Budget 2019 Financial Resolutions Published
Government announce changes to Exit Tax Provisions
Budget 2019’s announcement in respect of the changes to exit taxes was surprising and unexpected. Ireland is required to meet the standards of the EU Anti-Tax Avoidance Directive (ATAD) for tax measures laid out in the directive by the deadlines prescribed in same. One of the tax measures included in the ATAD is Article 5 – Exit Taxation. The ATAD requires all Member States to have ATAD compliant exit tax rules by 1 January 2020. The change to Ireland’s exit tax rules yesterday can be seen as premature given that this change would have been expected to be made in Budget 2020.
While the timing of the introduction of this law will be a surprise, it was lobbied that the rate of exit tax should be set at 12.5% and therefore the proposed rate is in line with what industry would have hoped for and provides certainty for future investment.
The Finance Bill will be published on Thursday 18 October 2018 where draft legislation will be seen in respect of this provision. For now, Financial Resolution No. 2 comprises temporary legislation on how this tax provision will apply as and from midnight 9 October 2018.
The wording of Financial Resolution No. 2 states that the temporary legislation contained in the resolution will substitute for section 627 and 628 TCA 1997, with effect from 10 October 2018. Broadly, the 12.5% exit tax charge would apply to the following events:
1. A company resident in an EU State (not Ireland), transfers assets from a permanent establishment located in Ireland to its head office or to a permanent establishment in another EU country or outside the EU.
2. A company resident in an EU State (not Ireland), transfers a business (including the assets of the business) carried on by a permanent establishment of that company in Ireland to another country in the EU or outside the EU.
3. The company ceases to be resident in Ireland and becomes resident in a country in the EU or outside the EU.
It should be noted that subsection 3(b) of the Financial Resolution contains an anti-avoidance provision which applies the 33% rate in certain circumstances.
In respect of the third event above, where a company ceases to be Irish resident and it carries on a trade in Ireland through a permanent establishment then where any assets, which immediately after the migration of residency from Ireland continue to be situated in Ireland and are used in or for the purposes of the trade carried on in Ireland, or are used or held for the purposes of the permanent establishment, these assets shall be excluded from the exit tax charge.
The exit tax charge will also not apply to an asset:
- Which relates to the financing of securities,
- Which is given as security for a debt, or
- Where the transfer takes place in order to meet prudential capital requirements or for liquidity purposes.
Note that for the exemptions immediately above to apply the asset must be due to revert to the permanent establishment or the company within 12 months of the transfer.
It is important to reiterate that the Financial Resolution in respect of exit tax is temporary law and may differ to the text which is ultimately included in Finance Act 2018. We await the publication of the Finance Bill 2018 on Thursday 18 October 2018.
Should you have any questions in respect of what this new exit tax charge means or what Budget 2019 means for your business, please reach out to your usual Deloitte contact.