tax avoidance transaction and has claimed the benefit of a tax advantage contrary to the GAAR, there is no time limit on when the Revenue can:
- conduct enquiries as to whether the transaction is a tax avoidance transaction;
- withdraw the tax advantage by, for example, amending an assessment; or
- collect or recover any amount of tax.
Answer ... Please see question 5.1.
Answer ... Ireland introduced controlled foreign companies (CFC) rules from 1 January 2019. Ireland implemented the ‘Option B’ model of CFC rules as described in the EU Anti-Tax Avoidance Directive - an approach which attributes undistributed income arising from non-genuine arrangements structured for the essential purpose of obtaining a tax advantage. The Irish legislation provides that an arrangement shall be regarded as non-genuine if:
- the CFC would not have owned the assets or undertaken the risks that generated the income if it were not controlled by a company;
- it is that latter company in which the significant people functions relevant to those assets or risks are carried out and are instrumental in generating the controlled company’s income; and
- it would be reasonable to consider that the relevant Irish activities were instrumental in generating that income.
Like other EU member states, Ireland is required to implement an interest limitation rule in accordance with the directive. This will limit ‘exceeding borrowing costs’ in a tax period to 30% of earnings before interest, taxes, depreciation and amortisation. The implementation date is 1 January 2019, but Ireland is seeking to defer this, as permitted by the directive, until 2024 on the basis that existing Irish rules are equally effective. However, the European Union has indicated in a notice dated 7 December 2018 that a more stringent ratio-based approach will be taken, which means it is unclear whether deferral by Ireland will be permitted.
Directive-compliant hybrid mismatch rules must be implemented by Ireland by 1 January 2020, with the exception of anti-reverse hybrid rules, which must be implemented by 1 January 2022.
Answer ... The Revenue can provide opinions/confirmations in respect of tax matters where the issues are complex, information is not readily available or there is genuine uncertainty in relation to the applicable tax rules as set down in the legislation.
An opinion/confirmation provides the Revenue’s view of the application of tax law to a particular transaction or situation and assists the taxpayer in filing a tax return as required under law.
Many opinions/confirmations provided by the Revenue relate to one-off transactions and the question of their continuing validity does not arise. Where, having regard to the matter on which it is provided, an opinion/confirmation is capable of being relied on by a taxpayer for a period of time, it is Revenue policy that the maximum period for which it may remain valid without being reviewed is five years. However, in some cases, a shorter period of validity may be specified.
A taxpayer that wishes to continue to rely on an opinion/confirmation beyond this five-year period must apply to the Revenue s for its renewal or extension.
An opinion/confirmation will remain valid only for so long as the facts and circumstances on which it is based have not changed and the relevant legislation and practice remain in place. It can be reviewed by the Revenue at any time, with a view to amendment or withdrawal, in light of changes in the relevant facts or circumstances or where, in the absence of such changes, the Revenue decides to reconsider its position.
Answer ... Ireland first introduced transfer pricing in 2011. The Irish transfer pricing regime applies only to trading transactions involving the supply and acquisition of goods, services, money or intangible assets between associated persons or companies. As such, in order for the rules to apply, one of the parties to the transaction must be an Irish company subject to tax at the 12.5% rate in Ireland.
The rules require that transactions between associated persons take place at arm’s length, and the principles in the Organisation for Economic Co-operation and Development Transfer Pricing Guidelines for Multinational Enterprises and Tax Administration must be followed when analysing whether a transaction has been entered into at arm’s length. There is an exemption for small and medium-sized enterprises.
If the Revenue determines that a transaction was not entered into at arm’s length and has had the effect of reducing profits or increasing losses within the charge to Irish corporation tax at 12.5%, an adjustment will be made by substituting the arm’s-length consideration for the actual consideration.
Answer ... If the Revenue considers that a complete tax return has not been made, or if no return was made where one should have been made, the inspector may issue an assessment which includes estimates of the tax which is considered due. The assessments cannot be issued more than four years after the end of the tax year in question.
If the taxpayer has not met the condition of making a full and true disclosure of all material facts, there is no time limit and an assessment can be made at any time in these circumstances.