Irelands Hold Company Regime
MOVING TO IRELAND
There has been much publicity in recent times over the number of large multinational
companies moving their headquarters to Ireland (see below). While these companies
have been quick to point out that tax is only one of the reasons for their arrival here, it is
clear that Ireland’s tax regime is a key factor.
According to the chief executive of Henderson, which announced its intention to move
HQ to Ireland in 2008 “This is a valid question for boards to ask: “Are we domiciled in
the best place?” Tax is a really important part of the financial management”. Charter,
which also departed the UK, highlighted Ireland’s less complex tax system, together
with our cheap and available accommodation and staff, out time zone and language.
COMPETITION
So have we done enough on the tax incentivisation front? Can we afford to sit back? I
think the answer is no in both cases. Change is rife in the world of tax. Countries that in
the past had no need to engage are now joining the race to entice foreign investment and
stimulate domestic activity. The mobility of investment for many of the world’s largest
organisations has made this a necessity.
O’Grady Solicitors
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For Ireland, there remains the threat of the Common Consolidated Corporate Tax Base
(CCCTB). Put simply, this seeks to be better align taxable profits with the substance of
an operation. Using employee numbers or fixed assets levels as a driver of profits, it is
easy to see how Ireland’s taxable base could shrink in comparison to the larger Member
States if the CCCTB is introduced (which thankfully is far from certain). However, it is
on the agenda of the New EU Commissioner for Taxation, Algirdas Semeta. In addition
to the CCCTB, Ireland also faces competition from same of the new Members States,
which can combine relatively low tax rates with significantly lower wage costs
(notwithstanding the recent deflationary period).
HOLDING COMPANY REGIME
An attractive holding company regime is an important part of the drive to attract FDI to
Ireland. On its own, the location of a Group’s HQ here may not signify much in terms of
jobs growth or represent a significant boost to Ireland’s economy. However, it represents
a hook capable of attracting additional investment and as such it is a significant part of
our memory.
Over the past number of years many changes have been introduced to Ireland’s holding
company regime. In general, these have been positive moves and have encourage foreign
multinationals to relocate here. Ireland currently except capital gains derived from the
sale of a tax treaty resident foreign subsidiaries. While there are certain restrictions, in
particular regarding trading status, the rules are broadly similar to our European
counterparts.
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However dividends received by an Irish holding company from foreign subsidiaries are
still subject to tax in Ireland, albeit at lower rates (following recent Finance Act changes)
and with a credit for the foreign tax suffered. However, the system is both unnecessarily
complex and less favourable than similar regimes across Europe. The complete
exemption of dividends received from tax treaty countries would greatly simplify the
existing system and provide greater incentive to companies to repatriate profits earned
abroad.
SUMMARY OF KEY TAX ATTRIBUTES OF IRELAND AS A HOLDING
COMPANY LOCATION
Ireland, as a holding company location has a number of merits including the following:

A 12.5% tax rate applies to trading profits while a 25% rate applies to passive
investment income.

Dividends received from a company in an EU or tax treaty country are liable to
corporation tax at 12.5% provided the dividend is paid out of trading profits.

Also, the 12.5% tax rate applicable to foreign dividends will include dividends
from non-treaty/non-EU locations where the company paying the dividend is
quoted on a recognised stock exchange in another EU Member State or a tax
treaty country or is owned directly or indirectly by such a company.

Ireland’s treaty network could be considered medium to high. Ireland has 49
comprehensive double tax agreements in place.

Irish holding companies my be exempt from capital gains tax upon the disposal of
shares in certain subsidiaries once certain conditions are met.

Ireland does not have any thin capitalisation or CFC legislation.

Ireland has only limited transfer pricing legislation in place.

Other tax incentives available in Ireland for holding companies include –
o Intellectual property relief - tax relief in the form of capital allowances is
available for expenditure incurred by companies on a wide range of
intangible assets.
o Research and development – a potential 25% tax credit is available in
respect of expenditure on qualifying research and development activities
within the European Economic Area. There is flexibility in the system
such that a refund may be available in certain circumstances where the
corporation tax liability is insufficient to clam the credit.
o Patent royalty exemption – qualifying patent income subject to a ceiling
of €5 million may be regarded as exempt income for tax purposes. Irish
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tax legislation also allows the tax-free nature of such income to be passed
to shareholders who receive dividends from a company that qualified for
the patent income exemption.
o Foreign tax credits – where foreign tax has been paid on the underlying
profits out of which foreign dividends are paid from a subsidiary, relief
should be available in respect of the foreign tax paid. Any unused foreign
tax credits may be pooled and offset against other foreign dividends.
MIGRATION OF HEAD OFFICE TO IRELAND
As noted above, several large MNCs have relocated their holding company to Ireland. The
absence of UK equivalent CFC provisions was often cited as a key reason. However, groups
with holding companies located in so called tax haven locations have also moved here, with
reputational reasons often a key driver.
What are the key points to note in moving a holding company to Ireland?

Typically, a non-Irish incorporated but Irish resident company becomes the new
holding company.

This produces significantly reduced reporting requirements.

There is no requirement to file accounts in Ireland.

If no existing presence in Ireland, there is a requirement to have enough substance in
Ireland to establish residence of holding company.
USING IRELAND AS A LOCATION TO HOLD INTELLECTUAL PROPERTY
As noted earlier in the morning, Ireland can also be us as a location to hold IP. The diagram
below outlines opportunities in this regard.
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Management of IP using an Irish Trading Company
UK
Parent
Transfer of IP
IRE Co
trade co
Royalties
Royalties
Foreign
Foreign
Third Party
Subs
License to use IP
BENEFITS
Tax efficient management of intellectual Property for UK and multinational companies using
and Irish trading company to manage the IP.
Tax deduction in Ireland for the IP acquired. Net profits subject to 12.5% tax. Important
that management of IP constitutes “trading” substance key. Maintaining residence of IreCo
also crucial.
R&D / patent relief?
Careful planning required on migration of IP from UK.
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FINANCING REGIME
Many companies, both Irish and overseas headquartered, use an Irish financing structure.
A typical structure (see below) involves an Irish company taking out finance, with the
proceeds used to lend interest to a Luxembourg tax resident company. The latter then lands
the funds at the market rate interest to the end user in a high tax rate jurisdiction say the
UK.
Subject to certain anti-avoidance provisions, the Irish company should be entitled to a tax
deduction for the interest paid on borrowings used to lend to the Luxembourg company.
This interest can be used to surrender against profits arising elsewhere in Irish tax resident
group companies.
The Luxembourg group company should be entitled to a deemed deduction for the notional
interest paid to the Irish Lender. A small margin is taxable in Luxembourg so that the
effective tax rate is circa 1.5%.
The UK borrower should be entitled to a deduction for the interest paid to Luxembourg,
subject to usual UK rules.
Interest Free Loan Structure
Irish Parent
Financing of UK operations using deemed interest
Deductive in Lux/Netherlands.
Minimal tax in Luxembourg
Irish Co.
Interest Free Loan
Lux Co.
UK OpCo
Interest Bearing Loan
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In practice, derivatives of the above structure may be used to manage a Group’s effective tax
rate. All such structures have a common purpose: to maximise the cash value of the interest
charge while simultaneously managing any related withholding tax concerns.