Ireland’s Noonan Clarifies Corporate Tax Developments
Changes to Ireland’s residency rules, designed to eliminate mismatches between tax treaty partners, have not yet affected the residency status of any company, Finance Minister Michael Noonan has confirmed.
The reforms were introduced in Noonan’s 2014 Budget and included in this year’s Finance Bill. They are intended to prevent companies from becoming “stateless” in terms of their place of tax residence. The new rules have applied since October 24, 2013, for companies incorporated on or after that date, and will become effective on January 1, 2015, for companies incorporated before October 24, 2014.
Noonan had been requested by the opposition to provide information on the number of Irish-incorporated companies that are judged not to be resident in the country under the test of management and control.
In his written reply to parliament, Noonan states that he has been “informed by the Revenue Commissioners that they have not, to date, been advised by any company that is or will be affected by the change in residence rules as to where it is actually resident following the announcement of the change in the Budget.”
“However, any company that becomes resident in the State by virtue of the change will, from the time it becomes so resident, be chargeable to corporation tax on all its profits wherever arising and will be required to file a corporation tax return for each accounting period for which it is an Irish resident company. A company tax return is required to be filed within nine months after the end of each accounting period.”
Responding to a separate question following coverage by the media of the alleged tax practices of certain multinationals, Noonan clarified the circumstances in which businesses pay Irish corporation tax. He said: “I understand that some of these reports have suggested that some companies in multinational groups pay Irish corporation tax at rates that are significantly lower than 12.5 percent. It is important to state clearly that such companies are not paying a low rate of Irish tax. All companies operating in Ireland, whether they are domestic businesses or multinationals, are chargeable to corporation tax at the 12.5 percent rate on the profits that are generated from their trading activities.”
“A higher 25 percent rate applies in respect of investment, rental and other non-trading profits, as well as certain petroleum, mining and land-dealing activities, and chargeable gains are taxable at the capital gains rate of 33 percent.”
Noonan warned that reports “appear to have incorrectly attributed to Ireland profits, that represent the return due to assets, owned by group companies that are not resident in Ireland. It is incorrect to relate the 12.5 percent corporation tax rate to both the profits of the Irish-resident group companies and the profits of non-resident group companies which are not profits chargeable to Irish corporation tax.”
The Finance Minister stressed that appropriate action is being taken at an international level to ensure that companies pay fair levels of tax. Ireland is fully participating in the Organization for Economic Development’s (OECD) Base Erosion and Profit Shifting (BEPS) project, and has published its own International Tax Strategy. This document sets out the Government’s commitments in relation to international tax and highlights it support for global efforts to address harmful tax completion. “Ireland wants to be part of the solution to this global tax challenge, not part of the problem,” Noonan concluded.
Credit: Financial Times