IRISH CORPORATE TAX HIGHLIGHTS
The Irish Finance Act, 1999 ("the Act"), which came into force on the 25th March, 1999, makes some changes to Irish taxation law which impact on members of the international business community with Irish business operations. This bulletin sets out some of the more significant tax changes.
RATE OF CORPORATION TAX
Following the Government's announcement in July 1998 to introduce a standard rate of corporation tax of 12.5% for trading income with effect from 1st January 2003, the Government has commenced the process of reducing the existing standard rate of corporation tax.
Accordingly, the rate of corporation tax was reduced from 32% to 28% with effect from 1st January, 1999 for the calendar year 1999 and the Act provides for further reductions of four percentage points for each of the calendar years 2000, 2001 and 2002 with the 12.5% rate applying for the calendar year 2003 et seq. Non-trading income will be taxed at 25% from 1st January, 2000.
CORPORATE RESIDENCE
Tax law and company law are being used to curb the use of Irish incorporated companies which are not resident in Ireland for tax purposes. The Act contains provisions dealing with the circumstances where Irish incorporated companies are deemed to be resident in Ireland for tax purposes. The Companies (Amendment) (No.2) Bill 1999 was published on 23rd March, 1999. It proposes complementary provisions under the company law regime.
The Act renders all Irish incorporated companies tax resident in Ireland. This will apply to all companies incorporated on or after 11th February, 1999, and to companies incorporated before that date as on and from 1st October, 1999. There are certain exceptions to this general rule.
An Irish incorporated company which is regarded as resident in a treaty country and not resident in Ireland for the purposes of the treaty between that country and Ireland will be regarded as not resident in Ireland.
A second category of exemption exists effectively to facilitate the use of Irish incorporated non-resident companies in structures adopted by multinationals investing in Ireland.
i. Under the second exception, an Irish incorporated company which is
ii. under the ultimate control of a person or persons resident in an EU member state or in a treaty country or which itself is, or is related to, a company whose principal class of shares is substantially and regularly traded on a stock exchange in an EU country or a treaty country and
iii. which carries on a trade in Ireland or is related to a company which carries on a trade in Ireland
iv. will continue to be able to be non-resident under the traditional management and control corporate residence test.
For the purpose of this exception, a company is related to another company if one company owns at least 50% of the ordinary share capital of the other company, or if both companies are each at least 50% owned by a third company.
The question of control is determined by the application of the Irish rules which attribute the rights of shareholders to related parties and associates.
The Act also introduces some additional reporting requirements for Irish incorporated non-resident companies. The pertinent additional information is as follows:
i. The country in which the company is by virtue of its laws resident for tax purposes.
ii. Where the exception in relation to a company carrying on a trade in Ireland applies, the name and address of the trading company concerned.
iii. Where the exception in relation to a company resident in a treaty country is concerned, the name and address of any quoted company which controls it, or else the name and address of the ultimate beneficial owners.
The ultimate beneficial owners will be the individual or individuals having control of the company, or where control is vested in trustees of a settlement, the settlor in relation to the settlement, or any person who can reasonably expect to become a beneficiary under the settlement, or the ultimate beneficial owners of any company that was the settlor or that is a person that can reasonably expect to be a beneficiary under the settlement.
The Companies Bill 1999 contains provisions to do three things, namely to make it a condition for incorporation that a company will carry on an activity in Ireland, to require all Irish companies either to have one Irish resident director or a £20,000 bond and to limit to 25 the number of directorships which an individual may hold.
Despite these new provisions, the question of corporate residence for Irish tax purposes will in many instances continue to be governed by the traditional management and control test. A company that trades in Ireland and is ultimately controlled by residents of an EU or treaty country will not automatically be Irish resident by virtue of Irish incorporation. This exception is primarily to facilitate US multi-nationals who utilise Irish non-resident companies in their Irish structures so that they can extract after-tax profits of their Irish manufacturing subsidiaries from the Irish tax net without precipitating a US sub-part F charge. It also has relevance for structures which involve an Irish resident company in order to access Ireland's treaty network, particularly to avoid or reduce foreign withholding taxes, and in the context of the possible continued use of Irish incorporated non-resident companies generally.
Irish SPVs which are owned ultimately by residents of an EU state or a treaty country will have to ensure that management and control is properly conducted in Ireland if Irish tax residence is necessary either for Irish domestic purposes or for treaty purposes. Where the Irish company has a manufacturing plant and its own staff and management, the question of management and control being exercised in Ireland is unlikely to be a problem.
Where, however, the activity is a financial activity which does not require a large degree of physical and human presence, the implication that such a company may be managed and controlled in the home jurisdiction, and not in Ireland, will be of continuing concern and it will be necessary to ensure that there is a board of directors of sufficient substance that conducts its meetings in Ireland in order to ensure that Irish residence is achieved and maintained.
The use of Irish incorporated non-resident companies is by no means ended by these provisions. In many instances, an existing or proposed Irish incorporated non-resident company will, by virtue of the wide attribution provisions concerning control, be under the ultimate control of several persons separately, one or more of whom will be a person or persons in an EU member state or in a treaty country. If the non-resident company or its subsidiary conducts a trade in Ireland, then it will find itself within the exemption and may continue to be regarded as non-resident for Irish tax purposes if it is managed and controlled in Ireland.
A trade can be conducted in Ireland by the establishment of a branch or agency through which certain business transactions are done, for example buying and selling. There is no requirement that the trade must be the primary activity of the company and therefore it would be possible for a trade to be established on a relatively small scale, precipitating a small degree of profit which would be subject to Irish taxation by virtue of deriving from a trade carried on in Ireland.
Alternatively, an Irish company could become resident under the management and control test in a treaty country in order to retain non-resident status in Ireland. The tax consequences ensuing in that treaty country would have to be analysed in the context of a particular company's circumstances.
DIVIDEND WITHHOLDING TAX
The Act introduces a dividend withholding tax which will have an impact on all Irish resident companies. This tax comes into force at the same time as advance corporation tax is abolished.
All Irish resident companies except collective investment undertakings are required to withhold tax at the rate of 24% in respect of all dividends (including scrip dividends and non cash distributions), paid after 5th April, 1999.
There are two categories of shareholder where the payment of a dividend is exempt from withholding tax and no claim has to be made for such an exemption.
These are:
i. dividends paid to Irish Government Ministers in their capacity as Minister;
ii. dividends paid by an Irish resident subsidiary company to its parent company incorporated in another EU state.
This latter exemption was introduced into Irish law as a result of the EU Parent/Subsidiary directive which prohibits the application of a withholding tax on such dividends. For the purposes of this exemption an EU parent is a company that holds at least 25% of the share capital of the Irish subsidiary.
There are a number of exemptions from the withholding tax which require the recipient shareholder to make a declaration that it is entitled to the exemption and provide supporting documentary evidence to the distributing company. These include exemptions for shareholders that are:-
i. Irish resident companies;
ii. charities;
iii. pension funds;
iv. certain collective investment funds and certain employee share ownership trusts;
v. certain residents of EU member states or countries with which Ireland has a double tax treaty; and
vi. companies controlled by residents of EU member states or tax treaty countries and companies the principal class of shares of which, or a 75% parent of which, are substantially and regularly traded on a stock exchange in the EU or a tax treaty country.
The exemptions for non-resident shareholders referred to in (v) and (vi) above, which must be claimed by the relevant shareholder, contain a number of factors which require expansion.
Non-corporate shareholders in an Irish company are exempt from the tax where they are neither resident nor ordinarily resident in Ireland and are by virtue of the law of an EU state or a treaty country resident for the purposes of tax in that country.
As regards a corporate shareholder receiving a dividend there is an exemption where either:
a. that company is under the control, directly or indirectly, of persons who by virtue of the law of an EU country or treaty country are resident in that country and that person or persons are not themselves under the control whether directly or indirectly of a person who is not resident in such a country; or
b. the principal class of share of the recipient company or another company of which the recipient company is a 75% subsidiary is substantially and regularly traded on one or more recognised stock exchanges in the EU or treaty country.
For the purpose of the control test in (a) above, control is deemed to be a 50% shareholding in the company concerned.
A non-corporate shareholder must submit a written declaration accompanied by a certificate from the tax authorities of its country of residence certifying that the person is so resident in order for the paying company not to apply the tax. A corporate recipient must also submit a written declaration which must be accompanied by a certificate from the company's auditors stating that it comes within relevant "control" requirement. This certificate must be approved by the Revenue Commissioners.
In the case of American Depositary Receipts the U.S. Depositary acts as a qualifying intermediary and in effect there is no withholding tax applied to dividends to shareholders whose address on the register of depositary receipts is in the U.S.
The obligation to withhold tax is placed on the company paying the dividend or in certain circumstances on an authorised withholding agent acting for the company. These agents which can either be qualifying intermediaries or withholding agents must be approved by the Revenue Commissioners and must have a banking licence or an equivalent foreign authorisation.
Tax withheld has to be paid to the Collector General by the 14th day of the month following the month in which the distribution is made and a return of the distribution must also be made at the same time.
There is a reporting requirement introduced where a stapled stock arrangement exists. The Irish resident company must within 14 days from the end of the month in which a payment is made under a stapled stock arrangement by a non-resident company file a return with the Revenue Commissioners with details of the distribution and the recipients.
SECURITISATION
The Act effects some changes to the taxation regime governing the securitisation of assets through Irish special purposes companies ("SPVs"). The changes effectively expand the options available in Ireland in relation to such securitisations. Formerly the rules only applied to SPVs established in Dublin's International Financial Services Centre ("IFSC") and certain SPVs dealing with Irish mortgage receivables.
The existing regime in relation to SPVs which are qualified IFSC companies is maintained subject to a further requirement that the minimum aggregate value of assets obtained from any one source is £10 million. Such IFSC companies are deemed to be trading, notwithstanding that under general rules they might not be considered to be trading, and therefore they are allowed all appropriate deductions against trading income for tax purposes including those in relation to debts which are ultimately found to be bad.
Securitisation outside the IFSC was previously limited to the Irish domestic mortgage market. The Act now enables all SPV's to do a broad range of financial securitisation. It provides that non-IFSC SPVs, although not specifically deemed to be trading, can obtain the same trading deductions as IFSC SPVs subject to the comments set out below. Such deductions include debts proven to be bad but do not include such debts which, if incurred by the provider of the securitised assets, would not be deductible. The range of assets which can be securitised by non-IFSC SPVs is being extended as is the range of bodies from whom assets can be obtained. However, as with IFSC SPVs, the minimum aggregate value of assets obtained from any one source cannot be less than IR£10 million.
Assets securitised by an IFSC SPV must be acquired from a lender which is not resident in Ireland and can be an interest in or a contractual right to, any loan, lease, trade or consumer receivable or other debt or receivable whether secured or unsecured.
As regards a non-IFSC SPV there is no requirement that the lender must be non Irish resident. The assets securitised must be interests in any financial asset which are defined as including shares, gilts, bonds, foreign currencies and all kinds of futures, options and currency and interest rate swaps and similar instruments, including commodity futures and commodity options, invoices and all types of receivables, obligations evidencing debt (including loans and deposits), leases and loan and lease portfolios, bills of exchange, acceptance credits and all other documents of title relating to the movement of goods, commercial paper, promissory notes and all other kinds of negotiable or transferable instruments.
The SPV must be:
i. resident in Ireland;
ii. carry on in Ireland the business of management of qualifying assets i.e. securitisation;
iii. must not, apart from activities ancillary to the foregoing business, carry on any other activity in Ireland; and
iv. the market value of all qualifying assets acquired from any one original lender must be not less than IR£10 million.
An IFSC SPV can deduct any bad debts, and doubtful debts to the extent they are estimated to be bad.
As regards a non-IFSC SPV, bad debts, and doubtful debts to the extent that they are estimated to be bad can be deducted. However, the amount of the debts are not deductible unless they would have been deductible as an expense of the trade of the original lender.
The Act broadens the options open to entities securitising assets in that non-IFSC SPVs can now compete with IFSC SPVs. Whilst it is likely that it will be possible to arrange a non- IFSC securitisation at less cost there are a number of advantages remaining with the IFSC option one of which is the total exemption from withholding tax on payments of interest to non residents.
However, the benefit of this exemption is reduced by the new exemption from withholding on interest payments which was introduced by the Act where such payments are made to residents of a treaty country or of an EU member state.
EXEMPTION FROM INTEREST WITHHOLDING
A number of specific exemptions from withholding tax on interest payments exist in Ireland. An additional exemption has however been introduced in respect of interest paid by a company or a collective investment undertaking in the ordinary course of carrying on a trade or business to a company resident in an EU member state (other than Ireland) or in a treaty country. The exemption will not apply where the recipient company carries on a trade or business in Ireland through branch or agency. A reporting requirement is imposed on the paying company.
The exemption is a particularly helpful one in that a residual withholding obligation on interest payments is preserved in some of Ireland's older double tax treaties. This new exemption from withholding tax will displace the need to rely on a tax treaty for relief from withholding in many instances.
Additionally, the availability of the new exemption will avoid the necessity to establish in the IFSC to avail of the domestic exemption from withholding on interest payments to non-resident provided for those companies which in some instances might have been the only means available for avoiding withholding on interest payments out of Ireland.
This article was intended to provide general guidelines. Specialist advice should be sought about specific facts.
The Irish Finance Act, 1999 ("the Act"), which came into force on the 25th March, 1999, makes some changes to Irish taxation law which impact on members of the international business community with Irish business operations. This bulletin sets out some of the more significant tax changes.
RATE OF CORPORATION TAX
Following the Government's announcement in July 1998 to introduce a standard rate of corporation tax of 12.5% for trading income with effect from 1st January 2003, the Government has commenced the process of reducing the existing standard rate of corporation tax.
Accordingly, the rate of corporation tax was reduced from 32% to 28% with effect from 1st January, 1999 for the calendar year 1999 and the Act provides for further reductions of four percentage points for each of the calendar years 2000, 2001 and 2002 with the 12.5% rate applying for the calendar year 2003 et seq. Non-trading income will be taxed at 25% from 1st January, 2000.
CORPORATE RESIDENCE
Tax law and company law are being used to curb the use of Irish incorporated companies which are not resident in Ireland for tax purposes. The Act contains provisions dealing with the circumstances where Irish incorporated companies are deemed to be resident in Ireland for tax purposes. The Companies (Amendment) (No.2) Bill 1999 was published on 23rd March, 1999. It proposes complementary provisions under the company law regime.
The Act renders all Irish incorporated companies tax resident in Ireland. This will apply to all companies incorporated on or after 11th February, 1999, and to companies incorporated before that date as on and from 1st October, 1999. There are certain exceptions to this general rule.
An Irish incorporated company which is regarded as resident in a treaty country and not resident in Ireland for the purposes of the treaty between that country and Ireland will be regarded as not resident in Ireland.
A second category of exemption exists effectively to facilitate the use of Irish incorporated non-resident companies in structures adopted by multinationals investing in Ireland.
i. Under the second exception, an Irish incorporated company which is
ii. under the ultimate control of a person or persons resident in an EU member state or in a treaty country or which itself is, or is related to, a company whose principal class of shares is substantially and regularly traded on a stock exchange in an EU country or a treaty country and
iii. which carries on a trade in Ireland or is related to a company which carries on a trade in Ireland
iv. will continue to be able to be non-resident under the traditional management and control corporate residence test.
For the purpose of this exception, a company is related to another company if one company owns at least 50% of the ordinary share capital of the other company, or if both companies are each at least 50% owned by a third company.
The question of control is determined by the application of the Irish rules which attribute the rights of shareholders to related parties and associates.
The Act also introduces some additional reporting requirements for Irish incorporated non-resident companies. The pertinent additional information is as follows:
i. The country in which the company is by virtue of its laws resident for tax purposes.
ii. Where the exception in relation to a company carrying on a trade in Ireland applies, the name and address of the trading company concerned.
iii. Where the exception in relation to a company resident in a treaty country is concerned, the name and address of any quoted company which controls it, or else the name and address of the ultimate beneficial owners.
The ultimate beneficial owners will be the individual or individuals having control of the company, or where control is vested in trustees of a settlement, the settlor in relation to the settlement, or any person who can reasonably expect to become a beneficiary under the settlement, or the ultimate beneficial owners of any company that was the settlor or that is a person that can reasonably expect to be a beneficiary under the settlement.
The Companies Bill 1999 contains provisions to do three things, namely to make it a condition for incorporation that a company will carry on an activity in Ireland, to require all Irish companies either to have one Irish resident director or a £20,000 bond and to limit to 25 the number of directorships which an individual may hold.
Despite these new provisions, the question of corporate residence for Irish tax purposes will in many instances continue to be governed by the traditional management and control test. A company that trades in Ireland and is ultimately controlled by residents of an EU or treaty country will not automatically be Irish resident by virtue of Irish incorporation. This exception is primarily to facilitate US multi-nationals who utilise Irish non-resident companies in their Irish structures so that they can extract after-tax profits of their Irish manufacturing subsidiaries from the Irish tax net without precipitating a US sub-part F charge. It also has relevance for structures which involve an Irish resident company in order to access Ireland's treaty network, particularly to avoid or reduce foreign withholding taxes, and in the context of the possible continued use of Irish incorporated non-resident companies generally.
Irish SPVs which are owned ultimately by residents of an EU state or a treaty country will have to ensure that management and control is properly conducted in Ireland if Irish tax residence is necessary either for Irish domestic purposes or for treaty purposes. Where the Irish company has a manufacturing plant and its own staff and management, the question of management and control being exercised in Ireland is unlikely to be a problem.
Where, however, the activity is a financial activity which does not require a large degree of physical and human presence, the implication that such a company may be managed and controlled in the home jurisdiction, and not in Ireland, will be of continuing concern and it will be necessary to ensure that there is a board of directors of sufficient substance that conducts its meetings in Ireland in order to ensure that Irish residence is achieved and maintained.
The use of Irish incorporated non-resident companies is by no means ended by these provisions. In many instances, an existing or proposed Irish incorporated non-resident company will, by virtue of the wide attribution provisions concerning control, be under the ultimate control of several persons separately, one or more of whom will be a person or persons in an EU member state or in a treaty country. If the non-resident company or its subsidiary conducts a trade in Ireland, then it will find itself within the exemption and may continue to be regarded as non-resident for Irish tax purposes if it is managed and controlled in Ireland.
A trade can be conducted in Ireland by the establishment of a branch or agency through which certain business transactions are done, for example buying and selling. There is no requirement that the trade must be the primary activity of the company and therefore it would be possible for a trade to be established on a relatively small scale, precipitating a small degree of profit which would be subject to Irish taxation by virtue of deriving from a trade carried on in Ireland.
Alternatively, an Irish company could become resident under the management and control test in a treaty country in order to retain non-resident status in Ireland. The tax consequences ensuing in that treaty country would have to be analysed in the context of a particular company's circumstances.
DIVIDEND WITHHOLDING TAX
The Act introduces a dividend withholding tax which will have an impact on all Irish resident companies. This tax comes into force at the same time as advance corporation tax is abolished.
All Irish resident companies except collective investment undertakings are required to withhold tax at the rate of 24% in respect of all dividends (including scrip dividends and non cash distributions), paid after 5th April, 1999.
There are two categories of shareholder where the payment of a dividend is exempt from withholding tax and no claim has to be made for such an exemption.
These are:
i. dividends paid to Irish Government Ministers in their capacity as Minister;
ii. dividends paid by an Irish resident subsidiary company to its parent company incorporated in another EU state.
This latter exemption was introduced into Irish law as a result of the EU Parent/Subsidiary directive which prohibits the application of a withholding tax on such dividends. For the purposes of this exemption an EU parent is a company that holds at least 25% of the share capital of the Irish subsidiary.
There are a number of exemptions from the withholding tax which require the recipient shareholder to make a declaration that it is entitled to the exemption and provide supporting documentary evidence to the distributing company. These include exemptions for shareholders that are:-
i. Irish resident companies;
ii. charities;
iii. pension funds;
iv. certain collective investment funds and certain employee share ownership trusts;
v. certain residents of EU member states or countries with which Ireland has a double tax treaty; and
vi. companies controlled by residents of EU member states or tax treaty countries and companies the principal class of shares of which, or a 75% parent of which, are substantially and regularly traded on a stock exchange in the EU or a tax treaty country.
The exemptions for non-resident shareholders referred to in (v) and (vi) above, which must be claimed by the relevant shareholder, contain a number of factors which require expansion.
Non-corporate shareholders in an Irish company are exempt from the tax where they are neither resident nor ordinarily resident in Ireland and are by virtue of the law of an EU state or a treaty country resident for the purposes of tax in that country.
As regards a corporate shareholder receiving a dividend there is an exemption where either:
a. that company is under the control, directly or indirectly, of persons who by virtue of the law of an EU country or treaty country are resident in that country and that person or persons are not themselves under the control whether directly or indirectly of a person who is not resident in such a country; or
b. the principal class of share of the recipient company or another company of which the recipient company is a 75% subsidiary is substantially and regularly traded on one or more recognised stock exchanges in the EU or treaty country.
For the purpose of the control test in (a) above, control is deemed to be a 50% shareholding in the company concerned.
A non-corporate shareholder must submit a written declaration accompanied by a certificate from the tax authorities of its country of residence certifying that the person is so resident in order for the paying company not to apply the tax. A corporate recipient must also submit a written declaration which must be accompanied by a certificate from the company's auditors stating that it comes within relevant "control" requirement. This certificate must be approved by the Revenue Commissioners.
In the case of American Depositary Receipts the U.S. Depositary acts as a qualifying intermediary and in effect there is no withholding tax applied to dividends to shareholders whose address on the register of depositary receipts is in the U.S.
The obligation to withhold tax is placed on the company paying the dividend or in certain circumstances on an authorised withholding agent acting for the company. These agents which can either be qualifying intermediaries or withholding agents must be approved by the Revenue Commissioners and must have a banking licence or an equivalent foreign authorisation.
Tax withheld has to be paid to the Collector General by the 14th day of the month following the month in which the distribution is made and a return of the distribution must also be made at the same time.
There is a reporting requirement introduced where a stapled stock arrangement exists. The Irish resident company must within 14 days from the end of the month in which a payment is made under a stapled stock arrangement by a non-resident company file a return with the Revenue Commissioners with details of the distribution and the recipients.
SECURITISATION
The Act effects some changes to the taxation regime governing the securitisation of assets through Irish special purposes companies ("SPVs"). The changes effectively expand the options available in Ireland in relation to such securitisations. Formerly the rules only applied to SPVs established in Dublin's International Financial Services Centre ("IFSC") and certain SPVs dealing with Irish mortgage receivables.
The existing regime in relation to SPVs which are qualified IFSC companies is maintained subject to a further requirement that the minimum aggregate value of assets obtained from any one source is £10 million. Such IFSC companies are deemed to be trading, notwithstanding that under general rules they might not be considered to be trading, and therefore they are allowed all appropriate deductions against trading income for tax purposes including those in relation to debts which are ultimately found to be bad.
Securitisation outside the IFSC was previously limited to the Irish domestic mortgage market. The Act now enables all SPV's to do a broad range of financial securitisation. It provides that non-IFSC SPVs, although not specifically deemed to be trading, can obtain the same trading deductions as IFSC SPVs subject to the comments set out below. Such deductions include debts proven to be bad but do not include such debts which, if incurred by the provider of the securitised assets, would not be deductible. The range of assets which can be securitised by non-IFSC SPVs is being extended as is the range of bodies from whom assets can be obtained. However, as with IFSC SPVs, the minimum aggregate value of assets obtained from any one source cannot be less than IR£10 million.
Assets securitised by an IFSC SPV must be acquired from a lender which is not resident in Ireland and can be an interest in or a contractual right to, any loan, lease, trade or consumer receivable or other debt or receivable whether secured or unsecured.
As regards a non-IFSC SPV there is no requirement that the lender must be non Irish resident. The assets securitised must be interests in any financial asset which are defined as including shares, gilts, bonds, foreign currencies and all kinds of futures, options and currency and interest rate swaps and similar instruments, including commodity futures and commodity options, invoices and all types of receivables, obligations evidencing debt (including loans and deposits), leases and loan and lease portfolios, bills of exchange, acceptance credits and all other documents of title relating to the movement of goods, commercial paper, promissory notes and all other kinds of negotiable or transferable instruments.
The SPV must be:
i. resident in Ireland;
ii. carry on in Ireland the business of management of qualifying assets i.e. securitisation;
iii. must not, apart from activities ancillary to the foregoing business, carry on any other activity in Ireland; and
iv. the market value of all qualifying assets acquired from any one original lender must be not less than IR£10 million.
An IFSC SPV can deduct any bad debts, and doubtful debts to the extent they are estimated to be bad.
As regards a non-IFSC SPV, bad debts, and doubtful debts to the extent that they are estimated to be bad can be deducted. However, the amount of the debts are not deductible unless they would have been deductible as an expense of the trade of the original lender.
The Act broadens the options open to entities securitising assets in that non-IFSC SPVs can now compete with IFSC SPVs. Whilst it is likely that it will be possible to arrange a non- IFSC securitisation at less cost there are a number of advantages remaining with the IFSC option one of which is the total exemption from withholding tax on payments of interest to non residents.
However, the benefit of this exemption is reduced by the new exemption from withholding on interest payments which was introduced by the Act where such payments are made to residents of a treaty country or of an EU member state.
EXEMPTION FROM INTEREST WITHHOLDING
A number of specific exemptions from withholding tax on interest payments exist in Ireland. An additional exemption has however been introduced in respect of interest paid by a company or a collective investment undertaking in the ordinary course of carrying on a trade or business to a company resident in an EU member state (other than Ireland) or in a treaty country. The exemption will not apply where the recipient company carries on a trade or business in Ireland through branch or agency. A reporting requirement is imposed on the paying company.
The exemption is a particularly helpful one in that a residual withholding obligation on interest payments is preserved in some of Ireland's older double tax treaties. This new exemption from withholding tax will displace the need to rely on a tax treaty for relief from withholding in many instances.
Additionally, the availability of the new exemption will avoid the necessity to establish in the IFSC to avail of the domestic exemption from withholding on interest payments to non-resident provided for those companies which in some instances might have been the only means available for avoiding withholding on interest payments out of Ireland.
This article was intended to provide general guidelines. Specialist advice should be sought about specific facts.
