Prior to 10 October 2018, Irish tax law provided for an exit charge where a “relevant company” ceased to be tax resident in Ireland. This meant that the company would be deemed to have disposed of and reacquired its assets at market value on the date of tax migration with the exit charge applying to any gain on deemed disposal. However, no such exit tax charge arose where the company fell to be treated as an “excluded company” i.e. a company of which not less than 90% of its issued share capital was held by a foreign company or by a person or persons directly or indirectly controlled by a foreign company, and not so controlled by persons resident in Ireland.
Finance Act 2018 replaced the pre-existing exit tax charge provisions with broader measures, to effectively eliminate the above exemption for “excluded companies”. The new charge applies from 10 October 2018 at a rate of 12.5% on gains arising from the deemed disposal of the assets held by the company on migration and in additional circumstances. Under the new rules, an exit tax charge applies on any of the following:
In light of the revisions to the law to broaden the applicability of the exit tax charge and to remove the exceptions noted above, Irish Revenue recently issued updated guidance (Click Here) on the new sections as they apply from 10 October 2018.
The Revenue guidance issued confirms a number of points in relation to the operation of the exit tax charge:
Anti-avoidance provisions
In particular, the guidance and legislation confirms that the rate of exit tax is 12.5% compared to the capital gains tax rate currently in force of 33%. In light of this, the legislation outlines an anti-avoidance provision to ensure that the higher rate of tax will apply in cases where the exit forms part of a transaction to dispose of the asset and the arrangements are structured with the intention of benefiting from the lower rate.
The Revenue guidance on the application of the anti-avoidance provision explains that the provision is to distinguish between an exit event which occurs for commercial reasons and a tax avoidance strategy to avoid the 33% rate on an actual disposal outside this country. The intention/motive of the taxpayer at the time of exit is the relevant factor. The Revenue guidance gives two illustrative examples with respect to the application of the rule at paragraph 3.3, noting that in both cases the transactions carried on did not fall foul of the anti-avoidance provisions on the basis that the subsequent disposal of the assets was not envisaged at the time of the exit.