Deloitte Responds to CFC Feedback Statement

Deloitte has submitted its response to the Department of Finance in respect of the Controlled Foreign Company (CFC) Feedback Statement which was published earlier this month in advance of Budget 2019. Our full submission can be downloaded here.

The EU Anti-Tax Avoidance Directive (ATAD) requires CFC rules to be implemented into Irish tax law by 1 January 2019. Ireland will be implementing “Option B” as included in Article 7 of the ATAD. This approach attributes undistributed income arising from non-genuine arrangements put in place for the essential purpose of obtaining a tax advantage.

The proposals contained within the Feedback Statement take account of the provisions set out within Article 7 of the ATAD, but have also included a number of unilateral provisions which we believe may bring certain companies within the scope of the CFC legislation which may not have been intended. Left unchecked, we believe some of these provisions, which go beyond the standard required by the ATAD, have the potential to impact Ireland’s competitiveness as a location for doing business for both domestic and inward investment companies. In addition, we believe that certain provisions require further clarification in order to avoid uncertainty and ambiguity; albeit we acknowledge that the forthcoming CFC legislative provisions may not be reflected in their entirety within the Feedback Statement. We outline below a summary of our key observations and recommendations:


The proposed control provisions within the Feedback Statement include both a present and a future right to direct the company’s affairs. This broader definition of control goes beyond the ATAD which only looks for a present right to control. We would therefore suggest that TCA97 s11 may be more closely aligned with the control provisions within the ATAD, and consideration should be given to this in determining the appropriate legislative test in this regard.

Effective rate and charge

In quantifying the CFC’s equivalent Irish tax charge, the Feedback Statement provides that a number of assumptions must be made. Some of the assumptions that are required to be made may, in certain circumstances, result in a “notional” Irish tax charge for the CFC which would in turn could cause the application of a CFC charge and that may not have been intended. Therefore, these assumptions should be revisited especially regarding intra group transactions if it is intended that the CFC charge is to be applied to a CFC’s capital gains.

In addition, based upon the potentially significant volume of work involved in determining the notional Irish tax charge for multiple potential CFCs within a large group, we would support the suggestion that the ETR test be structured as an optional exemption until such time as it has been determined that a CFC is ‘controlled’ and has undistributed income. However, in the absence of seeing the full legislation and the potential ancillary effects of such option we cannot comment further.

The CFC Charge

The provisions set out in section 4 of the Feedback Statement propose that the Irish legislative provision will go beyond the ATAD by considering significant people functions (SPFs) activities on a group wide basis. While the intended purpose of this broader provision is stated in the feedback statement and can be understood, we believe that any provisions which go beyond the ATAD may have the potential to impact Ireland’s competitiveness where our legislative provisions are more complex than those of other Member States.

The question as to how losses in the CFC are to be dealt with is not outlined in the Feedback Statement. Presumably, in computing the CFC’s income under Irish rules, regard could be had to losses forward. Similarly, the question arises as to whether losses in other CFCs can be taken into consideration notwithstanding the non-applicability of group relationships (albeit by reference to Irish law) being ignored by the legislation and confirmation thereof would be welcome.

Undistributed Income

The inability of a CFC to distribute profits by reference to the application of law may be outside the control of the CFC. We believe the proposed provisions set out within Section 8, para 2 of the Feedback Statement should be revised and would suggest that recognition of legal provisions precluding the distribution of profits in line with TCA97 s434(7) be applied in respect of the relevant CFC provisions.

“Cash Box” Companies

The Feedback Statement notes that consideration is ongoing regarding measures to address “‘cash box’ subsidiaries, for example, where there are cash/capital rich companies with few or no employees in low tax jurisdictions and there are no SPFs in the State relating to the management of those assets…” It is unclear as to the limitation of such considerations. We would argue, as we have done with other sections of this statement, that going beyond the ATAD’s requirements is to bring about a potential competitive tax issue regarding other EU Member States which have to bring about this law. Indeed, by designating various forms of corporate entity as a CFC without referencing the requirements of the ECJ regarding breaches in the fundamental freedoms contained in the EU treaty could lead to EU law difficulties in the future. Therefore, we would argue that adopting a Cadbury Schweppes analysis to any form of corporate entity should be sufficient for meeting EU law requirements in itself and that should be taken into any considerations involving “cash box” companies.


We note Ireland has made strong advances to be seen globally as engaging in “best practice”. While engaging in “best practice” is essential to maintain our international reputation, Ireland is a small open economy which is heavily reliant on FDI. Ireland does not operate in isolation and must be conscious of the positions being adopted by competitor nations. It is necessary that a desire to engage in “best practice” does not lead to Ireland agreeing to non-mandatory or more onerous provisions which are contrary to its competitive offering and position going forward.

Deloitte look forward to continued collaboration with the Department of Finance and will continue to engage with the Government in the period leading up to Budget and Finance Bill 2018 to provide input not just on the technical assimilation of CFC legislation and other ATAD measures into our rules, but also on policy matters more closely.  

CFC Feedback Statement response
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