why ireland? - byrnewallace...a guide to business tax in ireland extensive tax treaty network...

Dublin

2 Grand Canal Square, Dublin 2, IrelandTel +353 1 691 5000 Fax +353 1 691 5010Email [email protected] Dx 18 Dublinwww.byrnewallace.com

New York

Ireland House, 17th Floor, 345 Park Avenue, New York, NY 10154, USATel +1 212 906 1999 Fax +1 212 906 1997 Email [email protected]

Why Ireland?

Tax Considerations A guide to business tax in Ireland

ByrneWallace is one of Ireland’s largest law firms. Our clients are leading, innovative and growing publicand private enterprises active in all key industry sectors.

Driven by client needs Over the years we have earned a reputationwithin Ireland and internationally as a leadingbusiness law firm with an award-winningapproach to client service. We offer clientsmore than excellent transactional and specialistadvice. We want to be recognized as “YourLegal Business Partners”, delivering the fullbenefits of a trusted legal business partnership.This means that we challenge ourselves to findways of adding business insight as well as legalexcellence.

Delivering solutionsWe look to devise solutions and uncoveropportunities, not just point to problems. Ourjob is to understand our clients, their marketsand their business goals and objectives – andto tailor our services accordingly. In addition tofirst-rate legal expertise, we apply commercialknowledge, insight and a practicalunderstanding of the totality of the issues to allour client work.

Resourced for successWith over 40 partners and a total staff of almost300 people in our main offices in Dublin, wehave the scale and experience to ensure thatwe deliver on our promises in a timely, efficientand cost-effective manner. We are accessible,approachable and properly resourced to deliverthe level of service you require.

Expanding We recently opened our New York office tocater for the legal needs of our US clientslooking to expand into Ireland and the rest ofthe EU. Through our association with leadingNorthern Ireland law firm Mills Selig, we meetthe needs of our clients throughout the islandof Ireland.

Providing focused expertiseWe are a full service practice with our servicesdivided into the following areas:

• Banking and Finance• Capital Markets• Corporate• Corporate Restructuring

and Insolvency• Data Protection• Dispute Resolution (litigation)• Employment Law• EU and Competition/Regulatory• Green Economy• Health Services• ICT, Software & Digital Media • Inward Investment• Life Sciences• Outsourcing• Projects, Energy and Natural Resources• Property• Tax

Award-winning• First Irish law firm to achieve

ISO 14001 (2010)• First Irish Law firm to win Professional

Services Green Award (2010)• Client Service Law Firm of the Year

(Chambers & Partners, 2008)

www.byrnewallace.com

ByrneWallace I Why Ireland? A guide to business tax in Ireland I 1

Over several decades Ireland hasbecome a magnet for foreign directinvestment (FDI). Ireland is the globalbase of choice for some of the world’slargest corporations. FDI generatesmore jobs per capita in Ireland than inany other country. So what are theprincipal reasons why Ireland is sosuccessful in attracting investment?

Why Ireland?

Continued on page 2 >>

2 I ByrneWallace I Why Ireland? A guide to business tax in Ireland

Market AccessIreland is a member of the EuropeanUnion (EU), with over 500 millionconsumers. Within Europe, Ireland is theonly English speaking country which usesthe euro, apart from Malta. The Europeanmainland is readily accessible throughIreland's main ports and airports.Therefore more and more Internationalcompanies use Ireland as their base toexpand from here into the rest of Europe,while availing of the benefits a leadingforeign direct Investment location has tooffer.

12.5 % Tax rateIreland offers one of the lowestcorporation tax rates in Europe. TheNational Recovery Plan 2011-2014 and theBudget 2011 both confirm Irelandsposition on maintaining the 12.5%corporate tax rate as a cornerstone of Irishtaxation policy. Irish tax residentcompanies benefit from a corporation taxrate of 12.5% on trading profits andcertain distributions received from foreigntrading subsidiaries. The scope ofactivities which may be considered to betrading is quite broad and can include thedevelopment and exploitation ofintellectual property. A company is taxresident in Ireland if it is incorporated inIreland or if Ireland is the place of centralmanagement and control of the company.Irish tax law also contains extensive reliefsfor expenditure in relation to intellectualproperty and research and development.

Foreign TradeThe 2010 Index of Economic Freedomrates Ireland as Europe's mosteconomically free country and the fifth inthe world in this regard.

One of the main export items areagricultural products, but information &communications technology, chemicalcomponents and pharmaceuticalproducts, medical and healthcare devicesare also very important. Ireland is alsobeginning to emerge as a leadingeconomy in the renewable energy sector.

The World Competitiveness Yearbook2010 ranked Ireland 19th out of 58countries worldwide for goods export as apercentage of GDP.

US investment has been particularlyimportant to the Growth andModernisation of Ireland providing amultiplier effect with new technology,export capabilities, and employmentopportunities. As of year-end 2010,thestock of US foreign direct investment inIreland stood, at $165 billion, more thanthe total for China, India, Russia, and Brazil– the BRIC countries – combined. Thereare approximately 600 US subsidiariescurrently in Ireland employing around100,000 people and supporting work for afurther 250,000 out of a workingpopulation of 2 million spanning activitiesfrom manufacture of high-tech electronics,computer products, medical supplies, andpharmaceuticals to retailing, banking,finance, and other services. Ireland is alsoan important European research anddevelopment center for US firms inEurope.

The Holding CompanyRegimeThe principal benefits of locating aholding company in Ireland are theexemption from the charge to Irish capitalgains tax in respect of the disposal ofqualifying shareholdings in subsidiariesand the beneficial regime for the taxationof foreign dividends. While there is nospecific participation exemption, to theextent that dividends are received fromcompanies resident in the EU or in a taxtreaty country such as the US and arepayable out of the trading profits of suchsubsidiaries, those dividends are taxed inthe hands of an Irish holding company atthe lower 12.5% rate. Although Irelandimposes a dividend withholding tax andwithholding on interest payments (both at20%), domestic law provides for wideexemptions from these obligations,particularly for dividend payments.

Research and Development (R&D)Ireland offers a very competitive Researchand Development Tax Credit system. In2010 50% of IDA Ireland supportedForeign Direct Investment were inresearch and development, valued at over€500 million. According to the latest IBMGlobal Trends report 2010 Ireland isplaced 9th globally for estimated totaljobs in Research and Development.Ireland offers a tax credit of 25% ofincremental expenditure by a company, orgroup of companies incurred wholly andexclusively on research and development.

Why Ireland?


“ Ireland was ranked 10th worldwide for thenumber of jobs created in business supportservices, including call centers, shared servicescenters and business outsourcing in a studyundertaken by IBM highlighting the role offoreign direct Investment”


Extensive Tax Treaty NetworkIreland has signed double taxation treatieswith 62 countries. New treaties with Turkey,Serbia, Georgia and Moldova are in forcesince January 2011. New treaties weresigned with Hong Kong, Singapore andthe United Arab Emirates among othersand will have to be ratified. Updatedtreaties with Germany, Belgium andSwitzerland will be signed shortly.

The National Recovery Plan2011-2014The Irish Government's National RecoveryPlan 2011-2014 announced on the 24th ofNovember 2010 aims to deal with Ireland'scurrent fiscal challenges but will continueto improve Ireland's attractiveness tooverseas investors and help to sustainIreland's projected levels of economicgrowth. Key measures in the plan areaimed at overseas investors, supportingResearch and Development and focusingon job creation.

Business EnvironmentIreland offers a pro business attitude, thisis apparent when looking at successiveGovernments policies, the approach takenby Government Agencies and the workingculture. Ireland has a stable constitutionbased parliamentary democracy, anexcellent transport network and a veryadvanced telecommunication network.Ireland was ranked third within the EU forits ease of doing business according tothe World Bank Doing Business 2011Report.

Highly skilled Work ForceAlmost 50,000 graduates leave Irishcolleges every year. A large percentage ofthese with degrees in business studies,science and engineering and most speaka second language. According to theEurostat Yearbook 2010 Ireland has thethird highest proportion of science, mathsand computer graduates in the 20-29 agegroup within the EU. Also according to theIMD World Competitiveness YearbookIreland ranks fourth regarding theavailability of skilled labour. This makesIreland a very attractive place to locate.

Cost CompetitiveOne of the few good things to come outof the global economic downturn hasbeen a pressure on costs. With rents, bothoffice and private and salaries fallingdramatically in the last two years, Irelandhas becoming increasingly costcompetitive. As a consequence Irelandwas ranked 10th worldwide for thenumber of jobs created in businesssupport services, including call centers,shared services centers and businessoutsourcing in a study undertaken by IBMhighlighting the role of foreign directInvestment.

IDA and Enterprise IrelandIreland has recognised for a number ofyears the need to assist foreign companieswho wish to invest here. Several Agencieswere founded. The main Agencies todayare the IDA and Enterprise Ireland.ByrneWallace has a very good workingrelationship with both the IDA andEnterprise Ireland and can facilitaterelevant introductions.

The IDA provides foreign companies withhelp and guidance for setting upoperations in Ireland and can also helpcompanies who have already set upoperations here. Various grants andfinancial assistance to companies locatinghere are available and it is advisable to getinto contact with the IDA from the start ofthe planning process in order to avail of allpossible assistance.

The IDA's strategy Horizon 2020 isfocused on employment intensive servicesand R&D. There may be Capital grantsavailable for example for sitedevelopment, or grants for training of thework force and the IDA also has a numberof business parks where companies canlocate.

Enterprise Ireland is assisting IrishCompanies and foreign companies in thefood, drink and timber sector who wish toset up in Ireland.

Ireland is a very attractive location forbusiness and we hope that this guide willhelp you and your company to fullyappreciate Irelands offering. Any queries,we are happy to assist.

“ Ireland has the third highest proportion ofscience, maths and computer graduates inthe 20-29 age group within the EU”


Corporation TaxThe scope of Irish corporation tax is largelydependent on the residence status of acompany. Broadly speaking, an Irish taxresident company is liable to Irishcorporation tax on its worldwide incomeand gains, no matter what their source ornature, though specific exemptions doexist for certain types of income such asdistributions from other Irish residentcompanies and patent income.

A non-Irish resident company can alsocome within the scope of Irish corporationtax where it carries on activities in Irelandthrough a branch. Such non-residentcompanies are subject to Irish corporationtax on the profits of that branch. However,as Irish tax law treats a branch and itsparent company as one and the sameentity for legal purposes, no withholdingtaxes are imposed on the repatriation ofbranch profits to its parent.

In general, a company is tax resident inIreland if it is incorporated in Ireland, whichis known as the place of incorporation test.However, the general rule is not followedin certain circumstances:

• If the company is under the ultimatecontrol of a person resident in an EUMember State or in a country withwhich Ireland has a double tax treaty,or which itself is, or is related to, a

company whose principal class ofshares is substantially and regularlytraded on a stock exchange in an EUcountry or treaty country

• If the company carries on a trade inIreland or is related to a company thatcarries on a trade in Ireland.

In these circumstances, a company isdeemed to be tax resident where itscentral management and control resides.There is no statutory definition of whatconstitutes management and control andinstead case law is relied upon to provideguidance. The available body of case lawindicates that many factors need to beconsidered but the most important andoverriding of these are the place wherethe directors of the company are residentand the place where board meetings areheld.

Rates of corporation tax

The rate of corporation tax charged is

dependent on the nature of the profits. In

general, trading profits and certain

distributions received from foreign trading

subsidiaries are liable to corporation tax at

12.5%. All other income is liable to

corporation tax at 25%.

There is no definition provided in Irish tax

law as to what constitutes trading for

corporation tax purposes other than to say

that the following activities are specifically

excluded:

• dealing in or developing land;

• working minerals; and

• petroleum activities.

Profits from these activities are therefore

liable to corporation tax at 25%.

In addition, despite pressure being

exerted by other EU member states, the

Irish Government, as part of the NationalRecovery Plan 2011-2014, reaffirmed its

commitment to maintaining the 12.5%

corporation tax rate.

What constitutes a trade?As mentioned above, under Irish tax lawthere is no guidance as to what constitutestrading profits for the purposes of the12.5% corporation tax rate. There arehowever a number of other non-statutorysources of guidance as to what constitutesa trade for these purposes:

• a list of factors, known as the “badgesof trade” and published by the UKRoyal Commission on the Taxation ofProfits in 1955, which are generallyaccepted as being indicative of tradingactivity;

• available case law; and

• guidance published by the IrishRevenue Commissioners.

Ireland’s Tax Advantages

The favourable tax environment is a cornerstone of Ireland’s inwardinvestment success. Utilizing this advantage is a valuable tool for tax-efficient overseas investment and Ireland is increasingly beingchosen as the home of the low tax “principal” company in severalsignificant international corporate structures.


Perhaps the most useful of these sources

is the guidance published by the Revenue

Commissioners. In this guidance, as well

as the more traditional activities which

they deem to constitute trading, the

following are also included:

• activities relating to the development

and exploitation of intellectual

property rights;

• corporate treasury functions;

• investment management activities;

• distribution activities; and

• activities relating to the carrying out of

research and development.

Holding Company RegimeOne of the key facets of the favourable tax

regime in Ireland is its attractiveness as a

holding company location for

multinational groups. This attractiveness is

supported by a number of incentives:

• exemption from the charge to Irish

capital gains tax in respect of the

disposal of qualifying shareholdings in

subsidiaries;

• 12.5% rate of corporation tax on

dividends received from companies

resident in the EU or in a country with

which Ireland has a tax treaty and are

payable out of the trading profits of

such subsidiaries;

• limited transfer pricing rules and no

relevant thin capitalisation or

controlled foreign corporation rules for

foreign income;

• significant exemptions from

withholding tax on dividend and

interest payments made by an Irish

holding company; and

• an extensive and very favourable

network of 62 double taxation treaties.

Intellectual Property RegimeOver the past number of years Ireland hasemerged as the pre-eminent jurisdictionfor multi-nationals to locate theirintellectual property and the managementand development activities associated withit. This is not only due to the favourablecorporation tax rate for trading profits butalso as a result of a suite of other taxincentives surrounding intellectualproperty and intangibles.

Tax relief on acquisition cost ofintellectual property and intangiblesTax relief is available in respect of capitalexpenditure on the acquisition of a widerange of intellectual property andintangible assets, including patents, trademarks, brand names, know how, domainnames, scientific processes and goodwill(to the extent that it is related to any of theabove intangible assets).

The tax deduction may be claimed eitherin line with the accounting depreciationcharge included in the company’s financialstatements or by electing for a 15 yearwrite down period. However, thededuction is restricted such that it cannotexceed 80% of the profits associated withthe exploitation of the relevant intellectualproperty or intangibles for which thededuction is claimed.

Research and Development Tax CreditUnder Irish tax law, a tax credit is availableto companies in relation to certainexpenditure on research and development(R&D) activities. The key features of thecredit are as follows:

• 25% credit for incremental qualifyingexpenditure on R&D over the amountof expenditure incurred in the “baseyear”, now 2003;

• the credit is granted in addition to theregular tax deduction available forR&D expenditure;

• in order to qualify, expenditure onR&D activities must seek to achievescientific or technologicaladvancement and involve theresolution of technological uncertainty;

• expenditure incurred on subcontractedR&D activities undertaken by a thirdparty can also qualify for the credit tothe extent that:

– the expenditure subcontracteddoes not exceed 10% of the overallexpenditure on R&D by the group;and

– the subcontractor does not claim acredit for the expenditure.

• expenditure that is subcontracted to aqualifying third level institution canalso qualify so long as it does notexceed 5% of the group’s overallexpenditure on R&D;

• the credit can also be refundable incertain circumstances where there is aninsufficient corporation tax liability toutilise the full credit for the accountingperiod in which the expenditure wasincurred. In this situation, the creditcan be:

– surrendered to other groupcompanies;

– carried back for offset against thepreceding period corporation taxliability; or

– claimed as a cash refund spreadover three years (subject to certainlimitations).

For companies claiming the credit, net taxrelief of 37.5% of the qualifying spend canbe available when the credit is combinedwith the regular tax deduction available forthe expenditure.

“ The 2010 Index of Economic Freedomrates Ireland as Europe's mosteconomically free country and the fifth inthe world in this regard”


Allowance for Expenditure on Know-howExpenditure incurred in relation to theacquisition of know-how purchased from athird party and not as part of a trade is taxdeductible. However, unlike thededuction for expenditure on scientificresearch, a deduction for expenditure onknow-how is not available where it is notrelated to the trade being carried on bythe company in question.

Know-how purchased from a related partyor acquired as part of a purchase of atrade may qualify for book depreciationtreatment.

Expenditure on Scientific ResearchA deduction is available for revenue andcapital expenditure on scientific research.This deduction is available even where theexpenditure on the research is not relatedto the trade of the company in question.

A deduction against profits is alsoallowable for payments, whether capital orrevenue in nature, to a body carrying onscientific research that is approved by theMinister of Finance or to an Irish universityin order to undertake scientific research.

Regulated Fund RegimeBased on the back of its favourable taxand regulatory regimes, Ireland hasemerged as a world leading location forthe regulated funds industry.

From a tax perspective regulated fundsare subject to what is known as a “grossroll-up” regime whereby income or gainsare generally not taxed immediately andinstead tax (known as exit tax) onlybecomes chargeable on payments ordistributions out of the fund to investors.Furthermore, non-resident investors are

exempt from any charge to Irish tax inrespect of an investment in an Irishregulated fund.

Structured Finance RegimeOver a number of years, Ireland’sstructured finance legislation has beensteadily enhanced such that now Ireland isone of the pre-eminent locations for theestablishment of vehicles used instructured finance transactions.

Irish tax law ensures that structured financevehicles established in Ireland (known asS.110 companies) suffer minimal Irish taxleakage in relation to their activities andalso minimise withholding tax onpayments of interest to investors in thevehicles.

In particular, Ireland has emerged as thelocation of choice for US life settlementssecuritisations due to our favourable taxtreaty network which can minimise taxleakage in relation to US exit taxes.

Tax on Individuals

Income TaxIreland has a progressive system ofincome tax which is levied at two rates.

As of 2011, an individual is subject toincome tax at 20% on their first €32,800 ofincome, though this is typically amendedeach year by the Minister for Finance. Thisthreshold is increased when the individualis married. An individual is then liable to arate of 41% on the balance of their incomeover and above the threshold.

In addition to income tax, individuals arealso subject to two social contributions,known as the Universal Social Charge (c.7%) and PRSI (c. 4%), on their income.

Scope of Income TaxIn order to be within the charge to Irishincome tax, a person must either beresident, ordinarily resident or domiciled inIreland.

A person will be deemed to be taxresident in Ireland if they spend:

• a total of 183 days in Ireland in any taxyear; or

• a combined total of 280 days over twotax years (assuming a minimum of 30days in each tax year).

If a person is resident in Ireland for threeconsecutive tax years, they then becomeordinarily resident for tax purposes.

An individual is deemed to be domiciledin the country in which they have theirpermanent home. Domicile is generallydetermined initially by an individual’sdomicile of origin (generally the countrywhere their father is domiciled when theyare born) and will be regarded asdomiciled in that country unless a domicileof choice is acquired.

Influence of domicile andresidenceAn Irish resident, ordinarily resident anddomiciled person is liable to Irish incometax on worldwide income.

A resident and domiciled, but notordinarily resident, person is liable to Irishincome tax on Irish source income and onany other income to the extent remitted.

A resident but not domiciled person isliable to Irish income tax on Irish sourceincome and on any other income to theextent remitted.


Ursula TippPartner, Tax

Ursula is a tax lawyer, dual-qualified in Ireland andGermany, with over 15 years'experience in internationaltaxation. She was formerly thehead of the tax department ina large multinational.

Direct line: +353 1 691 5283Email: [email protected]

Dennis Agnew Partner, Corporate and Commercial

Dennis is a corporatetransactional lawyer who headsthe firm's Foreign DirectInvestment team and acts for abroad range of US and Irishcompanies. Based in our NewYork office, Dennis' role is to provide Irish legaladvice and know-how to US companies in asefficient a manner as possible.

Direct line: +1 212 906 1999Cell: +1 917 225 6300 Email: [email protected]

Darren DalyPartner, ICT & Technology

Darren advises on both generalcorporate law matters and alsoprovides specialist advice onintellectual property, ICT, e-commerce, data protectionand technology issues with aparticular emphasis on advising technologyclients in the health services, pharma, andmedical device sectors.

Direct line: +353 1 691 5274 Email: [email protected]

Paul McGennisManaging Partner

Paul is the firm’s ManagingPartner. He specializes in FDI,banking and commercialproperty. He is a member of theCouncil of the Dublin Chamberof Commerce. He has beeninstrumental in extending the firm’sinternational reach, particularly with US basedinvestment clients.


David HourihanePartner, Corporate and Regulatory

David is a leading expert in Irishand EU anti-trust law andregulatory issues and hasrepresented a number of clientson merger control issues andcompetition investigationsbefore the European Commission and the Irish Competition Authority.


Enda NewtonPartner, Corporate and Commercial

Enda is a corporatetransactional lawyer who headsthe firm's International BusinessSection. He is extremely activein foreign direct investmentareas and is the currentpresident of the Irish Canada BusinessAssociation

Direct line: +353 1 691 5275Email: [email protected]

Andrew KennyTax Advisor

Andrew is a qualified CharteredAccountant. He has extensiveexperience in advising clientson both domestic andinternational tax issues andregularly advises on the taxaspects of a wide range of matters includinginward investment, corporate restructuring, realestate investment and structured finance.


Colin Sainsbury Partner, Corporate and Commercial

Colin is a corporatetransactional lawyer with over16 years’ experience in theinternational life science sectorand acts for a broad range ofIrish and foreign life sciencescompanies. Colin was previously Senior VP andGeneral Counsel of Elan Corporation’s DrugDelivery Division.


Our dedicated team draws together extensive legal expertise and industry knowledge from key practice areas.

Our Foreign Direct Investment Team

Key Contacts

Ursula Tipp Tel: +353 1 691 [email protected]

Andrew Kenny Tel: +353 1 691 [email protected]

Dublin

2 Grand Canal Square, Dublin 2, IrelandTel +353 1 691 5000 Fax +353 1 691 5010Email [email protected] Dx 18 Dublinwww.byrnewallace.com

New York

Ireland House, 17th Floor, 345 Park Avenue, New York, NY 10154, USATel +1 212 906 1999 Fax +1 212 906 1997 Email [email protected]

why ireland? - byrnewallace...a guide to business tax in ireland extensive tax treaty network...

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