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Public request for feedback on Ireland's CFC regime

Public request for feedback on Ireland's CFC regime

Public request for feedback on Ireland's CFC regime

On 7 September 2018, Ireland’s Department of Finance launched a request for feedback on a detailed outline of the proposed framework for Ireland’s Controlled Foreign Company (CFC) regime which is to take effect from 1 January 2019. The closing date for feedback is 28 September 2018.

The broad outline of Ireland’s choice of CFC regime under the framework set out in the European Union (EU) Anti-Tax Avoidance Directive (ATAD) was included in Ireland’s Corporation Tax Roadmap released on 5 September 2018. This confirmed that Ireland is to adopt Option B of the two permitted ATAD approaches to a CFC rule.

This approach would seek to apply the CFC regime to undistributed profits which have been diverted, by means of non-genuine arrangements, to a low-taxed CFC. The regime would tax an Irish parent on an amount of profit which is estimated using arm’s length transfer pricing principles. Where the exercise in Ireland of significant people functions of the Irish parent or a group member has been instrumental in generating the income of the CFC, the amount of the attributable income is taxed under the CFC regime. The rate of tax is dependent on whether the income is trading (12.5%) or non-trading (25%) in character. Where there are no significant people functions in Ireland which are attributable to the management of the assets and business risks of the CFC, no charge to tax would arise under the CFC regime.

No detail is given on separate provisions under consideration which could target undistributed profits of low-taxed cash-box companies with limited economic substance.

The outline suggests that Ireland’s policy makers are considering adopting a number of measures which are permitted under ATAD and which are designed to either avoid double taxation or to ease the administrative burden of the regime by:

  • Allowing taxpayers to exclude from scope a CFC that meets the low-tax test requirement, 
  • Excluding from scope those CFC’s with either low profits or low profit-margin activities, 
  • Excluding undistributed profits of the CFC which have been priced on an arm’s length basis as well as those already within the scope of Ireland’s transfer pricing regime, 
  • Excluding from scope for a 12 month transitional period the profits of CFC’s acquired from third parties provided that the profits after this period are outside the charge of the CFC rule,
  • Providing relief from double taxation by offsetting ‘creditable’ foreign tax against Irish corporation tax on the CFC taxable profit.

Click here to view the Department of Finance CFC Feedback Statement.

KPMG will respond to the feedback request assessing both the technical and implementation aspects of the regime. This will include consideration of how the regime can operate in practice both for Irish headquartered and internationally parented multinational groups operating in Ireland.

If you believe that your group could be affected by the regime, we urge you to take stock of the proposed measures and assess their potential impact. Ireland’s policy makers would like to receive feedback that reflects insights from businesses operating in Ireland.

If you would like to learn more about how the CFC regime might affect your group or you wish to share insights on how it might impact your business, please get in touch with a member of your KPMG team.