847 Tax relief for certain branch profits

Summary

This section provides for exemption from corporation tax in respect of foreign branch income and from capital gains tax for foreign branch gains where the income or gains arise to a company which creates substantial employment in Ireland as a result of a substantial investment of permanent capital in the State.

In order to avail of the scheme, a company is required to submit an investment plan to the Minister for Finance setting out details of the proposed investment by it or by its associated company. If the Minister for Finance is satisfied that the plan is directed towards the creation of substantial employment in the State in trading operations here, that the investment will be made, that the creation of the employment will be achieved and that the maintenance of the employment in the State is dependent on the carrying on by the company of the foreign trading activities, the Minister can certify the company as a qualifying company.

Income and gains from foreign trading activities are exempted from tax only where the activities are carried out in a country specified in the certificate given by the Minister. The certificate may be given subject to conditions and, where the conditions under which it is given are not satisfied, the certificate may be withdrawn.

Where such a company disposes of an asset which consists of lands in the State, minerals (or mineral rights) in the State, exploration or exploitation rights in the State or shares deriving their value from such assets the gain will be taxable here.

The Department of Finance has issued guidelines which set out in more detail the requirements regarding the levels of investment and employment.

This provision is effectively redundant as respects investment projects planned after 15 February 2001 as the Minister cannot certify a company as a qualified company for the purposes of the exemption after that date. However, the section permits a company to carry forward unused losses of a foreign branch that were disregarded under the section. The set off of such losses is restricted to future profits arising from the same branch.

Details

Definitions and construction

(1)(a) An “investment plan” is a plan setting out details of the investment to be made in the State by the company seeking the exemption or by an associated company of that company. The plan is required to involve the investment of substantial permanent capital in the State and the creation of substantial new employment in the State in proposed trading operations here. The plan must be submitted to the Minister for Finance before it is implemented.

A “qualified company” is a company which has been certified (before 15 February 2001) by the Minister for Finance following consultation with the Minister for Enterprise, Trade and Employment and whose certificate has not been revoked.

“qualified foreign trading activities” are trading activities of the company carried on through its foreign branch. The state in which the activities are carried on must be specified in the certificate given to the company.

(1)(b)(i) The circumstances in which a company is regarded as associated with another company are set out. Two companies are associated if one is a 75 per cent subsidiary of the other or if both are 75 per cent subsidiaries of a third company. The definition of a 75 per cent subsidiary is contained in section 9 which provides that a company is a subsidiary if 75 per cent of its ordinary share capital is owned directly or indirectly by the other company. In determining whether the 75 per cent test is met no account is to be taken of share capital held if a sale of it would be treated as a trading receipt, whether that capital is held by the company directly or indirectly.

(1)(b)(ii) Sections 412 to 418 are adapted to ensure that a company can only be treated as a subsidiary of another company if that company has a 75 per cent entitlement in regard to the holding of shares, profits on a distribution and a share of assets on a winding up. Section 411(1)(c) which provides that only Irish resident companies can be taken into account in determining whether companies are in a 75 per cent relationship, is not to apply for the purposes of this section.

(1)(b)(iii) Where a trade carried on by a company consists partly of qualifying foreign trading activities and partly of other activities, the company is to be treated as carrying on two separate trades, one of the qualifying foreign trading operations and another of the other activities.

(1)b)(iv) Each trade will have attributed to it the profits or gains which it would have made if each trade were carried on by independent persons acting at arm’s length.

(1)(b)(v) Provision is made for the apportionment on a just and reasonable basis of profits or gains or losses, or charges, management expenses or any other amount which is available for set off against profits of more than one description as between two or more trades carried on by the company.

Certification

(2) The Minister for Finance may certify a company as a qualified company where following the submission of an investment plan to the Minister for Finance and following consultation by the Minister with the Minister for Enterprise, Trade and Employment, the Minister for Finance is satisfied that —

• the plan is an investment plan,
• the company (or its associated company) will make the substantial permanent investment in the State under the plan by the date specified in the plan and approved by the Minister,
• the substantial employment creation in the State under the investment plan will be achieved, and
• the maintenance of the employment so created will be dependent on the company carrying on the qualified foreign trading activities.

(4) A certificate may be given subject to such conditions as the Minister for Finance, following consultations with the Minister for Enterprise, Trade and Employment, considers appropriate.

(5) A certificate may be revoked where any condition subject to which the certificate was given is not complied with. The Minister for Finance must consult with the Minister for Enterprise, Trade and Employment before forming an opinion that a certificate should be resolved.

Guidelines

(3)(a) The Minister for Finance is required to draw up guidelines to set out criteria for the purposes of determining whether a company (or companies associated with it) will create substantial new employment in the State and whether it will make a substantial permanent capital investment in the State.

(3)(b) The guidelines may specify levels of employment and permanent capital investment in the State and may include such other criteria as the Minister for Finance considers appropriate.

These guidelines have been drawn up.

Tax treatment

(6)(a) Subject to subsection (6) profits or gains or losses from the qualified foreign trading operations are to be disregarded for corporation tax purposes. Profits or gains are not to be taxed and losses are not available for offset.

(6)(b) Charges, management expenses and other amounts available for deduction from or set-off against profits of more than one description are not available for deduction or set off to the extent that they are treated as if incurred for the purposes of qualified foreign trading activities.

(7) A gain on the disposal of an asset used wholly and exclusively for the purposes of qualified foreign trading activities is not to be a chargeable gain unless the asset is an asset specified in paragraphs (a) to (d) of section 980(2) (that is, land in the State, mineral rights in the State, exploration or exploitation rights in a designated area or shares deriving their value from such assets).

Information

(8) An inspector is entitled to seek such information or particulars as may be necessary for the purposes of giving relief under the section.

Termination of relief

(9) The relief will cease to apply after 31 December 2010. Accounting periods which cross 31 December 2010 are to be split into two periods, one before the date and one after it. The relief is then calculated separately for each of those periods.

Carry forward of unused losses

(10) A loss incurred in carrying on the activities of a foreign branch (treated as a separate trade) may be carried forward and set against future profits of that branch under section 396(1). However, the losses available for the set off against profits assessable in 2011 and subsequent years are the losses as reduced by any exempt branch profits arising subsequent to the accounting period in which the loss was incurred.

Relevant Date: Finance Act 2019