International Tax Newsletter - Summer 2011 - IRELAND: Finance Act 2011 Changes For Companies Investing In Ireland
A tax deduction is generally no longer available for interest on funds borrowed from a group company where such funds are used to acquire assets (other than trading stock and qualifying intangible assets) from another connected company, subject to special relief provisions.
Significant changes were introduced to the tax deductibility of non-trade interest for loans to or share acquisitions in other companies. Tax relief is restricted where the companies which use the borrowed monies are not within the charge to Irish tax and are in receipt of interest on those monies. Relief is restricted to the amount of interest earned by the Irish company.
The above restrictions apply to loans made on or after 21 January 2011, other than such loans made in accordance with a binding written agreement made before that date.
The Transfer Pricing regime applies on or after 1 January 2011 to transactions between connected companies involving the supply or acquisition of goods, services, money or intangible assets where the profits, gains, or losses arising from the arrangement are within the charge to tax as trading activities.
- Profits and losses shall be computed as if the arm's length amount were receivable instead of the actual consideration.
- Formal transfer pricing documentation is a requirement.
- Full exemption from Transfer Pricing provisions applies to small and medium sized entities (<250 staff and annual turnover of < €50 million or balance sheet total of <€43 million in assets).
Start-up company Corporation Tax Relief has been extended to companies that commence trading in 2011, but amended so it is linked to the amount of the employers Pay Related Social Insurance (PRSI) paid and limited to an overall Corporation Tax limit of €40,000 per annum. (For the purpose of calculating the "qualifying employers PRSI" a cap of €5,000 per employee applies.)
Changes have been introduced for qualifying financial services companies under the Section 110 regime. Extensions have been made to qualifying assets which can be acquired by a Section 110 company to include (a) commodities and (b) plant and machinery which are subject to lease and (c) additional carbon offsets. However, where a Total Return Swap arrangement is used to extract the profits from a S.110 company, a deduction will not be available for payments made under a return agreement, as defined in the legislation.
Other taxation measures include:
- Patent Royalty Exemption
Patent royalty and dividend exemption is abolished in respect of qualifying patents, so income from a qualifying patent is no longer tax exempt.
- Foreign Credit
Companies are no longer permitted to allocate relevant trade charges in computing foreign credit in respect of foreign tax paid on income.
- Mandatory Reporting
A new mandatory reporting regime has been introduced in relation to certain tax transactions where the main benefit is to obtain a tax advantage.
International Tax Newsletter - Summer 2011
- CHILI: New Audit Process For Transfer Pricing
- CHINA: Corporate Income Taxes (CIT) Treatment On Asset Transfer Income Derived By Enterprises
- CZECH REPUBLIC: Corporate Tax Legislation
- GERMANY: Electronic Transmission Of Tax Accounting Introduced For 2012 Onward
- HUNGARY: Corporate Income Taxation
- INDIA: Finance Act 2011 — Amendments Relevant To International Taxation
- IRELAND: Finance Act 2011 Changes For Companies Investing In Ireland
- JAPAN: Recent Tax Treaty Reforms
- MEXICO: Recent Tax Treaty Reforms
- NETHERLANDS: Corporate Income Tax
- RUSSIA: New Zero Rating For Income From The Sale Of Shares In Russian Companies
- UNITED KINGDOM: Corporation Tax Rate
- UNITED STATES: Key International Tax Developments