Corporate Exit Tax

Original  Charge

There has been a CGT charge when a company goes non-resident in relation to assets which  are thereby outside the scope of Irish CGT for many years. There have been important  exceptions.

Cessation of residence in the State will take place when it becomes resident in another country rather than ceases to exist. Where a company ceases to be resident in the State, it is deemed to disposal of all its assets thereby triggering a capital gains tax charge at that point.  This is to prevent companies becoming non-resident and then disposing of assets which would otherwise be outside the scope of Irish Capital Gains Tax.

The charge was updated and restated in 2018

Exclusions DTT Controllers

Important  exclusions apply.  Companies held as to at least 90 percent of the share capital by a foreign company or foreign resident individuals are not covered. This applies only to companies or individuals resident in a country with which Ireland has a double tax treaty.

That company must be controlled by persons resident in a double taxation treaty country and must not be under the control of persons resident in Ireland. , that is they cannot meet with that 75 having an intermediate company resident abroad.

Exclusions; Continued Use

The deemed disposal does not apply if the assets continue to be used by a branch or agency for the purpose of a trade in the State.  Where a 75 percent subsidiary of an Irish resident company transfers residence, both the subsidiary and holding company may elect to write it to the authority capital gain.

In this situation, the capital gain will only arise if the assets are actually disposed of within 10 years, the 75 percent subsidiary connection is broken or the holding company ceases to be Irish resident.  Where the company ceases to be resident, revenue may assess the tax on certain controlling directors and group companies where the tax is not paid within six months of the due date.

2018 Restatement

The Finance Act 2018 amended the exit tax that applies when a company ceases to be resident or is deemed to cease to be resident for tax purposes in Ireland. It replaced the pre-existing, focussed, anti-avoidance exit provision with a new broad-based exit tax charge, transposing Article 5 of the Anti-Tax Avoidance Directive into Irish tax law.

The  legislation provides that that an exit tax will apply on the occurrence of any of the following events, where such event occurs on or after 10 October 2018:

• 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 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 does  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. In effect, the  exit tax covers unrealised capital gains where companies migrate or transfer assets offshore without an actual disposal, such that they leave the scope of Irish tax, by deeming a disposal to have occurred.

Rate & Recovery

The rate of exit tax  is  12.5 Per cent. However, an anti-avoidance provision is included in the legislation to ensure that a rate of 33 Per cent rather than 12.5 Per cent will apply if the event that gives rise to the exit tax. The charge 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.

Exit tax in respect of non-resident companies can be recovered from another Irish-resident member of a group or from a controlling director who is resident in Ireland for tax purposes.

Installment Payment

The European Court of Justice  ruled that the UK legislation which corresponded to the Irish provisions  was incompatible with freedom of establishment in so far as an immediate payment of Capital Gains Tax was required. Accordingly, it was amended to ensure that it is compatible with EU law by providing that that trustees can opt to pay tax chargeable under the section in instalments over 5 years.

The payment of exit tax may be deferred by paying it in instalments over 5 years in the case of exits to an EU/EEA State. The exit tax does not apply to assets which relate to the financing of securities, assets given as collateral or where the asset transfer takes place to meet prudential capital requirements or for liquidity management, where such assets will revert to the permanent establishment or company within 12 months.

Finance Act 2020 amends the provision that a company can opt to pay exit tax charged in 6 equal instalments over 5 years, subject to the payment of interest in respect of the amount of exit tax which remains unpaid. The amendment, which is technical in nature, applies in respect of exit tax which remains unpaid on or after 14 October 2020.

The amendment confirms the existing position whereby interest is calculated: (i) on the total amount of exit tax which is unpaid immediately before each instalment is paid; and (ii) at the rate of 0.0219% per day or part of a day from the specified date (i.e. 9 months after the date that the exit tax charge arose under corporation tax pay and file rules) to the date of payment. Interest so calculated becomes payable on each instalment date.