835R. Controlled foreign company charge

(1) In this section, ‘participation’ means—

(a) a, direct or indirect, possession of, or beneficial right to, or right to acquire, share capital or issued share capital of a company,

(b) a, direct or indirect, right to exercise, or to acquire the rights to exercise the voting power of a company, or

(c) a beneficial right to any profits available for distribution to equity holders of a company.

(2) Subject to subsections (5), (9) and (10), where in an accounting period of a controlled foreign company—

(a) a controlled foreign company group has undistributed income, and

(b) relevant Irish activities in relation to the controlled foreign company group are performed by a chargeable company,

a controlled foreign company charge shall be made on the chargeable company for the accounting period of the chargeable company, as determined in accordance with section 27, in which the accounting period of the controlled foreign company ends.

(3) The controlled foreign company charge made under subsection (2) shall be of an amount equal to the undistributed income of the controlled foreign company group to the extent that such income can reasonably be attributed to relevant Irish activities performed by the chargeable company.

(4) The undistributed income to be attributed to relevant Irish activities for the purpose of subsection (3) shall be determined by reference to the amount that would be payable by persons dealing at arm’s length in relation to those activities, but the amount so attributed shall, in respect of each of the controlled foreign companies in the controlled foreign company group, not exceed an amount determined by the formula—

UI x AP

where—

UI is the undistributed income of the controlled foreign company, and

AP is the aggregate of the controlling company and the chargeable company’s participation in that controlled foreign company, expressed as a percentage of the total participation in that company.

(5) Subsection (2) shall not apply in relation to undistributed income—

(a) attributable to relevant Irish activities performed by a chargeable company under arrangements where—

(i) it is reasonable to consider that—

(I) such arrangements would be entered into by persons dealing at arm’s length, or

(II) the essential purpose of the arrangements is not to secure a tax advantage,

or

(ii) the arrangements are subject to the provisions of section 835C,

or

(b) which has previously been assessed to a controlled foreign company charge under this section.

(6) Subject to subsection (7), corporation tax shall be charged in respect of the controlled foreign company charge at the rate specified in—

(a) section 21(1)(f), in so far as the undistributed income attributable to the relevant Irish activities would be chargeable to tax under Case I of Schedule D, had it been income accruing to the chargeable company, and

(b) section 21A(3), in so far as the undistributed income attributable to the relevant Irish activities would be chargeable to tax under Case III, IV or V of Schedule D, had it been income accruing to the chargeable company.

(7) The amount of corporation tax chargeable in accordance with subsection (6) shall be reduced by the amount of any creditable tax, as determined under section 835S, in respect of the accounting period concerned.

(8) Subject to subsection (7), no relief, deduction or set off of any description shall be allowed against a controlled foreign company charge.

(9) This section shall not apply to undistributed income which is attributable to an asset or risk, whether on an individual basis or taken together as an aggregate, where the increase in the controlled foreign company’s undistributed income as against the undistributed income of the controlled foreign company where it—

(a) did not hold, or had not held, the asset to any extent, or

(b) did not bear, or had not borne, the risk to any extent,

is negligible.

(10) This section shall not apply in relation to an accounting period of a controlled foreign company where, in that accounting period—

(a) the controlled foreign company did not at any time hold assets or bear risks under an arrangement where it would be reasonable to consider that the essential purpose of the arrangement was to secure a tax advantage, or

(b) the controlled foreign company did not have any non-genuine arrangements in place.

(11) For the purpose of subsection (10)(b), a controlled foreign company shall be regarded as having non-genuine arrangements where—

(a) the controlled foreign company would not own the assets or would not have borne the risks which generate all, or part of, its undistributed income, but for relevant Irish activities performed relating to those assets and risks, and

(b) it would be reasonable to consider that the relevant Irish activities were instrumental in generating that income.