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Establish Trading Companies

In order to avail of the 12.5% rate or corporation tax a company must be carrying on “a trade” from Ireland. There is no specific statutory definition in Irish tax law as to what constitutes a “trade”. To assist in this matter Irish Revenue authorities have published guidance setting out the issues which they consider when determining whether an activity constitutes a trade for these purposes. The Revenue authorities have also published general details of the matters where their opinion has been sought as to whether a particular activity constitutes a trade for these purposes. In order to avail of the 12.5% rate of corporation tax a company must derive income from a trade that is actively carried on in Ireland. It is generally essential therefore that the profit making apparatus of the trade is located in Ireland and that the activity is controlled in Ireland. It is generally feasible for a company established in Ireland to exploit intellectual property to avail of the 12.5% rate if the company has sufficient personnel located in Ireland with the appropriate expertise and skills required to be in a position to manage the relevant portfolio of intellectual property.

  • The following are generally regarded as trading activities:
  • activities relating to the development and exploitation of intellectual property rights
  • corporate treasury functions
  • investment management activities
  • distribution activities
  • activities relating to the carrying out of research

Establish Holding Companies

Following the introduction of a number of key taxation reliefs and exemptions in recent years, Ireland has become a very attractive place to locate an Irish holding company.

The main features that give Ireland a competitive advantage over other jurisdictions are as follows:

  • No Capital Gains Tax on the disposal of shareholdings in subsidiaries.
  • No withholding tax on the payment of dividends by the holding company to EU or tax treaty countries.
  • No thin capitalisation or CFC rules.
  • Tax deductions for interest on borrowings to acquire shareholdings in subsidiaries.
  • Favorable tax treatment on the receipt of dividend income.
  • Extensive Tax Treaty network and access to EU Parent-Subsidiary Directive.
  • Low tax rates for both trading operations and investment activities.
  • These incentives together with non-tax incentives such as the economic and telecommunications infrastructure, the English speaking population and membership of the EU make Ireland one of the most attractive destinations in Europe for multinational companies.

One of the major advantages that Ireland has over other jurisdictions is the ability to combine the holding company with trading activities such as Shared Service Centre activities, Group Procurement, Treasury and Research & Development.

Intellectual Property Rights

Tax Reliefs available on Specified Intangible Assets (IP)
Intellectual property and intangible assets are likely to be a core part of any company operating in the pharmaceutical, biotech, medical devices, software, electronic and food & drink industries. In line with the government’s policy on the “Smart” economy and to enhance Ireland’s competitiveness as a location for centralisation, management and development of Intellectual property, companies within the charge to Irish corporation tax may claim tax relief for capital expenditure incurred on acquiring “Specified Intangible Assets”. The tax relief applies to any qualifying capital expenditure incurred after the 7th of May 2009 on the provision of a specified intangibles assets.

Qualifying Intangible Assets
The intangible assets that will qualify for relief include the following: (a) patents, registered designs, design rights or inventions, (b) trade marks, trade names, brand names, domain names, (c) copyrights (d) know-how (e) certain plant breeders rights (f) authorisations to sell medicine (g) any licence in respect of an intangible assets referred to above, (h) any foreign rights similar to those outlined above (i) goodwill to the extent that it is directly attributable to anything referred to above. Finance Act 2014 extended the definition of “Specified Intangible Assets” to include customer lists. However, the acquisition of a customer list will qualify only to the extent that it is acquired otherwise than “directly or indirectly in connection with the transfer of a business as a going concern”.

Relief available
A trading company that incurs capital expenditure on the provision of specified intangible assets for the purpose of its trade will be entitled to write of the expenditure in the form of a capital allowances against its taxable income at a specified rate. A company can avail of the following two options when choosing the capital allowance (wear & tear) rate:

  • 7% straight line for 14 years, followed by 2% straight line in the 15th year,
  • An amount equivalent to the depreciation/amortisation charge in the financial statements,

A company can claim either of the above options at its own discretion for each individual asset. Also there will be no balancing charge (although a balancing allowance may still arise) if the asset is sold more than 5 years (10 years where the asset was purchased between 5th February 2010 and 13th February 2013 and 15th years where the asset was purchased between the 7th May 2009 and 4th February 2010) after the first accounting period in which the asset was first purchased.

Relief Restrictions
Unlike ordinary capital allowances, there is a restriction on the amount of allowances than can be offset against taxable income. The capital allowances can only be offset against income from relevant trading activities. These activities include the managing, developing and exploiting of the specified intangible assets or the sale of goods deriving the value from the specified intangible assets. These activities are treated as a separate trade for the purpose of the offset of the capital allowances. Once the income from the relevant trade has been identified, a further restriction applies in that only 80% of the income can be potentially sheltered by the capital allowances. However for accounting periods beginning on or after the 1st January 2015 the restriction is removed and all the income from the relevant trade can now be sheltered. It should also be noted that the interest cost of funding the acquisition of the intangible assets including the interest on the borrowings to invest in a company that uses the money to acquire the assets is deductible, however the pre 1st January 2015 restrictions mentioned above also apply to the interest on borrowings.

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