Insurance Tax update March 2019

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Insurance Tax update 

March 2019

Globally, there is no question that tax is more in focus now than ever before. With the BEPS Agenda at a global level, the Anti-Tax Avoidance Directive at an EU level and the Coffey report at a local level to name but a few, there have been many changes and updates, both made to Irish law and expected to be made in the near future to enact the recommendations of such reviews/directives. We’ve provided a round-up of some of the more key updates relevant to the insurance industry below.

Transfer Pricing

Whilst Finance Act 2019 didn’t contain any specific transfer pricing changes, Ireland’s Corporation Tax Roadmap published by the government in September 2018 did outline the proposed timing for changes to be made to Ireland’s laws in order to comply with the OECD BEPS agenda and EU tax directives. This comes as no surprise as whilst Ireland has previously enacted Country by Country reporting in Ireland, there are many other recommendations under BEPS Action 13 and the Coffey report that Ireland has not yet enacted.

While we haven’t seen any draft legislation as yet, recommendations within the Coffey Report included the following:

  • Incorporating the 2017 OECD Transfer Pricing Guidelines directly into Irish legislation.
  • Domestic transfer pricing legislation to be applied to arrangements the terms of which were agreed before 1 July 2010, i.e. the grandfathering provisions we are familiar with would no longer apply.
  • Consideration to be given to extending transfer pricing rules to SMEs
  • Consideration to be given to extending domestic transfer pricing rules to non-trading income and capital transactions.
  • Consideration to be given to extending Transfer Pricing documentation requirements in Ireland.

The Corporation Tax Roadmap outlined that the changes will take place in 2019, with new rules likely to take effect from 1 January 2020 and so far, this would seem to be on track, with a public consultation launched by the Irish Department of Finance on 18th February which will run to 2nd April. The consultation includes all of the above items recommended in the Coffey report and therefore we would expect that most, if not all, of the above mentioned items will be implemented into Irish transfer pricing rules effective 1 January 2020.

Clearly this will result in a fundamental change to Ireland’s Transfer Pricing regime and thus it’s important that now more than ever, you ensure you are well informed on the various tax reforms and the potential impact on your organisation.

We are already seeing an increased focus on the area of Transfer Pricing by Irish Revenue with an increased number of aspect queries, desk audits and indeed full audits. Therefore in the nearer term, it would be important to ensure you review all transactions with connected parties to ensure you are satisfied you have sufficient transfer pricing documentation in place to support the pricing of same under current rules. If you require any assistance in this regard, please feel free to contact our dedicated Transfer Pricing team.

CFC Rules

The Anti-Tax Avoidance Directive or “ATAD” includes a number of anti-abuse measures that must be implemented by EU member states. One such measure is the rules in respect of Controlled Foreign Companies (CFC Rules) which were introduced by Finance Act 2018 and effective from 1 January 2019.

Broadly CFC rules are an anti-abuse measure which are designed to prevent the diversion of profits to offshore entities in low or no tax jurisdictions.

An entity will be considered a CFC where broadly, it is more than 50% controlled by its parent company and the tax paid by it on its profits is less than half the tax that would have applied had its income been subject to tax in the jurisdiction in which the parent company is resident however, there are a number of exemptions/exclusions to the regime. Essentially, the intention is to ensure that undistributed income arising from non-genuine arrangements put in place for the essential purpose of obtaining a tax advantage will be attributed to the parent company and taxable in that country where significant people functions or KERTs in respect of the CFC are carried on by the parent company.

You should review your operations now to confirm which of your entities could fall into either the Irish CFC rules or which of your Irish entities might fall into the CFC rules of other countries so you can take action as appropriate.

Other items of note:

In November 2018, the Minister for Finance launched a public consultation process in respect of adopting the ATAD provisions dealing with hybrid and interest limitation rules. Deloitte’s submission is available here.

Another recommendation within the Coffey report was consideration of a territorial regime whereby, for example, a foreign branch exemption may be introduced for a company with foreign branch profits. A public consultation is expected in respect of same later this year.

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