Ireland is required under the European Union (EU) Anti- Tax Avoidance Directive (ATAD) to enact Controlled Foreign Company (CFC) rules. The new rules take effect for accounting periods beginning on or after 1 January 2019.
Ireland has chosen to adopt one of two possible frameworks under ATAD, which is a transactional approach that applies transfer pricing principles in determining if profits of a low-taxed CFC should be taxed in Ireland. The general thrust of the regime is to assess an Irish company with a CFC charge based on an arm’s length measure of the undistributed profits of the CFC that are attributable to the activities of Significant People Functions (SPFs) carried on in Ireland. The CFC charge does not apply where the essential purpose of the arrangements is not to secure a tax advantage.
In this article, Sharon Burke, KPMG tax partner, takes a look at the new CFC rules. Sharon summarises the measures and the different basis for exclusion from the rules. Groups should take steps to review and assess which, if any, of the group’s low-taxed subsidiaries may be within scope of the CFC rules.