Chapter 1Introduction to Corporation Tax
The aim of this chapter is to explain the main corporation tax terms and rates.
On completion of this chapter you will be able to:
|1.1||Contrast income tax with corporation tax||3|
|1.2||Explain terms used when calculating corporation tax||5|
|1.3||Interpret legislation to apply income tax principles to allocate the income of corporates to the appropriate Schedule or Case||20|
|1.4||Interpret case law to determine if a company is trading and is therefore subject to the 12.5% corporate tax rate||26|
|1.5||Interpret legislation to apply capital gains tax principles to the taxation of corporate capital gains||28|
|1.6||Explain the application of the appropriate corporation tax rate to income from each source||29|
|1.7||Download and review the Form CT1 from ROS online||31|
Personal Taxes manual
■ Chapter 2 Introduction to Income Tax
MAIN LEGISLATIVE PROVISIONS
Corporation Tax, Finance Act 2010, Irish Tax Institute
■ Chapter 2
RELEVANT PAST EXAM QUESTIONS - BUSINESS TAXES: APPLICATION & INTERACTION
■ 2015, Summer, Question 4(a)(b)
■ 2016, Summer, Question 5(a)
■ 2016, Autumn, Question 2(a)
■ 2017, Summer, Question 2(a)(b)
■ 2017, Autumn, Question 3(d)
RELEVANT PAST EXAM QUESTIONS - PERSONAL & BUSINESS TAXES FUNDAMENTALS
■ 2018, Summer, Question 1
1.1.Contrast income tax with corporation tax
There are significant similarities and differences between income tax and corporation tax and the main points are detailed below.
1.1.1.Scope of each
Generally income tax only taxes the income of an individual in a tax year and capital gains tax is charged on gains arising to an individual.
By contrast, a company is chargeable to corporation tax on its “profits” which is the sum of both its income and chargeable gains.
1.1.2.Basis of assessment
The concept of a basis period (for Case I/II income) and the income tax year which exists in the law relating to income tax is not relevant for corporation tax purposes.
Corporation tax is assessed on the profits of a company’s accounting period at the rate of tax in force applicable to that accounting period (see Section 21 TCA 1997). A tax accounting period is a period of not more than 12 months and is normally the period for which a company makes up its financial statements (see Section 27 TCA 1997 and 1.2.5 below).
The rules relating to income tax and corporation tax are both set out in the TCA 1997. Broadly speaking, corporation tax follows the same general principles as income tax with a number of exceptions. The main differences in terms of the treatment of trading income, the treatment of investment income and the administration of the respective systems are addressed in the following chapters.
Under income tax rules, an individual’s taxation status depends on his tax residency. If he is resident in Ireland he will be liable to income tax here on all his world wide income. On the other hand, if he is non-resident and non-ordinarily resident he will only be liable to Irish tax on any income arising in Ireland.
The concept is broadly similar for companies. If the company is incorporated in Ireland it is liable to Irish corporation tax on all of its worldwide profits. In all other cases, it is only liable to Irish corporation tax on profits generated in Ireland. See section 1.2 for a full discussion on corporate residency rules.
1.1.5.Pro-forma corporation tax computation
This section sets out the layout to be followed in setting out a company’s corporation tax computation. It should be followed at all times for calculating a company’s taxable profits.
You should contrast the layout with that of an individual’s income tax return.
Patrick Company Limited
Corporation tax computation for the 12 month accounting period to 31.12.2018
|Case I tax adjusted trading profits y/e 31/12/18 after capital allowances||X||1 & 2|
|Less: allowable Case I losses forward||(X)||5|
|Trade losses – current period and carried back||(X)||5|
|Allowable trade charges||(X)||X||4 & 5|
|Case III:||X||X||1 & 2|
|Case IV||X||X||1 & 2|
|Case V||X||X||1 & 2|
|Chargeable gains (as adjusted for corporation tax)||X||1, 2 & 7|
|“Total Profits” - income and chargeable gains||X|
|Allowable non-trade charges paid during y/e 31/12/18||(X)||4 & 5|
|Other losses deductible from total profits – e.g. excess Case V capital allowances||(X)||5|
|Profits liable to corporation tax||X|
|Corporation tax liability|
|Charge at appropriate rate (12.5%, 25% etc)||X||1|
|Trade charges and losses on a value basis||(X)||4 & 5|
|Close company surcharges||X||10|
|Income tax deducted by Patrick Company Ltd on annual payments||X||9|
|Income tax suffered by deduction||(X)||X||14|
|Withholding tax for professional services||(X)||14|
|Net corporation tax payable||X|
The computation should always have the name of the company at the top and an appropriate heading e.g. “Corporation tax computation for the 12 month accounting period to…”. It is possible for a corporation tax accounting period to be less than 12 months but it can never exceed 12 months, see section 1.2.5.
You should refer to the above layout regularly during your studies.
1.2.Explain terms used when calculating corporation tax
As you have seen, “profits” in the context of a company means “income plus chargeable gains” (Section 4 TCA 1997) and refers to a company’s income from all sources as well as chargeable gains.
“Income” is not defined for corporation tax purposes generally. Income is computed in accordance with income tax principles under the Schedules and Cases which apply for income tax purposes (see Section 76 TCA 1997). The computation of a company’s chargeable gains for corporation tax purposes is covered in section 1.6.
There are some exclusions from “income” and “chargeable gains” for corporation tax purposes. For example, dividends received by Irish resident companies from other Irish resident companies are not taken into account in calculating the recipient company’s income (i.e. they are exempt from corporation tax – referred to as Franked Investment Income). Such dividends are subject to income tax in the hands of an individual under Schedule F.
You will have considered the legal definition of a company during Law Fundamentals.
For corporation tax purposes, a “company” is defined in Section 4 TCA 1997 and includes any body corporate whether it is actually legally formed as a company or not. For example it includes certain semi-state boards which are not formed as legal companies, e.g. RTÉ and ESB.
However, it excludes the following:
■ The Health Services Executive
■ Vocational Education Committees
■ Local Authorities
Therefore, a “company” for corporation tax purposes is very broad and excludes only those types of bodies corporate which are referred to above.
As you will learn, if a company is not resident in Ireland it may still be subject to corporation tax if it has a taxable presence in Ireland i.e. if it carries on its trade through a branch or agency in Ireland.
A branch or agency is defined in Section 4 TCA 1997 as “any factorship, agency, receivership, branch or management”. Therefore, if the non-resident company has a factory or office in Ireland this is likely to constitute a branch. Ireland’s extensive double tax treaty network may result in certain branches or agencies falling outside the scope of Irish corporation tax where the level of activities carried on by the non-resident company in Ireland are such that they fall within one of the exemptions listed in the relevant treaty. The tax treatment of branches and the exclusion from tax of certain branch activities are covered in more detail your Part 3 studies.
1.2.4.Residence of companies
There are two methods for deciding the place of residence of a company. One comes from case law (220.127.116.11) and the other is in the TCA 1997 (18.104.22.168).
In order to address some of the international coverage in relation to Ireland’s corporation tax legislation, specifically in relation to residency and our 12.50% rate, Recent finance acts have made significant amendments to our corporate residency legislation. The effect of the changes over the past two years has resulted in two sets of rules being in place during a transitional period of time.
In order to give companies time to organise their affairs the changes will not affect companies incorporated before 1 January 2015 (subject to anti-avoidance legislation noted below) until 1 January 2021.
Section 23A TCA 97 legislates for company residence and references to the original section relate to the law that deals with companies incorporated prior to 1 January 2015 who will utilise this legislation until 31 December 2020. References to the current legislation relates to company’s incorporated on or after 1 January 2021 who use the current legislation.
Companies Incorporated on or after 1 January 2015
The current Section 23A TCA 97 states that all companies incorporated in Ireland are deemed to be tax resident here, s23A(1) TCA97, unless they are resident in another country under a double tax treaty, s23A(2) TCA97. S23A(3) confirms that the legislation is in addition to the existing central management and control test (22.214.171.124).
The section effects companies incorporated on or after 1 January 2015 and for companies incorporated before this date, it comes into effect from 1 January 2021.
As an anti-avoidance measure the section will also apply to companies incorporated before 1 January 2015 if there is both a change in ownership and nature of the trade before the 1 January 2021 implementation date, these changes occurring within a period of up to six years. This will bring this date forward to the date of the change. This measure was primarily aimed at restricting the incorporation of companies between the date of the Finance Bill, 23 October 2014 and 31 December 2014 in order to avail of the extension to 1 January 2021 for existing companies.
Companies Incorporated before 1 January 2015
For companies incorporated before 1 January 2015 and not subject to the anti-avoidance rules noted above the recent amendments will not apply until 1 January 2021. References in this part to Section 23A TCA 97 are to the original legislation that existed prior to the amendments introduced for companies incorporated on or after 1 January 2015.
The general rule is that all companies incorporated in Ireland are resident in Ireland. This rule is set out in Section 23A(2) TCA 1997.
There are two exceptions to (or exemptions from) this rule. They are known as the trading exemption and the treaty exemption and are set out in Section 23A(3) and (4) TCA 1997 respectively. Where one (or both) of these exemptions applies, the residence of the company is deemed to be “where the central management and control actually abides”. This is a residence test that was established by case law.
The trading exemption (Section 23A(3) TCA 1997 (original section)
The trading exemption applies to an Irish incorporated company, where it is a “relevant company” and:
■ it carries on a trade in Ireland or
■ is related to a company which carries on a trade in Ireland.
A “relevant company” is a company:
■ which is under the direct or indirect control of persons who are resident in an EU Member State or state with which Ireland has a double tax treaty and is not under the control of persons who are not so resident or
■ which is, or is related to, a company quoted on a stock exchange in an EU Member State or country with which Ireland has a double tax treaty.
For this purpose,
■ companies are “related” to each other if one company is a 50% (direct or indirect) subsidiary of the other or both are 50% subsidiaries of a third company. In determining whether the 50% relationship exists, one company must be entitled to 50% of the profits available for distribution, the assets on a winding up and the voting rights of the other company (i.e. Sections 412-418 are applied in determining whether the required relationship exists – these provisions are covered in detail at Part 3).
■ “control” is construed in accordance with the meaning of control for close company purposes (i.e. in accordance with Section 432 TCA 1997). Where the trading exemption applies, the place of incorporation residence test does not apply to the company. The central management and control test applies instead.
The treaty exemption (Section 23A(4) TCA 1997 (original section)
The treaty exemption means that, where a company is regarded as not resident in Ireland under the provisions of a DTA it is not subject to the place of incorporation test of residence. Instead the central management and control test applies. You will learn more about this in your Part 3 studies.
Tax residency of “Stateless” companies (s 23A(5) TCA 97 (original section)
Subsection (5) was originally introduced to address concerns in relation to the taxation of multinationals incorporated in Ireland which due to anomalies between Irish and other jurisdiction’s tax laws were not tax resident in any country. These are commonly known as “stateless companies”.
The subsection ensures that if a company is incorporated in Ireland but is not currently tax resident here or in an EU/DTA country it will become tax resident here in the following situation:
1. The company is managed and controlled in a relevant territory (EU or DTA country) and if it was managed and controlled to the same extent in Ireland it would have been resident here,
2. That relevant country only has a place of incorporation test and not a central management and control test, see below.
The rules apply to companies incorporated in Ireland from 24 October 2013 and to all other companies from 1 January 2015. The current section 23A TCA 97 will not affect these companies until the earlier of either 1 January 2021 or the happening of a change in control and nature of the trade.
Apple Ltd was incorporated in Ireland on 25 November 2014. The shares of Apple Ltd are owned by Tim Blake and Frank Hughes who are both resident in the UK for tax purposes. Apple Ltd carries on a trade in London but has no activities in Ireland. In this case, the trading exemption provided for companies incorporated before 1 January 2015 does not apply as Apple Ltd is not carrying on any activities in Ireland and is not related to any other company (as it is owned by individuals) which might be carrying on a trade in Ireland.
Lemon Ltd was incorporated in Ireland on 10 June 2014 and carries out a trade in Ireland. Lemon Ltd is a 100% indirect subsidiary of Fruit Inc. Fruit Inc’s shares are listed on the New York Stock Exchange. In this case, Lemon Ltd is a “relevant company” because it is related to a company whose shares are quoted on a stock exchange in a country with which Ireland has a double tax treaty and carries out a trade in Ireland. The trading exemption applies and Lemon Ltd would not be regarded as resident in Ireland by virtue of being incorporated in Ireland. As Lemon Ltd is not automatically resident in Ireland, it will need to demonstrate that it is managed and controlled in Ireland if it wishes to be treated as resident in Ireland for tax purposes (e.g. to avail of Ireland’s double tax treaty network). Under section 23A(5) TCA 1997 (original section) if Lemon Ltd is managed and controlled in the US but not tax resident in the US it will be tax resident in Ireland.
Orange DAC was incorporated in Ireland on 30 April 2018. Fruit Inc owns 75 “A” ordinary shares which entitles Fruit Inc to 25% of the voting rights of Orange DAC, 75% of profits available for distribution and 75% of the assets on a winding up. John Keane (an Argentinian resident individual) owns 25 “B” ordinary shares which entitles him to 75% of the voting rights of Orange DAC, 25% of the profits available for distribution and 25% of the profits on a winding up. Fruit Inc carries on a trade in Ireland through a branch. As Orange DAC is incorporated in Ireland and is not tax resident in any other EU/DTA country it is tax resident in Ireland.
126.96.36.199Central management and control test
As we have seen, if the incorporation test doesn’t apply, a company is resident in the place where it is centrally managed and controlled. The central management and control test also applies to non-Irish incorporated companies.
Central management and control is a concept that relates to the highest level of control as opposed to control of day-to-day operations of a company. Basically it involves the strategic control of the company, including the formulation of company policy, how the company deals with financing and capital structure, etc.
Where the central management and control of a company abides is ascertained by examining by whom and where strategic control of all operations occurs and is a question of fact. Based on the facts of the various leading cases on company residence, it is possible to compile a list of questions that can be used to determine the residence of a company:
■ Where are the questions of important policy determined?
■ Where are the directors’ meetings held?
■ Where are the majority of directors resident?
■ Where are major contracts negotiated or agreements concluded?
■ Have the directors delegated any of their powers? To whom and to what extent?
■ Where are the shareholders’ meetings, both general and extraordinary, held?
■ Where is the head office of the company?
■ Where are the books of account kept?
■ Where are the accounts prepared and examined?
■ Where are the accounts audited?
■ Where are minute books kept?
■ Where are company seals kept?
■ Where is the share register kept?
■ From where are dividends, if any, declared?
■ Where are the profits realised?
■ Where is the company’s bank account on which the secretary etc. draws?
■ Where is the company incorporated?
If all of the strategic decisions affecting a company are taken by the company directors, then the fact to be determined is where those decisions are taken and hence control is exercised. No single factor above would in itself determine the tax residence of a company. However to be satisfied that the central management and control of a company rests in a particular jurisdiction, you would expect that jurisdiction to be the answer to the majority of the above questions.
Some factors listed above will carry more weight than others. For example, where the directors’ meetings take place (assuming that the directors are the persons who make key policy decisions on behalf of the company and are not simply acting in accordance with the instructions of others) is likely to be a key factor and would prove a strong indication of where the company is resident for tax purposes.
Dutch BV is incorporated under Dutch law. However, its central management and control is in Ireland and it is therefore an Irish resident company.
Fork Ltd, an Irish resident company carries on trading activities in Ireland and Japan and has a bank account in Switzerland. Fork Ltd will be subject to Irish corporation tax not only on the profits of its Irish operations but also on the trading profits arising in Japan as well as its investment income in Switzerland (i.e. it will be taxable on its worldwide income). Fork Ltd may also be liable to tax in Japan and Switzerland and may be entitled to a foreign tax credit for taxes paid in those jurisdictions in calculating its liability to Irish tax. Foreign tax credits are covered in detail in your Part 3 studies.
Sure Limited is a Dublin based trading company incorporated in Ireland in 2018. It is owned and controlled from Los Angeles. As the US only operates an incorporation test, Sure Limited would not be tax resident in the US. It is treated as being tax resident in Ireland under s 23A(1) TCA 97.
Madison Limited is a company incorporated in Ireland in March 2018. The company operates a Brazilian mine and their board of directors hold all of their meetings in that country. The company undertakes no activities in Ireland. Under the management and control test the company is not deemed to be tax resident in Ireland. However, S23A(1) TCA97 deems the company to be tax resident in Ireland and it cannot avail of the double tax treaty exemption as Ireland does not currently have a treaty with Brazil.
When a company is incorporated or commences to carry on a trade, profession or business in Ireland they must, within 30 days, provide various details to the Revenue, under s.882 (2) TCA 1997, including:
■ The date the activity commences
■ The name of the company, its registered office address and the address of its principal place of business
■ The name of the company secretary
■ The date to which accounts will be made up
These details are typically provided to Revenue when registering the company for taxes by completing an online Form TR2 (Companies).
Where the company is incorporated but not resident in Ireland, the following additional information is required (Section 882(2)(c)(ii)):
■ The territory in which the company is resident;
■ Where the trading exemption (under the original Section 23A(3) (as outlined above) applies, the name and address of the company which is trading in the State;
■ Where the treaty exemption in Section 23A(2) (current section) or Section 23A(4) (original section) (as outlined above) applies, if the company is controlled by another company whose shares are traded on a stock exchange in an EU or DTA country, the registered office of that company and in all other cases, the names and addresses of the individuals who are the ultimate beneficial owners of the shares.
Calcutta Jute Mills Company v Nicholson  1 TC 83
One of the first cases to consider a company’s residence was Calcutta Jute Mills.
■ The company held board meetings and annual general meetings in London in an office lent by a director but everything of a practical nature was in India. It claimed that it was not resident in the UK and that its trade was not carried on in the UK.
■ The judgments in Calcutta Jute Mills are the basis on which our later residence ideas rest and on which the case which became the authority on residence (De Beers) drew heavily.
■ The Judges, while looking at the board of directors and giving much weight to its role of management in the UK also took into account the fact that annual general meetings were in the UK and the company was UK incorporated. The people in India were mere agents acting solely on behalf of the company.
The UK courts found the company to be UK resident.
Todd v The Egyption Delta Land And Investment Company Ltd  14 TC 119
The House of Lords in the UK held in this case that the bare fact of incorporation in the UK did not constitute a company’s residence in the UK. Instead, where the directors’ meetings were held was found to be more important.
De Beers Consolidated Mines Ltd v Howe [1903–1911] 5 TC 198 and 9 TC 356
■ This case is the most widely cited in relation to company residence and is the one on which the “management and control” test is based where a company’s residence is not decided under s.23A TCA 1997.
■ The courts in this case decided that the place where a company resides is the place where it carries on its real business. The judge in the De Beers case said:
■ “I regard that as the true rule; and the real business is carried on where the central management and control actually abides.”
■ The judge in the case also noted that:
“The place of incorporation, while a factor, is very much subsidiary to other considerations. Control has more to do with where the directors hold their meetings and whether real decisions affecting the company are taken at those meetings.”
Untelrab Ltd, Unigate Guernsey Ltd and Unigate Overseas Ltd v McGregor (HMIT)  SP C 55
■ In this UK case, it was decided that two subsidiaries of the Unigate group which were registered overseas were actually resident there.
■ The UK Revenue had argued that because the two companies (used as financial vehicles of the group) made investments according to the policy and wishes of the UK parent company, they were UK resident. However, the UK Special Commissioners found that neither company merely rubber-stamped instructions from the UK parent, nor would have taken a decision which the directors considered unwise or improper. Hence, the central management and control of the companies was found to be overseas and not in the UK.
■ The Inland Revenue did not appeal the Special Commissioners decision in this case. It should be noted that the case involved a public company at parent level. A similar result may not have emerged in a private or family company situation, where the policy function would be likely to be much more concentrated.
Wood v Holden  STC 443
This case was about a non-resident subsidiary. Despite the fact that the subsidiary board acted upon the instructions of the resident parent, the company was held to be non-resident as the subsidiary’s board consisted of sound commercial businessmen who would be capable of not carrying out an instruction if they knew it to be for example, illegal.
The judge in this case also observed that, where a company incorporated in a jurisdiction other than that of its parent holds infrequent or short board meetings in that jurisdiction because it has little or no activity (e.g. in the case of a pure holding company), that does not mean that it is managed and controlled in the jurisdiction of the parent company. If little activity is required, the fact that there is little activity is not significant – only where that activity takes place is significant.
188.8.131.52Non-resident companies – Irish branch
Section 25(1) TCA 1997 provides that a company which is not resident in Ireland (i.e. a non-Irish resident company) is only subject to corporation tax if it carries on a trade in Ireland through a branch or agency.
If it does carry on a trade in Ireland then it is subject to Irish corporation tax on:
■ Any trading income arising from the branch or agency,
■ Any other Irish source income
■ Any income from property or rights used by, or held by, or for, the branch or agency, and
■ Chargeable gains arising from assets which are situated in Ireland (under s.533 TCA 1997) and which are used in or for the purposes of the trade carried on through the branch or agency (NOTE – such assets remain chargeable assets of the non-Irish resident company even when the company is no longer carrying on a trade in Ireland or the assets have ceased to be used for the purposes of the trade carried on through a branch or agency in Ireland. See Section 29(3)(c). If the company continues to carry on a trade and is subject to corporation tax, any gain will also be subject to corporation tax. If the company is no longer within the charge to corporation tax, capital gains tax will apply).
We considered the meaning of “branch or agency” earlier in this chapter.
Murphy v Dataproducts (Dublin) Ltd (29 January 1988 HC)
This case considered the meaning of “income from property or rights used by, or held by or for, the branch or agency”. The company was incorporated in Ireland but its residence was moved to the Netherlands in 1979. The company continued to carry on its manufacturing business through its Dublin branch. The company opened a bank account in Switzerland into which excess profits from the Dublin branch were lodged. The bank account was managed for investment purposes from the Netherlands in accordance with decisions of the company’s US parent. Some of the money in the account was returned to Dublin to meet operational shortfalls but management in Dublin had no control over the account or the investment of the money held in the Swiss account.
The High Court held that that the moneys were not “used by” the Irish branch but were used by the company that controlled the bank account. The money withdrawn was used by the company for the Irish branch but not used by the branch. Money returned to Dublin became money “held by or for” that branch.
Dutch Company BV is not resident in Ireland but it has an Irish manufacturing operation. Dutch Company BV receives rental income from an investment property in Cork.
It will be subject to Irish corporation tax on the trading income arising from the branch and on related investment income e.g. income on deposits controlled by the branch. It will also be subject to corporation tax on chargeable gains arising on assets which were used for the purposes of the Irish trade carried on through the branch and on the rental income from the investment property.
If a non-resident company generates income from deposits which are not under the control of the branch such profits will not be subject to corporation tax in Ireland unless the income from the deposit is Irish source income (subject to any exemptions that may apply – see Section 198 TCA 1997).
184.108.40.206Non-resident companies – No Irish branch
Generally, a company is not subject to income tax in Ireland. Section 21(2) TCA 1997 sets out the circumstances where a company is not subject to income tax as being where:
(a) the company is resident in Ireland or
(b) the company is non-resident but it’s income is within the charge to corporation tax (because it carried on a trade in Ireland through a branch or agency)
A non-resident company which does not have a branch or agency in Ireland does not fall within either of the two circumstances above and will be subject to income tax on any income derived from sources in Ireland. The rate of income tax applicable is set out in Section 15 TCA 1997. Section 15(1) provides that income tax is to be charged at the standard rate (currently 20%). Note that the remaining subsections refer to the income tax rates applicable to individuals only and are not relevant in determining the rate applicable to companies that are subject to income tax.
A non-resident company, just like a non-resident individual, is subject to CGT on any disposal of specified Irish assets.
ABC Limited is resident in Ireland. It will be subject to corporation tax on its worldwide profits (including gains) regardless of where they are generated.
DEF Limited is not resident in Ireland. However, it carries on a trade through an Irish branch. It will be subject to corporation tax on the profits and gains arising in or to the branch or other Irish source income but not on income not connected with the branch (e.g. profits from another overseas branch) or from non-Irish sources.
XYZ UK Limited is a non-Irish resident company (it has no branch etc in Ireland). Its only source of Irish income is derived from an Irish property that it has leased to a third party. It will be subject to Irish income tax on this income.
If XYZ UK Limited has no Irish source income then obviously it would not be subject to Irish tax (neither income tax nor corporation tax.)
A company resident in Ireland pays corporation tax on its worldwide profits.
Figure 1.1. The corporate tax residence tests – incorporated from 1/1/2015
A. Overview of the tax residence tests – incorporated from 1 January 2015
B. Overview of the tax residence tests – incorporated before 1 January 2015
Figure 1.2. The territorial scope of Irish corporation tax
Fried Ltd. is incorporated in the State on 27 May 2014 on behalf of an individual resident in Columbia who controls the company. The memorandum of association allows the company to carry on a very wide range of trading, investment and other activities although none of these are intended to take place in the State.
The directors of Fried Ltd. never enter the State, no meetings of any kind are held here so that the company is not managed and controlled in Ireland.
Where is the company resident?
A French incorporated company whose centre of management and control is Paris also opened a factory unit in Naas where a small workforce manufactures clocks. These clocks are sold from this Naas factory.
Is the company Irish resident?
A German company purchased a factory workshop in Galway. One of the German managers moved to Galway, a number of staff were employed and parts for machines were produced in Ireland for export to customers in Germany.
How much, if any, of the German company’s income is subject to Irish corporation tax?
Alpha Ltd is a UK incorporated company that manufactures clothes. It has several factories in England, France and Germany and a warehouse and offices in Ireland. All of the directors of Alpha Ltd. live in Ireland. Both the directors’ and shareholders’ meetings take place in Ireland.
Is Alpha Limited tax resident in Ireland?
Delta Ltd is a company incorporated in Ireland. In 2014, all of the company directors, who are the sole shareholders in the company, moved to a newly built modern factory and offices in Rotterdam but still kept the factory in Ireland open. The directors previously managed the operations of the Irish factory from Rotterdam.
Delta Ltd’s centre of management and control from 2015 onwards is the Netherlands.
Is the company Irish tax resident in 2015 and future years?
State the consequences of a company being:
(a) resident in Ireland
(b) not resident in Ireland but
(i) with an Irish branch
(ii) with no irish branch
This is a fundamental concept in corporation tax and one with which you must be very familiar.
The function of an accounting period for corporation tax purposes is effectively the same as an income tax year for income tax purposes i.e. it is the trigger point for determining a company’s compliance obligations (pay and file) and is the period by reference to which a company’s profits are calculated. This is set out in Section 27 TCA 1997.
You should note that this is different to an accounting period for accounting purposes as set out in Financial Reporting and Tax accounting fundamentals.
For tax purposes, an accounting period cannot extend for more than 12 months. This applies notwithstanding that the company may make up its accounts for a longer period. In such circumstances the longer accounting period is broken up into separate accounting periods for tax purposes.
ABC Limited prepares its accounts for the 18 month period ending 30 June 2018. For tax purposes it will be deemed to have two accounting periods as follows:
■ Year ended 31 December 2017 (12 months)
■ Period ended 30 June 2018 (6 months)
DEF Limited made up its accounts for a 14 month period ending 31 March 2018. For tax purposes its accounting periods will be as follows:
■ Year ended 31 January 2018 (12 months)
■ Period Ended 31 March 2018 (2 months)
It should be noted that a company’s accounting period can be shorter than 12 months. For example, it may make up accounts for a 9 month period ending 31 December 2018. This 9 month period would be treated as an accounting period for tax purposes.
Section 27(2) TCA 1997 sets down rules for triggering a commencement of an accounting period. They are as follows:
■ A company commencing to trade
■ A company becoming resident in Ireland
■ A company acquiring a source of income
For tax purposes, an accounting period ceases on the occurrence of any of the following events:
– Expiration of 12 months from the beginning of the accounting period (as this is the maximum length of an accounting period for tax purposes)
– Accounting date of the company
– A company ceasing to trade
You should be very familiar with the events which determine the commencement and cessation of an accounting period.
The following example illustrates the operation of the above rules.
XYZ Limited was incorporated on 1 January 2017. Its shareholders subscribed for share capital on 1 March 2017 and the cash of €50,000 was immediately put on deposit with Bank Plc. On 1 May 2017, the company commenced to trade.
It made its first set of accounts up for an 18 month period ending 30 June 2018.
The accounting periods of the company for this 18 month period are as follows:
|1 March 2017 to 30 April 2017||XYZ Limited acquires a source of income (deposit with Bank Plc triggers an interest income source) so that an accounting period begins. It ceases on 30 April as the company then commences to trade.|
|1 May 2017 to 30 April 2018||A new accounting period begins on 1 May because the company commenced to trade. It ceases on 30 April because 12 months is the maximum length of an accounting period.|
|1 May 2018 to 30 June 2018||Accounting date of company.|
State the events which trigger a commencement or cessation of an accounting period.
1.3.Interpret legislation to apply income tax principles to allocate the income of corporates to the appropriate Schedule or Case
As with income tax, corporation tax is based around allocating the various sources of income to different categories.
Similar to income tax, corporation tax also uses the income source known as Schedule D which contains the five cases, I – V.
The concept of Schedule E, employment income does not exist for a company as a corporate cannot be an employee.
The Schedule F income of an individual, Irish dividends, does not apply to companies. When an Irish company receives a dividend from another Irish company it is called Franked Investment Income (FII) and is exempt from tax, s.129 TCA 1997. See chapter 9 for further discussion.
Therefore, for a corporate the main taxable sources of income are schedule D cases I – V.
1.3.1.Schedule D case I/II
As with income tax, cases I and II tax trade and professional income, section 18(2) TCA 1997.
As you will see from section 1.6, the corporation tax rate for trading and professional income at 12.5% is half that of investment income (25%) and therefore it is generally in the interest of a company to have its activities classified as trading.
In most cases this is very obvious, for example the trading rate will apply to all building companies, retail outlets, incorporated professionals such as accountants, doctors etc.
The situation is not as clear-cut when the company’s activities might not be high volume or match many, or indeed any, of the badges of trade characteristics, which you covered in your personal taxes manual.
Therefore, due to the difference between the rates, the distinction between whether a company’s activities are trading or investment based is an important one. There is a risk that low substance businesses (sometimes called “brass plate” operations) will try to exploit this low 12.5% tax rate.
Revenue have offered published guidance on the trading-v-passive question in:
■ Tax Briefing 57 (available at www.revenue.ie),
■ Revenue Statement of Practice on Classification of Activities as Trading (available at www.revenue.ie),
■ Revenue List of Opinions on the Classification of Activities as Trading (available at www.revenue.ie).
Example 1.15: Licensing of intellectual property
At one end of the scale, and almost certainly passive (i.e. non-trading), is the company that owns a brand or trademark and licences it at a pre-determined price to a single affiliated company.
At the other end of the scale are companies engaged in distribution of cinema and TV films. These acquire the rights to the films from producers and in exchange for the payment of distribution royalties permit the films to be shown by cinemas, TV stations and video distributors. It is hard to see how this activity would not constitute trading.
Factors supporting the existence of a trade in the context of a licensing activity will include the number of customers dealt with, incurring promotional or marketing expenditure in relation to the licensed property, and managing a diverse portfolio of products for licensing (including, where relevant, commissioning new or developed products on a subcontract or direct basis).
Example 1.16: Financial services companies
A trading company will use financial instruments to earn a commercial return but an investment company will take on limited financial risk.
At one end of the spectrum is a company that puts funds in an interest earning deposit account (clearly passive) and at the other is a bank or insurance company whose interest income is undoubtedly active.
If the transactions have a limited purpose, there is a low volume of transactions or the transactions involve holding only income generating debt instruments, then the company’s income is passive, not trading.
It is likely that holding shares will (unless the portfolio is actively dealt with on a regular basis - turning over the portfolio a number of times per year) normally constitute a passive activity and holding shares in subsidiaries will invariably be passive.
Example 1.17: Venture capital investment
Venture capital companies generally invest in order to realise a profit on the sale of their investment, but the holding period may be a number of years. Generally venture capital companies in Ireland are charged to corporation tax on chargeable gains on the disposal of their investments, with dividend income on investment subject to the passive corporation tax rate.
Depending on the level and frequency of turnover of the portfolio, it might alternatively be possible to sustain an argument that the company is trading, with all transactions taxable at the trading rate.
Example 1.18: Rental income
Irish rental income will always be Case V regardless of the level of management or number of properties.
Example 1.19: Leasing income
The activities of a leasing company would generally be treated as Case I if the company was actively involved in acquiring the assets to be leased and then charged with leasing them to third parties. It should have its own staff or subcontractors who are knowledgeable in the industry and would conduct its own leasing contracts.
Xpert Limited is an Irish resident member of a multi-national software development group. The activities of Xpert Limited involve the acquisition of intellectual property from certain group members and the licensing of such intellectual property to other EU based group members. The company has asked your advice on the steps it should take to seek to ensure that the profits arising from these activities would be subject to tax in Ireland at 12.5%.
Set out the advice you would give Xpert Limited.
Case study solution
To successfully secure trading status in Ireland and qualify for the 12.5% tax rate, Xpert Limited needs to be actively carrying on a trade.
Because of the nature of the activities, there is a risk that the activities could be, or be perceived to be, passive and therefore chargeable to corporation tax at the rate of 25%.
In considering this matter, it is important to consider relevant case law in this area as well as the badges of trade.
There is no comprehensive definition of what constitutes a trade in Irish tax legislation. The term trade is statutorily defined to include “every trade, manufacture, adventure or concern in the nature of a trade” (s. 3(1) TCA 1997).
Reliance is also placed in interpreting the term ‘trade’ on the UK ‘Badges of Trade’ and on UK case law which, though not binding, is of persuasive authority in Ireland. The badges of trade are as follows:
■ the matter realised - whether the property acquired was (e.g. commodities, manufactured articles) normally the subject of trading or investment.
■ The length of period of ownership - generally property meant to be traded or dealt in is realised within a short time after acquisition.
■ The frequency and number of similar transactions by the same person.
■ Supplementary work on or in connection with the property realised – there would be evidence of trading if, for example, the property is worked on in any way during the ownership so as to bring it into a more marketable condition or if any special exertions are made to find or attract purchasers.
■ The circumstances that were responsible for the realisation.
■ Profit motive - this can be inferred from the surrounding circumstances in the absence of direct evidence of the seller’s intentions.
Xpert Limited should:
■ engage a number of Irish based employees to carry out its work;
■ maximise the functions of the Irish employees;
■ specify the functions of the Irish employees in their contracts of employment;
■ secure an Irish premises from which the Irish employees operate and incur related costs;
■ add value to the product and incur research and development costs;
■ be seen to accept commercial risk in its business dealings;
■ if possible, enter contracts with customers other than related group companies.
The company must be genuinely trading to avail of the 12.5% tax rate.
1.3.2.Schedule D Case III
There are two main components of schedule D Case III –
As with an individual, all income received from outside of Ireland is treated as being case III, section 18(2) TCA 1997. This includes income from trades, rent, investments, dividends etc. Therefore a company with a branch in Belfast and Berlin would allocate the income to schedule D case III, even though the branches are earning trade income.
Schedule D case I or II only applies to trade and professional income earned in Ireland.
Interest received gross
Unlike individuals, companies are entitled to receive deposit interest gross, without deduction of dirt, s.257 TCA 1997. See chapter 9 for the conditions necessary to receive interest free of DIRT. This income is then taxed under schedule D case III.
1.3.3.Schedule D case IV
As with individuals, companies are taxed on interest subjected to DIRT under schedule D case IV, section 18(2) TCA 1997.
In this situation, the gross interest payable by the bank would have DIRT at 37% deducted. The bank would pay the DIRT to the Revenue and credit the company’s deposit account with the net 63% (100% of the interest due less 37% DIRT).
The company must then re-gross the net amount received and charge the entire amount to schedule D case IV. They will receive a credit for the DIRT withheld.
Example 1.20: Interest income
Florence Ltd places €100,000 on deposit with X bank Ltd for one year at 10% interest payable.
At the end of the year the bank owe gross interest to Florence Ltd of €10,000 (€100,000 × 10%). Florence Ltd will receive €6,300 after 37% (€3,700) DIRT is deducted.
In Florence Ltd’s corporation tax return the net interest is regrossed back to €10,000 and taxed under schedule D case IV. The company will also receive an allowance for the DIRT deducted.
You will recall that an individual is only entitled to a refund of DIRT where the DIRT deducted is greater than his or her income tax liability in certain circumstances (i.e. if the taxpayer or his/her spouse is aged over 65 in the tax year or either are permanently incapacitated). Apart from these circumstances any excess DIRT is not refundable.
However, in the case of a company a refund of DIRT is available, regardless of the status of the company. Therefore, any excess DIRT over and above the corporation tax due by the company will be refunded.
Schedule D case IV is also used to tax all other sundry income not taxed under any other specific schedule/case.
1.3.4.Schedule D case V
Schedule D case V is similar for both individuals and companies and taxes Irish rental income, s.18(2) TCA 1997. Income from each separate Irish property is calculated and combined to give one source of income.
Rent from outside Ireland is schedule D case III and not case V.
Dividends or other distributions received by an Irish resident company from an Irish resident company are not subject to corporation tax (Section 129 TCA 1997). This is a fundamental difference between income tax and corporation tax.
“Franked investment income” is the term which is given to dividends received by an Irish resident company from another Irish resident company.
If Mr. X an Irish resident individual receives a dividend from Smurfit Plc he will be subject to income tax under Schedule F on the gross dividend and will be entitled to reduce his income tax liability by the tax credit attaching to the dividend (in respect of the dividend withholding tax paid).
However, if the dividend in Smurfit Plc is received by ABC Limited (an Irish resident company) the dividends will be franked investment income and exempt from corporation tax.
Therefore, a company will never be subject to tax under Schedule F. A charge to tax under Schedule F only exists in relation to income tax, section 20 TCA 1997.
X Limited (an Irish resident company), pays a dividend of all of its profits to its shareholder, Y Limited, an Irish resident company. X Limited has profits available for payment of a dividend in respect of the year ended 31 December 2018 calculated as follows:
|Tax @ 12.5% (say)||(12,500)|
|Profits Available for Dividend||87,500|
Y Limited will not be subject to tax on the dividend of €87,500 it received from X Limited. This income is Franked Investment Income as X Limited has already paid tax on the profits which were distributed i.e. €12,500.
It is not necessary that there be a minimum shareholding relationship between the parties in order for a dividend to be franked investment income. In the example above, the dividend of €87,500 would be treated as franked investment income even if it was split between 10 different Irish resident companies.
A company is not entitled to a deduction (in its corporation tax computation) for any dividends or other distributions paid by it. This is because such dividends are an appropriation of profits and not an expense related to the generation of profits (dividends paid are below ‘profit before tax’ in the Statement of Comprehensive Income so in practical terms won’t affect the paying company’s corporation tax computation). See also chapter 8 for a further discussion on this.
So, in summary, franked investment income is not taxable by a corporate shareholder, and similarly a deduction is not available to the company paying the dividend.
DEF Limited (an Irish resident company) generated taxable profits of €100,000 in the year ended 31 March 2018. It decided to pay a dividend of €50,000.
It will not be entitled to a deduction for this dividend payment i.e. it will be liable to corporation tax on €100,000.
Cases I/II/III/IV and V are the same for income tax and corporation tax.
1.4.Interpret case law to determine if a company is trading and is therefore subject to the 12.5% corporate tax rate
There is no useful definition of “trading” under Irish statute law but there is a significant body of case law on this subject. However, the majority of these cases have been heard by the courts in the UK, the decisions of which, while persuasive, are not binding on the Irish courts.
The approach of the courts has been to examine the specific facts of an individual case and look for the presence, or absence, of common features or characteristics of trade.
Noddy Subsidiary Rights v IRC  43 TC 458
■ One of the most relevant cases in this area is the UK case of Noddy Subsidiary Rights v IRC (43 TC 458).
■ In this case, the Noddy Subsidiary Rights Co Ltd (“the Noddy company”) was established “to carry on and develop the business of exploiting and turning to account” certain intellectual property rights, i.e. copyright and trademark licenses in the Enid Blyton character, Noddy.
■ The Noddy company retained an assistant on the staff of an associated company to act as general manager for its (the Noddy company’s) business. This general manager devoted half of his time to working for the Noddy company and was assisted by two other individuals who were also employed by the associated company. The general manager was paid by the associated company for the work he undertook for the Noddy company. The general manager was actively involved in running the business of the Noddy company and arranged for many copyright licences to be granted by the company to various manufacturing companies.
■ The court (on appeal) held that:
– where a person owns an item of property and grants licences under it, those activities might, according to the circumstances, amount to carrying on a trade;
– given that the manager spent half his working time managing the Noddy company’s affairs, that he actively sought out customers at toy fairs, that he exercised skill and labour of a continuous and varied kind when dealing with the licences when granted, the only reasonable conclusion was that the company was carrying on a trade. This was even though the Noddy company had no separate office or staff of its own.
Therefore, in establishing trading status it was important to demonstrate that in addition to licensing the intellectual property, the Noddy company had retained the services of a skilled individual who, supported by assistants, was responsible for the running of its business.
Pairceir v EM (2 ITR 596)
This case concerned an appeal by a taxpayer regarding the treatment of income arising from the letting of premises.
The taxpayer argued that this income should be treated as trading income as she was involved in the negotiation of leases and the ongoing management of the premises.
It was held that the income would not be considered to be trading income as the law was clear that rental income could not be considered to be trading income in any circumstances.
Lupton v FH & AB (47 TC 580)
This case considered a situation where a loss arose to a taxpayer with respect to a number of share transactions. The matter for consideration was whether these transactions gave rise to a trading loss.
The taxpayer was a company engaged in a trade of dealing in stocks and shares. However, the shares which were the subject of these particular transactions were acquired on the basis that a dividend would be received and the shares sold back to the vendor shortly after acquisition. This process is known as dividend-stripping and resulted in a lower tax charge for the company.
Due to the nature of these transactions and the fact that the purpose of the transaction was to receive a dividend and sell the shares at a loss, the tax authority argued that the shares did not form part of the stock in trade of the company at any time.
The court held that the transactions in question were tax devices and were not trading transactions.
In general, the courts have found it easier to say whether a trade exists than to actually define ‘trade’ or ‘an adventure in the nature of a trade’.
1.5.Interpret legislation to apply capital gains tax principles to the taxation of corporate capital gains
Individuals pay capital gains tax on sales of assets and companies pay corporation tax on chargeable gains (with one exception, discussed in chapter 7 (Part 2)).
A company’s capital gain is calculated in the exact same manner as that of an individual, s 31 TCA 1997. See 1.6 in relation to how the gain is then taxed.
1.6.Explain the application of the appropriate corporation tax rate to income from each source
1.6.1.Corporation tax rates on income
There are two main rates of corporation tax – 12.5% and 25%.
The 12.5% rate is as per s. 21 (1) (f) TCA 1997. This section applies the 12.5% rate to the profits of companies, however s. 21A (3) (a) TCA 1997 removes the income categories noted below from this rate and charges them at 25% instead, effectively leaving ordinary trading income to be taxed at 12.5% only. See 1.6.2 for possible relief for foreign dividends.
The 25% rate
Corporation tax is charged at a higher rate of 25% on the following types of income of a company:
■ Income chargeable under Case III, IV or V of schedule D,
■ The income of an excepted trade (see details below). This rule is in Section 21A (3)(a) TCA 1997.
Excepted trades – S. 21A (1) TCA 1997
The following excepted trades are liable to corporation tax at 25%:
■ Dealing in or developing land, (other than residential land), but not any part of such trades which consists of construction operations,
■ Working minerals
■ Petroleum activities whether exploration, extraction activities or acquisition, enjoyment or exploration of petroleum rights.
If a company’s business consists partly of any of the excepted trades and partly of other trading operations the profits are to be apportioned between these operations on a just and reasonable basis.
1.6.2.Special rule for certain foreign dividends – S. 21B (1) TCA 1997
Certain dividends received by Irish companies from companies resident in an EU/Double Taxation Agreement (“DTA”) country or companies trading on any stock exchange which is recognised by the Minister, s. 21B(1)(b)(i) TCA 1997 may be taxed at trading rates (12.5%) rather than at the normal Case III rate of 25%. The relevant legislation is contained in s. 21B TCA 1997.
For the purposes of the relief, s. 21B(1)(a)(iii) TCA 1997 includes companies in countries with which arrangements have been made to conclude a DTA (so, in effect, any territory with which a tax treaty has been signed but which has not yet necessarily entered into force). Dividends from companies in countries that have ratified the OECD Convention on Mutual Administrative Assistance in Tax Matters are also included, s. 21B(1)(a)(iv) TCA 1997.
Broadly speaking, when a foreign qualifying company whose trading profits account for more than 75% of its total profits pays a dividend to an Irish company, the Irish company can make a claim so that the dividend is taxed at 12.5% (s. 21B(5) TCA 1997). The claim is made in the Form CT1 (s. 21B(6) TCA 1997).
Where the dividend is paid out of specified profits then the portion taxable at 12.5% is in relation to the percentage of specified profits compared to trading profits, subject to the 75% rule, s. 21B(2)(a) TCA 1997.
For Irish companies whose ownership is not more than 5% (portfolio investors), the 12.5% rate will always apply regardless of the nature of the foreign company’s profits (s. 21B(4) TCA 1997).
A company who receives the dividends as part of its trading income (e.g. a financial institution) will be exempt from tax on the dividend entirely, s. 21B(4)(c) TCA 1997.
There are provisions for reviewing the 75% limit through an entire chain of companies (s. 21B(1)(b)(ii) TCA 1997).
1.6.3.Corporation tax rates on chargeable gains
Profits on the sale of assets are calculated in the exact same manner for individuals and companies.
Once the gain has been calculated the individual will pay capital gains tax at the rate of 33% s. 28(3) TCA 1997.
When the capital gain has been calculated for the company, this amount is then regrossed as per s. 78(3) TCA 1997 using the following formula:
The chargeable gain is then included in the corporation tax computation and charged at 12.5%.
However, the overall effective tax rate is still the same as that of an individual, 33%.
1.7.Download and review the Form CT1 from ROS online
The vast majority of corporation tax returns are submitted via the ROS system. Under this system a CT1 return is downloaded and completed offline. A tax computation is then prepared and when the form is finalised it is uploaded to the ROS system and lodged with Revenue. You will learn more about the administration of corporation tax in Chapter 14 (Part 2).
Following on from the pro-forma layout earlier in this chapter, you should now download your own version of ROS using the notes below. As you go through the manual you will become familiar with the main entries that make up a typical CT1 return.
The steps are as follows:
1. Go to www.revenue.ie
2. On the homepage, click on the Online services icon;
3. On the next page that appears, in the Online services support section, click on Mobile & offline applications
4. Then select Revenue Online Service (ROS) offline application
5. Select Download the ROS offline application link and follow the instructions to download ROS offline.
6. Once installed, click on ROS Offline and click on the button “Download” – choose form CT1 to download.
7. To open a form once it has been downloaded, click on the “New” button and choose the form that they previously downloaded.
Task 1.8 requires the completion of a basic CT1 return.
Complete an offline ROS CT1 for the below company. The computation does not require completion of every box in the return but you should review the entire return to become familiar with its completion. The company’s tax number is 1234567T.
Corporation tax computation of Chocaloc Ltd for year ended 31 March 2018
|Net loss before tax||(126,730)|
|Motor lease restriction||767|
|Christmas gifts to suppliers||1,000|
|Restrictive covenant to competitor||13,500|
|Patent royalties per accounts||11,000||51,867|
|Bank deposit interest||670|
|Gain on disposal of factory||16,000|
|Profit on disposal of motor vehicle||4,800|
|Finance lease payments||16,000|
|Less trade charges paid||(15,000)|
|Net Case I||(144,458)|
|Schedule D Case IV||1,063|
|Schedule D Case V||2,700|
|Corporation tax as follows:|
|42,240 at 12.5%||5,280|
|3,836 × 25%||941|
|Section 243B (€15,000 @ 12.5%)||(1,875)|
|Net corporation tax liability||0|
|Add income tax withheld on medical insurance||1,000|
|Total tax due||607|
Under s. 23A(2) TCA 1997 (original section), Fried Ltd. is treated as an Irish resident company with effect from its date of incorporation. Assume that none of the exceptions in s. 23A(3) and (4) TCA 1997 apply.
Fried Ltd. is therefore liable to Irish corporation tax on its worldwide income and gains and must each year file full tax returns of its profits and file its accounts with the Irish Revenue.
No. As the company is French incorporated s. 23A(1) TCA 1997 does not apply. Therefore, we look to the central management and control test established in the De Beers case. The central management and control of the company is in France and, therefore, the company is not Irish resident. As the company is not managed and controlled in the state, s. 23A(3) will not apply.
The profits attributable to the Naas factory will, however, be liable to Irish corporation tax as it constitutes a branch of the French resident company.
This production workshop in Galway constitutes a branch of the German company and so the profits attributable to the Irish branch are chargeable to Irish corporation tax.
As Alpha Ltd is UK incorporated, s. 23A(1) TCA 1997 does not apply. Therefore, the central management and control rule as set down by the De Beers case applies.
The controlling body of the company and its management are situated in Ireland, so the place of residence is Ireland. S.23A(3) TCA 1997 will also ensure that the company is treated as Irish tax resident unless the company is deemed tax resident in the UK by virtue of s.23A(2) TCA 1997.
No. Although the incorporation test is met such that s. 23A(2) TCA 1997 (original section) applies, on the basis that the company is controlled by its directors who we can assume are Dutch tax resident, the exception in s. 23A(3) TCA 1997 applies and, therefore, we look to the central management and control test established in the De Beers case. The central-management and control of the company is in the Netherlands and, therefore, the company is not Irish resident. However if the company is not tax resident in Holland under Dutch law, s. 23A(5) TCA 1997 will deem it to be tax resident in Ireland.
The profits attributable to the Irish factory will, however, be liable to Irish corporation tax as it constitutes a branch of the Dutch resident company.
(a) A company which is resident in Ireland is subject to corporation tax on its worldwide profits (including gains), regardless of where they arise.
(b) A non-resident company with a branch in Ireland is subject to Irish corporation tax on:
■ Any trading income arising from the branch or agency
■ Any income from property or rights used by, or held by, or for, the branch or agency, and
■ Chargeable gains arising from assets which are situated in Ireland and which are used in or for the purposes of the trade carried on through the branch or agency.
(c) A non-resident company which does not have a branch in Ireland will be subject to income tax on any income derived from sources in Ireland.
Tax legislation sets down rules for triggering a commencement of an accounting period. They are as follows:
■ A company commencing to trade
■ A company becoming resident in Ireland
■ A company acquiring a source of income
For tax purposes an accounting period ceases on the occurrence of any of the following events:
■ Expiration of 12 months from the beginning of the accounting period (You will recall that this is the maximum length of an accounting period for tax purposes)
■ Accounting date of the company
■ A company ceasing to trade.