The Irish Revenue has updated its guidance on Irish exit tax legislation to reflect changes introduced by Finance Act 2019.
Ireland introduced the European Union’s exit tax early, from October 2018. EU member states were required to transpose the exit tax into their domestic laws and apply the exit tax from the start of this year, under the first Anti Tax Avoidance Directive (ATAD I).
The EU’s exit tax is intended to eliminate tax advantages for companies that develop intangible assets in the EU but move them to low or no tax territories before they generate taxable income.
The new exit tax is intended to enable that member state to tax the value of the product before the intellectual property is shifted elsewhere. Under the exit tax, a taxpayer is subject to tax at an amount equal to the market value of the transferred assets, at the time of exit of the assets, less their value for tax purposes, in any of the following circumstances:
- a taxpayer transfers assets from its head office to its permanent establishment
in another member state or in a third country in so far as the member state
of the head office no longer has the right to tax the transferred assets due
to the transfer;
- a taxpayer transfers assets from its permanent establishment in a member
state to its head office or another permanent establishment in another member
state or in a third country in so far as the member state of the permanent
establishment no longer has the right to tax the transferred assets due to
- a taxpayer transfers its tax residence to another member state or to a third
country, except for those assets which remain effectively connected with a
permanent establishment in the first member state;
- a taxpayer transfers the business carried on by its permanent establishment
from a member state to another member state or to a third country in so far
as the member state of the permanent establishment no longer has the right
to tax the transferred assets due to the transfer.
The new guidance from Ireland highlights that Finance Act 2019 provisions were intended to clarify when the exit tax is due, to ensure it applies prior to the shifting of IP out of Ireland, and to ensure that its regime is compliant with the EU’s Directive.
Revenue explained that the regime taxes “unrealized gains where companies migrate or transfer assets offshore, without an actual disposal, such that they leave the scope of Irish tax, by deeming a disposal to have occurred.” The rate of exit tax is 12.5 percent.
Tax and Duty Manual (TDM) Part 20-02-01 has been updated in light of the Finance Act 2019 amendments. These amendments ensure that the deemed disposal and reacquisition of assets on the change of residence is deemed to arise immediately before the change of residence of the company concerned. They also mean that the charge on the transfer of assets, or the business, of a permanent establishment in Ireland arises regardless of the residence of the company concerned.