Why Ireland?
Geoffrey LewisDeclan O’Luanaigh
Niall O’Connor
22 October 2013
What Ireland offers today?
Major European/EMEA/Global business hub
Low tax rate that is here to stay
Highly skilled and educated workforce
Globally experienced senior management
Only English speaking country in the Euro zone!
What Ireland offers today?
Ranked number 1 as place to do business in Eurozone (Forbes 2012)
2nd globally (1st Europe) for business sophistication (Global Innovation Index 2012)
1st in Europe for ease of paying taxes (PwC 2012)
1st Europe for ease of starting business (Global Innovation
Index 2012)
What Ireland offers today?
Ranked 1st globally for education (Global Innovation Index 2012)
1st globally for availability of skilled labour (IMD World
Competitiveness Yearbook 2012)
48% 25-34 year olds third level qualified (CSO 2012)
54% workforce under 35 (IDA Ireland 2012)
Proven track record of FDI
9 of the top 10 global Pharma companies
15 of the top 20 Medical Technology companies
8 of the top 10 Technology companies
Top 10 “born on the internet” companies all here
Proven track record of FDI
3 of worlds top 5 gaming companies
Top 5 exporter of software in the world
Highest concentration of ICT activity in OECD
1st for hedge fund administration and listed investment funds
Proven track record of FDI
50%+ of the world’s banks
9 out of 10 global aircraft leasing companies
41% worlds alternative investment funds administered from Ireland
U.S. investment in Ireland is greater than combined US investments in BRIC countries!
Ireland’s Changed Landscape
Historically, manufacturing operations and used as a European gateway location
Although manufacturing moves east, Ireland’s relevance to global tax strategies continues
Smart Economy Strategy has successfully moved Ireland’s tax offering up the value chain
Irish Tax Policy Development
Risk/ Functions
& Tax Policy
Exports of Raw Material
Head Office /Management
Manufacturing
Regional HQ
Rewards / Profits & Time
Export Sales Relief
10% Tax Rate
Abolition of capital duty
Holding Co. CGT exemption
Stamp Duty exemption for IP
R&D Tax Credits / IP
12.5% Dividends
12.5% Tax Rate for all active business
What Ireland offers today?
Focus is on portable profit drivers: IP & risk• Headquarters & Holding Companies
• IP ownership & exploitation
• Supply Chain Management / Shared Services
• Finance & Treasury
Slide 11
Key tax advantages
Funds Flowing In Extensive DTA
Network / EU Directives
Policy of 0% WHT in DTAs
12.5% CT - qualifying dividend income
Credit for foreign taxTax in Ireland
Low tax policy – 12.5%
No Thin Capitalisation, No CFC
No Capital Duty
IP and R&D Tax Incentives
Funds Flowing Out No WHT on interest,
dividends, royalties to EU / DTA typically
Irish Business Taxes
• Trading income 12.5%
• Qualifying dividends 12.5% (0% with FTC)
• Passive income 25%
• R&D incentive 25% (37.5% relief)
• CGT participation 0% (other 33%)
Business Modeling & 12.5% rate
Need to be “trading” to avail of 12.5%
Attractive location for valuable supply chain elements
Greater risks, assets and functions located in Ireland, the greater the profits which could be reported
Also, limiting the risks assumed by foreign subsidiaries will reduce the amount of profits accruing to them
Irish Group Entrepreneur (Principal)
raw materials
finished goods
IRIR(12.5%)
finished goods
Information flowsLegal title flows
Material flows
Suppliers
Manufacturing
Customers
Shared servicecentre
Call centre
Sales force
Commissionaires
IP managementR&D
Title
Title
Irish Principal
Centralised supply chain and strategic activities
Either owns IP or has licensed in IP
Purchases from suppliers & consigns to local toll manufacturer for routine processing
Local commissionaires responsible for routine sales activities, remunerated with routine commission
Residual profit attributed to the IRIR
Transfer Pricing
Limited Transfer Pricing (TP) rules introduced 2011
Apply to “trading” transactions only not passive activities (royalty & interest free structures possible)
Exemption for SMEs • < 250 employees and • either Turnover < €50m or Assets < €43m
Rulings / Ease of start up
No requirement to obtain a ruling
Revenue can give confirmation of tax treatment
Such rulings are effective unless the underlying facts change or a change in Irish tax law – no time limit
Holding Company Benefits
Tax exemption for domestic & foreign gains (EU & DTA) on sales of trading subsidiaries
Tax exemption for Irish dividends with effective tax exemption for foreign dividends (FTCs)
Extensive domestic withholding tax exemptions
No thin capitalisation or CFC rules
IP Exploitation Benefits
Amortisation for IP acquired for trade purposes (80% limit)
No clawback on IP sale after 10 years
Deduction for licensed-in IP rights
Tax efficient IP structuring opportunities
R&D Benefits
Refundable 25% tax credit (effective benefit 37.5%).
Cash refunds possible – repaid over 3 years
Credit converted to tax efficient bonuses R&D team
Possible R&D grant aid also
Corporates - Tax Residency
Irish registered (IR) companies automatically deemed to be Irish tax resident but can have IRNRs
Irish DTAs - “effective management and control” tie breaker rule for dual resident companies
Non Irish registered companies need to be managed and controlled here to be tax resident
Double Irish
IRNR initially Irish tax resident and buys in group IP
IRNR owns an Irish tax resident trading subsidiary (IRIR) to which it licences the IP (tax deduction)
IRNR migrates its residence to haven after time
No tax in IRNR on royalty income once migrated
Typically can structure royalties so that no Irish WHT applies or route through the Netherlands to avoid
IRNR-IRIR (“Double Irish”)
IRNR
Buy-in license /
cost sharing
Customers
USMNC
IRIR(Opco)
Sales & MktFrance
Sales & MktUK
Sales & MktGermany
Sales & MktHolland
Sales & MktSweden
Commission
License
IP
Commission
Royalty payment
Ireland IRNR will typically buy the economic right to exploit the IP outside of the US
Slide 23
Contracts with customers
Shelbourne Systems Inc.
• US based Technology Company
• Traditionally US based sales but now rapid growth expected in non-US sales – focus on EMEA & Asian markets
• Senior personnel employed by sales subs in UK, France & Germany already
Shelbourne Systems Inc.
Phase 1 - 2014
• SS Inc. sets up 2 Irish subs IRNR (IP licensing co) and IRIR (operating co)
• IRNR enters into a cost sharing agreement with SS Inc. for non-US IP
• UK, French & Germany execs transfer to IRIR
Shelbourne Systems Inc.
• IRNR will license IP to IRIR who will sell / license to non-US customers.
• IRIR commences to trade, leases office space etc.
• After a period of time, IRNR’s tax residency is migrated to haven location.
Shelbourne Systems Inc.
IRIRs financials (€’000) – 2014
Sales – non US 3,000Costs (300)Royalty – IRNR (1,500)Taxable profits 1,200
Irish Corporation Tax 150Effective tax rate 5.6%
Shelbourne Systems Inc.
Phase 2 - 2015
• Non-US sales / operations grow
• Given the success of the Irish operations, decision made to relocate an element of group R&D function from US to IRIR
• New R&D & sales hires also made in Ireland
Shelbourne Systems Inc.
IRIRs financials (€’000) – 2015
Sales – non US 5,000Costs – incls R&D 300k (800)Royalty – IRNR (2,500)Taxable profits 1,700
Irish Corporation Tax 137.5 Effective tax rate 3.3%
Shelbourne Systems Inc.
Phase 3 - 2016
• Given expected tax changes, decision is made to transfer non-US IP from IRNR to IRIR
• Value of IP is €40m – amortise over 10 years SL
• No Irish Stamp Duty applies to this transfer
Shelbourne Systems Inc.
IRIRs financials (€’000) – 2016
Sales – non US 8,000Costs (1,000)R&D costs ( 800)Profits 6,200Capital allowances – IP (4,000)Taxable profits 2,200
Shelbourne Systems Inc.
IRIRs financials (€’000) – 2016
Irish CT @ 12.5% 275R&D Tax Credit (200)CT payable 75
Accounting Profits – non US 6.2mEffective Tax Rate 1.2%
Employee Taxation
Irish tax resident – either 183 days in the tax (calendar) year or 280 days in aggregate this year and prior year.
Ordinarily resident concept for 3 years
“Split” year rules - not be taxable on earnings arising before the date of your arrival or after the date of your departure
Employer Withholding
Payroll withholding tax - Pay As You Earn (PAYE)
Stock option gains - Irish income tax may be due on the exercise of share options granted while resident outside Ireland by reference to the amount of time spent working in Ireland over the vesting period
Remittance Basis
Foreign employment contract & non Irish duties
Irish employer not required to operate PAYE where• Employee DTA resident & not resident in Ireland • Employee not paid by Irish resident employer• Cost not borne by Irish PE foreign employer; and• Duties performed in Ireland < 60 days in tax year
SARP
Applies to qualifying individuals coming to Ireland to work for a period of at least one year
Irish tax will apply to the greater of:• Total employment earnings and benefits received
in or remitted to Ireland; and• The first €100,000 plus 50% of earnings and
benefits in excess of €100,000.
Relocation Expenses
Specific reimbursements of many expenses are generally exempt from tax
Expenses include travel, moving personal and household effects, and temporary living expenses for a limited period (3 months)
R & D Bonuses
Key R&D team members
Spend 50% of their time on R&D activities
Tax free remuneration - transfer R&D Tax Credit
Cannot reduce effective tax rate below 25%
Foreign Earnings Deduction (FED)
Incentive support Irish companies’ efforts to expand overseas (BRICs and other locations)
Maximum deduction is €35,000 and maximum tax saving is €14,350.
FED cannot be claimed where SARP is claimed or the employee R&D tax credit relief applies
Investor Tax - CGT
Irish CGT charge applies to gains on disposals of Irish property irrespective of residence or domicile of investor – “specified asset”
Irish CGT “7 year holiday” for property purchased up to 31 Dec 2013 i.e. sell after 10 years, 70% gain exempt etc.
Investor Tax - REITs
REIT not liable to Irish tax on income and capital gains arising from its property rental. Non resident investors not be liable to Irish CGT
Irish DWT at the rate of 20% on distributions to non residents - recover either as a credit against tax in home country and / or directly from Irish Revenue
Transfer of shares in the REIT - 1% stamp duty
Investor Tax – Section 110s
Securitisation vehicle - subject to Irish tax at 25% however structured so profits negligible
Resident in Ireland, carry on a business of managing qualifying assets and the market value > €10m
Eligible to take advantage of Irish treaty network which should eliminate or reduce WHT on cross border income flows into and from Ireland
Investor Tax – CAT exposure
Gifts and Inheritances within charge to CAT (current rate 33%) if any of the following met:
1. Disponer resident or ordinarily resident in Ireland at the date of the benefit
2. Donee/successor is resident or ordinarily resident in Ireland at the date of the benefit; or
3. Assets being gifted/inherited are situate in Ireland at the date of the benefit