The Bill:
- introduces a new automatic exchange of information mechanism in respect of tax rulings and advance pricing agreements in accordance with Ireland’s obligations under an EU Directive;
- makes some changes to Ireland’s country by country (“CbC”) reporting rules;
- introduces a new regime for the taxation of Irish real estate funds and securitisation companies where such funds and companies hold Irish real estate or loans secured over Irish real estate.
Automatic Exchange of Information
The Bill implements Ireland’s obligations to automatically exchange tax information under EU Directive 2015/2376 (the “Directive”). The Directive requires the Irish Revenue Commissioners to exchange information in relation to:
- tax rulings (i) that relate to a ‘cross-border transaction’ (a term that is defined broadly), or (ii) that confirm whether or not activities carried on by a person give rise to a permanent establishment; and
- advance pricing agreements (“APAs”).
In line with the terms of the Directive, the requirement to exchange information can apply in certain circumstances to rulings issued as far back as 1 January 2012. Under the Directive, the information to be exchanged must be provided by the Irish Revenue Commissioners to the tax authorities of all other EU Member States. Other EU tax authorities will be under a reciprocal obligation to provide equivalent information to the Irish Revenue Commissioners in respect of tax rulings and APAs issued by those jurisdictions. A more limited set of information must also be provided to the European Commission. The obligation to exchange information under the Directive will apply from 1 January 2017.
CbC Reporting
Changes will be made to Ireland’s CbC reporting legislation, originally introduced in Finance Act 2015. The changes are relatively minor and are primarily designed to transpose EU Directive 2016/881, which requires CbC reporting to be implemented across the EU and provides for the automatic exchange of CbC reports between EU Member States.
The legislation also confirms that non-filing penalties apply where a taxpayer fails to comply with Ireland’s secondary reporting mechanism.
Taxation of Irish Real Estate Investment Funds
Following an announcement made by the Irish Minister for Finance (the “Minister”) in September 2016, the Bill proposes that Irish regulated investment funds that hold Irish real estate linked assets will, in certain circumstances, be subject to a new tax regime. The announcement will not impact the vast majority of Irish funds – it is only relevant to those funds that have invested in Irish real estate assets (described in the Bill as “IREFs”).
Under the new regime, a withholding tax will be applied (at 20%) to distributions attributable to the Irish real estate related profits of the IREF and amounts paid on redemption to certain categories of investors. However, an exemption will be available in respect of the distribution of profits from the sale of real estate held for more than five years by the IREF. In addition, no withholding will apply where distributions or redemption amounts are paid to investors that are themselves European (including Irish) investment funds, pension funds or life assurance funds.
The new provisions will apply to IREFs for accounting periods beginning on or after 1 January 2017.
Taxation of Irish Real Estate Assets Held by Securitisation Companies
In line with the announcement made by the Minister in September 2016, the tax treatment applicable to Irish securitisation companies that hold loans secured over Irish real estate and / or other financial assets that derive the greater part of their value from Irish real estate will also change. These changes will have no impact on Irish securitisation companies that have invested in assets that are not linked to Irish real estate.
Under the terms of the Bill, Irish securitisation companies that hold loans secured over Irish real estate or other assets deriving their value from Irish real estate may not be permitted to deduct profit participating interest payments made to investors. This could result in certain securitisation companies that hold Irish real estate linked assets incurring an Irish corporation tax liability at a rate of 25% on the profits (after the deduction of an arm’s length rate of interest) arising from such assets.
The legislation includes a number of exclusions from the new treatment which can be divided into three broad categories:
- exclusions that apply if the investors in the securitisation company satisfy certain criteria – in general terms deductions for profit participating interest may continue to be available to the extent the investors are taxable in Ireland, or in an EU Member State, or to the extent the investors are pension funds;
- exclusions that apply if other Irish tax conditions are satisfied – these exclusions are available to the extent interest paid by the securitisation company does not exceed a reasonable commercial rate or is subject to Irish withholding tax; or
- exclusions that are designed to apply to particular transaction types – these exclusions are designed to apply to CLO, CMBS and RMBS transactions and to transactions where the securitisation company originates loans.
Upon enactment of the Bill, it is intended that these changes will be effective to apply to affected companies from 6 September 2016.
Next Steps
The Bill will be debated by the Irish legislature over the coming weeks. Changes may be made during that time. It is anticipated that the Bill will be enacted and become law before the end of 2016.
By Matheson
