Ireland Implements New Exit Tax Regime
Ireland’s 2018 Finance Bill legislates for a new exit tax regime compliant with the EU’s Anti-Tax Avoidance Directive.
The exit tax charge was introduced via financial resolution on Budget night, October 9, 2018, and applies to certain events occurring on or after October 10. Finance Bill 2018 formally legislates for its introduction.
Under the new rules, Ireland applies a charge to tax on unrealized capital gains where companies migrate or transfer assets offshore such that the assets leave the scope of Irish taxation. The tax operates by deeming a disposal of the assets to take place at the time of exit and applying the exit tax charge on any unrealized gain.
The charge applies at the standard corporate tax rate of 12.5 percent. However, an anti-avoidance provision will ensure that a rate of 33 percent (the standard capital gains tax rate) applies if the event forms part of a transaction to dispose of the asset and the purpose of the transaction is to ensure that the gain is charged at the lower rate.
The tax will apply on the occurrence of any of the following events:
- where a company transfers assets from its permanent establishment in Ireland to its head office or permanent establishment in another territory;
- where a company transfers assets to the business carried on by its permanent establishment in Ireland to another territory; or
- where an Irish-resident company transfers its residence to another country.
The charge will not apply if the assets of an Irish-resident company continue to be used in Ireland by a permanent establishment of the company after the company migrated.
The new tax replaces a previous, more narrowly focused charge introduced in 1997 as a proportionate anti-avoidance measure to counter a number of identified tax avoidance transactions that moved chargeable outsets outside the charge to Irish tax prior to the disposal of these assets.
The EU’s ATAD contains five legally binding anti-abuse measures that all EU member states are required to apply as of January 1, 2019. An exit tax regime is one of these measures.