PART 35B

Implementation of Articles 7 and 8 of Council Directive (EU) 2016/1164 of 12 July 2016 (Controlled Foreign Companies)

Chapter 1

Interpretation

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;

^[2]>

“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;

^<[2]

“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;

^[2]>

“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;

^<[2]

“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;

“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;

^[2]>

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

^<[2]

“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;

^[2]>

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

^<[2]

“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;

^[2]>

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

^<[2]

“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.