Company Incorporation Economic Activity

Introduction

Section 43 Companies (Amendment) (No. 2) Act 1999 states that a company incorporated in the State must have at least one director resident in the State and, in the absence of this prerequisite, must provide for a bond in the sum of £20,000. Section 44 of that Act provides that a bond is not required if the company holds a certificate from the Registrar of Companies stating that the company has a real and continuous link with one or more economic activities that are being carried on in the State. The Registrar will only grant such a certificate on receipt of proof of such a link. A statement from the Revenue Commissioners that the Revenue Commissioners have reasonable grounds to believe that the company has such a link shall be deemed to be such proof.

Applications for Statements under Section 44

An application for a statement under Section 44 (5) should be addressed to:

Inspector of Taxes,
Companies Division,
Dublin Information and Registration
District,
Arus Brugha,
9-10 Upper O’Connell Street,
Dublin 1.

Telephone: 01-8746821

The application letter should include details of the nature and duration of the link and the nature of the economic activities being carried on in the State.

Requirements for issue of a Statement

In most, if not all, instances Revenue will only be able to give a statement under Section 44 (5) on a post-event basis. The economic activity would need to be in train before we could give a statement and we would base a statement on evidence available. An exception to this could arise, say, in the case of a proposed trading activity to be carried on by a company in circumstances where the Inspector was satisfied that agreement had been reached with a State enterprise or development agency in relation to the activities to be carried in the State.

In terms of a definition of the phrase “a real and continuous link with one or more economic activities that are being carried on in the State”, as it is not defined in the Statute it is to be given its ordinary meaning. Whether or not such a link exists is a question of fact to be determined in the light of the facts and circumstances of each case.

The ordinary meaning of the words “economic activity being carried on in the State” comprehends some active participation in income generation and that test would not be satisfied by opening a deposit account, for example. Neither would we regard a dormant Irish registered company holding but not exploiting assets as carrying on an economic activity in the State. In relation to holding companies, provided the companies’ subsidiaries were carrying on economic activity in the State and there was evidence of a real and continuous link, the holding company would be able to receive a Revenue statement for the Registrar. However holding companies without such a link to economic activity being carried on in the State would not be in a position to qualify for such a statement even if the company were liable to Irish tax on foreign source income.

Equally we would look at each subsidiary of a holding company on its own merits, the fact that one of the subsidiaries of a holding company was carrying on an economic activity would not suffice as a link to an economic activity on the part of its economically inactive fellow subsidiary.

In order to issue the statement referred to in Subsection (5) of Section 44, Revenue must have “reasonable grounds to believe that the company has a real and continuous link...etc.”. This belief must be based on evidence available to us. If the Inspector is not reasonably satisfied then Revenue will not be in a position to issue a Section 44 (5) statement.