Assets Transferred Abroad

Overview

Legislation seeks to counter the avoidance of tax on assets transferred out of the jurisdiction of Ireland. It applies where a transfer of assets or associated operations results in income becoming payable to a foreign entity, be it a company, individual, or other entity.

The assets themselves need not leave Ireland; the key trigger is the transfer to an entity outside Ireland.

The legislation charges tax on the attributed income of the foreign entity to the Irish individuals involved. The legislation does not apply if the non-resident company is resident in an EU state (or the UK or EEA) and the company concerned is carrying out a genuine economic activity in the EU state concerned.

Liability of Transferor

The transferor is liable if

• there is a transfer of assets abroad by an Irish resident or ordinarily resident individual,
• by virtue of the transfer, income becomes payable to a non-resident non-domiciled person, which may be a trust, individual, or company.
• the transferor or their spouse has the power to enjoy the income and would be taxable if received in Ireland, or
• the transferor or spouse receives or is entitled to receive a capital sum.

A capital sum is any sum paid or payable by means of a loan, repayment of a loan, or any other sum paid or payable otherwise than as income.

Power to Enjoy

The power to enjoy includes the following:

• the income is dealt with by any person as though it will at some time accrue for the benefit of the transferor and/or their spouse.
• The receipt or application of income adds to the value of assets held by the individual and/or the transferor’s spouse.
• The transferor or spouse can obtain the beneficial enjoyment of the income by exercising a power of appointment or power of revocation.
• The transferor or spouse can indirectly or directly control the application of the income.

The substantial result and effect of the transfer and associated operations are considered.

In deciding whether the provisions apply, the residence or ordinary residence of the transferor at the time the trust was created is not relevant.

Income Chargeable

Income chargeable under the provision is subject to tax under Schedule D Case IV, based on the nature of the income concerned. There is no double charge if the income is already chargeable to income tax and subsequently received as income as a benefit.

There is an exemption if the individual shows that it would not be reasonable to conclude that

• both the transfer and any associated operations were for the purposes of avoiding tax, or
• that the transfer and any associated operations were genuine commercial transactions and not more than incidentally designed for the purpose of avoiding tax.

The  provision may not apply where the transferor has no power to enjoy the income, has not received, nor is entitled to receive a capital sum.

Transactions Covered I

A commercial transaction does not include a transaction on terms other than those that would have been made between independent persons dealing at arm’s length, or a transaction that would not have been entered into between independent persons dealing at arm’s length. Independent persons are those who are not connected (as defined) with each other

Relevant transactions mean the transfer and any associated operations. The individual must show in writing or otherwise to the satisfaction of the Revenue Commissioners that it would not be reasonable to conclude that the purpose of avoiding tax was the purpose, or one of the purposes, for which the relevant transactions or any of them were effected.

Alternatively, all the relevant transactions must be genuine commercial transactions, and it must not be reasonable to conclude that any one or more of those transactions was more than incidentally designed for the purpose of avoiding tax.

Transactions Covered II

The intentions and purposes of any person who designs, effects, or provides advice in relation to the relevant transactions are to be taken into account. A transaction is a commercial transaction only if it is effected in the course of a trade or business, or with a view to setting up and commencing a trade or business, and for the purposes of such trade or business.

The making and managing of investments is not a trade or business except to the extent that the person doing it and the person for whom it is done are independent persons dealing at arm’s length.

Any associated operation that would not be taken into account is considered if the conditions fail by reference to that operation, or that operation taken together with the transfer or any other associated operations.

Benefit Received

Separately, where there is a transfer of assets abroad by virtue of which income becomes payable to a non-resident non-domiciled person, and an Irish resident or ordinarily resident individual receives a benefit out of those assets, the benefit is subject to tax. It can be received by a person other than the transferor, and the tax applies to the Irish resident or ordinarily resident individual who receives the benefit.

The benefit received by the non-transferor is taxed under Schedule D Case IV to the extent it does not exceed income from the non-resident entity that can directly or indirectly be used to provide a benefit to the recipient for current and previous years. If the benefit exceeds the recipient’s share of the relevant income for current and previous years, it is taxed in the following year.

There was an exemption for non-domiciled individuals resident in Ireland. It was removed to counter tax-planning.

Income earned by a non-resident individuals conducting genuine economic activity in the EU or UK is not attributed to the Irish resident individuals.