OECD Anti-Avoidance

TAXES CONSOLIDATION ACT

Part 35B

Implementation of Articles 7 and 8 of Council Directive (EU) 2016/1164 of 12 July 2016 (Controlled Foreign Companies) (ss. 835I-835Y)

Chapter 1

Interpretation (ss. 835I-835P)

835I. Interpretation
(1)In this Part –

“accounting profit”, in relation to an accounting period of a controlled foreign company, means the amount of profit, before taxation, shown in the profit and loss account, without regard to any –
(a)capital gains or capital losses, or
(b)dividends or other distributions which would be exempted from the charge to tax in determining the controlled foreign company’s corresponding chargeable profits in the State;

“amount of foreign qualified domestic top-up tax payable or borne by a controlled foreign company”, means –
(a)an amount of foreign qualified domestic top-up tax that is payable or borne by the controlled foreign company, or
(b)where an amount of foreign qualified domestic top-up tax is payable or borne by an entity under the laws of the territory in which the controlled foreign company is located, for the purposes of the qualified domestic top-up tax laws of the territory, in respect of the aggregate profits of that controlled foreign company and one or more other entities, taken together as a single taxable entity, the amount of foreign qualified domestic top-up tax that is apportioned to the controlled foreign company on a just and reasonable basis;;

“amount of foreign tax” means the amount of any tax paid or borne by a controlled foreign company in respect of the controlled foreign company’s profits for the accounting period;

“arrangement” means –
(a)any transaction, action, course of action, course of conduct, scheme, plan or proposal,
(b)any agreement, arrangement, understanding, promise or undertaking, whether express or implied and whether or not enforceable or intended to be enforceable by legal proceedings, and
(c)any series of or combination of the circumstances referred to in paragraphs (a) and (b),
whether entered into or arranged by one or two or more persons –
(i)whether acting in concert or not,
(ii)whether or not entered into or arranged wholly or partly outside the State, or
(iii)whether or not entered into or arranged as part of a larger arrangement or in conjunction with any other arrangement or arrangements,
but does not include an arrangement referred to in section 826;

“chargeable company” means a controlling company, or a company connected with the controlling company, which performs, either itself or through a branch or agency, relevant Irish activities on behalf of a controlled foreign company group;

“chargeable income” means the undistributed income of a controlled foreign company which is subject to a controlled foreign company charge;

“company” means a body corporate or an unincorporated association;

“connected” shall be construed in accordance with section 10;

“controlled foreign company” means a company which is –
(a)not resident in the State, and
(b)controlled by a company or companies resident in the State;

“controlled foreign company charge” means a charge made under section 835R(2);

“controlled foreign company group” means the controlled foreign companies, taken together, of a controlling company;

“controlling company” means a company resident in the State which controls a controlled foreign company;

“corresponding chargeable profits in the State” means those profits or gains of a controlled foreign company which would be the controlled foreign company’s profits or gains for corporation tax or capital gains tax purposes for an accounting period if the assumptions specified in section 835O were to apply to that company;

“corresponding corporation tax in the State” means the amount of corporation tax and capital gains tax which would be chargeable in the State in respect of the controlled foreign company’s corresponding chargeable profits in the State for the accounting period in accordance with section 835P if the assumptions specified in section 835O were to apply to the company;

“corresponding qualified domestic top-up tax” means an amount of qualified domestic top-up tax that would be payable or borne by the controlled foreign company, if the controlled foreign company was located in the State, in accordance with section 111D, and section 111AAO did not apply;

“creditable tax” shall be construed in accordance with section 835S;

“EEA Agreement” means the Agreement on the European Economic Area signed at Oporto on 2 May 1992, as adjusted by the Protocol signed at Brussels on 17 March 1993;

“fiscal year” has the meaning given to it in section 111A(1);

“foreign chargeable profits” means –
(a)the profits of a controlled foreign company as determined for tax purposes under the laws of the controlled foreign company’s territory of residence, or
(b)where the laws of the controlled foreign company’s territory of residence do not require profits to be determined for tax purposes, the profits of the controlled foreign company as determined in accordance with the generally accepted accounting practice applicable in the controlled foreign company’s territory of residence;

“foreign company charge” means a charge under the laws of a territory, other than the State, which is similar to the controlled foreign company charge;

“foreign qualified domestic top-up tax” means a qualified domestic top-up tax arising under the laws of a territory, other than the State;

“key entrepreneurial risk-taking function” shall be construed in a manner consistent with the use of that term in the OECD Report;

“non-trading income” means the income of a controlled foreign company which would be included in the controlled foreign company’s corresponding chargeable profits in the State if the assumptions specified in section 835O were to apply to the company, other than income which would be chargeable to tax under Case I or II of Schedule D, were those assumptions to apply;

“OECD Report” means the 2010 Report on the Attribution of Profits to Permanent Establishments of the Organisation for Economic Co-Operation and Development dated 22 July 2010;

“profit and loss account”, in relation to a controlled foreign company, means the profit and loss account, income statement or equivalent as prepared in accordance with international accounting standards or in accordance with generally accepted accounting practice, but where –
(a)accounts are not prepared in accordance with international accounting standards or generally accepted accounting practice, or
(b)no accounts are prepared for the accounting period in question,
that expression means the profit and loss account which would be prepared in accordance with generally accepted accounting practice;

“qualified domestic top-up tax”, has the meaning given to it in section 111A(1);

“relevant assets and risks” means the assets which a controlled foreign company has, or has had at any time, and the risks which a controlled foreign company bears, or has borne at any time, where those assets or risks would not have been employed or undertaken, as the case may be, but for relevant functions performed in the State on behalf of the controlled foreign company;

“relevant function” means a significant people function or a key entrepreneurial risk-taking function;

“relevant Irish activities” means relevant functions performed in the State on behalf of a controlled foreign company group, where such relevant functions are relevant to –
(a)the legal or beneficial ownership of the assets included in the relevant assets and risks of the company or companies in the controlled foreign company group, or
(b)the assumption and management of the risks included in the relevant assets and risks of the company or companies in the controlled foreign company group;

“relevant Member State” means a state, other than the State, which is a Member State of the European Union, or not being such a Member State, a state which is a contracting party to the EEA Agreement;

“significant people function” shall be construed in a manner consistent with the use of that term in the OECD Report;

“tax advantage” means –
(a)a reduction, avoidance or deferral of any charge or assessment to tax, including any potential or prospective charge or assessment, or
(b)a refund of or a payment of an amount of tax, or an increase in an amount of tax, refundable or otherwise payable to a person including any potential or prospective amount so refundable or payable,
arising out of or by reason of an arrangement, including an arrangement where another arrangement would not have been undertaken or arranged to achieve the results or any part of the results, achieved or intended to be achieved by the arrangement;

“undistributed income” shall be construed in accordance with section 835Q.

(2)For the purposes of this Part, a company shall be treated as an ‘associated company’ of another company where –

(a)one of them, directly or indirectly, possesses or is beneficially entitled to, or is entitled to acquire, not less than 25 per cent of the share capital or issued share capital of the other company,

(b)one of them, directly or indirectly, is entitled to exercise, or to acquire the rights to exercise, not less than 25 per cent of the voting power of the other company,

(c)one of them is beneficially entitled to not less than 25 per cent of any profits available for distribution to equity holders of the other company, or

(d)in respect of those companies, a third person –

(i)directly or indirectly –

(I)possesses or is beneficially entitled to, or is entitled to acquire, not less than 25 per cent of the share capital or issued share capital of each of them, or

(II)is entitled to exercise, or to acquire the rights to exercise, not less than 25 per cent of the voting power of each of them,

or

(ii)in respect of each of them, is beneficially entitled to not less than 25 per cent of any profits available for distribution to equity holders in the company.

835J.

Meaning of ‘control’

(1)For the purposes of this Part, a person shall be taken to have control of a company if such person exercises, or is able to exercise or is entitled to acquire, control, whether direct or indirect, over the company’s affairs, and in particular, but without prejudice to the generality of the foregoing, if such person possesses or is entitled to acquire –

(a)the greater part of the share capital or issued share capital of the company or of the voting power in the company,

(b)such part of the issued share capital of the company as would, if the whole of the income of the company were distributed among the participators (without regard to any rights which such person or any other person has as a loan creditor), entitle such person to receive the greater part of the amount so distributed,

(c)such rights as would, in the event of the winding up of the company or in any other circumstances, entitle such person to receive the greater part of the assets of the company which would then be available for distribution among the participators, or

(d)any part of the issued share capital of the company and thereby control the composition of its board of directors.

(2)For the purposes of subsection (1), a person shall be treated as entitled to acquire anything which such person is entitled to acquire at a future date or will at a future date be entitled to acquire.

(3)For the purposes of subsection (1), there shall be attributed to any person any rights or powers of a nominee for such person, that is, any rights or powers which another person possesses on such person’s behalf or may be required to exercise on such person’s direction or behalf.

(4)For the purposes of subsection (1), there may also be attributed to any person all the rights and powers of –

(a)any associated company, within the meaning of section 835I(2), of such person,

(b)any company of which such person has, or such person and associates of such person have, control,

(c)any 2 or more companies of which such person has, or such person and associates of such person have, control,

(d)any associate of such person, or

(e)any 2 or more associates of such person,

including the rights and powers attributed to a company or associate under subsection (3), but excluding those attributed to an associate under this subsection, and such attributions shall be made under this subsection as will result in the company being treated as under the control of persons resident in the State if it can be so treated.

(5)In this section, ‘participator’, ‘associate’, ‘director’ and ‘loan creditor’ have the same meanings as they have in Part 13.

835K.

Accounting periods

(1)For the purposes of this Part, an accounting period of a controlled foreign company shall begin –

(a)where the company was not a controlled foreign company immediately prior to a date on which it became a controlled foreign company, on that date, and

(b)where the company continues to be a controlled foreign company, immediately after the end of the previous accounting period,

and references in this subsection and subsection (2) to an accounting period are references to such a period as determined by virtue of the application, by subsection (3), of certain provisions of section 27 for the purposes of this section.

(2)An accounting period of a controlled foreign company shall end –

(a)when the company ceases to be a controlled foreign company in accordance with this Chapter,

(b)when the company becomes or ceases to be resident in a territory, or

(c)when the company ceases to have any sources of income.

(3)Without prejudice to subsections (1) and (2) of this section, subsections (3), (5) and (7) of section 27 shall apply for the purpose of this section as they apply for the purposes of corporation tax, except to the extent those provisions relate to a company becoming or ceasing to be within the charge to corporation tax.

(4)Where it appears to a Revenue officer that the beginning or end of any accounting period of a controlled foreign company is uncertain, he or she may determine as an accounting period of the company such period, not exceeding 12 months, as appears to him or her appropriate, and that period shall be treated for all purposes as an accounting period of the company unless the officer on further facts coming to his or her knowledge sees fit to revise it.

(5)Where the Revenue Commissioners make a determination under subsection (4), they shall issue a notice in writing of the determination to the controlling company of the controlled foreign company concerned.

(6)A controlling company aggrieved by a determination made under subsection (4) may appeal such determination to the Appeal Commissioners, in accordance with section 949I, within the period of 30 days after the date of the notice issued under subsection (5) in respect of the determination.

835L.

Application of Part to a controlled foreign company

Where in any accounting period a company is a controlled foreign company, the provisions of this Part shall apply accordingly in relation to that accounting period, except as otherwise provided for in this Part.

835M.

Determination of residence

(1)Subject to subsection (6), for the purposes of this Part, a controlled foreign company shall be regarded as being resident for an accounting period in the territory in which, throughout that period, it is subject to tax by reason of domicile, residence or place of management.

(2)Where there are two or more territories falling within subsection (1) in any accounting period, the company shall in that accounting period be regarded as being resident –

(a)where, throughout the accounting period, the company’s place of effective management is situated in one of the territories, in that territory,

(b)where, throughout the accounting period, the company’s place of effective management is situated in two or more of the territories and immediately before the end of the accounting period more than 50 per cent of the company’s assets are situated in a territory, in the territory in which those assets are situated, or

(c)where neither paragraph (a) nor (b) applies and immediately before the end of the accounting period more than 50 per cent of the company’s assets are situated in one of the territories, in that territory.

(3)Where in an accounting period there is no territory falling within either of subsection (1) or (2), the company shall be regarded as being resident in the territory in which it is incorporated or formed.

(4)For the purpose of subsection (2), the amount of the company’s assets are to be determined by reference to their market value immediately before the end of the accounting period.

(5)In this section, ‘market value’ shall be construed in accordance with section 548.

(6)Nothing in this section shall require a company to be regarded as being resident in a territory other than the territory in which it is regarded, for the purposes of any arrangements having the force of law by virtue of section 826(1), as being resident.

835N.

Adjustment to amount of foreign tax

(1)Where an amount of foreign tax is paid or borne by a company under the laws of the territory in which the controlled foreign company is resident in respect of the aggregate profits of that controlled foreign company and one or more other companies (in this subsection referred to as the ‘consolidated companies’), taken together as a single taxable entity, the amount of tax shall be apportioned between the consolidated companies on a just and reasonable basis for the purpose of calculating the amount of foreign tax paid or borne by the controlled foreign company.

(2)This subsection applies where an amount of income of a controlled foreign company is taken into account in determining the foreign chargeable profits of the controlled foreign company for an accounting period, but such income is not taken into account in determining the corresponding chargeable profits in the State of the company for the accounting period.

(3)Where subsection (2) applies, the income to which subsection (2) refers shall not be taken into account in determining the amount of foreign tax paid or borne by the controlled foreign company for the accounting period.

(4)This subsection applies where an amount of expenditure of a controlled foreign company is not taken into account in determining foreign chargeable profits of a controlled foreign company for an accounting period, but such expenditure is taken into account in determining the corresponding chargeable profits in the State of the company for the accounting period.

(5)Where subsection (4) applies, the expenditure to which subsection (4) refers shall be taken into account in determining the amount of foreign tax paid or borne by the controlled foreign company for the accounting period.

835O.

Corresponding chargeable profits in the State

(1)For the purpose of determining the corresponding chargeable profits in the State of a controlled foreign company for an accounting period, it shall be assumed –

(a)

(i)that the company is resident in the State at all times during the accounting period,

(ii)if the accounting period is not the company’s first accounting period, that the company has been resident in the State since its first accounting period,

(iii)except where the company ceases to be regarded as a controlled foreign company in accordance with this Chapter in the accounting period, that the company will continue to be resident in the State in subsequent accounting periods, and

(iv)where the company was resident in the State in the accounting period immediately prior to its first accounting period, that the residence assumed in accordance with this paragraph is not continuous with its residence in the State immediately prior to its first accounting period,

(b)that the company is, has been and will continue to be within the charge to corporation tax,

(c)that the accounting periods of the company, as determined in accordance with section 835K, are accounting periods for corporation tax purposes,

(d)that there is no change in the place or places at which the company carries on its activities,

(e)that the company is not a close company within the meaning of section 430,

(f)where any allowance, credit, deduction, relief or repayment under the Tax Acts is dependent upon the making of a claim or election, that the company has made that claim or election which would give the maximum amount of allowance, credit, deduction, relief or repayment and that the claim or election was made within any applicable time limit,

(g)that the company is neither a member of a group of companies nor a member of a consortium for any purposes of the Tax Acts, and

(h)that the company is not entitled to relief under Part 35 in respect of any amount of income, profits or gains for tax paid on such income, profits or gains under the laws of the company’s territory of residence.

(2)In this section, references to the first accounting period of a controlled foreign company are references to the accounting period in which the company first falls to be regarded as a controlled foreign company in accordance with this Chapter.

(3)Nothing in this section affects any liability to, or the computation of, corporation tax in respect of a trade which is carried on by a controlled foreign company through a branch or agency in the State.

835P.

Corresponding corporation tax in the State

The corresponding corporation tax in the State of a controlled foreign company for an accounting period shall be the sum of –

(a)the corporation tax that would be charged at the rate specified in section 21(1)(f) on that part of the corresponding chargeable profits in the State for the accounting period which would consist of profits chargeable to tax under Case I or II of Schedule D,

(b)the corporation tax that would be charged at the rate specified in section 21A(3) on that part of the corresponding chargeable profits in the State for the accounting period which would consist of profits which would be chargeable to tax under Case III, IV or V of Schedule D, and

(c)the capital gains tax that would, in accordance with section 78 or otherwise, be charged on that part of the corresponding chargeable profits in the State for the accounting period which would consist of chargeable gains,

if, for the purpose only of determining under which Case of Schedule D the corresponding chargeable profits would be chargeable to tax, the assumption in section 835O(1)(d) did not apply and the activities carried on by the controlled foreign company in its territory of residence were deemed to be carried on in the State.

Chapter 2

Controlled foreign company charge (ss. 835Q-835S)

835Q.

Undistributed income

(1)For the purposes of this Part, the undistributed income of a controlled foreign company for an accounting period shall be its distributable profits for the accounting period, less any relevant distributions made in respect of the accounting period.

(2)For the purposes of subsections (1) and (3), the distributable profits of a controlled foreign company for an accounting period shall be the amount included in the accounting profits of the company which, notwithstanding any prohibition on the making of a distribution under the laws of the territory in which the controlled foreign company is resident or otherwise, are available for distribution to members of the company and which can reasonably be attributed to relevant Irish activities performed by a controlling company or a company connected with the controlling company for that accounting period.

(3)For the purpose of subsection (1), a relevant distribution made in respect of an accounting period means an amount determined by the formula –

A x (B/C)

where –

Ais the amount of the distribution made in respect of the accounting period,

Bis the amount of the distributable profits for the accounting period, and

Cis the amount of the accounting profit of the controlled foreign company for the accounting period.

(4)The reference in subsection (3) to the amount of the distribution made in respect of the accounting period is a reference to such an amount –

(a)as is distributed to –

(i)a person who is, by virtue of the laws of a relevant Member State, resident for the purposes of tax in a relevant Member State which imposes, without any reduction computed by reference to the amount of such distribution, a tax that generally applies to distributions receivable in that territory, by persons, from sources outside that territory, or

(ii)a person resident in the State,

(b)as is paid or payable –

(i)during the accounting period, or

(ii)within 9 months after the end of the accounting period, and

(c)where subparagraph (i) of paragraph (a) applies, as has been subject to tax in the relevant Member State referred to in that subparagraph.

(5)The reference in subsection (4)(c) to tax is a reference to tax that has been paid and has not been and does not fall to be repaid, in whole or in part, to the controlled foreign company or any other person on the making of a claim or otherwise.

(6)For the purpose of this section, a distribution made in respect of an accounting period shall be regarded as being made out of the distributable profits of that period to the extent of that profit and, in relation to any excess of the distribution over that profit, out of the most recently accumulated distributable profits.

835R.

Controlled foreign company charge

(1)In this section, ‘participation’ means –

(a)a, direct or indirect, possession of, or beneficial right to, or right to acquire, share capital or issued share capital of a company,

(b)a, direct or indirect, right to exercise, or to acquire the rights to exercise the voting power of a company, or

(c)a beneficial right to any profits available for distribution to equity holders of a company.

(2)Subject to subsections (5), (9) and (10), where in an accounting period of a controlled foreign company –

(a)a controlled foreign company group has undistributed income, and

(b)relevant Irish activities in relation to the controlled foreign company group are performed by a chargeable company,

a controlled foreign company charge shall be made on the chargeable company for the accounting period of the chargeable company, as determined in accordance with section 27, in which the accounting period of the controlled foreign company ends.

(3)The controlled foreign company charge made under subsection (2) shall be of an amount equal to the undistributed income of the controlled foreign company group to the extent that such income can reasonably be attributed to relevant Irish activities performed by the chargeable company.

(4)The undistributed income to be attributed to relevant Irish activities for the purpose of subsection (3) shall be determined by reference to the amount that would be payable by persons dealing at arm’s length in relation to those activities, but the amount so attributed shall, in respect of each of the controlled foreign companies in the controlled foreign company group, not exceed an amount determined by the formula –

UI x AP

where –

UIis the undistributed income of the controlled foreign company, and

APis the aggregate of the controlling company and the chargeable company’s participation in that controlled foreign company, expressed as a percentage of the total participation in that company.

(5)Subsection (2) shall not apply in relation to undistributed income –

(a)attributable to relevant Irish activities performed by a chargeable company under arrangements where –

(i)it is reasonable to consider that –

(I)such arrangements would be entered into by persons dealing at arm’s length, or

(II)the essential purpose of the arrangements is not to secure a tax advantage,

or

(ii)the arrangements are subject to the provisions of section 835C,

or

(b)which has previously been assessed to a controlled foreign company charge under this section.

(6)Subject to subsection (7), corporation tax shall be charged in respect of the controlled foreign company charge at the rate specified in –

(a)section 21(1)(f), in so far as the undistributed income attributable to the relevant Irish activities would be chargeable to tax under Case I of Schedule D, had it been income accruing to the chargeable company, and

(b)section 21A(3), in so far as the undistributed income attributable to the relevant Irish activities would be chargeable to tax under Case III, IV or V of Schedule D, had it been income accruing to the chargeable company.

(7)The amount of corporation tax chargeable in accordance with subsection (6) shall be reduced by the amount of any creditable tax, as determined under section 835S, in respect of the accounting period concerned.

(8)Subject to subsection (7), no relief, deduction or set off of any description shall be allowed against a controlled foreign company charge.

(9)This section shall not apply to undistributed income which is attributable to an asset or risk, whether on an individual basis or taken together as an aggregate, where the increase in the controlled foreign company’s undistributed income as against the undistributed income of the controlled foreign company where it –

(a)did not hold, or had not held, the asset to any extent, or

(b)did not bear, or had not borne, the risk to any extent, is negligible.

(10)This section shall not apply in relation to an accounting period of a controlled foreign company where, in that accounting period –

(a)the controlled foreign company did not at any time hold assets or bear risks under an arrangement where it would be reasonable to consider that the essential purpose of the arrangement was to secure a tax advantage, or

(b)the controlled foreign company did not have any non-genuine arrangements in place.

(11)For the purpose of subsection (10)(b), a controlled foreign company shall be regarded as having non-genuine arrangements where –

(a)the controlled foreign company would not own the assets or would not have borne the risks which generate all, or part of, its undistributed income, but for relevant Irish activities performed relating to those assets and risks, and

(b)it would be reasonable to consider that the relevant Irish activities were instrumental in generating that income.

835S.

Creditable tax

(1)In this section, ‘relevant tax’ means a tax chargeable and payable under the laws of a territory, other than the State, which corresponds to corporation tax.

(2)For the purposes of this Part, the creditable tax for an accounting period shall be the aggregate of –

(a)the amount of foreign tax paid or borne in respect of the chargeable income of the controlled foreign company for that accounting period,

(b)the amount of relevant tax paid on a foreign company charge in respect of the chargeable income of the controlled foreign company for that accounting period, and

(c)the amount of foreign qualified domestic top-up tax payable or borne by the controlled foreign company for that accounting period.

(3)In subsection (2) –

(a)references to an amount paid, payable or borne do not include so much of any such amount as has been or falls to be repaid to the controlled foreign company or any other person on the making of a claim or otherwise, and

(b)references to an amount of foreign qualified domestic top-up tax payable or borne do not include so much of any amount of foreign qualified domestic top-up tax that is not paid within 4 years from the end of the fiscal year in which it becomes due.

(4)The amount of the creditable tax to be allowed against corporation tax in respect of any controlled foreign company charge for an accounting period shall not exceed the corporation tax attributable to that charge under section 835R for that period.

(5)The amount of creditable tax to be allowed against corporation tax in respect of any controlled foreign company charge for an accounting period shall not include any amount in respect of:

(a)a qualified IIR (within the meaning of section 111A(1)), or

(b)a qualified UTPR (within the meaning of section 111A(1)).

Chapter 3

Exemptions (ss. 835T-835YA)

835T.

Effective tax rate exemption

(1)Section 835R shall not apply in relation to an accounting period of a controlled foreign company where subsection (2) applies.

(2)This subsection applies where the aggregate of the amount of foreign tax and the foreign qualified domestic top-up tax, which is paid, payable or borne by a controlled foreign company for an accounting period, is not less than the difference between –

(a)the aggregate of –

(i)the corresponding corporation tax in the State for that accounting period, and

(ii)the corresponding qualified domestic top-up tax for that accounting period,

and

(b)the aggregate of –

(i)the amount of such foreign tax paid or borne for the accounting period, and

(ii)the amount of foreign qualified domestic top-up tax for the accounting period.

(3)The amount of foreign tax which is paid or borne by a controlled foreign company for an accounting period shall be determined in accordance with section 835N.

(4)In this section –

(a)references to the amount of foreign tax paid or borne do not include so much of any such amount as has been or falls to be repaid to the controlled foreign company or any other person on the making of a claim or otherwise, and

(b)references to the amount of foreign qualified domestic top-up tax, which is payable or borne do not include so much of any such amount as has been or falls to be repaid to the controlled foreign company or any other person on the making of a claim or otherwise or where payable is not paid or borne by the controlled foreign company.

835U.

Low profit margin exemption

(1)In this section, ‘relevant operating costs’ means the operating costs, as construed in accordance with international accounting standards or generally accepted accounting practice, incurred by a controlled foreign company for an accounting period, but excluding –

(a)the costs of goods purchased by the controlled foreign company, other than goods used by the company in the territory in which it is resident for the accounting period, and

(b)any amounts incurred on behalf of, or paid to, an associated company.

(2)Subject to subsection (3), where in an accounting period the accounting profits of a controlled foreign company are less than 10 per cent of its relevant operating costs, section 835R shall not apply.

(3)Subsection (2) shall not apply where –

(a)any arrangements are entered into,

(b)as a consequence of such arrangements subsection (2) would, apart from this subsection, apply, and

(c)it would be reasonable to consider that the main purpose, or one of the main purposes, of the arrangements is to secure that subsection (2) applies.

835V.

Low accounting profit exemption

(1)Subject to subsections (2) and (3), where in an accounting period –

(a)the accounting profits of a controlled foreign company are less than €750,000 and the amount of those profits representing non- trading income is less than €75,000, or

(b)the accounting profits are less than €75,000,

section 835R shall not apply.

(2)Where an accounting period is less than 12 months, the amounts referred to in subsection (1) shall be reduced proportionately.

(3)This section shall not apply where –

(a)any arrangements are entered into,

(b)as a consequence of such arrangements subsection (1) would, apart from this subsection, apply, and

(c)it would be reasonable to consider that the main purpose, or one of the main purposes, of the arrangements is to secure that subsection (1) applies.

(4)A reference in subsection (3) to the application of subsection (1) includes a reference to the application of that subsection as modified in accordance with subsection (2).

835W.

Exempt period exemption

(1)In this section –

‘exempt period’ shall be construed in accordance with subsection (3);

‘subsequent period condition’ means the condition which is satisfied where the circumstances specified in subsection (4) apply.

(2)Section 835R shall not apply in relation to an accounting period of a controlled foreign company where –

(a)the accounting period ends during an exempt period, and

(b)the subsequent period condition is satisfied by the controlled foreign company.

(3)An exempt period shall begin when a company first becomes a controlling company in relation to the controlled foreign company concerned (in this section referred to as the ‘relevant time’) and shall end 12 months from the relevant time.

(4)The subsequent period condition shall be satisfied by a controlled foreign company where –

(a)the company ceases to be regarded as a controlled foreign company in accordance with Chapter 1, or

(b)the controlled foreign company charge does not apply,

in the first accounting period of the company beginning immediately after the exempt period.

(5)Where the accounting period of a controlled foreign company begins during an exempt period, but does not end during that period, the undistributed income of the controlled foreign company, as determined on a just and reasonable basis, which –

(a)arises during the exempt period, and

(b)would otherwise be subject to the controlled foreign company charge under section 835R,

shall be exempt from such charge.

(6)This section shall not apply in relation to a controlled foreign company where –

(a)immediately before the relevant time the controlled foreign company was not carrying on a business, unless subsection (7) applies to that company, or

(b)the controlling company in respect of the controlled foreign company was subject to this Part (as respects the controlled foreign company) on 1 January 2019.

(7)This subsection shall apply to a controlled foreign company where –

(a)the controlled foreign company is incorporated or formed immediately before the relevant time for the purpose of controlling one or more other companies, and

(b)an exempt period begins in relation to one or more of the companies, referred to in paragraph (a), controlled by the controlled foreign company at that relevant time.

(8)This section shall not apply in relation to a controlled foreign company where –

(a)any arrangements are entered into, and

(b)it would be reasonable to consider that the main purpose, or one of the main purposes, of the arrangements is to secure –

(i)a tax advantage for any person, or

(ii)that subsection (2), would, apart from this subsection, apply.

835X.

Relief for certain distributions

(1)Where a distribution made in respect of an accounting period is made by a controlled foreign company out of chargeable income in respect of a previous accounting period, the corporation tax paid on the controlled foreign company charge attributable to that income shall be allowed as a credit against the tax chargeable in respect of the distribution.

(2)Where a distribution made in respect of an accounting period is made by a controlled foreign company in part out of chargeable income in respect of a previous accounting period and in part out of other income or profits, the distribution shall be treated as if it consisted of two distributions made out of chargeable income and out of other income or profits respectively, and subsection (1) shall apply to such part of the distribution as is made out of chargeable income as it applies to a distribution made wholly out of chargeable income.

835Y.

Relief on certain disposals of shares or securities in a controlled foreign company

(1)In this section, ‘chargeable gain’ shall be construed in accordance with section 545.

(2)This section shall apply where a controlling company or a company connected with the controlling company (either of which is in this section referred to as a ‘disposing company’), disposes of shares or securities in a controlled foreign company or in a company connected with the controlled foreign company (either of which is in this section referred to as the ‘disposed company’) and a controlled foreign company charge has been made on a disposing company by reference to its interest in the disposed company.

(3)This subsection applies where –

(a)the disposing company is the only chargeable company in relation to the disposed company,

(b)the disposing company is not a chargeable company in relation to the disposed company and the chargeable company does not have any interest in the disposed company, or

(c)the disposing company is a chargeable company in relation to the disposed company and, in relation to that disposed company, there exists another chargeable company which does not have an interest in the disposed company.

(4)For the purpose of computing the chargeable gain accruing to the disposing company on a disposal of shares or securities referred to in subsection (2) –

(a)where subsection (3) applies, an amount shall be allowable as a deduction under section 552(1)(a) from the consideration for the disposal, being an amount determined by the formula –

A x (B/C)

where –

Ais the amount of the controlled foreign company charge relating to the controlled foreign company,

Bis the number of shares or securities in the disposed company disposed of by the disposing company, and

Cis the total number of shares or securities in the disposed company owned by the disposing company immediately before the disposal,

or

(b)where subsection (3) does not apply, an amount shall be allowable as a deduction under section 552(1)(a) from the consideration for the disposal, being an amount determined by the formula –

D x (E/F)

where –

Dis the amount of the controlled foreign company charge relating to the controlled foreign company,

Eis the number of shares or securities in the controlled foreign company disposed of by the disposing company, and

Fis the total number of shares or securities in the controlled foreign company.

(5)Where, before a disposal referred to in subsection (2) –

(a)a distribution is made by the controlled foreign company,

(b)the distribution is made out of the chargeable income which has been subject to the controlled foreign company charge referred to in subsection (2), and

(c)section 835X applies in relation to that distribution,

paragraphs

(a) and (b) of subsection (4) shall apply as if the references to A and D, respectively, in the formulae in those paragraphs were a reference to the amount of the controlled foreign company charge relating to the controlled foreign company as reduced by the amount of the controlled foreign company charge which corresponds to the chargeable income represented by the distribution.

(6)Where an amount, representing all or part of a controlled foreign company charge, has been allowed as a deduction under subsection (4), no further deduction shall be given under this section in respect of –

(a)where the amount represents all of a controlled foreign company charge, the controlled foreign company charge, or

(b)where the amount represents part of a controlled foreign company charge, that part of the controlled foreign company charge.

(7)For the purposes of identifying the shares or securities disposed of, in so far as the shares or securities are of the same class, shares or securities acquired at an earlier time shall, for the purposes of this section, be deemed to have been disposed of before shares or securities acquired at a later time.

835YA.

Non-cooperative jurisdictions: modified application of sections 835T, 835U and 835V.

(1)In this section, ‘listed territory’ means –

(a)in relation to an accounting period beginning on or after 1 January 2021 but before 1 January 2022, a territory included in Annex 1 of the Council conclusions on the revised EU list of non-cooperative jurisdictions for tax purposes , as replaced by the EU list of non- cooperative jurisdictions for tax purposes Report by the Code of Conduct Group (business taxation) suggesting amendments to the Annexes to the Council conclusions of 18 February 2020 ,

(b)in relation to an accounting period beginning on or after 1 January 2022 but before 1 January 2023, a territory included in Annex 1 of the Council conclusions on the revised EU list of non-cooperative jurisdictions for tax purposes ,

(c)in relation to an accounting period beginning on or after 1 January 2023 but before 1 January 2024, a territory included in Annex 1 of the Council conclusions on the revised EU list of non-cooperative jurisdictions for tax purposes , and

(d)in relation to an accounting period beginning on or after 1 January 2024, a territory included in Annex 1 of the Council conclusions on the revised EU list of non-cooperative jurisdictions for tax purposes .

(2)Where, in an accounting period of a controlled foreign company, the territory in which the controlled foreign company is resident is a listed territory, sections 835T, 835U and 835V shall not apply in respect of that accounting period.

Part 35C

Implementation of Council Directive (EU) 2016/1164 of 12 July 2016 as regards hybrid mismatches (ss. 835Z-835AX)

Chapter 1

Interpretation and general (Part 35C) (ss. 835Z-835AB)

835Z.

Interpretation (Part 35C)

(1)In this Part –

“arrangement”, other than in the definition of ‘entity’ and ‘hybrid entity’, means –
(a)any transaction, action, course of action, course of conduct, scheme, plan or proposal,
(b)any agreement, arrangement, understanding, promise or undertaking, whether express or implied and whether or not enforceable or intended to be enforceable by legal proceedings, and
(c)any series of or combination of the circumstances referred to in paragraphs (a) and (b),
whether entered into or arranged by one or two or more enterprises –
(i)whether acting in concert or not,
(ii)whether or not entered into or arranged wholly or partly outside the State, or
(iii)whether or not entered into or arranged as part of a larger arrangement or in conjunction with any other arrangement or arrangements,
but does not include an arrangement referred to in section 826;

“associated enterprise” shall be construed in accordance with section 835AA;

“chargeable period” has the same meaning as it has in Part 41A;

“controlled foreign company charge” has the same meaning as it has in Part 35B;

“deduction” in respect of a payment, or part thereof, refers to an amount –
(a)which may be taken into account as an expenditure or expense,
(b)in respect of which an allowance for capital expenditure may be made, or
(c)which may otherwise be deducted, allowed or relieved,
in computing the profits or gains on which tax falls finally to be borne for the purposes of domestic tax or foreign tax;

“deemed payment” means –
(a)in relation to a transaction between the head office of an entity and a permanent establishment of that entity, the allocation of payments, profits or gains from the head office to the permanent establishment, and
(b)in relation to a transaction between two or more permanent establishments of an entity, the allocation of payments, profits or gains from one permanent establishment to another;

“Directive (EU) 2016/1164” means Council Directive (EU) 2016/1164 of 12 July 2016 [OJ No. L193, 19.7.2016, p. 1] laying down rules against tax avoidance practices that directly affect the functioning of the internal market, as amended by Directive (EU) 2017/952;

“Directive (EU) 2017/952” means Council Directive (EU) 2017/952 of 29 May 2017 [OJ No. L144, 7.6.2017, p. 1] amending Directive (EU) 2016/1164 as regards hybrid mismatches with third countries;

“domestic tax” means income tax, corporation tax (including a controlled foreign company charge) or capital gains tax;

“double deduction” means a deduction in respect of the same payment for the purposes of domestic tax and foreign tax;

“double deduction mismatch outcome” shall be construed in accordance with section 835AD;

“dual inclusion income”, subject to section 835AB, means any amount which is included in both territories where the mismatch outcome has arisen;

“enterprise” means an entity or an individual;

“entity” means –
(a)a person (other than an individual) that has legal personality under the laws of the territory in which it is established,
(b)an undertaking (other than an individual) that has legal personality under the laws of the territory in which it is established,
(c)an agreement, trust or other arrangement that has legal personality under the laws of the territory in which it is established,
(d)an association of persons recognised under the laws of the territory in which it is established as having the capacity to perform legal acts, or
(e)any other legal arrangement, of whatever nature or form, that is within the charge to any of the taxes covered by this Part;

“financial instrument deduction without inclusion mismatch outcome” shall be construed in accordance with section 835AJ;

“foreign company charge” has the same meaning as it has in Part 35B;

“foreign tax” means a tax chargeable on profits or gains, under the laws of a territory other than the State, that is similar to a domestic tax, but not including a withholding tax to the extent that such a tax is refundable where it has been levied;

“hybrid entity” means –
(a)a person (other than an individual),
(b)an undertaking (other than an individual), or
(c)an agreement, trust or other arrangement,
some or all of the profits or gains of which are treated, or would be so treated but for an insufficiency of profits or gains, under the tax law of one territory as arising or accruing to the entity on its own account, but, for the purposes of tax charged under the tax law of another territory, some or all of the profits or gains of which are treated, or would be so treated but for an insufficiency of profits or gains, as arising or accruing to another enterprise (in this Part referred to as ‘the participator’);

“included” in respect of a payment, means an amount of profits or gains arising from the payment –
(a)that is treated as arising or accruing to the payee where the payee –
(i)is chargeable to domestic tax or foreign tax, as the case may be, but not including any amount which is only so chargeable when it is remitted into the payee territory,
(ii)is a pension fund, government body or other entity that, under the laws of the territory in which it is established, is exempt from tax which generally applies to profits or gains in that territory,
(iii)is established in a territory, or part of a territory, that does not impose a foreign tax, or
(iv)is established in a territory that does not impose a tax that generally applies to profits or gains derived from payments receivable in that territory by enterprises from sources outside that territory,
or
(b)that is subject to a controlled foreign company charge or a foreign company charge;

“investor” in respect of a payment, means an amount of profits or gains arising from the payment –
(a)that is treated as arising or accruing to the payee where the payee –
(i)is chargeable to domestic tax or foreign tax, as the case may be, but not including any amount which is only so chargeable when it is remitted into the payee territory,
(ii)is a pension fund, government body or other entity that, under the laws of the territory in which it is established, is exempt from tax which generally applies to profits or gains in that territory,
(iii)is established in a territory, or part of a territory, that does not impose a foreign tax, or
(iv)is established in a territory that does not impose a tax that generally applies to profits or gains derived from payments receivable in that territory by enterprises from sources outside that territory,
or
(b)that is subject to a controlled foreign company charge or a foreign company charge;

“investor territory”, in relation to a payment, means a territory, other than the payer territory, where the payment is deductible;

“mismatch outcome” means any or all of the following, as the context requires:
(a)a double deduction mismatch outcome;
(b)a permanent establishment deduction without inclusion mismatch outcome;
(c)a financial instrument deduction without inclusion mismatch outcome;
(d)a payment to a hybrid entity deduction without inclusion mismatch outcome;
(e)a payment by a hybrid entity deduction without inclusion mismatch outcome;

“payee”, in respect of a payment, means an enterprise or permanent establishment of an entity –
(a)which receives that payment or is treated as receiving that payment under the laws of any territory, other than where that payment is received or treated as being received, as the case may be, in a fiduciary or representative capacity,
(b)which is a participator,
(c)to the benefit of which the payment is treated as arising or accruing under the laws of any territory, or
(d)on which a controlled foreign company charge or foreign company charge is made by reference to that paymen;

“payee territory” means a territory in which a payee is established;

“payer” means –
(a)an enterprise, or
(b)the permanent establishment of an entity,
against whose profits or gains a deduction is made in respect of a payment in a payer territory;

“payer territory” means –
(a)in a case in which the payment concerned is made by a hybrid entity or a permanent establishment, the territory in which the hybrid entity or permanent establishment, as the case may be, is established, and
(b)in all other cases, the territory where the payment in respect of which the deduction concerned is incurred, sourced or made;

“payment” means –
(a)a transfer of money or money’s worth, or
(b)a deemed payment;

“payment by a hybrid entity deduction without inclusion mismatch outcome”, shall be construed in accordance with section 835AM;

“payment to a hybrid entity deduction without inclusion mismatch outcome” shall be construed in accordance with section 835AL;

“permanent establishment deduction without inclusion mismatch outcome” shall be construed in accordance with section 835AG;

“structured arrangement” means an arrangement involving a transaction, or series of transactions, under which a mismatch outcome arises, where –
(a)the mismatch outcome is priced into the terms of the arrangement, or
(b)the arrangement was designed to give rise to a mismatch outcome;

“tax period” means –
(a)in respect of a charge to domestic tax, a chargeable period,
(b)in respect of a charge to foreign tax, a period equivalent to a chargeable period, or
(c)where the entity concerned is not charged to tax, the period for which financial statements are prepared.

(2)A reference to a provision of the law of a territory, other than the State, similar to this Part, or a provision of this Part, is a reference to a provision enacted to –

(a)give effect to Directive (EU) 2016/1164,

(b)implement the Final Report on Neutralising the Effects of Hybrid Mismatch Arrangements published by the Organisation for Economic Co-operation and Development on 5 October 2015,

(c)implement the Final Report on Neutralising the Effects of Branch Mismatch Arrangements published by the Organisation for Economic Co-operation and Development on 27 July 2017, or

(d)otherwise neutralise a mismatch outcome,

where that provision has a similar effect to this Part, or a provision of this Part, as the case may be.

(3)A word or expression which is used in this Part and is also used in Directive (EU) 2016/1164 has, unless the context otherwise requires, the same meaning in this Part as it has in Directive (EU) 2016/1164.

(4)Subject to section (3), a reference in this Part –

(a)to the territory in which an entity is established, shall –

(i)in a case in which the entity is registered, incorporated or created under the laws of one territory, but has its place of effective management in another territory, be construed as a reference to the territory in which the entity has its place of effective management, and

(ii)in all other cases, be construed as a reference to the territory in which the entity is registered, incorporated or created,

and

(b)to the territory in which a permanent establishment is established, shall be construed as a reference to the territory in which the permanent establishment carries on a business.

835AA.

Associated enterprises

(1)In this section –

‘consolidated group for financial accounting purposes’ means a group consisting of –

(i)a parent entity, and

(ii)all other entities, other than non-consolidating entities,

which are included in the same consolidated financial statements;

‘non-consolidating entity’ means an entity which is valued, or would be so valued if consolidated financial statements were prepared under international accounting standards, in consolidated financial statements –

(a)using fair value accounting (within the meaning of international accounting standards), or

(b)on the basis that it is an asset held for sale or held for distribution

(within the meaning of international accounting standards);

‘parent entity’ means an entity that prepares, or would prepare, consolidated financial statements under generally accepted accounting practice;

‘significant influence in the management of ‘, in relation to an entity, means the ability to participate, on the board of directors or equivalent governing body of the entity, in the financial and operating policy decisions of that entity, including where that power does not extend to control or joint control of that entity.

(2)In this Part, two enterprises shall be ‘associated enterprises’ in respect of each other –

(a)if one enterprise, directly or indirectly, possesses or is beneficially entitled to –

(i)where the other enterprise is an entity having share capital, not less than 25 per cent of the issued share capital of the other enterprise, or

(ii)where the other enterprise is an entity not having share capital, an interest of not less than 25 per cent of the ownership rights in the other enterprise,

(b)if one enterprise, directly or indirectly, is entitled to exercise not less than 25 per cent of the voting power in the other enterprise, where that other enterprise is an entity,

(c)if one enterprise (in this paragraph referred to as the ‘first- mentioned enterprise’), directly or indirectly, holds such rights as would –

(i)where the other enterprise is a company, if the whole of the profits of that other enterprise were distributed, entitle the first-mentioned enterprise, directly or indirectly, to receive 25 per cent or more of the profits so distributed, or

(ii)where the other enterprise is an entity other than a company, if the share of the profits of that other enterprise to which the first-mentioned enterprise is entitled, directly or indirectly, is 25 per cent or more,

(d)where there is another enterprise in respect of which the two enterprises are, in accordance with paragraph (a), (b) or (c), an associated enterprise,

(e)where both enterprises –

(i)are entities, and

(ii)are part of the same consolidated group for financial accounting purposes,

(f)where both enterprises –

(i)are entities, and

(ii)would, if consolidated financial statements were prepared under international accounting standards, be part of the same consolidated group for financial accounting purposes,

(g)where one enterprise has significant influence in the management of the other enterprise.

(3)Where an enterprise (in this subsection referred to as the ‘first-mentioned enterprise’) acts together with another enterprise (in this subsection referred to as the ‘second-mentioned enterprise’) with respect to voting rights, share ownership rights or similar ownership rights, the first-mentioned enterprise shall be treated, for the purposes of paragraphs (a), (b) and (c) of subsection (2), as possessing, holding or being entitled to, as the case may be, the rights of the second-mentioned enterprise.

(4)For the purposes of paragraphs (a), (b) and (c) of subsection (2), there shall be attributed to an enterprise any rights or powers of a nominee for such enterprise, that is, any rights or powers which another enterprise possesses on such enterprise’s behalf or may be required to exercise on such enterprise’s direction or behalf.

(5)For the purposes of –

(a)Chapter 2,

(b)Chapter 3,

(c)Chapter 8, and

(d)the application of this Part to hybrid entities,

a reference, in subsection (2), to ’25 per cent’ shall be construed as a reference to ’50 per cent’.

(6)Subject to subsection (7), references in this Part to a transaction between associated enterprises shall include a reference to a transaction in respect of which the enterprises concerned are or were associated enterprises at the time –

(a)the transaction was entered into,

(b)the transaction was formed, or

(c)a payment arises under the transaction.

(7)References in this Part to a transaction between associated enterprises shall not include a reference to a transaction between enterprises who were associated enterprises at the time the transaction was entered into or formed, but are neither –

(a)associated enterprises at the time the payment arises under the transaction, nor

(b)associated enterprises at the time a deduction in respect of the payment referred to in paragraph (a) arises,

and it is reasonable to consider that the arrangement as a result of which those enterprises ceased to be associated enterprises was entered into for bona fide commercial reasons and does not form part of any arrangement of which the main purpose, or one of the main purposes, is to avoid the application of this Part.

835AB.

Worldwide system of taxation

(1)Subject to subsection (3), this section applies where an enterprise is taxable in an investor or payee territory (in this section referred to as the ‘first-mentioned territory’) such that payments (in this section referred to as ‘disregarded payments’) between –

(a)the head office of an entity and a permanent establishment of that entity,

(b)two or more permanent establishments of an entity,

(c)an individual and a permanent establishment of that individual,

(d)two or more permanent establishments of an individual,

(e)where the entity is an entity on which a controlled foreign company charge or foreign company charge is made in respect of two or more hybrid entities, two or more such hybrid entities,

(f)where an enterprise is a participator in two or more such hybrid entities, two or more such hybrid entities, or

(g)where an entity is an entity on which a controlled foreign company charge or foreign company charge is made in respect of two or more hybrid entities, two or more such hybrid entities,

are disregarded when computing the taxable profits of the enterprise in the first-mentioned territory under a provision of the law of that territory similar in effect to section 26(1), or subparagraph (i) or (ii) of paragraph (a) of subsection (1) of Schedule D in section 18.

(2)Where –

(a)this section applies, and

(b)a payment is deductible in a case in which –

(i)the amount deducted would be deducted against dual inclusion income, or

(ii)the deduction would not result in a deduction without inclusion mismatch outcome,

but for the fact that the amount against which the payment is deductible in the payer territory is a disregarded payment in the first-mentioned territory,

the disregarded payment shall be treated as included in the first-mentioned territory.

(3)This section shall not apply where –

(a)the disregarded payments are between –

(i)where the enterprise referred to in subsection (1) is an individual, an individual and a permanent establishment of the individual,

(ii)where the enterprise referred to in subsection (1) is an individual, two or more permanent establishments of the individual,

(iii)where the enterprise referred to in subsection (1) is a participator in a hybrid entity, the enterprise and the hybrid entity,

(iv)where the enterprise referred to in subsection (1) is a participator in two or more hybrid entities, two or more such hybrid entities, or

(v)where the entity referred to in subsection (1) is an entity on which a controlled foreign company charge or foreign company charge is made in respect of two or more hybrid entities, two or more such hybrid entities, and

(b)there is, in substance, a hybrid mismatch (either within the meaning of Directive (EU) 2016/1164 or within the meaning of that term when construed in a manner consistent with its use in the reports referred to in section 835Z(2)).

Chapter 2

Double deduction (ss. 835AC-835AD)

835AC.

Application of Chapter 2

This Chapter shall apply –

(a)to a company within the charge to corporation tax, and

(b)to a transaction giving rise to a mismatch outcome between –

(i)entities that are associated enterprises,

(ii)the head office of an entity and a permanent establishment of that entity, or

(iii)two or more permanent establishments of an entity.

835AD. Double deduction mismatch outcome
(1)A double deduction mismatch outcome shall arise where it would be reasonable to consider that there is, or but for this section there would be, a double deduction arising in respect of a payment, to the extent the payment is not, or would not be, deductible against dual inclusion income.

(2)A double deduction mismatch outcome shall be neutralised as follows:

(a)where the State is the investor territory, notwithstanding any other provision of the Tax Acts or the Capital Gains Tax Acts, the investor shall be denied a deduction for the purposes of domestic tax for the amount of the payment which gives rise to the double deduction mismatch outcome;

(b)where the State is the payer territory and a deduction has not been denied in the investor territory through the operation of a provision similar to paragraph (a), notwithstanding any other provision of the Tax Acts or the Capital Gains Tax Acts, the payer shall be denied a deduction for the purposes of domestic tax for the amount of the payment which gives rise to the double deduction mismatch outcome.

Chapter 3

Permanent establishments (ss. 835AE-835AG)

835AE.

Application of Chapter 3

This Chapter shall apply –

(a)to an entity which is within the charge to a foreign tax or to corporation tax, and

(b)to a transaction that gives rise to a mismatch outcome between –

(i)entities that are associated enterprises,

(ii)the head office of an entity and a permanent establishment of that entity, or

(iii)two or more permanent establishments of an entity.

835AF.

Disregarded permanent establishment

(1)In this Chapter, “disregarded permanent establishment” means a presence in a territory (in this subsection referred to as the ‘first- mentioned territory’) –
(a)which is treated for the purposes of the tax law of the territory in which an entity has its head office (in this subsection referred to as the ‘second-mentioned territory’) as a permanent establishment of that entity,
(b)some or all of the profits or gains of which are not included for the purposes of domestic tax in the second-mentioned territory, and
(c)in respect of the profits and gains of which –
(i)where the first-mentioned territory is the State, the entity is not charged to tax under section 25, and
(ii)where the first-mentioned territory is not the State, the entity is not charged to foreign tax.

(2)In this section:

‘domestic tax’ means a tax chargeable on profits or gains, under the laws of a territory in which the head office of an entity is established, that is similar to income tax, corporation tax (including a charge under Part 35B) or capital gains tax;

‘foreign tax’ means a tax chargeable on profits or gains, under the laws of a territory in which the permanent establishment of the entity is established, that is similar to income tax, corporation tax (including a charge under Part 35B) or capital gains tax.

835AG.

Permanent establishment deduction without inclusion mismatch outcome

(1)A permanent establishment deduction without inclusion mismatch outcome shall arise in respect of a payment where it would be reasonable to consider that –

(a)there is, or but for this section would be, a deduction in the payer territory, in a case in which a corresponding amount has not been included in the payee territory, and

(b)the satisfaction of the condition described in paragraph (a) is attributable to –

(i)the payment being made to a disregarded permanent establishment,

(ii)differences in the allocation of payments between the head office of an entity and a permanent establishment of that entity, or between two or more permanent establishments of an entity, or

(iii)where the payment is between the head office of an entity and a permanent establishment of that entity or between two or more permanent establishments of an entity, the payment being disregarded under the laws of the payee territory.

(2)A permanent establishment deduction without inclusion mismatch outcome shall not arise by virtue of the circumstance described in subsection (1)(b)(iii) to the extent the payment is, or would be, deductible against dual inclusion income.

(3)A permanent establishment deduction without inclusion mismatch outcome shall be neutralised as follows:

(a)where the State is the payer territory, notwithstanding any other provision of the Tax Acts and the Capital Gains Tax Acts, the payer shall be denied a deduction for the payment for the purposes of domestic tax, to the extent a corresponding amount has not been included for the purposes of foreign tax;

(b)where –

(i)the State is the payee territory,

(ii)the mismatch outcome arises by virtue of paragraph (b)(i) of subsection (1),

(iii)the disregarded permanent establishment is a permanent establishment within the meaning of Article 5 of the Model Tax Convention on Income and Capital, published by the Organisation for Economic Co-operation and Development, as it read on 21 November 2017, and

(iv)a deduction has not been denied in the payer territory through the operation of a provision similar to paragraph (a),

notwithstanding section 25, the profits and gains referred to in section 835AF(1)(b) shall be charged to corporation tax on the entity concerned as if the business carried on in the State by the disregarded permanent establishment was carried on by a company resident in the State.

Chapter 4

Financial instruments (ss. 835AH-835AJ)

835AH.

Interpretation (Chapter 4)

(1)In this Chapter –

“financial instrument” includes –
(a)securities, within the meaning of section 135(8),
(b)shares in a company and similar ownership rights (not being securities) in entities other than a company,
(c)futures, options, swaps, derivatives and similar instruments that give rise to a financing return,
(d)an arrangement where it is reasonable to consider that the arrangement is equivalent to an arrangement for the lending of money, or money’s worth, at interest, and
(e)hybrid transfers;

“hybrid transfer” means an arrangement to transfer a financial instrument where the underlying return on that instrument is treated, for tax purposes, as derived by more than one of the parties to the arrangement;

“financial trader” means an enterprise that has entered into a financial instrument as part of a business which involves regularly buying and selling financial instruments on that enterprise’s own account;

“on-market hybrid transfer” means a hybrid transfer –
(a)that is entered into by a financial trader in the ordinary course of its trade, which includes the business of buying and selling financial instruments, and
(b)in respect of which the financial trader is required by the payer territory concerned to include, for the purposes of that territory’s tax laws, as trading income all amounts received in connection with the transferred financial instrument concerned;

“financing return” in relation to a financial instrument, includes –
(a)dividends and manufactured payments,
(b)interest, including any discounts or amounts which would be treated as interest under Part 8A, notwithstanding that no election is made under section 267U,
(c)the amount of payments that are equivalent to interest under an arrangement described at paragraph (d) of the definition of ‘financial instrument’, and
(d)the underlying return referred to in the definition of ‘hybrid transfer’;

“manufactured payment” has the same meaning as it has in Chapter 3 of Part 28.

(2)For the purposes of this Chapter –

(a)a corresponding amount relating to a payment under a financial instrument shall not be treated as included under paragraph (a)(i) of the definition of ‘included’ in section 835Z(1) where, under the tax laws of the payee territory, the amount that is charged to foreign tax is subject to any reduction computed by reference to the way the payment to which the corresponding amount relates is characterised under those laws, and

(b)a corresponding amount relating to a payment under a financial instrument shall not be treated as included under paragraph (a)(i) of the definition of ‘included’ in section 835Z(1) unless –

(i)the corresponding amount is included in a tax period which commences within twelve months of the end of the tax period in which the payment is deducted (in this paragraph referred to as the ‘first-mentioned period’), or

(ii)it would be reasonable to consider that –

(I)the corresponding amount will be included in a tax period subsequent to the first-mentioned period, and

(II)the terms applicable to the payment are those that would apply to a transaction made at arm’s length.

835AI. Application of Chapter 4
This Chapter shall apply –

(a)to a company which is within the charge to domestic tax, and

(b)to a transaction that gives rise to a mismatch outcome between –

(i)entities that are associated enterprises,

(ii)the head office of an entity and a permanent establishment of that entity, or

(iii)two or more permanent establishments of an entity,

other than where that transaction is an on-market hybrid transfer.

835AJ.

Financial instrument deduction without inclusion mismatch outcome

(1)A financial instrument deduction without inclusion mismatch outcome shall arise in respect of a payment where it would be reasonable to consider that –

(a)there is, or but for this section would be, a deduction in the payer territory, without a corresponding amount being included in the payee territory, and

(b)the satisfaction of the condition described in paragraph (a) is attributable to differences between domestic tax and foreign tax in the characterisation of –

(i)a financial instrument, or

(ii)payments made under a financial instrument.

(2)A financial instrument deduction without inclusion mismatch outcome shall be neutralised as follows:

(a)where the State is the payer territory, notwithstanding any other provision of the Tax Acts and the Capital Gains Tax Acts, the payer shall be denied a deduction for the payment for the purposes of domestic tax, to the extent a corresponding amount has not been included for the purposes of foreign tax;

(b)where –

(i)the State is the payee territory, and

(ii)a deduction has not been denied in the payer territory through the operation of a provision similar to paragraph (a),

then –

(I)in a case in which the non-inclusion arises because of any provision of the Tax Acts or the Capital Gains Tax Acts, in calculating the amount on which the payee is charged to tax, that provision shall be disapplied, insofar as it provides for the non-inclusion, and

(II)in any other case, the payee shall be charged to tax under Case IV of Schedule D, in respect of the amount of the deduction, in the first of the payee’s tax periods to commence within twelve months of the end of the payer’s tax period in which the deduction occurred.

Chapter 5

Hybrid entities (ss. 835AK-835AM)

835AK.

Application of Chapter 5

(1)This Chapter shall apply to a transaction that gives rise to a mismatch outcome between –

(a)entities that are associated enterprises,

(b)the head office of an entity and a permanent establishment of that entity, or

(c)two or more permanent establishments of an entity.

(2)Section 835AL applies to a company which is within the charge to corporation tax.

(3)Section 835AM applies to a company which is within the charge to foreign tax or corporation tax.

835AL.

Payment to hybrid entity deduction without inclusion mismatch outcome

(1)Subject to subsection (1A), a payment to a hybrid entity deduction without inclusion mismatch outcome shall arise in respect of a payment to a hybrid entity where it would be reasonable to consider that –

(a)there is, or but for this section would be, a deduction in the payer territory without a corresponding amount being included in the payee territory, and

(b)the satisfaction of the condition described in paragraph (a) is attributable to differences in the allocation of payments to a hybrid entity between –

(i)the territory in which the hybrid entity is established, and

(ii)the territory in which the participator concerned is established.

(1A)A payment to a hybrid entity deduction without inclusion mismatch outcome shall not arise under subsection (1) in respect of a payment to a hybrid entity where the participator is an entity that, under the laws of the territory in which it is established, is exempt from tax which generally applies to profits or gains in that territory.

(2)A payment to a hybrid entity deduction without inclusion mismatch outcome shall be neutralised, where the State is the payer territory, notwithstanding any other provision of the Tax Acts and the Capital Gains Tax Acts, by denying the payer a deduction for the payment for the purposes of domestic tax, to the extent a corresponding amount has not been included for the purposes of foreign tax.

835AM. Payment by hybrid entity deduction without inclusion mismatch outcome
(1)Subject to subsection (2), a payment by a hybrid entity deduction without inclusion mismatch outcome shall arise in respect of a payment by a hybrid entity where –

(a)there is, or but for this section would be, a deduction in respect of a payment in the payer territory without a corresponding amount being included in the payee territory, and

(b)the satisfaction of the condition described in paragraph (a) is attributable to the payment being disregarded under the laws of the payee territory.

(2)A payment by a hybrid entity deduction without inclusion mismatch outcome shall not arise to the extent the payment referred to in subsection (1) is, or would be, deductible against dual inclusion income.

(3)A payment by a hybrid entity deduction without inclusion mismatch outcome shall be neutralised as follows:

(a)where the State is the payer territory, notwithstanding any other provision of the Tax Acts and the Capital Gains Tax Acts, the payer shall be denied a deduction for the payment for the purposes of domestic tax, to the extent a corresponding amount has not been included for the purposes of foreign tax;

(b)where –

(i)the State is the payee territory, and

(ii)a deduction has not been denied in the payer territory through the operation of a provision similar to subsection (a),

then –

(I)in a case in which the non-inclusion arises because of any provision of the Tax Acts or the Capital Gains Tax Acts, in calculating the amount on which the payee is charged to tax, that provision shall be disapplied, insofar as it provides for the non-inclusion, and

(II)in any other case, the payee shall be charged to tax under Case IV of Schedule D, in respect of the amount of the deduction, in the first of the payee’s tax periods to commence within twelve months of the end of the payer’s tax period in which the deduction occurred.

Chapter 6

Withholding tax (ss. 835AN-835AO)

835AN.

Application of Chapter 6

This Chapter shall apply to an entity which is within the charge to corporation tax.

835AO.

Withholding tax mismatch outcome

(1)A withholding tax mismatch outcome shall arise where –

(a)an entity enters into a hybrid transfer (within the meaning of Chapter 4), and

(b)it is reasonable to consider that the purpose of the hybrid transfer is to secure relief for more than one party to the hybrid transfer in respect of an amount of tax withheld at source.

(2)A withholding tax mismatch outcome shall, notwithstanding anything in Schedule 24 to the contrary, be neutralised by the relief available in respect of an amount of tax withheld at source being reduced by the following fraction –

A/B

where –

A is the profit of the entity from the hybrid transfer on which domestic tax finally falls to be borne, and

B is the gross income of the entity under the hybrid transfer.

Chapter 7

Tax residency mismatch (ss. 835AP-835AQ)

835AP.

Application of Chapter 7

This Chapter applies to a company which is within the charge to –

(a)corporation tax, because it is tax resident in the State under the laws of the State, and

(b)foreign tax in a territory other than the State, because it is regarded as tax resident in that territory under the tax laws of that territory.

835AQ.

Tax residency double deduction mismatch outcome

(1)A tax residency double deduction mismatch outcome shall arise where –

(a)there is, or but for this section would be, a double deduction arising in respect of a payment, to the extent the amount of the deduction is not, or would not be, deductible against dual inclusion income, and

(b)the satisfaction of the condition described in paragraph (a) is attributable to the company being within the charge to both corporation tax and foreign tax.

(2)Subject to subsection (3), a tax residency double deduction mismatch outcome shall be neutralised –

(a)where the other territory within which the company is subject to a charge to tax is a Member State, with the government of which arrangements having the force of law by virtue of section 826(1) have been made, and under those arrangements the company is tax resident in that Member State,

(b)where –

(i)the other territory within which the company is subject to a charge to tax is not a Member State, and

(ii)under arrangements, having the force of law by virtue of section 826(1), with the government of that other territory –

(I)the company is not tax resident in the State, or

(II)the company is tax resident in the State but a deduction has not been denied in the other territory through the operation of a provision similar to this Chapter,

or

(c)where the other territory within which the company is subject to a charge to tax is not a territory referred to in paragraph (a) or (b),

notwithstanding any other provision of the Tax Acts and the Capital Gains Tax Acts, by the company being denied a deduction for the purposes of domestic tax for so much of the payment as corresponds to the mismatch outcome which has not been neutralised in another territory.

(3)Where the tax residence of a company must be determined by mutual agreement between the competent authorities of both territories which are party to an arrangement referred to in subsection (2)(a) or (b), then any adjustment to the return, filed pursuant to section 959I, required to give effect to subsection (2) shall be made without unreasonable delay upon that agreement, notwithstanding any time limits in Part 41A.

Chapter 8

Imported mismatch outcomes (ss. 835AR-835AS)

835AR.

Application of Chapter 8

This Chapter shall apply to –

(a)a company which is within the charge to domestic tax, and

(b)a mismatch outcome which arises through a transaction or series of transactions –

(i)that is or are, as the case may be, between –

(I)entities that are associated enterprises,

(II)the head office of an entity and a permanent establishment of that entity, or

(III)two or more permanent establishments of an entity,

and

(ii)under which there is a payment by a company established in the State to a payee established in a state that is not a Member State.

835AS.

Imported mismatch outcome

(1)An imported mismatch outcome shall arise where it would be reasonable to consider that –

(a)a company referred to in section 835AR(a) enters into a transaction, or series of transactions, involving a mismatch outcome where a payment by that company directly or indirectly funds the mismatch outcome, and

(b)the mismatch outcome has not been neutralised by the application of a provision similar to this Part in another territory.

(2)An imported mismatch outcome shall, notwithstanding any other provision of the Tax Acts and the Capital Gains Tax Acts, be neutralised by the company being denied a deduction for the purposes of domestic tax for so much of the payment as corresponds to the mismatch outcome which has not been neutralised in another territory.

(3)In determining, for the purposes of subsection (1) whether a mismatch outcome has arisen from a transaction or series of transactions, this Part, other than this Chapter, shall be applied as if ‘domestic tax’ and ‘foreign tax’ were defined as follows:

‘domestic tax’ means a tax chargeable on profits or gains, under the laws of a territory in which an entity is established, that is similar to income tax, corporation tax (including a charge under Part 35B) or capital gains tax;

‘foreign tax’ means a tax chargeable on profits or gains, under the laws of a territory in which the entity is not established, that is similar to income tax, corporation tax (including a charge under Part 35B) and capital gains tax.

Chapter 9

Structured arrangements (ss. 835AT-835AU)

835AT.

Application of Chapter 9

(1)This Chapter shall apply to a company which is within the charge to domestic tax.

(2)Notwithstanding sections 835AC, 835AE, 835AI and 835AK, this Chapter shall apply where a mismatch outcome arises under a structured arrangement.

835AU.

Structured arrangements

(1)A structured arrangement mismatch outcome shall arise where a company, referred to in section 835AT(1), would reasonably be expected to be aware that –

(a)it entered into a structured arrangement,

(b)it shared in the value of the tax benefit resulting from the mismatch outcome, and

(c)the mismatch outcome has not been neutralised through the application of a provision similar to this Part in another territory.

(2)A structured arrangement mismatch outcome shall, notwithstanding any other provision of the Tax Acts and the Capital Gains Tax Acts, be neutralised by the taxpayer being denied a deduction for the purposes of domestic tax for so much of the payment as corresponds to the mismatch outcome which has not been neutralised in another territory.

(3)In determining, for the purposes of subsection (1) whether a mismatch outcome has arisen from a transaction or series of transactions, this Part, other than this Chapter, shall be applied as if ‘domestic tax’ and ‘foreign tax’ were defined as follows:

‘domestic tax’ means a tax chargeable on profits or gains, under the laws of a territory in which an entity is established, that is similar to income tax, corporation tax (including a charge under Part 35B) or capital gains tax;

‘foreign tax’ means a tax chargeable on profits or gains, under the laws of a territory in which the entity is not established, that is similar to income tax, corporation tax (including a charge under Part 35B) and capital gains tax.

Chapter 10

Carry forward (s. 835AV)

835AV.

Carry forward

To the extent a deduction has been denied under this Part (the ‘denied amount’) in respect of a tax period of an entity, the entity may make a claim requiring that the denied amount be set off for the purposes of domestic tax against any dual inclusion income in succeeding tax periods of the entity and amounts so carried forward shall be relieved first against profits or gains of an earlier tax period in advance of profits or gains of a later tax period.

Chapter 10A

Reverse hybrid mismatches (ss. 835AVA-835AVD)

835AVA.

Interpretation (Chapter 10A)

(1)In this Chapter –

“collective investment scheme” shall be construed in accordance with section 835AVB,

“relevant ownership interest”, in relation to a reverse hybrid entity, shall be construed in accordance with subsection (4),

“relevant participator”, in relation to a reverse hybrid entity, means a participator with a relevant ownership interest in the reverse hybrid entity,

“reverse hybrid entity” means a hybrid entity established in the State –
(a)that, for the purposes of the Acts, is not chargeable to tax in respect of its profits or gains, because those profits or gains are treated, or would be so treated but for an insufficiency of profits or gains, as arising or accruing to the participators in the hybrid entity, and
(b)some or all of the profits or gains of which are regarded, for the purposes of the tax law of the territory in which a participator in the hybrid entity is established, as arising or accruing to the hybrid entity on its own account,

“reverse hybrid mismatch outcome” shall be construed in accordance with section 835AVD.

(2)In this Chapter, ‘associated entities’ has the meaning given to ‘associated enterprises’ by section 835AA, subject to the following modifications:

(a)a reference, in that section, to ‘enterprise’ shall be construed as a reference to ‘entity’;

(b)a reference, in subsection (2) of that section, to ’25 per cent’ shall be construed as a reference to ’50 per cent’; and

(c)two entities shall not be treated as acting together with respect to voting rights, share ownership rights or similar ownership rights solely because they are partners in a partnership.

(3)A reference in this Chapter to the territory in which a reverse hybrid entity is established shall be construed as a reference to the territory in which the reverse hybrid entity is registered, incorporated or created.

(4)A participator shall have a relevant ownership interest in a reverse hybrid entity where –

(a)the participator possesses or is beneficially entitled to, or the participator and its associated entities possess or are beneficially entitled to, directly or indirectly, 50 per cent or more of the ownership rights in the reverse hybrid entity,

(b)the participator is, or the participator and its associated entities are, entitled to exercise, directly or indirectly, 50 per cent or more of the voting power in the reverse hybrid entity, or

(c)the participator holds, or the participator and its associated entities hold, directly or indirectly, rights giving rise to an entitlement to 50 per cent or more of the profits of the reverse hybrid entity.

835AVB.

Collective investment scheme

(1)In this section –

‘beneficial owner’, in relation to an undertaking, is any individual who is a beneficial owner within the meaning of –

(a)the Investment Limited Partnerships Act 1994, or

(b)the Investment Funds, Companies and Miscellaneous Provisions Act 2005,

and in applying this Chapter to a relevant partnership the beneficial owner of the partnership shall be identified in the same manner as the beneficial owner of an investment limited partnership is identified;

‘collective investment scheme’ means a relevant investment undertaking –

(a)that is widely held, and

(b)which holds a diversified portfolio of assets;

‘relevant AIFM’ means an AIFM, within the meaning of the European Union (Alternative Investment Fund Managers) Regulations 2013 (S.I. No. 257 of 2013), authorised under those Regulations;

‘relevant investment undertaking’ means –

(a)a common contractual fund, within the meaning of section 739I,

(b)an investment limited partnership, within the meaning of section 739J, or

(c)a relevant partnership,

but where the undertaking referred to in paragraph (a) or (b) is an umbrella scheme, within the meaning of section 739B, it shall mean a sub-fund of that undertaking;

‘relevant partnership’ means –

(a)a partnership, or

(b)a limited partnership under the Limited Partnerships Act 1907,

the affairs of which are managed by a relevant AIFM and which has been established under the law of the State.

(2)For the purposes of the definition of ‘collective investment scheme’ in subsection (1), a relevant investment undertaking is widely held where there is no beneficial owner of that undertaking.

(3)Subject to subsection (4), for the purposes of determining whether a relevant investment undertaking holds a diversified portfolio of assets, regard shall be had to –

(a)the nature of the assets held by the relevant investment undertaking,

(b)the extent to which the relevant investment undertaking is exposed to the risks and rewards of different classes of assets (whether directly or indirectly),

(c)the number of investments made by the relevant investment undertaking,

(d)the means through which the investment objective of the relevant investment undertaking is to be achieved, as set out in its prospectus, and

(e)where the assets held are derivatives, the assets to which the derivatives give exposure.

(4)A relevant investment undertaking shall not be determined to hold a diversified portfolio of assets –

(a)in a case in which the undertaking holds securities, where more than 10 per cent of those securities are issued by a single issuer, or

(b)in a case in which the undertaking holds land, unless the undertaking holds 3 or more properties and the market value of each of those properties is less than 40 per cent of the total market value of the properties held.

(5)In a case in which a relevant investment undertaking, having satisfied the conditions in paragraphs (a) and (b) of the definition of ‘collective investment scheme’ in subsection (1), ceases to satisfy one or both of those conditions, the relevant investment undertaking will be treated as satisfying those conditions where it would be reasonable to consider that the failure to satisfy the condition was temporary, inadvertent and unavoidable at the time the condition ceased to be satisfied, having regard to –

(a)the means through which the investment objective of the relevant investment undertaking is to be achieved, as set out in its prospectus,

(b)the date or dates on which the condition ceased to be satisfied,

(c)the circumstances giving rise to the condition ceasing to be satisfied,

(d)the steps taken, if any, to ensure the condition is satisfied and the date or dates on which it is satisfied, and

(e)the steps taken, if any, to prevent the circumstances, referred to in paragraph (c), reoccurring.

(6)In a case in which a relevant investment undertaking, has not satisfied the conditions in paragraphs (a) and (b) of the definition of ‘collective investment scheme’ in subsection (1), the relevant investment undertaking will be treated as satisfying those conditions in the period of 24 months from the date on which the undertaking makes its first investment (in this subsection referred to as the ‘relevant period’) where it would be reasonable to consider that –

(a)the conditions will be satisfied within the relevant period, and

(b)

the failure to satisfy the conditions is temporary and unavoidable, having regard to –

(i)the means through which the investment objective of the relevant investment undertaking is to be achieved, as set out in its prospectus,

(ii)the circumstances giving rise to the conditions not being satisfied, and

(iii)the steps taken, if any, to ensure the conditions will be satisfied.

(7)In a case in which a relevant investment undertaking, having satisfied the conditions in paragraphs (a) and (b) of the definition of ‘collective investment scheme’ in subsection (1), ceases to satisfy one or both of those conditions, the relevant investment undertaking will be treated as satisfying those conditions where –

In a case in which a relevant investment undertaking, having satisfied the conditions in paragraphs (a) and (b) of the definition of ‘collective investment scheme’ in subsection (1) –

(a)ceases to satisfy one or both of those conditions, and

(b)the failure to satisfy the condition or both of those conditions, as the case may be, is due to the commencement of the winding down of the relevant investment undertaking,

the relevant investment undertaking will be treated as satisfying those conditions in the period of 12 months from the date on which the condition or both of those conditions, as the case may be, first ceased to be satisfied as a result of the winding down.

835AVC.

Application (Chapter 10A)

This Chapter shall apply to –

(a)a reverse hybrid entity, other than a collective investment scheme, in which one or more of the participators is a relevant participator, and

(b)a reverse hybrid mismatch outcome.

835AVD.

Reverse hybrid mismatch outcome

(1)Subject to subsection (2), a reverse hybrid mismatch outcome shall arise where some or all of the profits or gains of a reverse hybrid entity that are attributable to a relevant participator are subject to neither domestic nor foreign tax.

(2)A reverse hybrid mismatch outcome shall not arise in respect of the profits or gains of a reverse hybrid entity where the profits or gains are attributable to a relevant participator that –

(a)under the laws of the territory in which it is established, is exempt from tax which generally applies to profits or gains in that territory,

(b)is established in a territory, or part of a territory, that does not impose a foreign tax, or

(c)is established in a territory that does not impose a tax that generally applies to profits or gains derived from payments receivable in that territory by enterprises from sources outside that territory.

(3)Subject to subsections (7) and (8), a reverse hybrid mismatch outcome shall be neutralised, notwithstanding any other provision of the Tax Acts and the Capital Gains Tax Acts, by the profits and gains referred to in subsection (1) being charged to corporation tax on the reverse hybrid entity concerned as if the business carried on in the State by the reverse hybrid entity was carried on by a company resident in the State.

(4)In subsection (5), ‘unit’ has, as the context requires, the meaning assigned to it in section 739B(1), that meaning as modified in accordance with section 739J(1)(b), or, where this section is applied to a relevant partnership, a ‘partnership interest’, within the meaning of section 739J.

(5)A reverse hybrid entity that is liable to tax under subsection (3) shall –

(a)be entitled to appropriate or cancel such portion of units of the relevant participator concerned as are required to meet the amount of the tax arising on profits attributable to that participator, and

(b)be acquitted and discharged of such appropriation or cancellation, as the case may be, as if the amount of tax had been paid to the participator.

(6)Where a reverse hybrid entity exercises its right under subsection (5)(a) –

(a)the participator concerned shall allow the appropriation or cancellation, as the case may be, and

(b)the appropriation or cancellation, as the case may be, shall take place at the end of the tax period in respect of which the tax arose.

(7)Where, in respect of a d, a participator is resident in a territory with the government of which arrangements having the and force of law by virtue of section 826(1) have been made, then any corporation tax being charged on that entity by virtue of subsection (3) shall take account of the provisions of those arrangements.

(8)The provisions of the Tax Acts relating to the calculation, assessment and collection of tax shall apply to any tax due pursuant to this section –

(a)as if the reverse hybrid entity was a company resident in the State for the tax period, and

(b)without prejudice to the generality of paragraph (a), where the reverse hybrid entity –

(i)is a common contractual fund, all obligations falling on the common contractual fund pursuant to this Part shall be fulfilled on behalf of the common contractual fund by the management company who is authorised to act on behalf, or for the purposes, of the common contractual fund and habitually does so, but the management company shall not be liable in a personal capacity to any tax imposed by this Part on the common contractual fund, and

(ii)is a partnership, all obligations falling on the partnership pursuant to this part shall be fulfilled by the precedent partner (within the meaning of section 1007) on behalf of the partnership.

Chapter 11

Application of this Part (ss. 835AW-835AX)

835AW.

Scope of application

(1)Chapters 1 to 10 shall apply to payments made or arising on or after 1 January 2020.

(2)Chapter 10A shall apply to tax periods commencing on or after 1 January 2022.

835AX.

Order of application

(1)This Part shall apply after all provisions of the Tax Acts and the Capital Gains Tax Acts, other than section 811C and Part 35D.

(2)A mismatch outcome shall not be neutralised under more than one Chapter of this Part.

Part 35D

Implementation of Council Directive (EU) 2016/1164 of 12 July 2016 as regards interest limitation (ss. 835AY-835AAO)

Chapter 1 Interpretation and general (Part 35D) (ss. 835AY-835AAA)
835AY.

Interpretation (Part 35D)

(1)In this Part –

“allowable amount” shall be construed in accordance with subsection (2);

“alternative body of accounting standards” means standards that accounts of entities are to comply with which are laid down by such body or bodies having authority to lay down standards of that kind in Australia, Canada, Hong Kong, Japan, New Zealand, Singapore, the Republic of Korea, the United States of America, the Republic of India and the People’s Republic of China;

“associated enterprise”, other than in Chapter 3, means an enterprise that is associated with another enterprise in accordance with subsections (2) and (4) of section 835AA, other than enterprises which would be considered associated enterprises pursuant only to paragraphs (e), (f) or (g) of section 835AA(2);

“CGT rate” means –
(a)other than in the cases referred to in paragraphs (b) and (c), the rate specified in section 28(3),
(b)in the case of a relevant disposal (within the meaning of Chapter 2 of Part 22), the rate specified in section 649A(1)(b), and
(c)in the case of a disposal of an asset to which section 747A applies, the rate specified in section 747A(4);

“consolidating entity” means an entity, other than a non-consolidating entity, which is included in the ultimate consolidated financial statements or would be included in the ultimate consolidated financial statements but for being excluded by the ultimate parent on materiality grounds under generally accepted accounting practice or an alternative body of accounting standards;

“de minimis amount”
(a)in respect of an accounting period of 12 months, means €3,000,000, and
(b)in respect of an accounting period of less than 12 months, the amount referred to in paragraph (a) reduced pro rata;

“deductible interest equivalent” means the amount in respect of interest equivalent that is deducted in calculating the relevant profit or loss of a relevant entity;

“deemed borrowing cost” has the meaning assigned to it by section 835AAD(1);

“Directive (EU) 2016/1164” has the same meaning as it has in Part 35C;

“disallowable amount” means the amount by which the exceeding borrowing costs is greater than the allowable amount;

“EBITDA” shall be construed in accordance with section 835AAB(5);

“EBITDA limit” means 30 per cent;

“enterprise” has the same meaning as it has in Part 35C;

“entity” has the same meaning as it has in Part 35C;

“exceeding borrowing costs” has the meaning assigned to it by section 835AAB(4);

“finance cost element of non-finance lease payments” in respect of a company and an accounting period, means the portion of the deductible lease payment in that accounting period calculated as follows – P x (A – B)/A where –
Pis the deductible lease payment,
Ais the total expected cost of the lease, over the course of the life of the lease on the date the lease was entered into, and
Bis the value of the right of use asset recognised in the accounts under international accounting standards, or would be so recognised if accounts were prepared in accordance with international accounting standards, on the date the lease was entered into,
but where the terms of the lease are amended during the life of the lease such that either of A or B are amended, then, for the accounting period in which that amendment was made and all successive accounting periods, A and B shall be calculated as if a new lease was entered into at the date of that amendment;

“finance element of finance lease payments” in respect of a company and an accounting period, means the portion of the deductible, or taxable, finance lease payment, as the case may be, in that accounting period calculated as follows – P x (A/B) where –
Pis the deductible, or taxable, finance lease payment, as the case may be,
Ais the expected total finance cost, or finance income, as the case may be, which will be recognised in the accounts under generally accepted accounting practice over the course of the life of the lease on the date the lease was entered into, and
Bis the total expected cost of the lease, or income of the lease, as the case may be, over the course of the life of the lease on the date the lease was entered into,
but where the terms of the lease are amended during the life of the lease such that either of A or B are amended, then, for the accounting period in which that amendment was made and all successive accounting periods, A and B shall be calculated as if a new lease was entered into at the date of amendment;

“finance income element of non-finance lease payments” in respect of a company and an accounting period, means the portion of the taxable lease payment in that accounting period calculated as follows – P x (A – B)/A where –
Pis the taxable lease payment,
Ais the total expected income of the lease, over the course of the life of the lease on the date the lease was entered into, and
Bis the value of the leased asset recognised in the accounts under generally accepted accounting practice on the date the lease was entered into less the expected depreciated value of the leased asset at the end of the lease, determined in accordance with the accounting policy in the financial statements for the year in which the lease is entered into,
but where the terms of the lease are amended during the life of the lease such that either of A or B are amended, then, for the accounting period in which that amendment was made and all successive accounting periods, A and B shall be calculated as if a new lease was entered into at the date of amendment;

“finance lease” means a lease which, under generally accepted accounting practice, falls to be treated as a finance lease;

“interest equivalent” means –
(a)interest,
(b)amounts economically equivalent to interest including –
(i)a discount, where securities are issued at a discount,
(ii)the finance element of finance lease payments,
(iii)the finance income element and finance cost element of non-finance lease payments of a company that carries on a trade of leasing that is treated for the purposes of the Tax Acts as a separate trade distinct from all other activities carried on by such company under section 403(2),
(iv)amounts under derivative instruments or hedging arrangements directly connected with the raising of finance, and
(v)such portion of the profit or loss on –
(I)a financial asset (within the meaning of section 76B), or
(II)a financial liability (within the meaning of section 76B),
the coupon or return on which principally comprises interest or one or more of the amounts referred to in this paragraph, to the extent that it would be reasonable to consider that such amount is economically equivalent to interest,
(c)any amounts referred to in paragraph (a) or (b) claimed by a claimant company under section 420(6),
(ca)any amounts referred to in paragraph (a) or (b) claimed by a claimant company under section 420A(3) or 420B(2) that are treated under section 247(4G) for the purposes of Chapter 5 of Part 12 as relevant trading charges on income (within the meaning of section 243A),
(d)amounts arising directly in connection with raising finance, including –
(i)guarantee fees,
(ii)arrangement fees, and
(iii)commitment fees,
(e)foreign exchange gains and losses on interest or amounts economically equivalent to interest,
(f)any amount arising from an arrangement, or part of an arrangement, which could reasonably be considered, when the arrangement is considered in the whole, to be economically equivalent to interest, and
(g)any amounts referred to in paragraphs (a) to (f) treated for the purposes of section 83, in accordance with subsection (3) of that section, as if those amounts had been disbursed as expenses of management;

“interest group” shall be construed in accordance with section 835AAK(1);

“interest spare capacity” has the meaning given to it by section 835AAB(4);

“large scale asset” means –
(a)a development, within the meaning of the Planning and Development Act 2000, specified in the Seventh Schedule of that Act, approved by –
(i)An Bord Pleanála under section 37G of that Act, on foot of an application made pursuant to section 37A(2)(a) or (b) of that Act, or
(ii)a local authority under section 170 of that Act,
(b)a development, referred to in section 182A of the Planning and Development Act 2000, approved by An Bord Pleanála under section 182B of that Act,
(c)a development, referred to in section 182C of the Planning and Development Act 2000, approved by An Bord Pleanála under section 182D of that Act,
(d)railway works, within the meaning of the Transport (Railway Infrastructure) Act 2001, in respect of which an order has been made under section 43 of that Act,
(e)a scheme, within the meaning of the Roads Act 1993, which has been approved under section 49 of that Act,
(f)a strategic housing development, within the meaning of Chapter 1 of Part 2 of the Planning and Development (Housing) and Residential Tenancies Act 2016 approved by –
(i)An Bord Pleanála, under section 9 of that Act, or
(ii)a local authority, under section 170 of the Planning and Development Act 2000,
(g)an asset (within the meaning of the State Authorities (Public Private Partnership Arrangements) Act 2002) constructed pursuant to a public private partnership arrangement (within the meaning of that Act),
(h)an installation generating energy from renewable resources (within the meaning of the European Union (Renewable Energy) Regulations (S.I. No. 365 of 2020)), which is regulated, either solely or jointly with another party, by the Commission for the Regulation of Utilities,
(i)an asset specified by the Minister for Finance in regulations made under section 835AAA(1), or
(j)a large-scale residential development within the meaning of the Planning and Development Act 2000, approved by a planning authority under section 34 or section 170 of that Act,
that has a minimum expected life span of 10 years;

“limitation spare capacity” is the amount by which the exceeding borrowing costs are less than the allowable amount;

“long-term infrastructure project” means a project to provide, upgrade, operate or maintain a large scale asset;

“non-consolidating entity” means an entity which is valued in ultimate consolidated financial statements –
(a)using fair value accounting (within the meaning of international accounting standards),
(b)on the basis that it is an asset held for sale or held for distribution (within the meaning of international accounting standards), or
(c)where the ultimate consolidated financial statements are prepared under an alternative body of accounting standards, on an equivalent basis under those standards;

“non-finance element of finance lease payments” in respect of a company and an accounting period, means the deductible, or taxable, finance lease payments, as the case may be, in that accounting period less the finance element of the finance lease payments;

“P rate” is the rate specified in section 21A(3)(a);

“payment for relief” means a payment made by one member of an interest group to another member of an interest group pursuant to an agreement between them as respects an allocation of a disallowable amount or total spare capacity, being a payment not exceeding the reduction in tax payable in the current accounting period or successive accounting periods as a result of the allocation in respect of the member of the interest group making the payment;

“qualifying long-term infrastructure project” means a long-term infrastructure project –
(a)in respect of which the operator is established in, and tax resident in, a Member State,
(b)in respect of which the large scale asset concerned is in a Member State, and
(c)the income arising from which and the deductible interest equivalent relating to which arise in a Member State;

“relevant entity” means a company or an interest group;

“relevant loss” shall be construed in accordance with section 835AZ(7);

“relevant profit” has the meaning assigned to it by section 835AZ(1);

“reporting company” shall be construed in accordance with section 835AAM(1);

“single company worldwide group” means a company that is not –
(a)a member of a worldwide group,
(b)a member of an interest group, or
(c)a standalone entity;

“specified return date for the accounting period” has the same meaning as it has in Part 41A;

“standalone entity” means a company resident in the State that –
(a)is not a member of a worldwide group,
(b)has no associated enterprises, and
(c)does not have a permanent establishment in a territory other than the State;

“T rate” is the rate specified in section 21(1)(f);

“taxable interest equivalent” means the amount in respect of interest equivalent that is income, profits or gains included in the calculation of the relevant profit or loss of a relevant entity, including a reversal of deductible interest equivalent;

“total spare capacity” is the aggregate of interest spare capacity and limitation spare capacity;

“ultimate consolidated financial statements” means the consolidated financial statements prepared by an ultimate parent under generally accepted accounting practice or an alternative body of accounting standards;

“ultimate parent” means an entity that prepares consolidated financial statements under generally accepted accounting practice, or an alternative body of accounting standards, and whose results are not fully included in any other consolidated financial statements prepared under such a practice or standard;

“worldwide group” means the ultimate parent and all consolidating entities in the ultimate consolidated financial statements and “member of a worldwide group” shall be construed accordingly.

(2)The ‘allowable amount’ in respect of a relevant entity for an accounting period shall be calculated as follows:

allowable amount = EBITDA x EBITDA limit.

(3)A word or expression which is used in this Part and is also used in Directive (EU) 2016/1164 has, unless the context otherwise requires, the same meaning in this Part as it has in Directive (EU) 2016/1164.

835AZ.

Relevant profit and loss.

(1)Subject to subsections (2) and (3), ‘relevant profit’, in respect of a relevant entity and an accounting period, means –

(a)the amount of the profits on which corporation tax falls finally to be borne, and

(b)the amount of the gains or losses on a relevant disposal (within the meaning of section 648),

reduced by the amount, if any, of –

(i)the amount of the excess referred to in subsection (2) of section 243B, to the extent relief may be claimed under that subsection, but for this Part,

(ii)the amount of the excess referred to in subsection (2) of section 396B, to the extent relief may be claimed under that subsection, but for this Part, and

(iii)the amount of the excess referred to in subsection (2) of section 420B as it relates to interest on a loan to which section 247(4G) applies, to the extent relief may be claimed under that subsection, but for this Part.

(2)Where an amount of charge, income, expense, gain or loss used to calculate an amount referred to in subsection (1) is subject to corporation tax or provides relief at the P rate, that amount shall be adjusted for the purpose of calculating ‘relevant profit’ under subsection (1) as follows:

Aadj = Aact x (P rate/T rate)

where –

Aadj is the adjusted amount of charge, income, expense, gain or loss, as the case may be, and

Aact is the actual amount of charge, income, expense, gain or loss, as the case may be.

(3)Where an amount of charge, income, expense, gain or loss used to calculate an amount referred to in subsection (1) is subject to corporation tax or capital gains tax or provides relief at the CGT rate, that amount shall be adjusted for the purpose of calculating ‘relevant profit’ under subsection (1) as follows:

Aadj = Aact x (CGT rate/T rate)

where –

Aadj is the adjusted amount of charge, income, expense, gain or loss, as the case may be, and

Aact is the actual amount of charge, income, expense, gain or loss, as the case may be.

(4)For the purpose of calculating relevant profit under subsection (1), no account shall be taken of –

(a)any relief for losses, or excesses, as the case may be, carried forward from a previous accounting period under section 396(1), 399(1) or 399(2),

(b)any relief for losses or excesses, as the case may be, carried back from a subsequent accounting period under section 396(2), 396A(3), 396B(3), 397(1) or 399(2), or

(c)amounts set off under section 420 or 420A other than:

(i)interest treated as a charge on income that may be set off under section 420(6), but for this Part,

(ii)expenses of management that may be set off under section 420(3), but for this Part, and

(iii)interest treated as a charge on income that may be set off under section 420A(3), but for this Part.

(5)Subject to subsection (6), for the purpose of calculating relevant profit under subsection (1) of a relevant entity carrying on a qualifying long-term infrastructure project, no account shall be taken of any income or expenses directly connected with a qualifying long-term infrastructure project.

(6)Where a relevant entity carries on both a qualifying long-term infrastructure project and activities other than a qualifying long-term infrastructure project, income and expenses shall be apportioned between the qualifying long-term infrastructure project and those other activities on a just and reasonable basis.

(7)The amount of relevant loss for an accounting period shall be calculated in the like manner as relevant profit would have been calculated and for these purposes the reference in subsection (1) to an amount of profits on which corporation tax falls finally to be borne shall be read as a reference to the amount of losses, after making all deductions and giving all reliefs that for the purposes of corporation tax are made or given from or against profits, including deductions and reliefs which under any provision are treated as reducing profits for those purposes.

835AAA.

Long-term public infrastructure projects

(1)The Minister for Finance, in consultation with the Minister for Public Expenditure and Reform, may make regulations for the purpose of this section specifying an asset is to be treated as a large scale asset, but an asset shall not be so specified unless –

(a)specifying the asset would not give rise to a breach of Article 107 of the Treaty of Functioning of the European Union,

(b)the purpose of the asset is to enhance the general public interest,

(c)it is in the public interest to so specify the asset, and

(d)the financing arrangements for the long-term infrastructure project to which the large scale asset relates present special features which justify such specification.

(2)For the purposes of subsection (1), in determining whether it is in the public interest to specify the asset concerned, the Minister shall have regard to whether –

(a)the asset concerned would be likely to be provided, upgraded, operated, or maintained in the absence of such specification,

(b)specifying the asset concerned would distort fair competition, and

(c)specifying the asset would give rise to a loss of Exchequer income, and whether the public benefit of specifying the asset outweighs any such loss.

Chapter 2

Interest limitation (ss. 835AAB-835AAF)

835AAB.

Interpretation (Chapter 2).

(1)In this Chapter –

“legacy debt” means a debt the terms of which were agreed before 17 June 2016, together with any contract entered into before or after that date with the sole purpose of eliminating or reducing interest rate risk on that debt, but where the terms of that debt include provision for an amount of principal not yet drawn down at that date, such principal shall only be considered an agreed term of that debt to the extent the lender is legally obliged to make available such amounts upon the happening of milestones as set out in the terms agreed before 17 June 2016;

“milestone” means a pre-determined deliverable or project phase defined in the terms of a debt, connected with the drawdown of principal, but does not include a call by the borrower for drawdown of principal.

(2)The deductible interest equivalent in respect of legacy debt of a relevant entity for an accounting period is the lower of –

(a)the deductible interest equivalent that arises on the legacy debt in the accounting period, and

(b)the deductible interest equivalent that would have arisen on the legacy debt in the accounting period in accordance with the terms of the legacy debt as they stood on 17 June 2016.

(2A)Where a debt, consisting in part of legacy debt and in part of debt which is not legacy debt, is repaid in part, the part so repaid shall be treated for the purposes of this Part as being a repayment of that part of the debt which is legacy debt in priority to that part of the debt which is not legacy debt.

(3)For the purposes of this Part, the ‘net interest equivalent’ in respect of a relevant entity for an accounting period shall be calculated as follows:

IEnet = (IEded – IELD-ded) – IEtax

where –

IEnet is the amount of net interest equivalent in respect of the relevant entity for the accounting period,

IEded is the amount of deductible interest equivalent in respect of the relevant entity for the accounting period,

IELD-ded is the amount of deductible interest equivalent in respect of the legacy debt of the relevant entity for the accounting period, and

IEtax is the amount of taxable interest equivalent in respect of the relevant entity for the accounting period.

(4)Where the net interest equivalent in respect of a relevant entity for an accounting period is greater than or equal to zero, it shall be referred to in this Part as ‘exceeding borrowing costs’ and where the net interest equivalent in respect of a relevant entity for an accounting period is less than zero, it shall be referred to in this Part as ‘interest spare capacity’.

(5)In this Part, the EBITDA in respect of a relevant entity for an accounting period shall be the greater of zero and the amount calculated as follows:

 

where –

R is the relevant profit or relevant loss, as the case may be, of the relevant entity for the accounting period,

I is the net interest equivalent of the relevant entity for the accounting period,

FT is the amount deducted in respect of foreign tax in calculating the relevant entity’s relevant profit or relevant loss, as the case may be, for the accounting period,

Capallow is the amount of allowances in respect of capital expenditure under Parts 9, 24 and 29 made to a relevant entity, and the amount in respect of the non-finance element of finance lease payments deducted in calculating that entity’s relevant profit or relevant loss, as the case may be, for the accounting period,

Capcharge is the amount of charges in respect of capital expenditure under Parts 9, 24 and 29 made on a relevant entity in calculating the relevant entity’s relevant profit or relevant loss, as the case may be, for the accounting period,

IEded allow is the amount of deductible interest equivalent referable to allowances in respect of capital expenditure under Parts 9, 24 and 29 made to a relevant entity in calculating the relevant entity’s relevant profit or relevant loss, as the case may be, for the accounting period,

IEded charge is the amount of deductible interest equivalent referable to charges in respect of capital expenditure under Parts 9, 24 and 29 made on a relevant entity in calculating the relevant entity’s relevant profit or relevant loss, as the case may be, for the accounting period, and

IELD-ded is the amount of deductible interest equivalent in respect of the legacy debt of the relevant entity for the accounting period.

835AAC.

Interest limitation

(1)This section shall apply to a relevant entity for an accounting period where –

(a)the relevant entity is not, at any time in that accounting period, a standalone entity,

(b)the relevant entity has a disallowable amount greater than zero in respect of the accounting period, and

(c)the exceeding borrowing costs of the relevant entity exceeds the de minimis amount.

(2)For the purposes of determining whether the exceeding borrowing costs of a relevant entity exceeds the de minimis amount for an accounting period –

(a)in a case in which an amount of deductible interest equivalent is deducted against profits chargeable to tax at the P rate, the amount of that deductible interest equivalent shall be adjusted as follows:

 

where –

IEded-adj is the adjusted amount of deductible interest equivalent in respect of the relevant entity for the accounting period, and

IEded is the amount of deductible interest equivalent in respect of the relevant entity for the accounting period deducted against profits chargeable to tax at the P rate,

(b)in a case in which an amount of taxable interest equivalent is chargeable to tax at the P rate, the amount of that taxable interest equivalent shall be adjusted as follows:

 

where –

IEtax-adj is the adjusted amount of taxable interest equivalent in respect of the relevant entity for the accounting period, and

IEtax is the amount of taxable interest equivalent in respect of the relevant entity for the accounting period chargeable to tax at the P rate,

(c)in a case in which an amount of deductible interest equivalent is deducted against chargeable gains chargeable to tax at the CGT rate, the amount of that deductible interest equivalent shall be adjusted as follows:

 

where –

IEded-adj is the adjusted amount of deductible interest equivalent in respect of the relevant entity for the accounting period, and

IEded is the amount of deductible interest equivalent in respect of the relevant entity for the accounting period deducted against chargeable gains chargeable to tax at the CGT rate,

(d)in a case in which an amount of deductible interest equivalent in respect of the legacy debt of the relevant entity is deducted against profits chargeable to tax at the P rate, the amount of that deductible interest equivalent shall be adjusted as follows:

 

where –

IELD-ded-adj is the adjusted amount of deductible interest equivalent in respect of the legacy debt of the relevant entity for the accounting period, and

IELD-ded is the amount of deductible interest equivalent in respect of the legacy debt of the relevant entity for the accounting period deducted against profits chargeable to tax at the P rate,

and

(e)in a case in which an amount of deductible interest equivalent in respect of the legacy debt of the relevant entity is deducted against chargeable gains chargeable to tax at the CGT rate, the amount of that deductible interest equivalent shall be adjusted as follows:

 

where –

IELD-ded-adj is the adjusted amount of deductible interest equivalent in respect of the legacy debt of the relevant entity for the accounting period, and

IELD-ded is the amount of deductible interest equivalent in respect of the legacy debt of the relevant entity for the accounting period deducted against chargeable gains chargeable to tax at the CGT rate.

(3)Subject to section 835AAL, and subsections (4) and (5), where this section applies to a relevant entity for an accounting period, the amount of tax payable (within the meaning of section 959A) by the relevant entity for the accounting period, or where there is no amount of tax payable due to an insufficiency of income, profits or gains, the amount of any loss or excess arising to the relevant entity in an accounting period, but for the application of this Part, shall be adjusted by reducing the amount of interest equivalent that, but for this Part, would have been deducted in the calculation of that tax payable or that loss or excess, as the case may be, by the disallowable amount until the disallowable amount has been exhausted.

(4)For the purposes of subsection (3), where the interest equivalent mentioned in that subsection is deducted against profits chargeable to tax at the P rate, or treated as reducing the corporation tax payable on profits chargeable to tax at the P rate, then the amount by which the interest equivalent shall be reduced in respect of a disallowable amount shall be calculated by applying the following fraction:

T rate/P rate.

(5)For the purposes of subsection (3), where the interest equivalent mentioned in that subsection is deducted against chargeable gains, or treated as reducing the corporation tax payable on profits chargeable to tax at the CGT rate, then the amount by which the interest equivalent shall be reduced in respect of a disallowable amount shall be calculated by applying the following fraction:

T rate/CGT rate.

(6)Where a reduction of interest equivalent in accordance with subsection (3) reduces an amount of interest equivalent deducted in connection with the provision of a specified intangible asset, by reference to which allowances referred to in section 291A(6)(a)(i) are made, then for the purposes of section 291A(6), the aggregate amount for an accounting period referred to in section 291A(6)(a) shall be an amount calculated by reference to the interest equivalent so reduced.

835AAD.

Carry forward of disallowable amount.

(1)Where section 835AAC applies to a relevant entity for an accounting period (in this section referred to as the ‘first-mentioned accounting period’), the relevant entity may carry forward the disallowable mount to succeeding accounting periods in accordance with this section and any such amount carried forward shall be referred to in this section as a ‘deemed borrowing cost’.

(2)This subsection applies where an amount of deemed borrowing cost arises from a disallowable amount which would have, but for this Part, reduced the amount of tax payable by the relevant entity in the first-mentioned accounting period or the accounting period immediately prior to the first-mentioned accounting period.

(3)Subject to subsections (5), (6), (15) and (16), where subsection (2) applies, a relevant entity may make a claim to deduct the amount of deemed borrowing cost referred to in subsection (2), or a portion there of –

(a)from its total profits or chargeable gains arising in an accounting period subsequent to the first-mentioned accounting period, or

(b)where there is an insufficiency of such profits, to create a loss or excess in an accounting period subsequent to the first-mentioned accounting period and relief for that loss or excess shall be given in accordance with section 31, 396(1) or 399, as the case may be, and sections 397, 400 and 401 shall apply to that loss.

(4)Where a claim is made for a deduction under subsection (3), any such deduction shall be applied after all other claims for relief have been made.

(5)Where a deemed borrowing cost is deducted from profits chargeable to tax at the P rate, for the purpose of calculating the amount of the deemed borrowing cost applied in reducing the amount of profits chargeable to tax at that rate, the amount of deemed borrowing cost shall be multiplied by the following fraction:

P rate/T rate.

(6)Where a deemed borrowing cost is deducted from chargeable gains, for the purpose of calculating the amount of the deemed borrowing cost applied in reducing the amount of chargeable gains chargeable to tax at the CGT rate, the amount of deemed borrowing cost shall be multiplied by the following fraction:

CGT rate/T rate.

(7)This subsection applies where an amount of deemed borrowing cost arises from a disallowable amount which would have, but for this Part, resulted in the relevant entity –

(a)incurring a loss or excess,

(b)incurring a greater loss or excess than would have been incurred, or

(c)offsetting a lower amount of loss or excess against its income under section 396(1), 399(1) or 399(2) than would have been offset,

in the first-mentioned accounting period.

(8)Subject to subsections (9), (10), (15) and (16), where subsection (7) applies, a relevant entity’s deemed borrowing cost shall be treated as a loss or excess incurred in the first-mentioned accounting period (to the extent such a loss or excess would have arisen but for this Part) and relief for that loss or excess shall be given in accordance with section 31, 396(1) or 399, as the case may be, and sections 397, 400 and 401 shall apply to the amount of deemed borrowing cost referred to in subsection (7) in the same manner as they apply to a loss.

(9)Where a deemed borrowing cost that is treated as a loss or excess incurred in the first-mentioned accounting period is deducted from profits chargeable to tax at the P rate, for the purpose of calculating the amount of deemed borrowing cost treated as a loss or excess applied in reducing the amount of profits chargeable to tax at that rate, the amount of deemed borrowing cost treated as a loss or excess shall be multiplied by the following fraction:

P rate/T rate.

(10)Where a deemed borrowing cost that is treated as a loss incurred in the first-mentioned accounting period is deducted from chargeable gains, for the purpose of calculating the amount of deemed borrowing cost treated as a loss applied in reducing the amount of profits chargeable to tax at the CGT rate, the amount of deemed borrowing cost treated as a loss shall be multiplied by the following fraction:

CGT rate/T rate.

(11)This subsection applies where an amount of deemed borrowing cost arises from a disallowable amount which would have, but for this Part, resulted in a relevant entity incurring –

(a)an excess of expenses of management referred to in section 83(3), or

(b)a greater excess of expenses of management than would have been incurred,

in the first-mentioned accounting period.

(12)Subject to subsections (13), (14), (15) and (16), where subsection (11) applies, the amount of deemed borrowing cost of the relevant entity shall be treated for the purposes of subsection (3) of section 83, and any further application of that subsection, as if it has been disbursed as expenses of management for the first-mentioned accounting period.

(13)Where a deemed borrowing cost that is treated as if it has been disbursed as expenses of management incurred in the first-mentioned accounting period is deducted from profits chargeable to tax at the P rate, for the purpose of calculating the amount of deemed borrowing cost treated as expenses of management applied in reducing the amount of profits chargeable to tax at that rate, the amount of deemed borrowing cost treated as an expense of management shall be multiplied by the following fraction:

P rate/T rate.

(14)Where a deemed borrowing cost that is treated as if it has been disbursed as expenses of management incurred in the first-mentioned accounting period is deducted from chargeable gains, for the purpose of calculating the amount of deemed borrowing cost treated as expenses of management applied in reducing the amount of chargeable gains chargeable to tax at the CGT rate, the amount of deemed borrowing cost treated as an expense of management shall be multiplied by the following fraction:

CGT rate/T rate.

(15)The aggregate in an accounting period of –

(a)the deemed borrowing cost utilised under sections (3), (8) and (12), and

(b)a deduction in respect of an amount which, pursuant to subsection (19), was treated as an amount of interest for which relief could not be given by virtue of section 291A(6)(a) for the purposes of section 291A(6)(b)(ii),

shall be limited to the amount of the total spare capacity in the accounting period.

(16)Where the relief available under subsections (3), (8) and (12) would, but for subsection (15), exceed the total spare capacity of a relevant entity in an accounting period, relief under subsection (8) shall be given in priority to relief under subsection (3) or (12).

(17)For the purposes of determining, in respect of a disallowable amount carried forward in accordance with subsection (1), the amount of relief available in accordance with subsections (3), (8) and (12) in an accounting period (in this subsection referred to as the ‘relevant accounting period’) subsequent to the first-mentioned accounting period, the amount of relief given in respect of the deemed borrowing cost concerned under those subsections in the accounting periods, if any, prior to the relevant accounting period shall be deducted from the amount of the deemed borrowing cost.

(18)A deemed borrowing cost shall not be taken into account in calculating a relevant entity’s deductible interest equivalent in an accounting period subsequent to the first-mentioned accounting period.

(19)Notwithstanding anything in this section, no amount shall be deductible in respect of a deemed borrowing cost that arises from a disallowable amount which reduced an amount of interest equivalent deducted in connection with the provision of a specified intangible asset, by reference to which allowances referred to in section 291A(6)(a)(i) are made, and for the purposes of section 291A(6)(b)(ii) such amount shall, for the accounting period in which the disallowable amount arises, be treated as an amount of interest for which relief cannot be given by virtue of section 291A(6)(a).

835AAE.

Carry forward of total spare capacity.

(1)A relevant entity may carry forward its total spare capacity for a period not exceeding 60 months from the end of the accounting period in which the total spare capacity arose (in this section referred to as the ‘relevant period’).

(2)Where a disallowable amount arises in respect of a relevant entity for an accounting period during a relevant period, the relevant entity may, on making a claim, reduce the disallowable amount by an amount of the total spare capacity carried forward from a previous accounting period in accordance with subsection (1).

(3)Where a claim is made under subsection (2) –

(a)the disallowable amount for the accounting period concerned shall, subject to subsection (4), be reduced by the amount of total spare capacity carried forward from the previous accounting period, and

(b)the amount of total spare capacity not applied to reduce the disallowable amount in the accounting period shall be carried forward to the next accounting period.

(4)Where the total spare capacity carried forward from previous accounting periods is greater than the disallowable amount for an accounting period, the relevant entity shall, in reducing the disallowable amount, apply total spare capacity which has arisen in an earlier accounting period in priority to total spare capacity which has arisen in a later accounting period.

(5)Where a disallowable amount arises in respect of a relevant entity for an accounting period which begins before the end of a relevant period in respect of an amount of total spare capacity being applied to reduce the disallowable amount, the amount of total spare capacity shall be reduced by multiplying it by the following fraction:

A/B

where –

A is the length of the period common to the relevant period and accounting period, and

B is the length of the accounting period.

(6)For the purposes of determining the amount of relief available for total spare capacity, after the making of a claim or claims for relief under this section, or under subsection (3), (8) or (12) of section 835AAD, the amount of total spare capacity available for any subsequent claims shall be reduced by the amount claimed under the first-mentioned claims.

(7)Where an amount that is not deductible in respect of a deemed borrowing cost under section 835AAD(19) is deducted in a subsequent accounting period, having been treated as an amount of interest for which relief cannot be given by virtue of section 291A(6)(a) for the purposes of section 291A(6)(b)(ii), the amount of total spare capacity available for any subsequent claims or deductions shall be reduced by the amount so deducted.

835AAF.

Reporting

(1)Subject to subsection (2), a company shall make a return, by the specified return date for the accounting period, in the form specified by the Revenue Commissioners for that purpose.

(2)The return referred to in subsection (1) may include the following details in respect of the company and an accounting period:

(a)EBITDA;

(b)the allowable amount;

(c)exceeding borrowing costs;

(d)the disallowable amount;

(e)interest spare capacity;

(f)limitation spare capacity;

(g)in respect of amounts carried forward from prior accounting periods –

(i)deemed borrowing cost carried forward,

(ii)deemed borrowing cost utilised in the accounting period,

(iii)total spare capacity carried forward, and

(iv)total spare capacity utilised in the accounting period;

(h)where the group ratio election is made in accordance with section 835AAH –

(i)group exceeding borrowing costs, and

(ii)group EBITDA;

(i)where the group equity election is made in accordance with section 835AAI –

(i)the amount inserted in respect of E, for the company and the worldwide group, in the formula for the calculation of the ratio of equity over total assets in section 835AAI(1), and

(ii)the amount inserted in respect of A, for the company and the worldwide group, in the formula for the calculation of the ratio of equity over total assets in section 835AAI(1);

(j)whether the company is a single company worldwide group.

(3)Where a company is a member of an interest group and section 835AAM applies, paragraphs (a), (b), (c), (h), (i) and (j) of subsection (2) shall not apply.

Chapter 3 Group and equity ratio (ss. 835AAG-835AAJ)
835AAG. Interpretation (Chapter 3).
(1)In this Chapter –

“associated enterprise” has the same meaning as it has in Part 35C, other than in Chapters 2, 3 and 8 of that Part and in the application of that Part to hybrid entities;

“group EBITDA” means the amount included in respect of profit or loss, before taking into account any amount of income tax, finance income, finance costs, depreciation, amortisation or impairments, excluding any amounts in respect of a qualifying long-term infrastructure project, in the ultimate consolidated financial statements of the worldwide group or single company worldwide group, as the case may be, of which the relevant entity is a member for the period in which the relevant entity’s accounting period ends;

“group exceeding borrowing costs” means the amount included in respect of net finance expense, excluding any amount of finance income or finance expense in respect of a qualifying long-term infrastructure project, in the ultimate consolidated financial statements of the worldwide group or single company worldwide group, as the case may be, of which the relevant entity is a member for the period in which the relevant entity’s accounting period ends;

“group ratio” means the following fraction expressed as a percentage: (group exceeding borrowing costs)/(group EBITDA).

(2)Where a relevant entity is a single company worldwide group, group exceeding borrowing costs and group EBITDA shall be calculated on the basis of the financial statements of the relevant entity prepared under generally accepted accounting practice, adjusted such that transactions with associated enterprises are disregarded.

(3)Where arrangements are entered into by any person and it is reasonable to consider that the main purpose or one of the main purposes of the arrangements, or any part of them, is the avoidance of the effect of the adjustment referred to in subsection (2), then that subsection shall apply as if the arrangements, or the part of them, as the case may be, had not been entered into.

835AAH.

Group ratio

(1)Subject to section 835AAJ(2) and (3), where the group ratio exceeds 30 per cent for an accounting period of a relevant entity, the relevant entity may make an election under this subsection.

(2)Where a relevant entity makes an election under subsection (1), the definition of ‘allowable amount’ in section 835AY(2) shall, for the purposes of the application of this Part to the relevant entity for the accounting period concerned, be subject to the modification that the reference in that definition to the EBITDA limit shall be construed as a reference to the group ratio of the relevant entity for that accounting period.

835AAI.

Equity ratio.

(1)In this section, ‘ratio of equity over total assets’ means the following fraction expressed as a percentage:

E/A

where –

E is the equity, including share capital, share premium and reserves of a relevant entity, worldwide group or single company worldwide group, and

A is the total assets, of a relevant entity, worldwide group or single company worldwide group,

in each case, as disclosed in the financial statements of the relevant entity, worldwide group or single company worldwide group, as the case may be, which are prepared under generally accepted accounting practice or an alternative body of accounting standards.

(1A)The ratio of equity over total assets for a relevant entity for an accounting period shall be calculated on the basis of financial statements that are prepared in accordance with –

(a)the same body of accounting standards, and

(b)the same accounting policies,

that apply to the ultimate consolidated financial statements of the worldwide group of which the relevant entity is a member.

(2)For the purpose of calculating the ratio of equity over total assets for a single company worldwide group, the amount to be included as E in the formula in subsection (1) shall be increased by an amount equal to the amount owed by the relevant entity to its associated enterprises which gives rise to deductible interest equivalent.

(3)This section applies to a relevant entity in respect of an accounting period where –

(a)the relevant entity’s ratio of equity over total assets is greater than, equal to or not more than two percentage points less than the worldwide group’s ratio of equity over total assets, calculated on the basis of the ultimate consolidated financial statements relating to the period in which the relevant entity’s accounting period ends, or

(b)the relevant entity is a member of a single company worldwide group, the relevant entity’s ratio of equity over total assets is greater than, equal to or not more than two percentage points less than the single company worldwide group’s ratio of equity over total assets calculated on the basis of the financial statements relating to the period in which the relevant entity’s accounting period ends.

(4)Where, in the period of 6 months prior to the end of an accounting period of a relevant entity, a scheme or arrangement is entered into which results in an increase in the amount represented by E in the formula in subsection (1) for the relevant entity, the effect of that scheme or arrangement shall not be taken into account in calculating the relevant entity’s ratio of equity over total assets for that accounting period, unless –

(a)it is shown that the scheme or arrangement was entered into for bona fide commercial reasons, and

(b)it is not reasonable to consider that the scheme or arrangement is, or forms part of, any scheme or arrangement of which the main purpose, or one of the main purposes, is the satisfaction of paragraph (a) or (b) of subsection (3).

(5)Where arrangements are entered into by any person and it is reasonable to consider that the main purpose, or one of the main purposes, of the arrangements, or any part of them, is the avoidance of an increase, in accordance with subsection (2), in the amount included as E in the formula in subsection (1), subsection (2) shall apply as if the arrangements, or that part of them, had not been entered into.

(6)Subject to section 835AAJ(2) and (3), where this section applies in respect of an accounting period of a relevant entity, the relevant entity may make an election under this subsection.

(7)Where a relevant entity makes an election under subsection (6) in respect of an accounting period, section 835AAC shall not apply to the relevant entity in respect of the accounting period.

835AAJ.

Election

(1)An election under section 835AAH or 835AAI shall be made –

(a)in such form as the Revenue Commissioners shall specify, and

(b)on or before the specified return date for the accounting period to which the election relates.

(2)An election shall not be made by a relevant entity under section 835AAH and 835AAI in respect of an accounting period.

(3)An election shall not be made by a relevant entity under section 835AAH or 835AAI in respect of an accounting period where the relevant entity is an interest group and its members include a company referred to in section 835AAK(1)(a)(ii).

Chapter 4 Application of this Part to interest groups (835AAK-835AAM)
835AAK. Interpretation (Chapter 4)
(1)For the purposes of this Part, an “interest group” shall comprise the companies within the charge to corporation tax in the State that –
(a)are –
(i)members of the same worldwide group, or
(ii)where not members of the same worldwide group, deemed to be members of the same group of companies under section 411, and
(b)have elected to be members of the interest group .

(2)Where a company, branch or agency, or any activities of a company, branch or agency, falls to be included in two interest groups, then the company, branch or agency shall elect to be treated as a member of one such group only for the purposes of this Part.

(3)The election referred to in subsection (1) shall –

(a)apply for a period of at least three years from the beginning of the accounting period in respect of which the election is made or, if later, the date on which one of the conditions set out in subsection (1)(a) is satisfied,

(b)be made in such form as the Revenue Commissioners shall specify, and

(c)be made on or before the specified return date for the accounting period to which the election first relates.

(4)Subsequent to the period referred to in subsection (3)(a), an election referred to in subsection (1) may be withdrawn and such withdrawal shall –

(a)apply for a period of at least three years from the beginning of the accounting period in respect of which the withdrawal is made,

(b)be made in such form as the Revenue Commissioners shall specify, and

(c)be made on or before the specified return date for the accounting period to which the withdrawal first relates.

835AAL.

Application of Part to interest group

(1)This section applies where a company is a member of an interest group.

(2)Where a relevant entity is an interest group, section 835AAC shall apply, subject to the modification that a reference to a disallowable amount of a relevant entity shall be construed as a reference to the disallowable amount of the member of the interest group calculated or allocated, as the case may be, in accordance with subsection (6), (7) or (8), as the case may be.

(3)Where an amount is required to be calculated in respect of an interest group for the purposes of this Part, it shall comprise the results of all the members of the interest group.

(4)The accounting period of an interest group shall be the accounting period which is common to more than half of the members of the interest group or, where there is no such accounting period, the accounting period of the reporting company.

(5)Where the accounting period of a member of an interest group does not coincide with the accounting period of the interest group –

(a)the results of such a member shall be apportioned such that the income and expenses are those which, on a just and reasonable basis, arose during the accounting period of the interest group, and

(b)all balance sheet amounts shall be those which would be reflected in the balance sheet of the member of the interest group on the final day of the accounting period of the interest group.

(6)Subject to subsections (7) and (8), the disallowable amount of a member of an interest group shall be calculated as follows:

 

 

(7)Where a reporting company and each member of the interest group concerned jointly notify the Revenue Commissioners, in the form specified by the Revenue Commissioners for that purpose, that the disallowable amount, or a portion of the disallowable amount, of the interest group should be deemed to be the disallowable amount of a member of the interest group, the disallowable amount of that member shall be the amount so notified.

(8)A disallowable amount allocated under subsection (7) to a member of an interest group in an accounting period shall not exceed the deductible interest equivalent of that group member for that accounting period.

(9)Subject to subsection (10), the total spare capacity of a member of an interest group arising in an accounting period shall be calculated as follows:

 

(10)Where a reporting company and each member of the interest group concerned jointly notify the Revenue Commissioners, in the form specified by the Revenue Commissioners for that purpose, that the total spare capacity, or a portion of the total spare capacity, of the interest group should be deemed to be the total spare capacity of a member of the interest group, the total spare capacity of that member shall be the amount so notified.

(11)For the purposes of the application of section 835AAD or 835AAE to an interest group, a reference in the section concerned to a relevant entity shall be construed as a reference to a member of an interest group.

(12)Where –

(a)an amount of total spare capacity is carried forward from a preceding accounting period by a member of an interest group, and

(b)the reporting company of the interest group and each member of the interest group concerned jointly notify the Revenue Commissioners, in the form specified by the Revenue Commissioners for that purpose, that the total spare capacity so carried forward, or a portion of that total spare capacity, should be reallocated to a member of the interest group,

the total spare capacity so notified shall be allocated to the member of the interest group.

(13)Subject to subsection (14), where the relevant entity is an interest group, section 835AAI shall apply subject to the modification that the relevant entity’s ratio of equity over total assets shall be calculated on the basis of a consolidation of the results of the members of the interest group as if each member of the interest group had a common ultimate parent resident in the State prepared under the same body of accounting standards and same accounting policies as applies to the ultimate consolidated financial statements of the worldwide group concerned, but where a member of an interest group is a branch or agency of a company not resident in the State, then the results of that member of the interest group shall be the results of the branch or agency.

(14)Where members of an interest group hold investments in companies which are not members of an interest group, and such investments would, but for this subsection, be fully consolidated in the results of the members of an interest group prepared pursuant to subsection (13), those investments shall, for the purposes of subsection (13) be accounted for at cost, measured at the lower of their carrying amount and fair value less costs to sell, as if the relevant entity was a company required to prepare non-consolidated financial statements.

(15)A payment for relief shall not –

(a)be taken into account in computing profits or losses of either the payor or the recipient of the payment for relief for corporation tax purposes, and

(b)be regarded as a distribution or a charge on income for any of the purposes of the Corporation Tax Acts.

835AAM.

Interest group reporting

(1)An interest group shall appoint a member of the group that is a chargeable person, within the meaning of Part 41A, for the purposes of this Chapter (in this Part referred to as a ‘reporting company’).

(2)Where an election has been made in accordance with section 835AAK to form an interest group, the reporting company shall make a return on behalf of the interest group on or before the specified return date for the accounting period, in the form specified by the Revenue Commissioners.

(3)The return referred to in subsection (2) may include the following details in respect of the interest group and an accounting period of the interest group:

(a)the name and tax reference number of each member of the interest group;

(b)EBITDA;

(c)the allowable amount;

(d)exceeding borrowing costs;

(e)the disallowable amount and its allocation as amongst the members of the interest group;

(f)total spare capacity and its allocation as amongst the members of the interest group;

(g)in respect of amounts carried forward from prior accounting periods –

(i)deemed borrowing cost carried forward and its allocation as amongst the members of the interest group,

(ii)deemed borrowing cost utilised in the accounting period and its allocation as amongst the members of the interest group,

(iii)total spare capacity carried forward and its allocation as amongst the members of the interest group, and

(iv)total spare capacity utilised in the accounting period and its allocation as amongst the members of the interest group;

(h)where an election is made in accordance with section 835AAH(1) –

(i)group exceeding borrowing costs, and

(ii)group EBITDA;

(i)where an election is made in accordance with section 835AAI(6) –

(i)amount inserted in respect of E, for the interest group and the worldwide group, in the formula for the calculation of the ratio of equity over total assets in section 835AAI(1), and

(ii)amount inserted in respect of A, for the interest group and the worldwide group, in the formula for the calculation of the ratio of equity over total assets in section 835AAI(1);

(j)where a payment for relief is made in accordance with section 835AAL(15) –

(i)the name and tax reference number of the payee and payor, and

(ii)the amount of the payment.

Chapter 5

Application of this Part (835AAN-835AAO)

835AAN.

Scope of application

This Part shall apply to an accounting period of a relevant entity commencing on or after 1 January 2022.

835AAO.

Order of application

This Part shall apply after all provisions of the Tax Acts and the Capital Gains Tax Acts, other than