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Irish CFCs
The Government has decided that changes to the rate of corporation tax in Ireland mean that it is no longer appropriate for companies operating there to enjoy automatic exemption from the United Kingdom's controlled foreign companies rules. To allow time for the implications of this to be considered, changes to the relevant regulations will not be made until 20 September and these will then take effect as regards accounting periods of controlled foreign companies beginning on or after 11 October 2002.
Irish CFCs
The Government has decided that changes to the rate of corporation tax in Ireland mean that it is no longer appropriate for companies operating there to enjoy automatic exemption from the United Kingdom's controlled foreign companies rules. To allow time for the implications of this to be considered, changes to the relevant regulations will not be made until 20 September and these will then take effect as regards accounting periods of controlled foreign companies beginning on or after 11 October 2002.
Companies resident in Ireland are currently automatically exempt from the United Kingdom's controlled foreign companies rules if, broadly:
- n 90 per cent or more of their income arises locally in Ireland; and
- n they are not entitled to certain tax benefits.
In 1999, the Government of the Republic of Ireland announced the repeal of these tax benefits and the introduction of a programme of progressive reductions in its rate of corporation tax for trading income. With effect from 1 January 2002 the lower rate of corporation tax was reduced to 16 per cent and that rate will be further reduced, to 12.5 per cent, from next January.
In the light of this, the Government considers that it is no longer possible readily to identify Irish controlled foreign companies that have been established there for genuine commercial (as opposed to tax) reasons and therefore inappropriate automatically to exempt them. The Government therefore proposes to remove Ireland from the list of countries where controlled foreign companies can enjoy automatic exemption.
The remaining five controlled foreign companies exemptions will continue to apply to Irish controlled foreign companies. Those carrying out genuine commercial activities will, for example, continue to be able to benefit from the exemption designed for such companies. United Kingdom owners of Irish controlled foreign companies will only be liable to a charge under the United Kingdom's rules if one of the main purposes of the controlled foreign company is to achieve a reduction of United Kingdom tax by a diversion of profits from the United Kingdom.
(Source: Inland Revenue news release dated 23 July 2002)
