International tax took centre stage and was front page news across the world in 2013. It is crucial for businesses to monitor and react to trends in tax policy which is evolving rapidly with the globalisation of business, the digital economy and the need for revenue raising by western economies.
The key themes in 2013 were:
- Information exchange: 2013 saw on-going developments with regard to the US Foreign Account Tax Compliance Act ("FATCA") regime and UK FATCA agreements between the UK and Jersey, Guernsey and the Isle of Man (the "Crown Dependencies") and British Overseas Territories.
- Reputation: Tax has moved from being a technical topic to one which is now part of general debate by the international community. There are many competing viewpoints in this debate – commentators, other governments etc – and both business and governments need to consider the wider picture when formulating policy or planning for the future.
- Tax collection: Western economies, with large fiscal demands, and generally with high levels of personal taxation, are looking at business as a means of tax collection. Measures include a review of the digital economy by the OECD, FATCA (which has as its ultimate objective, the recovery of undeclared tax on foreign assets) and the proposed EU financial transactions tax in certain large EU countries.
Developments in Ireland
We saw two principal developments in Ireland in 2013. The first reflects Ireland's continued attractiveness as a location for international business to hold investments. Many US and international businesses have set up investment platforms in Ireland (often as a combination of a Cayman Islands investment fund with an Irish investment company) for investments in Europe and worldwide. Target assets included European distressed debt, aircraft and real estate.
The second reflects the continuing improvement of the Irish and Eurozone economies. Ireland has now exited from the EU-IMF Programme of Financial Support and, for some time, US and international investors have identified the significant opportunities in investing in Ireland. Many large private equity firms have acquired Irish distressed loan portfolios and Irish real estate, generally through Irish finance companies or Irish regulated funds.
In other developments, the Head of Tax Policy at the OECD made the positive comment that OECD's Base Erosion and Profit Shifting ("BEPS") programme could, in fact, benefit countries like Ireland on the basis that if the project succeeds, then companies should only have to pay tax in one location and this could benefit a country like Ireland because of its low tax rate.
The Irish Government also moved unilaterally to take steps against what became known as "stateless companies" which existed in certain international corporate structures. Further details of this are given in this update and in our briefing note issued on 24 October 2013. These measures follow on from other initiatives taken by Ireland previously to enhance and protect the Irish tax regime, such as measures in Ireland's securitisation law provisions aimed at eliminating "double no tax" structures.
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