Finance Act 2019

Type Act

Publication 2019-12-22

State In force

Source Irish Statute Book

articles 76

“(5) Subsection (4) shall apply only in respect of any interest or other distribution as is paid by a qualifying company where it would be reasonable to consider that the payment is made, or the security to which the payment relates was entered into, for bona fide commercial purposes and does not form part of any arrangement or scheme of which the main purpose, or one of the main purposes, is the avoidance of tax.”,

and

(d) by inserting after subsection (6) the following:

“(7) For the purposes of this section, a person has control of a company where that person has—

(a) the power to secure—

(i) by means of the holding of shares or the possession of voting power in or in relation to that or any other company, or

(ii) by virtue of any powers conferred by the constitution, articles of association or other document regulating that or any other company,

that the affairs of the first-mentioned company are conducted in accordance with the wishes of that person, or

(b) significant influence over the first-mentioned company and holds, directly or indirectly, more than—

(i) 20 per cent of the issued share capital of the company,

(ii) 20 per cent of the principal value of any securities referred to in subsection (4) issued by that company, or any such securities where those securities have no principal value, or

(iii) the right to 20 per cent of the interest or other distribution payable in respect of any securities referred to in subsection (4) issued by that company.”.

29. Amendment of Part 25A of Principal Act (real estate investment trusts)

29. (1) Part 25A of the Principal Act is amended—

(a) by inserting the following section after section 705H:

“Profit: calculating profits available for distribution

705HA. ((1) This section applies to any amount taken into account by a REIT or group REIT, in computing its aggregate profits, in respect of any disbursement or expense, not being money wholly and exclusively laid out or expended for the purposes of the property rental business (referred to in this section as the ‘disallowed amount’).

(2) The REIT or the principal company of the group REIT, as the case may be, shall be treated as receiving an amount of income equal to the disallowed amount.

(3) The amount of income referred to in subsection (2) shall be chargeable to corporation tax under Case IV of Schedule D and shall be treated as income—

(a) arising in the accounting period in which the disallowed amount was taken into account, and

(b) against which no loss, deficit, expense or allowance may be set off.”,

(b) by inserting the following section after section 705I:

“Disposals and reinvestments

705IA.(1) This section applies where a REIT or group REIT disposes of a property of its property rental business.

(2) In this section—

(a) subject to paragraph (b), ‘net proceeds’, in relation to the disposal of the property of the property rental business, means the full proceeds from such disposal as reduced by any amount used to repay, in whole or in part, specified debt to the extent that the specified debt being repaid was employed in the acquisition, enhancement or development of the property being disposed of;

(b) where the reference to the expression ‘net proceeds’ (in relation to such disposal) occurs for the purposes of subsection (3)(ii), that reference shall be deemed to be a reference to an amount that is equal to the net proceeds (in relation to such disposal) as that expression is to be construed by virtue of paragraph (a).

(3) Where the net proceeds from the disposal of the property are not—

(a) invested in the acquisition of a new property for use in the REIT’s or group REIT’s property rental business,

(b) invested in the development or enhancement of a property held for use in the REIT’s or group REIT’s property rental business, or

(c) distributed to the shareholders of the REIT or the shareholders of the principal company of the group REIT, as the case may be,

before—

(i) the expiry of the period referred to in section 705I(2) (in this subsection referred to as the ‘first-mentioned period’) or, if earlier than that expiry, the date specified in a notice given under subsection (1) or (4) of section 705O (in this subsection referred to as the ‘specified date’), or

(ii) for the purposes of satisfying the condition specified in paragraph (a) or (b), the expiry of the period of 12 months beginning prior to the date of disposal of the property,

then any amount not so invested or distributed shall, for the purposes of applying the condition specified in section 705B(1)(b)(vi) and for the purposes of section 705N(a), be treated as property income of the REIT or group REIT arising in the accounting period in which the first-mentioned period expires or the specified date falls.

(4) Subsections (2) and (3) of section 172D, and subsection (4) of section 153, shall not apply to any distribution of the proceeds of a disposal referred to in subsection (1).”,

and

(c) in section 705P(2) by substituting for “Where a notice is given under subsection (1) or (4) of section 705O, the assets of the REIT or group REIT” the following:

“Where—

(a) a notice is given under subsection (1) or (4) of section 705O, and

(b) at the time of the giving of that notice, not less than fifteen years have elapsed from the date the REIT or group REIT became such under section 705E(4),

the assets of the REIT or group REIT”.

(2) Subsection (1)(a) shall have effect from 1 January 2020.

(3) Paragraphs (b) and (c) of subsection (1) shall apply to disposals made after 8 October 2019.

30. Irish real estate funds

30. (1) Chapter 1B of Part 27 of the Principal Act is amended—

(a) in section 739K(1) —

(i) by inserting the following definitions:

“ ‘balance sheet’ means the balance sheet, statement of financial position or equivalent prepared in respect of an investment undertaking or sub-fund, as the case may be, in accordance with international accounting standards or alternatively in accordance with the generally accepted accounting practice specified in the investment undertaking’s prospectus;

‘market value’ shall be construed in accordance with section 548;

‘value of an IREF taxable event’ in relation to an IREF taxable event within the meaning of—

(a) paragraph (a) of the definition of ‘IREF taxable event’, means the value of the relevant payment,

(b) paragraphs (b), (c), (d), (e) and (f) of the definition of ‘IREF taxable event’, means the market value of the unit less any amount subscribed for that unit, and

(c) paragraph (g) of the definition of ‘IREF taxable event’, means the amount of the accrued IREF profits sold or transferred;”,

(ii) in the definition of “IREF assets”, in paragraph (d), by inserting “(within the meaning of section 110(5A))” after “specified mortgages”, and

(iii) in the definition of “IREF excluded profits”, by substituting the following paragraph for paragraph (c):

“(c) in relation to shares, within the meaning of paragraph (b) of the definition of ‘IREF assets’, any profits or gains other than—

(i) property income dividends, or

(ii) distributions in respect of gains accruing on the disposal of assets of the property rental business of the REIT or group REIT concerned, as the case may be,

in relation to those shares;”,

(b) by inserting the following section after section 739K:

“Associated enterprises

739KA. (1) In this section and section 739LC—

‘connected’ has the same meaning as in section 10, subject to the modification that references in section 10 to ‘control’ shall be read as if they were references to control within the meaning of subsection (4) of this section;

‘deposit’ means a sum of money paid to an enterprise on terms under which it, or any part of it, may be repaid with or without interest and either on demand or at a time or in circumstances agreed by or on behalf of the person making the payment and the person to whom it is made, notwithstanding that the amount to be repaid may be to any extent linked to or determined by changes in a stock exchange index or any other financial index;

‘enterprise’ means an entity or an individual;

‘entity’ means—

(a) a person (other than an individual),

(b) an investment undertaking, subject to subsection (2),

(d) an offshore fund (within the meaning of section 743(1)), or

(e) any other agreement, undertaking, scheme or arrangement, whether established or created under the law of the State or of a territory other than the State,

that would, for the purposes of the Tax Acts, be regarded as—

(i) carrying on any of the activities referred to in paragraph (b), (c) or (d) of subsection (4), or

(ii) advancing amounts, making funds available or receiving interest as referred to in subsections (3) and (4) of section 739LC;

‘member’, in relation to a pension scheme, means—

(a) an employer or employee, in respect of a scheme referred to in section 774,

(b) an individual referred to in section 784(1)(a), 784A(1)(b), 784C(2) or 785(1), or

‘significant influence in the management of’, in relation to an entity, means the ability to participate in the financial and operating decisions of that entity.

(2) Where the entity referred to in paragraph (b) of the definition of ‘entity’ is an umbrella scheme, regard shall be had to each sub-fund of that umbrella scheme and the unit holders of that sub-fund, as if that sub-fund was an entity in its own right.

(3) For the purposes of this section and section 739LC, an enterprise shall be treated as an associate of another enterprise where—

(a) one of the 2 enterprises has control of the other enterprise, or both enterprises are under the control of the same enterprise or enterprises,

(b) one enterprise is connected with the other enterprise,

(c) those enterprises are associated within the meaning of section 739D(1)(a), where those enterprises are investment undertakings or similar entities established under the laws of a territory other than the State,

(d) one enterprise is a pension scheme and the other enterprise is a member of that scheme, or

(e) one enterprise is a scheme, similar to a pension scheme, that is established under the laws of a territory other than the State and the other enterprise is a member of that scheme.

(4) For the purposes of this section, an enterprise shall be taken to have control of an entity if one or more than one of the following conditions are satisfied:

(a) where the enterprise is an entity, and—

(i) both entities are included in the same consolidated financial statements prepared under—

(I) international accounting standards, or

(II) Irish generally accepted accounting practice,

(ii) both entities—

(I) are not included in the same consolidated financial statements, or

(II) are included in consolidated financial statements prepared under an accounting practice referred to in paragraph (a)(i)(I),

but would, if consolidated financial statements were prepared under the accounting practice referred to in paragraph (a)(i)(I), be included in the same consolidated financial statements;

(b) where that enterprise exercises, or is able to exercise or is entitled to acquire, control, whether direct or indirect, over the entity’s affairs and, in particular, but without prejudice to the generality of the foregoing—

(i) if such enterprise possesses or is entitled to acquire (other than in the circumstances described in section 739LC(4))—

(I) not less than 25 per cent of the—

(A) issued share capital of a company, or

(B) units of an investment undertaking,

(II) not less than 25 per cent of the voting power in the entity, or

(III) such rights as would if the whole of the profits of the entity were distributed, entitle the enterprise, directly or indirectly, to receive 25 per cent or more of the profits so distributed,

(ii) by virtue of any powers conferred by the constitution, articles of association or other document regulating that or any other entity;

(d) where the enterprise holds one or both of the following securities in the entity:

(i) securities convertible directly or indirectly into shares in a company, or units in the investment undertaking, or securities carrying any right to receive units or securities of the entity;

(ii) securities under which the consideration given by the entity for the use of the principal secured—

(I) is to any extent dependent on the results of the entity’s business or any part of the entity’s business, where the entity is not an investment undertaking, or

(II) represents more than a reasonable commercial return for the use of that principal.

(5) Where 2 or more connected enterprises together satisfy the condition set out in subsection (4)(b), they shall each be taken to have control of the entity.

(6) For the purposes of subsection (4)(b), an enterprise shall be treated as entitled to acquire anything which such enterprise is entitled to acquire at a future date or will at a future date be entitled to acquire.

(7) For the purposes of subsections (4)(b) and (5), there shall be attributed to an enterprise any rights or powers of a nominee for such enterprise, that is, any rights or powers which another enterprise possesses on such enterprise’s behalf or may be required to exercise on such enterprise’s direction or behalf.

(8) For the purposes of subsections (4)(b) and (5), there may also be attributed to any enterprise (in this subsection referred to as the ‘first-mentioned enterprise’) all the rights and powers of—

(a) any enterprise of which the first-mentioned enterprise has, or the first-mentioned enterprise and associates of the first-mentioned enterprise have, control,

(b) any 2 or more enterprises of which the first-mentioned enterprise has, or the first-mentioned enterprise and associates of the first-mentioned enterprise have, control,

(d) any 2 or more associates of the first-mentioned enterprise,

including the rights and powers attributed to an enterprise or associate under subsection (7), but excluding those attributed to an associate under this subsection.”,

(i) by substituting

for ,

(ii) by substituting “A is the value of the IREF taxable event which is attributable to the retained profits of the IREF,” for “A is the portion of the IREF taxable event which is attributable to the retained profits of the IREF,”,

(iii) by substituting “IREF,” for “IREF, and”,

(iv) by substituting “by the IREF, and” for “by the IREF.”,

(v) by inserting the following:

“E is an amount calculated as the difference between the value of the IREF taxable event and the value of the unit in accordance with the balance sheet of the IREF, where the IREF taxable event is one referred to in paragraph (b) of the definition of ‘value of an IREF taxable event’ in section 739K(1) and the value of the unit in accordance with the balance sheet of the IREF is less than the value of the IREF taxable event.”,

(vi) by designating the section (as amended by subparagraphs (i) to (v)) as subsection (1), and

(vii) by inserting the following subsection after subsection (1):

“(2) For the purposes of subsection (1), ‘value of the unit in accordance with the balance sheet’ means the net asset value of the IREF, calculated in accordance with the balance sheet of the IREF at the date of the computation of the value of an IREF taxable event, which is attributable to each unit less any amount subscribed for that unit.”,

(d) by inserting the following sections after section 739L:

“Profit: financing cost ratio

739LA. (1) In this section—

‘adjusted property financing costs’ means the property financing costs less any amount of income referred to in subsection (2)(b);

‘property financing costs’ means costs, being costs of debt finance or finance leases, which are taken into account in arriving at the profits of an IREF, including amounts in respect of—

(a) interest, discounts, premiums, or net swap or hedging costs, and

(b) fees or other expenses associated with raising debt finance or arranging finance leases;

‘property financing costs ratio’ means the ratio of the sum of profits of an IREF and the adjusted property financing costs of an IREF to the adjusted property financing costs of the IREF;

‘relevant cost’ means the amount which would be allowable as a deduction for the purposes of the Capital Gains Tax Acts under section 552(1);

‘specified debt’ means any debt incurred by an IREF in respect of monies borrowed by, or advanced to, the IREF.

(2) (a) This subsection applies where the aggregate of the specified debt exceeds an amount equal to 50 per cent of the relevant cost of the IREF assets (and that excess is referred to in this subsection as the ‘excess specified debt’).

(b) Where this subsection applies, the IREF shall be treated for the purposes of the Income Tax Acts as receiving an amount of income determined by the formula—

where—

A is the property financing costs,

B is the excess specified debt, and

C is the total specified debt.

(3) (a) This subsection applies where the property financing costs ratio of the IREF is less than 1.25:1 for an accounting period.

(b) Where this subsection applies, the IREF shall be treated for the purposes of the Income Tax Acts as receiving an amount of income equal to the amount by which the adjusted property financing costs would have to be reduced for the property financing costs ratio to equal 1.25:1 for that accounting period.

(4) The amount of income referred to in subsections (2) and (3) shall be charged to income tax under Case IV of Schedule D and shall be treated as income—

(a) arising in the year of assessment in which the accounting period in which the amount was taken into account ends, and

(b) against which no loss, deficit, expense or allowance may be set off.

Profit: calculating profits available for distribution

739LB. (1) This section applies to any amount taken into account by an IREF in computing the profits of the IREF, in respect of any disbursement or expense, not being money wholly and exclusively laid out or expended for the purposes of the IREF business (referred to in this section as the ‘disallowed amount’).

(2) The IREF shall be treated as receiving for the purposes of the Income Tax Acts an amount of income equal to the disallowed amount.

(3) The amount of income referred to in subsection (2) shall be charged to income tax under Case IV of Schedule D and shall be treated as income—

(a) arising in the year of assessment in which the accounting period in which the disallowed amount was taken into account ends, and

(b) against which no loss, deficit, expense or allowance may be set off.

Exclusion for third-party debt

739LC.(1) Where—

(a) an amount of income is treated as arising to an IREF under section 739LA or 739LAA, and

(b) some or all of that amount relates to a third-party debt,

the amount of income on which the IREF is charged to income tax shall be reduced by the amount of income that would have been charged to tax had the specified debt consisted solely of third-party debt.

(2) (a) Subject to subsection (4), for the purposes of this section, ‘third-party debt’ means—

(i) a loan advanced to the IREF by an enterprise other than an associate of that IREF,

(ii) where the full amount advanced is employed, subject to paragraph (c), in the purchase, development, improvement or repair of a premises, and

(iii) the loan is not subject to any arrangements of a type referred to in subsection (3),

and includes a loan which satisfies the conditions of subparagraphs (i) and (iii) where the amount advanced is used to repay a loan which satisfied the condition of subparagraph (ii).

(b) References in this section to an amount being advanced to an IREF, or being payable by an IREF, shall be read as including an amount advanced to, or payable by, a partnership in which the IREF is a partner.

(i) monies borrowed at or about the time of the purchase of the premises shall be treated as having been employed in the purchase of those premises, and

(ii) amounts employed in purchasing a property from an associate of an IREF shall only be treated as third-party debt if immediately prior to the purchase that associate had carried out significant development work on the property, such that the development exceeds 30 per cent of the market value of the property at the date of the commencement of the development, and the property is being acquired by the IREF for the purposes of property rental.

(3) For the purposes of subsection (2)(a)(iii), the arrangements are any of the following:

(a) arrangements pursuant to which—

(i) interest is payable by an IREF to another enterprise such that this section does not apply by virtue only of the fact that the IREF and the enterprise concerned are not associated, and

(ii) interest is payable by some other enterprise not associated with the IREF to an enterprise associated with the IREF;

(b) arrangements pursuant to which—

(i) interest is payable by an IREF to another enterprise (in this paragraph referred to as the ‘first-mentioned enterprise’) where the IREF and the first-mentioned enterprise concerned are not associated, and

(ii) the first-mentioned enterprise—

(I) has been advanced an amount by another enterprise that is an associate of the IREF, or

(II) has received a deposit from another enterprise that is an associate of the IREF,

equal to some or all of the principal amount of the loan in respect of which the interest referred to in subparagraph (i) is payable;

(c) arrangements entered into in relation to an IREF the effect of which is that any amount has been advanced, or funds have been made available, indirectly from an associate of an IREF to the IREF, or interest is payable by an IREF indirectly to an associate of that IREF, in circumstances other than those referred to in paragraph (a) or (b);

(d) arrangements pursuant to which—

(i) associates of an IREF (in this paragraph referred to as the ‘first-mentioned IREF’) advance amounts, or make funds available, directly or indirectly to an IREF with whom they are not associated (in this paragraph referred to as the ‘second-mentioned IREF’), and

(ii) associates of the second-mentioned IREF advance amounts, or make funds available, directly or indirectly to the first-mentioned IREF,

and those IREFs, or those associates, are acting in concert or under arrangements made by any enterprise.

(4) Notwithstanding section 739KA, a loan which is a third-party debt shall not cease to be so treated where the lender becomes an associate of the IREF solely on account of the enforcement of any security granted as a bona fide condition of, or in connection with, the loan.”,

(e) by inserting the following section after section 739LA (inserted by paragraph (d)):

“Profit: financing cost ratio from 1 January 2020

739LAA. (1) In this section—

‘adjusted property financing costs’ means the property financing costs less any amount of income referred to in subsection (2)(b);

‘annual IREF profits’ means the profits, gains or losses of an IREF business as shown in the income statement of the IREF excluding—

(a) any realised profits, gains or losses in relation to the disposal of an asset, and

(b) any unrealised profits, gains or losses in relation to an asset,

where the disposal of such asset would be a disposal of a chargeable asset for the purposes of capital gains tax or corporation tax on chargeable gains and would otherwise form part of relevant profits of the IREF which are not chargeable to tax under section 739C;

‘property financing costs’ means costs, being costs of debt finance or finance leases, which are taken into account in arriving at the profits of an IREF, including amounts in respect of—

(a) interest, discounts, premiums, or net swap or hedging costs, and

(b) fees or other expenses associated with raising debt finance or arranging finance leases;

‘property financing costs ratio’ means the ratio of the sum of the annual IREF profits and the adjusted property financing costs of an IREF to the adjusted property financing costs of the IREF;

‘relevant cost’ means the amount which would be allowable as a deduction for the purposes of the Capital Gains Tax Acts under section 552 subject to the modification that references in subsection (3) of that section to ‘borrowed money’ shall be read as if they were references only to borrowed money that is third-party debt;

‘specified debt’ means—

(a) any debt incurred by an IREF in respect of monies borrowed by, or advanced to, the IREF, or

(b) a portion of any debt incurred by a partnership in which the IREF is a partner, in respect of monies borrowed by, or advanced to, the partnership, calculated as the higher of—

(i) the portion of the capital of the partnership held by the IREF, or

(ii) the portion of the profits of the partnership to which the IREF is entitled.

(b) Where this subsection applies, the IREF shall be treated for the purposes of the Income Tax Acts as receiving an amount of income determined by the formula—

where—

A is the property financing costs,

B is the excess specified debt, and

C is the total specified debt.

(3) (a) This subsection applies where—

(i) the property financing costs ratio of the IREF is less than 1.25:1 for an accounting period and the sum of the annual IREF profits and the adjusted property financing costs of an IREF is greater than zero, or

(ii) the sum of the annual IREF profits and the adjusted property financing costs of an IREF is zero or lower.

(b) Where this subsection applies—

(i) by virtue of paragraph (a)(i), the IREF shall be treated for the purposes of the Income Tax Acts as receiving an amount of income equal to the amount by which the adjusted property financing costs would have to be reduced for the property financing costs ratio to equal 1.25:1 for that accounting period, and

(ii) by virtue of paragraph (a)(ii), the IREF shall be treated for the purposes of the Income Tax Acts as receiving an amount of income equal to the adjusted property financing costs.

(4) The amount of income referred to in subsections (2) and (3) shall be charged to income tax under Case IV of Schedule D and shall be treated as income—

(a) arising in the year of assessment in which the accounting period in which the amount was taken into account ends, and

(b) against which no loss, deficit, expense or allowance may be set off.

(5) In respect of the charge to income tax imposed under this section and section 739LB—

(a) section 76(6) shall not apply to an IREF which is a company, and

(b) the amount so charged shall, for the purposes of Part 35A, not be profits or gains arising from relevant activities.

(6) (a) Section 739LA shall not apply to an accounting period to which this section applies.

(b) This section shall apply to accounting periods commencing on or after 1 January 2020 and where an accounting period commences before 1 January 2020 and ends after that date, it shall be divided into two parts, one beginning on the date on which the accounting period begins and ending on 31 December 2019 and the other beginning on 1 January 2020 and ending on the date on which the accounting period ends, and both parts shall be treated as if they were separate accounting periods of the IREF.”,

(f) in section 739O(1), by substituting “person, or connected persons within the meaning of section 10,” for “person”, and

(g) in section 739R—

(i) in subsection (1), by substituting the following for “IREF withholding tax shall be accounted for and paid”:

“an IREF shall—

(a) file a return referred to in subsection (2), and

(b) account for and pay IREF withholding tax”,

(ii) in subsection (2), by deleting “of the IREF withholding tax”,

(iii) by inserting the following subsection after subsection (3):

“(3A) The return referred to in subsection (2) shall contain the following information:

(a) where the IREF is a sub-fund of an umbrella scheme, details of the umbrella scheme;

(b) details of the unit holdings held by each unit holder of the IREF;

(d) details of the IREF business carried on by the IREF;

(e) details of any transactions with persons connected with the unit holder; and

(f) details of any IREF taxable events to which section 739T applies.”,

and

(iv) in subsection (4), by inserting “, where one or more than one IREF taxable event occurs in the period to which the return relates,” after “shall”.

(2) Schedule 29 to the Principal Act is amended in Column 1 by inserting “section 739R(2) ” after “section 739F(2) ”.

(3) Section 19(1)(d) of the Finance Act 2017 is amended by deleting subparagraph (i).

(4) Paragraph (a)(i), paragraph (b), subparagraphs (i), (ii), (iii), (iv) and (v) of paragraph (c) and paragraph (d) of subsection (1) shall apply to accounting periods commencing on or after 9 October 2019 and where an accounting period commences before 9 October 2019 and ends after that date, it shall be divided into two parts, one beginning on the date on which the accounting period begins and ending on 8 October 2019 and the other beginning on 9 October 2019 and ending on the date on which the accounting period ends, and both parts shall be treated as if they were separate accounting periods of the IREF.

31. Hybrid mismatches

31. The Principal Act is amended by inserting the following Part after Part 35B:

“PART 35C

Implementation of Council Directive (EU) 2016/1164 of 12 July 2016 as regards hybrid mismatches

Chapter 1

Interpretation and general (Part 35C)

Interpretation (Part 35C)

835Z. (1) In this Part—

‘arrangement’, other than in the definition of ‘entity’ and ‘hybrid entity’, 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

whether entered into or arranged by one or two or more enterprises—

(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;

‘associated enterprise’ shall be construed in accordance with section 835AA;

‘chargeable period’ has the same meaning as it has in Part 41A;

‘controlled foreign company charge’ has the same meaning as it has in Part 35B;

‘deduction’ in respect of a payment, or part thereof, refers to an amount—

(a) which may be taken into account as an expenditure or expense,

(b) in respect of which an allowance for capital expenditure may be made, or

in computing the profits or gains on which tax falls finally to be borne for the purposes of domestic tax or foreign tax;

‘deemed payment’ means—

(a) in relation to a transaction between the head office of an entity and a permanent establishment of that entity, the allocation of payments, profits or gains from the head office to the permanent establishment, and

(b) in relation to a transaction between two or more permanent establishments of an entity, the allocation of payments, profits or gains from one permanent establishment to another;

‘Directive (EU) 2016/1164’ means Council Directive (EU) 2016/1164 of 12 July 2016[^5] laying down rules against tax avoidance practices that directly affect the functioning of the internal market, as amended by Directive (EU) 2017/952;

‘Directive (EU) 2017/952’ means Council Directive (EU) 2017/952 of 29 May 2017[^6] amending Directive (EU) 2016/1164 as regards hybrid mismatches with third countries;

‘domestic tax’ means income tax, corporation tax (including a controlled foreign company charge) or capital gains tax;

‘double deduction’ means a deduction in respect of the same payment for the purposes of domestic tax and foreign tax;

‘double deduction mismatch outcome’ shall be construed in accordance with section 835AD;

‘dual inclusion income’, subject to section 835AB, means any amount which is included in both territories where the mismatch outcome has arisen;

‘enterprise’ means an entity or an individual;

‘entity’ means—

(a) a person (other than an individual),

(b) an undertaking (other than an individual), or

that has legal personality under the laws of the territory in which it is established;

‘financial instrument deduction without inclusion mismatch outcome’ shall be construed in accordance with section 835AJ;

‘foreign company charge’ has the same meaning as it has in Part 35B;

‘foreign tax’ means a tax chargeable on profits or gains, under the laws of a territory other than the State, that is similar to a domestic tax, but not including a withholding tax to the extent that such a tax is refundable where it has been levied;

‘hybrid entity’ means—

(a) a person (other than an individual),

(b) an undertaking (other than an individual), or

some or all of the profits or gains of which are treated, or would be so treated but for an insufficiency of profits or gains, under the tax law of one territory as arising or accruing to the entity on its own account, but, for the purposes of tax charged under the tax law of another territory, some or all of the profits or gains of which are treated, or would be so treated but for an insufficiency of profits or gains, as arising or accruing to another enterprise (in this Part referred to as ‘the participator’);

‘included’ in respect of a payment, means an amount of profits or gains arising from the payment—

(a) that is treated as arising or accruing to the payee where the payee—

(i) is chargeable to domestic tax or foreign tax, as the case may be, but not including any amount which is only so chargeable when it is remitted into the payee territory,

(ii) is a pension fund, government body or other entity that, under the laws of the territory in which it is established, is exempt from tax which generally applies to profits or gains in that territory,

(iii) is established in a territory, or part of a territory, that does not impose a foreign tax, or

(iv) is established in a territory that does not impose a tax that generally applies to profits or gains derived from payments receivable in that territory by enterprises from sources outside that territory,

(b) that is subject to a controlled foreign company charge or a foreign company charge;

‘investor’ means an enterprise or the permanent establishment of an entity, against whose profits or gains a deduction is made in respect of a payment in the investor territory;

‘investor territory’, in relation to a payment, means a territory, other than the payer territory, where the payment is deductible;

‘mismatch outcome’ means any or all of the following, as the context requires:

(a) a double deduction mismatch outcome;

(b) a permanent establishment deduction without inclusion mismatch outcome;

(d) a payment to a hybrid entity deduction without inclusion mismatch outcome;

(e) a payment by a hybrid entity deduction without inclusion mismatch outcome;

‘payee’, in respect of a payment, means an enterprise or permanent establishment of an entity—

(a) which receives that payment or is treated as receiving that payment under the laws of any territory, other than where that payment is received or treated as being received, as the case may be, in a fiduciary or representative capacity,

(b) which is a participator,

(d) on which a controlled foreign company charge or foreign company charge is made by reference to that payment;

‘payee territory’ means a territory in which a payee is established;

‘payer’ means—

(a) an enterprise, or

(b) the permanent establishment of an entity,

against whose profits or gains a deduction is made in respect of a payment in a payer territory;

‘payer territory’ means—

(a) in a case in which the payment concerned is made by a hybrid entity or a permanent establishment, the territory in which the hybrid entity or permanent establishment, as the case may be, is established, and

(b) in all other cases, the territory where the payment in respect of which the deduction concerned is incurred, sourced or made;

‘payment’ means—

(a) a transfer of money or money’s worth, or

(b) a deemed payment;

‘payment by a hybrid entity deduction without inclusion mismatch outcome’ shall be construed in accordance with section 835AM;

‘payment to a hybrid entity deduction without inclusion mismatch outcome’ shall be construed in accordance with section 835AL;

‘permanent establishment deduction without inclusion mismatch outcome’ shall be construed in accordance with section 835AG;

‘structured arrangement’ means an arrangement involving a transaction, or series of transactions, under which a mismatch outcome arises, where—

(a) the mismatch outcome is priced into the terms of the arrangement, or

(b) the arrangement was designed to give rise to a mismatch outcome;

‘tax period’ means—

(a) in respect of a charge to domestic tax, a chargeable period,

(b) in respect of a charge to foreign tax, a period equivalent to a chargeable period, or

(2) A reference to a provision of the law of a territory, other than the State, similar to this Part, or a provision of this Part, is a reference to a provision enacted to—

(a) give effect to Directive (EU) 2016/1164,

(b) implement the Final Report on Neutralising the Effects of Hybrid Mismatch Arrangements published by the Organisation for Economic Co-operation and Development on 5 October 2015,

(c) implement the Final Report on Neutralising the Effects of Branch Mismatch Arrangements published by the Organisation for Economic Co-operation and Development on 27 July 2017, or

(d) otherwise neutralise a mismatch outcome,

where that provision has a similar effect to this Part, or a provision of this Part, as the case may be.

(3) A word or expression which is used in this Part and is also used in Directive (EU) 2016/1164 has, unless the context otherwise requires, the same meaning in this Part as it has in Directive (EU) 2016/1164.

(4) A reference in this Part—

(a) to the territory in which an entity is established, shall—

(i) in a case in which the entity is registered, incorporated or created under the laws of one territory, but has its place of effective management in another territory, be construed as a reference to the territory in which the entity has its place of effective management, and

(ii) in all other cases, be construed as a reference to the territory in which the entity is registered, incorporated or created,

and

(b) to the territory in which a permanent establishment is established, shall be construed as a reference to the territory in which the permanent establishment carries on a business.

Associated enterprises

835AA.(1) In this section—

‘non-consolidating entity’ means an entity which is valued, or would be so valued if consolidated financial statements were prepared under international accounting standards, in consolidated financial statements—

(a) using fair value accounting (within the meaning of international accounting standards), or

(b) on the basis that it is an asset held for sale or held for distribution (within the meaning of international accounting standards);

‘significant influence in the management of’, in relation to an entity, means the ability to participate, on the board of directors or equivalent governing body of the entity, in the financial and operating policy decisions of that entity, including where that power does not extend to control or joint control of that entity.

(2) In this Part, two enterprises shall be ‘associated enterprises’ in respect of each other—

(a) if one enterprise, directly or indirectly, possesses or is beneficially entitled to—

(i) where the other enterprise is an entity having share capital, not less than 25 per cent of the issued share capital of the other enterprise, or

(ii) where the other enterprise is an entity not having share capital, an interest of not less than 25 per cent of the ownership rights in the other enterprise,

(b) if one enterprise, directly or indirectly, is entitled to exercise not less than 25 per cent of the voting power in the other enterprise, where that other enterprise is an entity,

(c) if one enterprise (in this paragraph referred to as the ‘first-mentioned enterprise’), directly or indirectly, holds such rights as would—

(i) where the other enterprise is a company, if the whole of the profits of that other enterprise were distributed, entitle the first-mentioned enterprise, directly or indirectly, to receive 25 per cent or more of the profits so distributed, or

(ii) where the other enterprise is an entity other than a company, if the share of the profits of that other enterprise to which the first-mentioned enterprise is entitled, directly or indirectly, is 25 per cent or more,

(d) where there is another enterprise in respect of which the two enterprises are, in accordance with paragraph (a), (b) or (c), an associated enterprise,

(e) where both enterprises are entities that are—

(i) not non-consolidating entities, and

(ii) included in the same consolidated financial statements prepared under—

(I) international accounting standards, or

(II) Irish generally accepted accounting practice,

(f) where both enterprises—

(i) are entities that are—

(I) not included in consolidated financial statements, or

(II) included in consolidated financial statements prepared other than under an accounting practice referred to in paragraph (e)(ii),

(ii) are not non-consolidating entities, and

(iii) would, if consolidated financial statements were prepared under the accounting practice referred to in paragraph (e)(ii)(I), be included in the same consolidated financial statements,

(g) where one enterprise has significant influence in the management of the other enterprise.

(3) Where an enterprise (in this subsection referred to as the ‘first-mentioned enterprise’) acts together with another enterprise (in this subsection referred to as the ‘second-mentioned enterprise’) with respect to voting rights, share ownership rights or similar ownership rights, the first-mentioned enterprise shall be treated, for the purposes of paragraphs (a), (b) and (c) of subsection (2), as possessing, holding or being entitled to, as the case may be, the rights of the second-mentioned enterprise.

(4) For the purposes of paragraphs (a), (b) and (c) of subsection (2), there shall be attributed to an enterprise any rights or powers of a nominee for such enterprise, that is, any rights or powers which another enterprise possesses on such enterprise’s behalf or may be required to exercise on such enterprise’s direction or behalf.

(5) For the purposes of—

(a) Chapter 2,

(b) Chapter 3,

(d) the application of this Part to hybrid entities,

a reference, in subsection (2), to ‘25 per cent’ shall be construed as a reference to ‘50 per cent’.

(6) References in this Part to a transaction between associated enterprises shall include a reference to a transaction in respect of which the enterprises concerned are or were associated enterprises at the time—

(a) the transaction was entered into,

(b) the transaction was formed, or

Worldwide system of taxation

835AB. (1)Subject to subsection (3), this section applies where an entity is taxable in an investor or payee territory (in this section referred to as the ‘first-mentioned territory’) such that payments (in this section referred to as ‘disregarded payments’) between—

(a) the head office of the entity and a permanent establishment of that entity,

(b) two or more permanent establishments of the entity,

(d) where the entity is a participator in two or more hybrid entities, two or more such hybrid entities,

are disregarded when computing the taxable profits of the entity in the first-mentioned territory under a provision of the law of that territory similar in effect to section 26(1).

(2) Where—

(a) this section applies, and

(b) a payment is deductible in a case in which—

(i) the amount deducted would be deducted against dual inclusion income, or

(ii) the deduction would not result in a deduction without inclusion mismatch outcome,

but for the fact that the amount against which the payment is deductible in the payer territory is a disregarded payment in the first-mentioned territory,

the disregarded payment shall be treated as included in the first-mentioned territory.

(3) This section shall not apply where—

(a) the disregarded payments are between—

(i) where the entity referred to in subsection (1) is a participator in a hybrid entity, the entity and the hybrid entity, or

(ii) where the entity referred to in subsection (1) is a participator in two or more hybrid entities, two or more such hybrid entities,

and

(b) there is, in substance, a hybrid mismatch (either within the meaning of Directive (EU) 2016/1164 or within the meaning of that term when construed in a manner consistent with its use in the reports referred to in section 835Z(2)).

Chapter 2

Double deduction

Application of Chapter 2

835AC. This Chapter shall apply—

(a) to a company within the charge to corporation tax, and

(b) to a transaction giving rise to a mismatch outcome between—

(i) entities that are associated enterprises,

(ii) the head office of an entity and a permanent establishment of that entity, or

(iii) two or more permanent establishments of an entity.

Double deduction mismatch outcome

835AD.(1) A double deduction mismatch outcome shall arise where it would be reasonable to consider that there is, or but for this section there would be, a double deduction arising in respect of a payment, to the extent the payment is not, or would not be, deductible against dual inclusion income.

(2) A double deduction mismatch outcome shall be neutralised as follows:

(a) where the State is the investor territory, notwithstanding any other provision of the Tax Acts or the Capital Gains Tax Acts, the investor shall be denied a deduction for the purposes of domestic tax for the amount of the payment which gives rise to the double deduction mismatch outcome;

(b) where the State is the payer territory and a deduction has not been denied in the investor territory through the operation of a provision similar to paragraph (a), notwithstanding any other provision of the Tax Acts or the Capital Gains Tax Acts, the payer shall be denied a deduction for the purposes of domestic tax for the amount of the payment which gives rise to the double deduction mismatch outcome.

Chapter 3

Permanent establishments

Application of Chapter 3

835AE. This Chapter shall apply—

(a) to an entity which is within the charge to a foreign tax or to corporation tax, and

(b) to a transaction that gives rise to a mismatch outcome between—

(i) entities that are associated enterprises,

(ii) the head office of an entity and a permanent establishment of that entity, or

(iii) two or more permanent establishments of an entity.

Disregarded permanent establishment

835AF. (1) In this Chapter, ‘disregarded permanent establishment’ means a presence in a territory (in this subsection referred to as the ‘first-mentioned territory’)—

(a) which is treated for the purposes of the tax law of the territory in which an entity has its head office (in this subsection referred to as the ‘second-mentioned territory’) as a permanent establishment of that entity,

(b) some or all of the profits or gains of which are not included for the purposes of domestic tax in the second-mentioned territory, and

(i) where the first-mentioned territory is the State, the entity is not charged to tax under section 25, and

(ii) where the first-mentioned territory is not the State, the entity is not charged to foreign tax.

(2) In this section:

‘domestic tax’ means a tax chargeable on profits or gains, under the laws of a territory in which the head office of an entity is established, that is similar to income tax, corporation tax (including a charge under Part 35B) or capital gains tax;

‘foreign tax’ means a tax chargeable on profits or gains, under the laws of a territory in which the permanent establishment of the entity is established, that is similar to income tax, corporation tax (including a charge under Part 35B) or capital gains tax.

Permanent establishment deduction without inclusion mismatch outcome

835AG.(1) A permanent establishment deduction without inclusion mismatch outcome shall arise in respect of a payment where it would be reasonable to consider that—

(a) there is, or but for this section would be, a deduction in the payer territory, in a case in which a corresponding amount has not been included in the payee territory, and

(b) the satisfaction of the condition described in paragraph (a) is attributable to—

(i) the payment being made to a disregarded permanent establishment,

(ii) differences in the allocation of payments between the head office of an entity and a permanent establishment of that entity, or between two or more permanent establishments of an entity, or

(iii) where the payment is between the head office of an entity and a permanent establishment of that entity or between two or more permanent establishments of an entity, the payment being disregarded under the laws of the payee territory.

(2) A permanent establishment deduction without inclusion mismatch outcome shall not arise by virtue of the circumstance described in subsection (1)(b)(iii) to the extent the payment is, or would be, deductible against dual inclusion income.

(3) A permanent establishment deduction without inclusion mismatch outcome shall be neutralised as follows:

(a) where the State is the payer territory, notwithstanding any other provision of the Tax Acts and the Capital Gains Tax Acts, the payer shall be denied a deduction for the payment for the purposes of domestic tax, to the extent a corresponding amount has not been included for the purposes of foreign tax;

(b) where—

(i) the State is the payee territory,

(ii) the mismatch outcome arises by virtue of paragraph (b)(i) of subsection (1),

(iii) the disregarded permanent establishment is a permanent establishment within the meaning of Article 5 of the Model Tax Convention on Income and Capital, published by the Organisation for Economic Co-operation and Development, as it read on 21 November 2017, and

(iv) a deduction has not been denied in the payer territory through the operation of a provision similar to paragraph (a),

notwithstanding section 25, the profits and gains referred to in section 835AF(1)(b) shall be charged to corporation tax on the entity concerned as if the business carried on in the State by the disregarded permanent establishment was carried on by a company resident in the State.

Chapter 4

Financial instruments

Interpretation (Chapter 4)

835AH.(1) In this Chapter—

‘financial instrument’ includes—

(a) securities, within the meaning of section 135(8),

(b) shares in a company and similar ownership rights (not being securities) in entities other than a company,

(d) an arrangement where it is reasonable to consider that the arrangement is equivalent to an arrangement for the lending of money, or money’s worth, at interest, and

(e) hybrid transfers;

‘hybrid transfer’ means an arrangement to transfer a financial instrument where the underlying return on that instrument is treated, for tax purposes, as derived by more than one of the parties to the arrangement;

‘financial trader’ means an enterprise that has entered into a financial instrument as part of a business which involves regularly buying and selling financial instruments on that enterprise’s own account;

‘on-market hybrid transfer’ means a hybrid transfer—

(a) that is entered into by a financial trader in the ordinary course of its trade, which includes the business of buying and selling financial instruments, and

(b) in respect of which the financial trader is required by the payer territory concerned to include, for the purposes of that territory’s tax laws, as trading income all amounts received in connection with the transferred financial instrument concerned;

‘financing return’, in relation to a financial instrument, includes—

(a) dividends and manufactured payments,

(b) interest, including any discounts or amounts which would be treated as interest under Part 8A, notwithstanding that no election is made under section 267U,

(c) the amount of payments that are equivalent to interest under an arrangement described at paragraph (d) of the definition of ‘financial instrument’, and

(d) the underlying return referred to in the definition of ‘hybrid transfer’;

‘manufactured payment’ has the same meaning as it has in Chapter 3 of Part 28.

(2) For the purposes of this Chapter—

(a) a corresponding amount relating to a payment under a financial instrument shall not be treated as included under paragraph (a)(i) of the definition of ‘included’ in section 835Z(1) where, under the tax laws of the payee territory, the amount that is charged to foreign tax is subject to any reduction computed by reference to the way the payment to which the corresponding amount relates is characterised under those laws, and

(b) a corresponding amount relating to a payment under a financial instrument shall not be treated as included under paragraph (a)(i) of the definition of ‘included’ in section 835Z(1) unless—

(i) the corresponding amount is included in a tax period which commences within twelve months of the end of the tax period in which the payment is deducted (in this paragraph referred to as the ‘first-mentioned period’), or

(ii) it would be reasonable to consider that—

(I) the corresponding amount will be included in a tax period subsequent to the first-mentioned period, and

(II) the terms applicable to the payment are those that would apply to a transaction made at arm’s length.

Application of Chapter 4

835AI.This Chapter shall apply—

(a) to a company which is within the charge to domestic tax, and

(b) to a transaction that gives rise to a mismatch outcome between—

(i) entities that are associated enterprises,

(ii) the head office of an entity and a permanent establishment of that entity, or

(iii) two or more permanent establishments of an entity,

other than where that transaction is an on-market hybrid transfer.

Financial instrument deduction without inclusion mismatch outcome

835AJ.(1) A financial instrument deduction without inclusion mismatch outcome shall arise where it would be reasonable to consider that—

(a) there is, or but for this section would be, a deduction in the payer territory, without a corresponding amount being included in the payee territory, and

(b) the satisfaction of the condition described in paragraph (a) is attributable to differences between domestic tax and foreign tax in the characterisation of—

(i) a financial instrument, or

(ii) payments made under a financial instrument.

(2) A financial instrument deduction without inclusion mismatch outcome shall be neutralised as follows:

(b) where—

(i) the State is the payee territory, and

(ii) a deduction has not been denied in the payer territory through the operation of a provision similar to paragraph (a),

then—

(I) in a case in which the non-inclusion arises because of any provision of the Tax Acts or the Capital Gains Tax Acts, in calculating the amount on which the payee is charged to tax, that provision shall be disapplied, insofar as it provides for the non-inclusion, and

(II) in any other case, the payee shall be charged to tax under Case IV of Schedule D, in respect of the amount of the deduction, in the first of the payee’s tax periods to commence within twelve months of the end of the payer’s tax period in which the deduction occurred.

Chapter 5

Hybrid entities

Application of Chapter 5

835AK.(1) This Chapter shall apply to a transaction that gives rise to a mismatch outcome between—

(a) entities that are associated enterprises,

(b) the head office of an entity and a permanent establishment of that entity, or

(2) Section 835AL applies to a company which is within the charge to corporation tax.

(3) Section 835AM applies to a company which is within the charge to foreign tax or corporation tax.

Payment to hybrid entity deduction without inclusion mismatch outcome

835AL.(1) A payment to a hybrid entity deduction without inclusion mismatch outcome shall arise in respect of a payment to a hybrid entity where—

(a) there is, or but for this section would be, a deduction in the payer territory without a corresponding amount being included in the payee territory, and

(b) the satisfaction of the condition described in paragraph (a) is attributable to differences in the allocation of payments to a hybrid entity between—

(i) the territory in which the hybrid entity is established, and

(ii) the territory in which the participator concerned is established.

(2) A payment to a hybrid entity deduction without inclusion mismatch outcome shall be neutralised, where the State is the payer territory, notwithstanding any other provision of the Tax Acts and the Capital Gains Tax Acts, by denying the payer a deduction for the payment for the purposes of domestic tax, to the extent a corresponding amount has not been included for the purposes of foreign tax.

Payment by hybrid entity deduction without inclusion mismatch outcome

835AM.(1) Subject to subsection (2), a payment by a hybrid entity deduction without inclusion mismatch outcome shall arise in respect of a payment by a hybrid entity where—

(a) there is, or but for this section would be, a deduction in respect of a payment in the payer territory without a corresponding amount being included in the payee territory, and

(b) the satisfaction of the condition described in paragraph (a) is attributable to the payment being disregarded under the laws of the payee territory.

(2) A payment by a hybrid entity deduction without inclusion mismatch outcome shall not arise to the extent the payment referred to in subsection (1) is, or would be, deductible against dual inclusion income.

(3) A payment by a hybrid entity deduction without inclusion mismatch outcome shall be neutralised as follows:

(b) where—

(i) the State is the payee territory, and

(ii) a deduction has not been denied in the payer territory through the operation of a provision similar to subsection (a),

then—

Chapter 6

Withholding tax

Application of Chapter 6

835AN. This Chapter shall apply to an entity which is within the charge to corporation tax.

Withholding tax mismatch outcome

835AO.(1) A withholding tax mismatch outcome shall arise where—

(a) an entity enters into a hybrid transfer (within the meaning of Chapter 4), and

(b) it is reasonable to consider that the purpose of the hybrid transfer is to secure relief for more than one party to the hybrid transfer in respect of an amount of tax withheld at source.

(2) A withholding tax mismatch outcome shall, notwithstanding anything in Schedule 24 to the contrary, be neutralised by the relief available in respect of an amount of tax withheld at source being reduced by the following fraction—

A/B

where—

A is the profit of the entity from the hybrid transfer on which domestic tax finally falls to be borne, and

B is the gross income of the entity under the hybrid transfer.

Chapter 7

Tax residency mismatch

Application of Chapter 7

835AP. This Chapter applies to a company which is within the charge to—

(a) corporation tax, because it is tax resident in the State under the laws of the State, and

(b) foreign tax in a territory other than the State, because it is regarded as tax resident in that territory under the tax laws of that territory.

Tax residency double deduction mismatch outcome

835AQ.(1) A tax residency double deduction mismatch outcome shall arise where—

(a) there is, or but for this section would be, a double deduction arising in respect of a payment, to the extent the amount of the deduction is not, or would not be, deductible against dual inclusion income, and

(b) the satisfaction of the condition described in paragraph (a) is attributable to the company being within the charge to both corporation tax and foreign tax.

(2) Subject to subsection (3), a tax residency double deduction mismatch outcome shall be neutralised—

(a) where the other territory within which the company is subject to a charge to tax is a Member State, with the government of which arrangements having the force of law by virtue of section 826(1) have been made, and under those arrangements the company is tax resident in that Member State,

(b) where—

(i) the other territory within which the company is subject to a charge to tax is not a Member State, and

(ii) under arrangements, having the force of law by virtue of section 826(1), with the government of that other territory—

(I) the company is not tax resident in the State, or

(II) the company is tax resident in the State but a deduction has not been denied in the other territory through the operation of a provision similar to this Chapter,

(c) where the other territory within which the company is subject to a charge to tax is not a territory referred to in paragraph (a) or (b),

notwithstanding any other provision of the Tax Acts and the Capital Gains Tax Acts, by the company being denied a deduction for the purposes of domestic tax for so much of the payment as corresponds to the mismatch outcome which has not been neutralised in another territory.

(3) Where the tax residence of a company must be determined by mutual agreement between the competent authorities of both territories which are party to an arrangement referred to in subsection (2)(a) or (b), then any adjustment to the return, filed pursuant to section 959I, required to give effect to subsection (2) shall be made without unreasonable delay upon that agreement, notwithstanding any time limits in Part 41A.

Chapter 8

Imported mismatch outcomes

Application of Chapter 8

835AR. This Chapter shall apply to—

(a) a company which is within the charge to domestic tax, and

(b) a mismatch outcome which arises through a transaction or series of transactions—

(i) that is or are, as the case may be, between—

(I) entities that are associated enterprises,

(II) the head office of an entity and a permanent establishment of that entity, or

(III) two or more permanent establishments of an entity,

and

(ii) under which there is a payment by a company established in the State to a payee established in a state that is not a Member State.

Imported mismatch outcome

835AS.(1) An imported mismatch outcome shall arise where it would be reasonable to consider that—

(a) a company referred to in section 835AR(a) enters into a transaction, or series of transactions, involving a mismatch outcome where a payment by that company directly or indirectly funds the mismatch outcome, and

(b) the mismatch outcome has not been neutralised by the application of a provision similar to this Part in another territory.

(2) An imported mismatch outcome shall, notwithstanding any other provision of the Tax Acts and the Capital Gains Tax Acts, be neutralised by the company being denied a deduction for the purposes of domestic tax for so much of the payment as corresponds to the mismatch outcome which has not been neutralised in another territory.

(3) In determining, for the purposes of subsection (1) whether a mismatch outcome has arisen from a transaction or series of transactions, this Part, other than this Chapter, shall be applied as if ‘domestic tax’ and ‘foreign tax’ were defined as follows:

‘domestic tax’ means a tax chargeable on profits or gains, under the laws of a territory in which an entity is established, that is similar to income tax, corporation tax (including a charge under Part 35B) or capital gains tax;

‘foreign tax’ means a tax chargeable on profits or gains, under the laws of a territory in which the entity is not established, that is similar to income tax, corporation tax (including a charge under Part 35B) and capital gains tax.

Chapter 9

Structured arrangements

Application of Chapter 9

835AT.(1) This Chapter shall apply to a company which is within the charge to domestic tax.

(2) Notwithstanding sections 835AC, 835AE, 835AI and 835AK, this Chapter shall apply where a mismatch outcome arises under a structured arrangement.

Structured arrangements

835AU.(1) A structured arrangement mismatch outcome shall arise where a company, referred to in section 835AT(1), would reasonably be expected to be aware that—

(a) it entered into a structured arrangement,

(b) it shared in the value of the tax benefit resulting from the mismatch outcome, and

(c) the mismatch outcome has not been neutralised through the application of a provision similar to this Part in another territory.

(2) A structured arrangement mismatch outcome shall, notwithstanding any other provision of the Tax Acts and the Capital Gains Tax Acts, be neutralised by the taxpayer being denied a deduction for the purposes of domestic tax for so much of the payment as corresponds to the mismatch outcome which has not been neutralised in another territory.

Chapter 10

Carry forward

Carry forward

835AV. To the extent a deduction has been denied under this Part (the ‘denied amount’) in respect of a tax period of an entity, the entity may make a claim requiring that the denied amount be set off for the purposes of domestic tax against any dual inclusion income in succeeding tax periods of the entity and amounts so carried forward shall be relieved first against profits or gains of an earlier tax period in advance of profits or gains of a later tax period.

Chapter 11

Application of this Part

Scope of application

835AW. This Part shall apply to payments made or arising on or after 1 January 2020.

Order of application

835AX.(1) This Part shall apply after all provisions of the Tax Acts and the Capital Gains Tax Acts, other than section 811C.

(2) A mismatch outcome shall not be neutralised under more than one Chapter of this Part.”.

32. Amendment of section 739J of Principal Act (investment limited partnerships)

32. (1) Section 739J of the Principal Act is amended—

(a) by substituting the following for subsection (1):

“(1) (a) In this section—

‘investment limited partnership’ means an investment limited partnership within the meaning of the Investment Limited Partnerships Act 1994;

‘relevant losses’ means, in relation to an investment limited partnership—

(i) any losses sustained by the investment limited partnership, being losses which would constitute an allowable loss in the hands of a person resident in the State including losses which would so constitute allowable losses if all assets concerned were chargeable assets and no exemption from capital gains tax applied, to the extent that such losses exceed any relevant gains, and

(ii) any losses or deficiencies sustained by the investment limited partnership, being losses or deficiencies which if they arose to an individual resident in the State would in the hands of the individual constitute losses for the purposes of income tax, to the extent that such losses or deficiencies exceed any relevant income,

as appropriate.

(b) For the purpose of this section the definitions of ‘relevant gains’, ‘relevant income’ and ‘relevant payment’ in section 739B(1) shall apply to an investment limited partnership as they apply to an investment undertaking—

(i) as if references to ‘unit’ and ‘unit holder’ were references to ‘partnership interest’ and ‘partner’, respectively, in each place where they occur, and

(ii) with any other necessary modifications.”,

(b) by substituting the following for subsection (2):

“(2) (a) Notwithstanding anything in the Acts and subject to subsection (3), an investment limited partnership shall not—

(i) be chargeable to tax in respect of relevant gains, relevant income or a relevant payment, or

(ii) be entitled to accrue relevant losses.

(b) For the purposes of the Acts, relevant income, relevant gains and relevant losses, as the case may be, in relation to an investment limited partnership shall be treated as arising, or, as the case may be, accruing, to each partner of the investment limited partnership in accordance with the apportionment of such relevant income, relevant gains or relevant losses under the terms of the partnership agreement, as if the relevant income, relevant gains or relevant losses had arisen or, as the case may be, accrued, to the partner in the investment limited partnership without passing through the hands of the investment limited partnership.

(c) Where for any period the aggregate of the respective amounts (in this paragraph referred to as the ‘aggregate’) of the relevant income and relevant gains which under paragraph (b) are taken as arising or accruing to each partner in the investment limited partnership is less than the full amount of the relevant income and relevant gains arising or accruing to the investment limited partnership for that period, then the amount of the difference (in this paragraph referred to as the ‘balance’) between that full amount and the aggregate shall be treated as arising or accruing to the general partner, and where there is more than one general partner then the balance shall be apportioned between the general partners in equal shares.”,

and

(i) in paragraph (a) —

(I) by substituting “relevant income, relevant gains and relevant losses” for “relevant profits”, and

(II) by deleting “in respect of units in the investment limited partnership”,

(ii) in paragraph (b) by substituting “partner” for “unit holder”, and

(iii) in paragraph (b)(ii) by substituting “relevant income, relevant gains and relevant losses” for “relevant profits”.

(2) Subsection (1) shall apply in respect of an investment limited partnership that has been granted an authorisation under section 8 of the Investment Limited Partnerships Act 1994 on or after 1 January 2020.

33. Amendment of section 1035A of Principal Act (relieving provision to section 1035)

33. Section 1035A(1) of the Principal Act is amended in the definition of “authorised agent”—

(a) in paragraph (a)(i), by substituting “Regulation 8 of the European Union (Markets in Financial Instruments) Regulations 2017 (S.I. No. 375 of 2017)” for “section 18 of the Stock Exchange Act 1995”, and

(b) in paragraph (a)(ii) —

(i) by substituting “a relevant Member State (within the meaning of section 835I(1))” for “another Member State”,

(ii) by substituting “Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014[^7]” for “Council Directive 93/22/EEC of 10 May 1993”, and

(iii) by inserting “and which provides one, or more, investment service through a branch or agency in the State pursuant to the European Union (Markets in Financial Instruments) Regulations 2017,” after “revoked,”.

34. Amendment of Part 28 of Principal Act (purchase and sale of securities)

34. Part 28 of the Principal Act is amended by inserting the following Chapter after Chapter 2:

“Chapter 3

Stock borrowing and repurchase agreements

Interpretation (Chapter 3)

753A.In this Chapter—

‘Act of 1999’ means the Stamp Duty Consolidation Act 1999;

‘building society’ has the same meaning as it has in Chapter 4 of Part 8;

‘equivalent stock’—

(a) in relation to a stock borrowing, has the same meaning as it has in section 87 of the Act of 1999, and

(b) in relation to a repurchase agreement, has the same meaning as it has in section 87A of the Act of 1999;

‘financial transaction’ means a transaction comprising—

(a) a stock borrowing or a stock transfer in respect of which—

(i) the stock seller or stock buyer is a qualifying institution, and

(ii) the other party is not an individual or a partnership,

and

(b) the corresponding stock return for that stock borrowing or stock transfer,

where it is reasonable to consider that the transaction, and all associated agreements, arrangements or transactions, are equivalent to a transaction or agreement for the lending of money, or money’s worth, at interest;

‘investment undertaking’ has the same meaning as it has in Chapter 1A of Part 27;

‘lender’ has the same meaning as it has in section 87 of the Act of 1999;

‘manufactured payment’ means a payment by a stock buyer to a stock seller, whether made directly or indirectly, to reimburse that stock seller for any distribution or interest arising or accruing to the stock buyer as a consequence of the transfer of the qualifying securities as part of a financial transaction;

‘pension scheme’ has the same meaning as it has in Chapter 4 of Part 8;

‘qualifying institution’ means—

(a) a company within the charge to corporation tax,

(b) an investment undertaking,

(d) a scheme, the income of which, in whole or in part, is exempt from income tax under section 790B,

(e) a person whose income, in whole or in part, is exempt—

(i) from income tax, pursuant to section 207(1)(b), or

(ii) corporation tax, by virtue of section 207(1)(b) as it applies for the purposes of corporation tax under section 76(6),

(f) a building society;

‘qualifying securities’ means—

(a) securities that are interest bearing, discounted or premium-bearing, or

(b) stocks or shares that are quoted on a recognised stock exchange;

‘repo seller’ has the same meaning as it has in section 87A of the Act of 1999;

‘repo buyer’ has the same meaning as it has in section 87A of the Act of 1999;

‘repurchase agreement’ means a repurchase agreement (within the meaning of section 87A of the Act of 1999) in respect of qualifying securities;

‘security’ has the same meaning as it has in Chapter 2 of Part 6;

‘stock borrower’ has the same meaning as it has in section 87 of the Act of 1999;

‘stock borrowing’ means a stock borrowing (within the meaning of section 87 of the Act of 1999) in respect of qualifying securities;

‘stock buyer’ means—

(a) in relation to a stock borrowing, a stock borrower, and

(b) in relation to a repurchase agreement, a repo buyer;

‘stock return’—

(a) in relation to a stock borrowing, has the same meaning as it has in section 87 of the Act of 1999, and

(b) in relation to a repurchase agreement, has the same meaning as it has in section 87A of the Act of 1999,

in each case subject to the modification that a reference in the definition of that term in the section concerned to ‘stock’ shall be construed as a reference to qualifying securities;

‘stock transfer’, in respect of a repurchase agreement, means a stock transfer (within the meaning of section 87A of the Act of 1999);

‘stock seller’ means—

(a) in relation to a stock borrowing, a lender, and

(b) in relation to a repurchase agreement, a repo seller.

Application

753B.(1) This Chapter shall apply to a financial transaction, entered into on or after 1 January 2020, other than—

(a) a financial transaction—

(i) pursuant to which a stock buyer holds qualifying securities or equivalent stock, and

(ii) as a consequence of which a distribution arises or accrues to that stock buyer from those qualifying securities or that equivalent stock,

except where—

(I) the stock seller would be entitled—

(A) to a repayment of any tax withheld from the interest, or

(B) to receive the distribution without the deduction of tax,

under any provision of the Tax Acts or under arrangements made with another territory having the force of law by virtue of section 826(1), had that stock seller not entered into the financial transaction and received that distribution directly, and

(II) the distribution is in the form of cash,

(b) a financial transaction—

(i) pursuant to which a stock buyer holds qualifying securities, and

(ii) as a consequence of which interest arises or accrues to that stock buyer from those securities,

except where—

(I) the stock seller would be entitled—

(A) to a repayment of any tax withheld from the distribution, or

(B) to receive the interest without deduction of tax,

(II) neither the stock seller nor the stock buyer would be entitled to receive a payment of interest without deduction of tax under section 246 and, where such tax is deducted, neither the stock seller nor the stock buyer would be entitled to a repayment of any such tax withheld or any part thereof.

(2) Where this Chapter applies, in applying the Tax Acts and the Capital Gains Tax Acts to a financial transaction, regard shall be had to the substance of the financial transaction, rather than to its legal form, such that—

(a) the disposal and subsequent reacquisition of qualifying securities, or equivalent stock thereof, pursuant to the financial transaction shall not be treated as a disposal or an acquisition for the purposes of the Capital Gains Tax Acts,

(b) any income, profits or gains, including fees, margins, profits or other financial gain arising or accruing to a stock seller or a stock buyer, either directly or indirectly, pursuant to—

(i) the financial transaction, and

(ii) in a case in which the financial transaction comprises a stock transfer, the corresponding repurchase agreement,

shall be treated as if that income, those profits or those gains, as the case may be, arose from the lending of money, or money’s worth, at interest, and

(i) deductible in accordance with section 753C(2) and (3), and

(ii) charged to tax in accordance with section 753C(5) and (6).

Payment and receipt of dividends or interest and manufactured payments under a stock borrowing or repurchase agreement

753C.(1) In this section, ‘specified amount’ refers to an amount of interest or distribution arising or accruing to a stock buyer in respect of qualifying securities, or equivalent stock, held by the stock buyer pursuant to a financial transaction.

(2) Subject to subsection (3), in charging a specified amount to tax—

(a) a deduction shall be available for any corresponding manufactured payment paid, and

(b) such deduction shall not exceed the specified amount received following the application of Schedule 24, but prior to the application of Schedule 2.

(3) A manufactured payment shall not be deductible—

(a) where the stock buyer is exempt from tax in respect of the corresponding specified amount,

(b) where no amount of tax payable, within the meaning of section 959A, would arise in respect of the corresponding specified amount following the application of Schedule 24, or

(4) Where the specified amount is in excess of the amount of any corresponding manufactured payment paid, then, notwithstanding Part 2, section 129, section 129A or section 138, that excess amount shall be charged to tax pursuant to section 753B(2)(b).

(5) Subject to subsection (6), a stock seller shall be charged to tax in respect of a manufactured payment arising or accruing as if the corresponding specified amount had been received directly by that stock seller.

(6) Where the amount of the manufactured payment made by the stock buyer is in excess of the amount of the corresponding specified amount received by the stock buyer, net of any foreign withholding tax but prior to the application of Schedule 2, then the stock seller shall be chargeable to tax under Case IV of Schedule D in respect of that excess amount.

Refund of dividend withholding tax

753D.(1) This section shall apply to a financial transaction where—

(a) a distribution is paid to a stock buyer pursuant to a stock borrowing or the repurchase agreement in respect of a stock transfer,

(b) the corresponding stock return for that stock borrowing or stock transfer has taken place,

(c) the distribution received by the stock buyer pursuant to the stock borrowing or repurchase agreement was subject to dividend withholding tax,

(d) the stock seller would have been entitled—

(i) to a repayment of the dividend withholding tax referred to in paragraph (c), or

(ii) to receive the distribution without deduction of that dividend withholding tax,

had that stock seller not entered into the financial transaction and received that distribution directly,

(e) the stock seller has not been compensated by the stock buyer, or a party connected to that stock buyer, for the dividend withholding tax referred to in paragraph (c), or any part of that dividend withholding tax, and

(f) the stock buyer is not entitled under—

(i) section 831,

(ii) an arrangement having the force of law by virtue of section 826(1),

(iii) Schedule 24, or

(iv) any other provision (including under the law of a territory other than the State),

to a repayment, credit, deduction or other relief for the dividend withholding tax referred to in paragraph (c) or any part of that dividend withholding tax.

(2) Where this section applies, the stock seller may make a claim for a repayment of the dividend withholding tax referred to in subsection (1)(c), subject to providing—

(a) confirmation that the stock buyer received a distribution under a stock borrowing or repurchase agreement, and that dividend withholding tax was withheld from the amount of that distribution,

(b) a signed declaration from the stock buyer that the stock seller is not entitled to any repayment, credit, deduction or similar in respect of that dividend withholding tax,

(i) was the owner of the qualifying securities (including any equivalent stock)—

(I) immediately prior to the financial transaction, and

(II) immediately following the financial transaction,

(ii) would have received the distribution directly had the stock borrowing or repurchase agreement not been entered into, and

(iii) would have been entitled to—

(I) a repayment of that dividend withholding tax, or

(II) to receive the distribution without the deduction of that dividend withholding tax,

had the distribution been received directly by that stock seller,

(d) a statement referred to in section 172I(1) or (1A),

(e) the appropriate declaration made under Schedule 2A, and

(f) any other information or documentation the Revenue Commissioners may consider appropriate to validate the claim.

Anti-avoidance

753E.(1) In this section—

‘the Acts’ means—

(a) the Tax Acts,

(b) the Capital Gains Tax Acts,

(d) the Value-Added Tax Consolidation Act 2010, and the enactments amending or extending that Act,

and any instrument made thereunder and any instrument that is made under any other enactment and which relates to those Acts;

‘tax advantage’ has the same meaning as it has in section 811C;

‘transaction period’ means the period after—

(a) qualifying securities have been obtained from a lender under a stock borrowing, or

(b) a stock transfer has taken place under a repurchase agreement,

but before the corresponding stock return has taken place.

(2) This Chapter shall not apply to a financial transaction, unless it would be reasonable to consider that the financial transaction—

(a) has been undertaken for bona fide commercial reasons, and

(b) does not form part of any arrangement or scheme of which the main purpose, or one of the main purposes, is the avoidance of tax.

(3) Notwithstanding subsection 753B(2)(a), when determining the capital, voting rights or entitlement to assets, whether on a winding up or in any other circumstances, held by a party to a financial transaction for the purposes of any provision of the Acts during a transaction period, regard shall be had to the—

(a) capital,

(b) voting rights, and

of each party to the financial transaction concerned, as the case may be—

(i) immediately prior to the time at which—

(I) qualifying securities have been obtained from the lender under the stock borrowing concerned, or

(II) the stock transfer has taken place under the repurchase agreement concerned,

as the case may be, and

(ii) during the transaction period,

such that the capital, voting rights or entitlement to assets, whether on a winding up or in any other circumstances, held by that party for that transaction period shall be the amount that does not give rise to a tax advantage for that party to the financial transaction or a person connected to that party.

Records

753F.(1) Subject to subsection (2), a qualifying institution shall maintain a separate record of each financial transaction, for a period of 6 years from the date of the stock return concerned, which shall include, at a minimum—

(a) the name and address of both parties to the financial transaction,

(b) the agreement underlying the financial transaction and any documentation in respect of any associated agreements, arrangements or transactions,

(c) the type, nominal value, description and amount of the qualifying securities, including any equivalent stock, transferred under the financial transaction,

(d) the date on which—

(i) qualifying securities have been obtained from the lender under the stock borrowing concerned, or

(ii) the stock transfer has taken place under the repurchase agreement concerned,

as the case may be,

(e) the date of the stock return,

(f) details of any manufactured payments arising pursuant to the financial transaction,

(g) details of any interest rate or rate of return applicable to the financial transaction, and

(h) details of the fees, profits, margins or other financial gain accruing, charged or expected to arise pursuant to the financial transaction.

(2) Where a qualifying institution is—

(a) an investment undertaking,

(b) a pension scheme, or

the record referred to in subsection (1) shall be maintained by a person who is authorised to act on behalf of, or for the purposes of, the qualifying institution and habitually so acts in that capacity.”.

Chapter 6 Capital Gains Tax

35. Amendment of section 604B of Principal Act (relief for farm restructuring)

35. (1) Section 604B(1)(a) of the Principal Act is amended in the definition of “relevant period” by substituting “31 December 2022” for “31 December 2019”.

(2) Subsection (1) shall come into operation on such day as the Minister for Finance may by order appoint.

36. Amendment of section 616 of Principal Act (groups of companies: interpretation)

36. (1) Section 616 of the Principal Act is amended in subsection (1) by substituting the following for paragraph (a):

“(a) subject to sections 617(5), 621(1) and 623(7), a reference to a company or companies shall apply only to a company or companies, as limited by subsection (2), being a company or, as the case may be, companies which, by virtue of the law of a relevant Member State, is or are resident for the purposes of tax in such a relevant Member State, and for this purpose—

‘relevant Member State’, in addition to the meaning assigned to that expression by subsection (7), shall be deemed to include the United Kingdom;

‘tax’, in relation to a relevant Member State other than the State, means any tax imposed in the relevant Member State which corresponds to corporation tax in the State;

and references to a member or members of a group of companies shall be construed accordingly;”.

(2) This section shall apply from the day (at the time thereon appointed in that behalf under the Act next mentioned) that Part 6 of the Withdrawal of the United Kingdom from the European Union (Consequential Provisions) Act 2019 comes into operation.

37. Amendment of section 621 of Principal Act (depreciatory transactions in group)

37. Section 621(8) of the Principal Act is amended—

(a) by substituting for paragraph (a) the following:

“(a) Where, under subsection (6), a reduction is made in a loss, any chargeable gain accruing on a disposal of the shares in or securities of any other company which was a party to the depreciatory transaction by reference to which the reduction was made, being a disposal not later than 10 years after the depreciatory transaction, shall, for the purposes of the making of a self-assessment, be reduced to such an extent that the gain does not reflect any increase in the value of the company’s assets attributable to the depreciatory transaction on the value of those shares or securities at the time of their disposal.”,

and

(b) by inserting after paragraph (a) the following:

“(aa) The inspector, in making an assessment, or the Appeal Commissioners, on an appeal against an assessment, shall reduce any chargeable gain to such an extent as appears to the inspector or the Appeal Commissioners, as the case may be, to be just and reasonable on the basis that the gain ought not to reflect any increase in the value of the company’s assets attributable to a depreciatory transaction.”.

38. Amendment of provisions relating to exit tax

38. (1) The Principal Act is amended—

(a) in section 627—

(i) in subsection (2) —

(I) by inserting “or, in the case of paragraph (c), at the time specified in subsection (2A)” after “event concerned”, and

(II) by deleting “, being a company that is resident in a Member State (other than the State),” in paragraphs (a) and (b),

and

This document does not substitute the official text published in the Irish Statute Book. We accept no responsibility for any inaccuracies arising from the transcription of the original into this format.

This text is published under Irish Statute Book's own terms of reuse, not a Legalize or public-domain licence. Irish Statute Book
CC-BY 4.0 (Oireachtas Open Data PSI Licence)
Contains Irish Public Sector Information licensed under the Oireachtas (Houses of the Oireachtas) Open Data PSI Licence / Creative Commons Attribution 4.0 International, sourced from https://www.irishstatutebook.ie.