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Concessional treatment for corporation tax - Updated Irish Revenue position

  • Ireland
  • Tax planning and consultancy

08-12-2021

Overview

Overview

On 18 November 2021, Irish Revenue issued eBrief No. 213/21 (the “eBrief”) in relation to the concessional treatment introduced in response to the Covid-19 pandemic from a corporate tax perspective. The eBrief confirms that the concessional treatment (whereby Irish Revenue disregard presence in or outside Ireland due to Covid-19 travel restrictions of certain individuals) will cease to apply with effect from 1 January 2022. The eBrief can be accessed here.Overview

On 18 November 2021, Irish Revenue issued eBrief No. 213/21 (the “eBrief”) in relation to the concessional treatment introduced in response to the Covid-19 pandemic from a corporate tax perspective. The eBrief confirms that the concessional treatment (whereby Irish Revenue disregard presence in or outside Ireland due to Covid-19 travel restrictions of certain individuals) will cease to apply with effect from 1 January 2022. The eBrief can be accessed here.

Irish Revenue have since confirmed that this concessional treatment will continue to apply until 31 January 2022. Irish Revenue further confirmed that the position will be kept under review to determine whether any further extension will be required. The eBrief confirming the extension can be accessed here.

Background

In March 2020, Irish Revenue confirmed that in circumstances where individuals in certain capacities are present outside Ireland because of travel restrictions related to Covid-19 but who would have otherwise been present in Ireland, they are prepared to disregard such presence for Irish corporate purposes. Conversely, where an individual in the specific capacities is present in Ireland in these circumstances, Irish Revenue are also prepared to ignore such presence for corporate tax purposes.

Impact of concessional treatment and updated Irish Revenue position

The concessional treatment in relation to the presence, due to Covid-19, of certain individuals both inside and outside Ireland from a corporate tax perspective formed part of a package of measures aimed at mitigating the uncertainty brought about by the pandemic. In particular, the concessional treatment was welcomed by international and domestic corporates in terms of safeguarding Irish corporate tax residence by facilitating remote attendance at meetings as travel restrictions were introduced. 

The withdrawal of the concession is likely to have the biggest impact on companies which are not incorporated in Ireland but which seek to maintain Irish corporate tax residency by ensuring that the management and control of the company is located in Ireland. While all Irish incorporated companies are by default tax resident in Ireland since 1 January 2021, an exception applies where the company is tax resident in another jurisdiction by virtue of a double tax treaty that Ireland has entered into. Accordingly, the updated Irish Revenue position may also have implications for Irish incorporated companies, especially where a director or directors of the company participate remotely at board meetings while in a jurisdiction which operates a central management and control or place of effective management rest for determining corporate tax residence (such as the UK). 

Board Meetings

Where a company seeks to maintain its Irish tax residency status, appropriate steps should be taken in order to ensure that the company continues to be centrally managed and controlled in Ireland. This includes the manner in which any essential board meetings are conducted, and the presence of directors at such board meetings.

A company will generally be treated as having its central management and control where key management and commercial decisions that are necessary for the conduct of the company’s business as a whole are in substance made. As a result, companies will need to review the activities of its board of directors, and any activities of the directors conducted outside of Ireland may leave open the prospect of potentially creating a taxable presence for the company outside Ireland.

  • Review the company’s Constitution - provisions surrounding the location of meetings and the possibility of virtual meetings should be reviewed, in conjunction with the provisions of the Companies Act 2014
  • Record keeping – it should be noted in the board minutes that the procedures being used for the virtual meeting are being carried out as a result of Covid-19 and that, but for travel restrictions associated with Covid-19, the directors would have all been physically present in Ireland to participate in the meeting
  • Use of alternate directors - the possibility of appointing alternative directors who are located in Ireland should be considered as a solution to the issue of any directors who are not capable of being physically present in Ireland when making strategic decisions of the company
  • Conduct and initiation of the virtual meeting – the virtual meeting should be conducted by a chairperson who is physically present in Ireland and the meeting should be initiated by him/her from Ireland
  • Postponement of certain meetings - any board meetings scheduled to take place that are non-essential should be postponed until such time that all the directors can be physically present in Ireland

Commentary

While the measures introduced by Irish Revenue in response to the Covid-19 pandemic were intended to be short-term in nature (and, indeed, many of the other measures have either been withdrawn or not extended), the announcement of the removal of the concessional treatment was unexpected in light of the increase in Covid-19 cases and reintroduction of societal restrictions in Ireland.

While the recently announced extension is a welcome development, companies should continue to consider how they conduct their business in the coming weeks and months. Irish tax residency is determined on a continuing basis, and the withdrawal of the concession should not have an impact on assessing the tax residency of a company. However, it is important to consider enhancing (or implementing if not previously done) measures to mitigate any possible adverse tax impact of the updated Irish Revenue position from 1 February 2022 on. This includes the manner in which any essential board meetings are conducted in this period, as outlined above.

To further discuss the implications which the updated Irish Revenue Guidance may have on your business, or to discuss the ways in which your business can maintain its Irish residency status, please do not hesitate to contact a member of our Tax team.

For more information, please contact:

Alan Connell, Managing Partner and Head of Tax: alanconnell@eversheds-sutherland.ie

Tim Kiely, Partner - Tax Group: timkiely@eversheds-sutherland.ie

Robert Dever, Senior Associate - Tax Group: robertdever@eversheds-sutherland.ie

Melissa Daly, Senior Associate – Tax Group: melissadaly@eversheds-sutherland.ie

Niall Pilkington, Solicitor – Tax Group: niallpilkington@eversheds-sutherland.ie

Aoife Noone, Solicitor – Tax Group: aoifenoone@eversheds-sutherland.ie