Finance Act 2021
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Amendment of Part 35C of Principal Act (implementation of Council Directive (EU) 2016/1164 of 12 July 2016 as regards hybrid mismatches) | ||
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30. (1) Part 35C of the Principal Act is amended— | ||
(a) in section 835Z— | ||
(i) in subsection (1), by the substitution of the following definition for the definition of ‘entity’: | ||
“ ‘entity’ means— | ||
(a) a person (other than an individual) that has legal personality under the laws of the territory in which it is established, | ||
(b) an undertaking (other than an individual) that has legal personality under the laws of the territory in which it is established, | ||
(c) an agreement, trust or other arrangement that has legal personality under the laws of the territory in which it is established, | ||
(d) an association of persons recognised under the laws of the territory in which it is established as having the capacity to perform legal acts, or | ||
(e) any other legal arrangement of whatever nature or form, that owns or manages assets, that is subject to any of the taxes covered by this Part;”, | ||
and | ||
(ii) in subsection (4), by the substitution of “Subject to section 835AVA(3), a reference in this Part” for “A reference in this Part”, | ||
(b) in section 835AA— | ||
(i) in subsection (1), by the insertion of the following definitions: | ||
“ ‘consolidated group for financial accounting purposes’ means a group consisting of— | ||
(i) a parent entity, and | ||
(ii) all other entities, other than non-consolidating entities, | ||
which are included in the same consolidated financial statements; | ||
‘parent entity’ means an entity that prepares, or would prepare, consolidated financial statements under generally accepted accounting practice;”, | ||
and | ||
(ii) in subsection (2)— | ||
(I) by the substitution of the following paragraph for paragraph (e): | ||
“(e) where both enterprises— | ||
(i) are entities, and | ||
(ii) are part of the same consolidated group for financial accounting purposes,”, | ||
and | ||
(II) by the substitution of the following paragraph for paragraph (f): | ||
“(f) where both enterprises— | ||
(i) are entities, and | ||
(ii) would, if consolidated financial statements were prepared under international accounting standards, be part of the same consolidated group for financial accounting purposes,”, | ||
(c) in section 835AB— | ||
(i) by the substitution of the following subsection for subsection (1): | ||
“(1) Subject to subsection (3), this section applies where an enterprise is taxable in an investor or payee territory (in this section referred to as the ‘first-mentioned territory’) such that payments (in this section referred to as ‘disregarded payments’) between— | ||
(a) the head office of an entity and a permanent establishment of that entity, | ||
(b) two or more permanent establishments of an entity, | ||
(c) an individual and a permanent establishment of that individual, | ||
(d) two or more permanent establishments of an individual, | ||
(e) where an enterprise is a participator in a hybrid entity, the enterprise and the hybrid entity, | ||
(f) where an enterprise is a participator in two or more such hybrid entities, two or more such hybrid entities, or | ||
(g) where an entity is an entity on which a controlled foreign company charge or foreign company charge is made in respect of two or more hybrid entities, two or more such hybrid entities, | ||
are disregarded when computing the taxable profits of the enterprise in the first-mentioned territory under a provision of the law of that territory similar in effect to section 26(1), or subparagraph (i) or (ii) of paragraph (a) of subsection (1) of Schedule D in section 18.”, | ||
and | ||
(ii) in subsection (3), by the substitution of the following paragraph for paragraph (a): | ||
“(a) the disregarded payments are between— | ||
(i) where the enterprise referred to in subsection (1) is an individual, an individual and a permanent establishment of the individual, | ||
(ii) where the enterprise referred to in subsection (1) is an individual, two or more permanent establishments of the individual, | ||
(iii) where the enterprise referred to in subsection (1) is a participator in a hybrid entity, the enterprise and the hybrid entity, | ||
(iv) where the enterprise referred to in subsection (1) is a participator in two or more hybrid entities, two or more such hybrid entities, or | ||
(v) where the entity referred to in subsection (1) is an entity on which a controlled foreign company charge or foreign company charge is made in respect of two or more hybrid entities, two or more such hybrid entities, and”, | ||
(d) in section 835AJ, in subsection (1), by the substitution of “A financial instrument deduction without inclusion mismatch outcome shall arise in respect of a payment where” for “A financial instrument deduction without inclusion mismatch outcome shall arise where”, | ||
(e) in section 835AL, in subsection (1), by the substitution of “shall arise in respect of a payment to a hybrid entity where it would be reasonable to consider that” for “shall arise in respect of a payment to a hybrid entity where”, | ||
(f) by the insertion of the following Chapter after Chapter 10: | ||
“Chapter 10A | ||
Reverse hybrid mismatches | ||
Interpretation (Chapter 10A) | ||
835AVA. (1) In this Chapter— | ||
‘collective investment scheme’ shall be construed in accordance with section 835AVB; | ||
‘relevant ownership interest’, in relation to a reverse hybrid entity, shall be construed in accordance with subsection (4); | ||
‘relevant participator’, in relation to a reverse hybrid entity, means a participator with a relevant ownership interest in the reverse hybrid entity; | ||
‘reverse hybrid entity’ means a hybrid entity established in the State— | ||
(a) that, for the purposes of the Acts, is not chargeable to tax in respect of its profits or gains, because those profits or gains are treated, or would be so treated but for an insufficiency of profits or gains, as arising or accruing to the participators in the hybrid entity, and | ||
(b) some or all of the profits or gains of which are regarded, for the purposes of the tax law of the territory in which a participator in the hybrid entity is established, as arising or accruing to the hybrid entity on its own account; | ||
‘reverse hybrid mismatch outcome’ shall be construed in accordance with section 835AVD. | ||
(2) In this Chapter, ‘associated entities’ has the meaning given to ‘associated enterprises’ by section 835AA, subject to the following modifications: | ||
(a) a reference, in that section, to ‘enterprise’ shall be construed as a reference to ‘entity’; | ||
(b) a reference, in subsection (2) of that section, to ‘25 per cent’ shall be construed as a reference to ‘50 per cent’; and | ||
(c) two entities shall not be treated as acting together with respect to voting rights, share ownership rights or similar ownership rights solely because they are partners in a partnership. | ||
(3) A reference in this Chapter to the territory in which a reverse hybrid entity is established shall be construed as a reference to the territory in which the reverse hybrid entity is registered, incorporated or created. | ||
(4) A participator shall have a relevant ownership interest in a reverse hybrid entity where— | ||
(a) the participator possesses or is beneficially entitled to, or the participator and its associated entities possess or are beneficially entitled to, directly or indirectly, 50 per cent or more of the ownership rights in the reverse hybrid entity, | ||
(b) the participator is, or the participator and its associated entities are, entitled to exercise, directly or indirectly, 50 per cent or more of the voting power in the reverse hybrid entity, or | ||
(c) the participator holds, or the participator and its associated entities hold, directly or indirectly, rights giving rise to an entitlement to 50 per cent or more of the profits of the reverse hybrid entity. | ||
Collective investment scheme | ||
835AVB. (1) In this section— | ||
‘beneficial owner’, in relation to an undertaking, is any individual who is a beneficial owner within the meaning of— | ||
(a) the Investment Limited Partnerships Act 1994 , or | ||
(b) the Investment Funds, Companies and Miscellaneous Provisions Act 2005 , | ||
and in applying this Chapter to a relevant partnership the beneficial owner of the partnership shall be identified in the same manner as the beneficial owner of an investment limited partnership is identified; | ||
‘collective investment scheme’ means a relevant investment undertaking— | ||
(a) that is widely held, and | ||
(b) which holds a diversified portfolio of assets; | ||
‘relevant AIFM’ means an AIFM, within the meaning of the European Union (Alternative Investment Fund Managers) Regulations 2013 ( S.I. No. 257 of 2013 ), authorised under those Regulations; | ||
‘relevant investment undertaking’ means— | ||
(a) a common contractual fund, within the meaning of section 739I, | ||
(b) an investment limited partnership, within the meaning of section 739J, or | ||
(c) a relevant partnership, | ||
but where the undertaking referred to in paragraph (a) or (b) is an umbrella scheme, within the meaning of section 739B, it shall mean a sub-fund of that undertaking; | ||
‘relevant partnership’ means— | ||
(a) a partnership, or | ||
(b) a limited partnership under the Limited Partnerships Act 1907 , | ||
the affairs of which are managed by a relevant AIFM and which has been established under the law of the State. | ||
(2) For the purposes of the definition of ‘collective investment scheme’ in subsection (1), a relevant investment undertaking is widely held where there is no beneficial owner of that undertaking. | ||
(3) Subject to subsection (4), for the purposes of determining whether a relevant investment undertaking holds a diversified portfolio of assets, regard shall be had to— | ||
(a) the nature of the assets held by the relevant investment undertaking, | ||
(b) the extent to which the relevant investment undertaking is exposed to the risks and rewards of different classes of assets (whether directly or indirectly), | ||
(c) the number of investments made by the relevant investment undertaking, | ||
(d) the means through which the investment objective of the relevant investment undertaking is to be achieved, as set out in its prospectus, and | ||
(e) where the assets held are derivatives, the assets to which the derivatives give exposure. | ||
(4) A relevant investment undertaking shall not be determined to hold a diversified portfolio of assets— | ||
(a) in a case in which the undertaking holds securities, where more than 10 per cent of those securities are issued by a single issuer, or | ||
(b) in a case in which the undertaking holds land, unless the undertaking holds 3 or more properties and the market value of each of those properties is less than 40 per cent of the total market value of the properties held. | ||
(5) In a case in which a relevant investment undertaking, having satisfied the conditions in paragraphs (a) and (b) of the definition of ‘collective investment scheme’ in subsection (1), ceases to satisfy one or both of those conditions, the relevant investment undertaking will be treated as satisfying those conditions where it would be reasonable to consider that the failure to satisfy the condition was temporary, inadvertent and unavoidable at the time the condition ceased to be satisfied, having regard to— | ||
(a) the means through which the investment objective of the relevant investment undertaking is to be achieved, as set out in its prospectus, | ||
(b) the date or dates on which the condition ceased to be satisfied, | ||
(c) the circumstances giving rise to the condition ceasing to be satisfied, | ||
(d) the steps taken, if any, to ensure the condition is satisfied and the date or dates on which it is satisfied, and | ||
(e) the steps taken, if any, to prevent the circumstances, referred to in paragraph (c), reoccurring. | ||
(6) In a case in which a relevant investment undertaking, has not satisfied the conditions in paragraphs (a) and (b) of the definition of ‘collective investment scheme’ in subsection (1), the relevant investment undertaking will be treated as satisfying those conditions where it would be reasonable to consider that the conditions will be satisfied within 24 months of the date on which the undertaking makes its first investment, and that the failure to satisfy the conditions is temporary, inadvertent and unavoidable, having regard to— | ||
(a) the means through which the investment objective of the relevant investment undertaking is to be achieved, as set out in its prospectus, | ||
(b) the circumstances giving rise to the condition not being satisfied, and | ||
(c) the steps taken, if any, to ensure the condition will be satisfied. | ||
(7) In a case in which a relevant investment undertaking, having satisfied the conditions in paragraphs (a) and (b) of the definition of ‘collective investment scheme’ in subsection (1), ceases to satisfy one or both of those conditions, the relevant investment undertaking will be treated as satisfying those conditions where— | ||
(a) the failure to satisfy the condition is due to the commencement of the winding down of the relevant investment undertaking, and | ||
(b) the date on which the winding down is completed is less than 12 months after the date on which the condition first ceased to be satisfied as a result of the winding down. | ||
Application (Chapter 10A) | ||
835AVC. This Chapter shall apply to— | ||
(a) a reverse hybrid entity, other than a collective investment scheme, in which one or more of the participators is a relevant participator, and | ||
(b) a reverse hybrid mismatch outcome. | ||
Reverse hybrid mismatch outcome | ||
835AVD. (1) Subject to subsection (2), a reverse hybrid mismatch outcome shall arise where some or all of the profits or gains of a reverse hybrid entity that are attributable to a relevant participator are subject to neither domestic nor foreign tax. | ||
(2) A reverse hybrid mismatch outcome shall not arise in respect of the profits or gains of a reverse hybrid entity where the profits or gains are attributable to a relevant participator that— | ||
(a) under the laws of the territory in which it is established, is exempt from tax which generally applies to profits or gains in that territory, | ||
(b) is established in a territory, or part of a territory, that does not impose a foreign tax, or | ||
(c) is established in a territory that does not impose a tax that generally applies to profits or gains derived from payments receivable in that territory by enterprises from sources outside that territory. | ||
(3) Subject to subsections (7) and (8), a reverse hybrid mismatch outcome shall be neutralised, notwithstanding any other provision of the Tax Acts and the Capital Gains Tax Acts, by the profits and gains referred to in subsection (1) being charged to corporation tax on the reverse hybrid entity concerned as if the business carried on in the State by the reverse hybrid entity was carried on by a company resident in the State. | ||
(4) In subsection (5), ‘unit’ has, as the context requires, the meaning assigned to it in section 739B(1), that meaning as modified in accordance with section 739J(1)(b), or, where this section is applied to a relevant partnership, a ‘partnership interest’, within the meaning of section 739J. | ||
(5) A reverse hybrid entity that is liable to tax under subsection (3) shall— | ||
(a) be entitled to appropriate or cancel such portion of units of the relevant participator concerned as are required to meet the amount of the tax arising on profits attributable to that participator, and | ||
(b) be acquitted and discharged of such appropriation or cancellation, as the case may be, as if the amount of tax had been paid to the participator. | ||
(6) Where a reverse hybrid entity exercises its right under subsection (5)(a)— | ||
(a) the participator concerned shall allow the appropriation or cancellation, as the case may be, and | ||
(b) the appropriation or cancellation, as the case may be, shall take place at the end of the tax period in respect of which the tax arose. | ||
(7) Where, in respect of a reverse hybrid entity, a participator is resident in a territory with the government of which arrangements having the force of law by virtue of section 826(1) have been made, then any corporation tax being charged on that entity by virtue of subsection (3) shall take account of the provisions of those arrangements. | ||
(8) The provisions of the Tax Acts relating to the calculation, assessment and collection of tax shall apply to any tax due pursuant to this section— | ||
(a) as if the reverse hybrid entity was a company resident in the State for the tax period, and | ||
(b) without prejudice to the generality of paragraph (a), where the reverse hybrid entity— | ||
(i) is a common contractual fund, all obligations falling on the common contractual fund pursuant to this Part shall be fulfilled on behalf of the common contractual fund by the management company who is authorised to act on behalf, or for the purposes, of the common contractual fund and habitually does so, but the management company shall not be liable in a personal capacity to any tax imposed by this Part on the common contractual fund, and | ||
(ii) is a partnership, all obligations falling on the partnership pursuant to this part shall be fulfilled by the precedent partner (within the meaning of section 1007) on behalf of the partnership.”, | ||
and | ||
(g) by the substitution of the following section for section 835AW: | ||
“835AW. (1) Chapters 1 to 10 shall apply to payments made or arising on or after 1 January 2020. | ||
(2) Chapter 10A shall apply to tax periods commencing on or after 1 January 2022.”. | ||
(2) Subsection (1)(c) shall be deemed to have come into operation on 1 January 2020. |