Overview of corporate tax work over the last year
Ireland is a leading European jurisdiction for the establishment of bond-issuing special purpose vehicles ("SPVs"), securitisation companies. In 2019, the Irish share of the number of Euro area "Financial and Vehicle Corporations" ("FVCs") was 27.6%. FVCs are bondissuing companies required to report to the European Central Bank.
Ireland is also a leading domicile for internationally distributed investment funds. In 2019, the total funds assets under management in Ireland was ?5.2 trillion, with the number of funds domiciled in Ireland being 7,707 and approximately ?2 trillion held in these Irish domiciled funds.
Mergers and acquisitions
2019 was another strong year for M&A activity in Ireland with deals encompassing an Irish aspect totalling $44.5 billion, while M&A activity abroad rose 51% to $16.3 billion.
Aircraft leasing and aviation finance
Ireland is a global centre for aircraft leasing with over 50 aircraft leasing companies based in Ireland, including 14 of the world's top 15 lessors. Over the past 10 years, the commercial aviation industry has enjoyed sustained growth. However, 2020 is expected to be a challenging year for this industry worldwide as travel restrictions introduced as part of the response to COVID-19 have severely restricted operations.
Ireland is a leading location for the development, exploitation and management of intellectual property ("IP"). According to IDA Ireland, the number of global companies centralising their IP management in Ireland has made Ireland one of the largest exporters of IP in the world. Eight of the top 10 global technology companies, eight of the top 10 global pharmaceutical companies and 15 of the top 25 medical devices firms in the world are located in Ireland. In recent years, Ireland has attracted a range of innovative social media companies, including Google, Facebook, Twitter and LinkedIn, all of whom have established substantial operations in Ireland.
2019 was a significant year for Ireland in the area of tax disputes. The Tax Appeals Commission (the "TAC"), which was newly reconstituted in 2016, made progress in dealing with a backlog of cases. The TAC closed 1,584 appeals during 2019 with the quantum of monies involved amounting to approximately ?665 million. One hundred and twelve hearings are scheduled for 2020 with further hearings to be added during the year. As such, this represents a significant area of work for Irish tax practitioners.
Of particular note are the developments in the Perrigo tax case over the past year. This case arose out of a ?1.64 billion assessment issued by the Irish Revenue Commissioners ("Revenue") in 2018 against Perrigo Company plc. In February 2019, Perrigo brought proceedings in the Irish Commercial Court seeking judicial review of the decision by Revenue to raise that assessment. Those judicial review proceedings were heard remotely during the COVID-19 restrictions and at the time of writing, judgment on the case is awaited.
The EU General Court determined on 15 July 2020 that Ireland did not give Apple illegal State Aid, so overturning the European Commission decision. This ruling may be appealed by the European Commission to the European Court of Justice.
Key developments affecting corporate tax law and practice
COVID-19 pandemic response
At the time of writing, Revenue has issued guidance on many tax issues arising from the COVID-19 pandemic and the restrictions introduced to reduce the spread of the disease. Among the measures introduced by Revenue are the following:
- The suspension of the application of a surcharge for late corporation tax return filings for accounting periods ending June 2019 onwards. The late filing will also not trigger any restriction of reliefs, such as loss relief and group relief, as would ordinarily be required.
- The suspension of Revenue's debt collection and accrual of interest on late payments for the January-June Value-Added Tax ("VAT") periods and February-June pay-asyou-earn ("PAYE") (Employer) liabilities 2020.
- The filing deadline for all 2019 share scheme returns has been extended from 31 March 2020 to 30 June 2020.
- The 90-day employer filing obligation applicable to the Special Assignee Relief Programme ("SARP") has been extended for a further 60 days.
- Cross-border workers relief will not be affected by employees being required to work from home in Ireland due to COVID-19. Similarly, Revenue will not enforce Irish payroll obligations where an employee relocates temporarily to Ireland during the COVID-19 period and performs duties for their employer from Ireland.
- Revenue will not strictly enforce the 30-day notification requirement for PAYE dispensations applicable to certain short-term business travellers.
- PAYE exclusion orders will not be adversely affected by an employee working more than 30 days in Ireland as a result of COVID-19.
- For the purposes of Irish tax residency rules, where a departure from Ireland is prevented due to COVID-19, Revenue will consider this force majeure for the purpose of establishing an individual's tax residence position.
- For the purposes of corporate tax residence, Revenue will disregard presence of employees, directors, service providers or agents in Ireland or outside Ireland resulting from COVID-19-related travel restrictions. In these circumstances, Revenue has advised that the individual and company should maintain a record of the facts of the bona fide relevant presence in or outside Ireland.
- Following the adoption of Council Directive (EU) 2020/876 which allowed for the deferral of the exchange dates for DAC2, and the filing and exchange dates for DAC6, Revenue has confirmed that the deadline for filing DAC2 returns in respect of the 2019 reporting period is now deferred until 30 September 2020. This deadline will also apply for the filing of Common Reporting Standard and Foreign Account Tax Compliance Act returns. Finally, DAC6 reporting deadlines have been deferred by six months.
- Importation of goods to combat the effects of COVID-19 from outside the European Union ("EU") without the payment of Customs Duty and VAT from 20 January 2020 to 31 July 2020.
OECD BEPS and domestic legislation
There have been significant developments in Irish corporate tax law on the international front this year. These developments have been motivated by the Irish Government's continued commitment to the implementation of the reforms set out in "Ireland's Corporation Tax Roadmap" which was published in September 2018. This roadmap laid out the next steps in Ireland's implementation of its various commitments to international tax reform. Most significant is Ireland's implementation of the reforms proposed as part of the OECD Base Erosion and Profit Shifting ("BEPS") process, the EU Anti-Tax Avoidance Directive ("ATAD") and the EU Directive on Administrative Cooperation.
The most significant developments in Ireland's implementation of these initiatives during 2019 and 2020 concerned the following:
- Transfer pricing rules.
- Anti-hybrid rules.
- DAC6 - Mandatory Disclosure Regime.
- Double taxation treaties.
- Extension of exit tax regime.
Transfer pricing rules
Formal transfer pricing legislation (the "Irish TP Rules") was introduced for the first time in Ireland in 2010 in respect of accounting periods commencing on or after 1 January 2011, for transactions the terms of which were agreed on or after 1 July 2010.
A number of changes to the Irish TP Rules were introduced as part of the Finance Act 2019 and these apply from 1 January 2020. The changes bring the Irish TP Rules in line with the 2017 OECD Guidelines. The changes significantly broaden the scope of the Irish TP Rules and include an extension of the Irish TP Rules to non-trading and capital transactions. Additionally, arrangements predating 1 July 2010 are brought into scope for the first time.
In order to fall within the Irish TP Rules, there must be an arrangement between associated parties involving the supply and acquisition of goods, services, money, intangibles or chargeable assets. The rules provide that in the case of a transaction where the amount paid to the supplier exceeds, or the amount received from the customer is less than, the arm's length price, then the profits of the customer or vendor, respectively, will be calculated as though the price was an arm's length price.
The Irish TP Rules apply the arm's length principle which is to be interpreted in accordance with the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrators (the "OECD Guidelines").
The rules apply to both cross-border and domestic transactions. The Irish legislation contains rules to eliminate double counting where domestic transactions only are involved.
The rules apply even where both parties are within the charge to Irish tax to ensure that the rules are not discriminatory from an EU law perspective. However, where the profits of one party are adjusted under the legislation, the rules provide that, where the other party is also within the charge to Irish tax, they can make an election to use the arm's length price in the calculation of their profits so that the group is not disadvantaged.
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This article first appeared in the Global Legal Insights: Corporate Tax 2020 guide, published Global Legal Group in August 2020.
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