OECD Anti-Avoidance

Exchange of Information

The Finance Act 2014 provides enabling legislation in respect of the common reporting standard as evolved by OECD and G20 for automatic exchange of financial information by financial institutions.  Regulations may, in addition to providing for making returns of information in relation to reportable accounts, may

• outline the manner in which the returns are to be made,
• specify detailed information to be included,
• require the identification of reportable accounts;
• require financial institutions to examine  and retain certain records to enable their obligations to be met;
• provide additional requirements for examination of higher and lower value accounts;
• provide aggregation rules, where accounts are held by the same or connected persons.

Regulations oblige financial institutions to obtain tax ID numbers from customers.  Authorised officers are conferred with powers to enter premises and inspect records

The Finance Act 2016 makes further provision for the exchange of Information on advance cross border rulings and advanced pricing arrangements within the EU. This is made in pursuance of EU l directive on administrative cooperation in taxation.

The legislation provides that information on advance cross border rulings and advanced pricing agreements for all taxes be exchanged subject to confidentiality provisions as and from commencement of 2017.

Multi-national Reporting

New provision is made for country-by-country reporting to the Revenue by multinational groups which are resident in the State. They apply only to groups with consolidated turnover over €750 million. The following information must be reported country-by-country by the above categories.

• revenue,
• profit loss before income tax,
• income tax paid,
• income tax accrued,
• capital,
• accumulated earnings,
• number of employees,
• tangible assets other than cash.

Report Requirements

The return requires identification of

• each entity in the multinational group;
• country of tax residence of each entity,
• where jurisdiction is different;
• business activity and activities of each entity.

Revenue may make regulations

• regarding the form of report.
• regarding constituent elements other than the ultimate parent who make reports. Regulations may also require Irish subsidies to notify Revenue of country-by-country reports filed with foreign tax authorities.

Penalties apply for failure to make the requisite return. Records may be required for the purpose of determining whether the report is accurate and complete. They should be retained for six years.

Revenue may share the reports with authorities of other States if they relate to those States and the States has entered a qualifying agreement with them.

Co-operation and tax reporting.

Finance Act 2016 amends the provisions of the Finance Act 2015 implementing the OECD base erosion and profit-sharing provisions with provision for country by country reporting. Irish resident parents or deemed parents of multinationals are obliged to file a return with country by country reporting annually for periods after commencement in 2016 if its consolidated turnover exceeds € 750 million.

Revenue may exchange information with authorities in other jurisdictions pursuant to the multinational competent authority agreement 2016 providing for sharing of taxation information.

The 2016 legislation puts into effect EU council directive on administrative co-operation in relation to the mandatory sharing of exchange of information referred to as DAC 4.

Filing Entity

The provisions allow a multinational group to designate an Irish resident entity to file the equivalent country by country report on behalf of its group with the Irish Revenue. Where there is more than one, an entity may be designated by the group for this purpose on its behalf.

Where no surrogate parent entity has been appointed, an Irish resident entity may be required to make the filing on behalf of the group. This applies

• where the country by country filing is not required to be made by the ultimate parent in its jurisdiction,
• the competent authority agreement providing for exchange of information is not in place with the jurisdiction of which the ultimate parent is resident.
• there has been a systematic failure by the jurisdiction of tax residence of the parent of the multinational group

Where the Irish entity has limited capacity to file the country by country report, it must file an equivalent country by country report. This is to include information within its custody or possession or in respect of which it has the right to acquire from other group members. Where the ultimate parent files the report on a voluntary basis, the constituent resident entities in Ireland are not obliged to file an equivalent report provided certain conditions are satisfied.

Anti-Double Irish

A company which is incorporated in the State is  regarded for the purposes of corporation tax (and  Capital Gains Tax) as resident in the State. A company which is regarded under a double taxation agreement  as resident in a territory other than the State and not resident in the State is regarded  as not resident in the State.

This does not prevent a company that—

• is not incorporated in the State, and
• is centrally managed and controlled in the State,

being resident in the State for the purposes of corporation tax and capital gains tax

The above provisions apply from 1 January 2015. However, as respects a company incorporated before 1 January 2015, they apply  after 31 December 2020. If  after 31 December 2014, of a change in ownership of the company where there is a major change in the nature or conduct of the business of the company within the relevant period, they apply from an earlier date.

Hybrid Mismatches

The Finance 2019 implemented EU directive on hybrid mismatches. This in turn derived from the OECD base erosion project.

Hybrid mismatch rises where an entity or instrument is treated differently under different tax regimes so that in arrangements between associated entities tax is avoided. This may be by way of a double deduction provider as a deduction to different territories against the same income.

Hybrid mismatches
double taxation treaty abuse
permanent establishment

The multilateral instrument provides for improved dispute resolution.

Where state parties to a double taxation agreement treat particular entities as transparent (look through to shareholders) for tax purposes, the income earned by the entity is to be treated as income of the resident of the state concerned. There are standardised rules for determining whether an entity (company) is transparent or not.

Where an entity is resident in two countries double taxation agreements generally provide that residence is to be agreed between the taxing authorities. The MLA provides that until agreement is reached between the authorities the taxpayers not be entitled to release are exemptions from double taxation. The countries are to determine tax residence having regard to the place of effective management the place where it is incorporated and other relevant factors.

The principal purpose test incorporates a general anti-avoidance rule into tax treaties in cases where the other country has also chosen to adopt this rule. There are a number of other tests which countries party to the MLA I may adopt.

A benefit under a tax agreement is not be granted in relation to income or capital if it is reasonable to conclude having regard to the relevant circumstances that the obtaining of the benefit was one of the principal purposes of the arrangement or transaction that directly or indirectly resulted in the benefit ,unless the benefit in the circumstances would accord with the object and purposes of the tax treaty concerned.

Permanent Establishment

The multilateral instrument expands the definition of a permanent establishment. Where a person acting on behalf of an enterprise so doing, habitually concludes contracts or plays the principal role in concluding them, there is deemed to be a permanent establishment in the state where these activities are undertaken by that person.

The MLAI lists activities that may be deemed characteristic of the not being a permanent establishment provided they are of a preparatory or auxiliary character. As an alternative there is a anti- fragmentation provision which seeks to prevent groups breaking up a cohesive business into smaller operations to avail of exceptions. Ireland chose the second option.

Double taxation agreements that set out activities which are deemed not to be a permanent establishment do not apply to a fixed place of business used and maintained by an enterprise where the same or a closely related enterprise carries on business activities in the same place, whether another place in the same jurisdiction and place where the place constitutes a permanent establishment for that other or a closely related enterprise under the provisions which define permanent establishment or alternatively if the overall activity resulting from the combination of activities carried on by the two enterprises at the same place, or closely related enterprises are the two places is not of a preparatory of a auxiliary nature.

Dispute Resolution

There are improved dispute resolution procedures with time limits and procedural rules as to how disputes under tax treaty should be dealt with. They provide for

• presentation of cases to either authority
• three-year deadline for resolution
• authorities to endeavour to resolve by mutual agreement

There is provision for mandatory binding arbitration. States need not opt into it. After a case is submitted to arbitration, the competent authorities of each may submit a proposed resolution to address the issues. It may submit position papers for consideration by the arbitration panel. The panel shall select one of the proposed resolutions.

States may exercise a reservation and adopt a procedure subjecting the matter to adjudication by a binding written opinion.. Ireland has not exercises this option.

2019 Ant-Hybrid

Finance Act 2019 introduces anti-hybrid rules as required by Council Directive (EU) 2016/1164 of 12 July 2016 (the Anti-Tax Avoidance Directive or ATAD) and Council Directive (EU) 2017/952 of 29 May 2017 (the Anti-Tax Avoidance Directive 2 or ATAD2). The ATAD directives were agreed to ensure that EU Member States implemented certain OECD BEPS rules in a coordinated way.

The purpose of anti-hybrid rules is to prevent arrangements that exploit differences in the tax treatment of a financial instrument or an entity under the tax laws of two or more jurisdictions to generate a tax advantage; referred to as a mismatch outcome.

ATAD anti-hybrid rules apply to all corporate taxpayers, there is no de-minimis threshold. They apply to arrangements between associated enterprises. For this purpose, an entity is associated with another entity if it holds a certain percentage of the shares, voting rights or rights to profits in that other entity. Anti-hybrid rules may also apply to a “structured arrangement” that is not between associated entities, where a mismatch outcome is priced into the terms of an arrangement or an arrangement is designed to produce a mismatch outcome.

ATAD sets out a number of specific situations that give rise to a hybrid mismatch outcome and each of these situations is provided for separately in the legislation.

A double deduction mismatch outcome arises where two countries give a tax deduction for the same payment but only one country taxes the associated receipt. A deduction without inclusion mismatch outcome arises where one country gives a tax deduction for a payment but no country taxes the associated receipt. Finally, a withholding tax mismatch outcome arises where the transfer of a financial instrument is designed to produce relief for withholding tax to more than one of the parties involved in the transaction.

ATAD requires that Member States implement a “primary rule” to neutralise the hybrid mismatch in the country where the benefit from the mismatch arises. Where the mismatch is not neutralised by a primary rule, ATAD sets out occasions where a secondary or “defensive” rule may be implemented in the country where the other party to the mismatch is situated. For each of the mismatch situations provided for in the legislation the primary rule operates by denying the entity a tax deduction in the State in respect of the relevant payment. The defensive rule only applies in certain circumstances and, where it does apply, it operates by either denying a deduction or including the relevant payment as taxable income of the entity, to be charged to tax in the State at the relevant rate.

The legislation applies to payments made or arising on or after 1 January 2020.

2020 Act

Finance Act 2020 amends rules implementing the EU Anti-Tax Avoidance Directive (ATAD). The amendments ensure that the anti-hybrid rules operate as intended by:

• amending a technical error in the definition of associated enterprises to ensure compliance with ATAD;
• amending provisions relating to the timing of the test of association to address unintended consequences of the current legislation;
• providing that certain anti-hybrid rules do not apply where there is no economic mismatch outcome because a charge to tax arises under a Controlled Foreign Company regime; and
• clarifying the application of one of the anti-hybrid rules where the participator is a tax exempt entity.