Paschal Donohoe (Dublin Central, Fine Gael) | Oireachtas source

Section 35 amends section 835 of the Taxes Consolidation Act 1997, which provides for defensive measures, including the disapplication of exemptions available to controlled foreign companies resident in jurisdictions listed in Annex 1 of the EU list of non-cooperative jurisdictions for tax purposes for an accounting period. Controlled foreign company, CFC, rules are an anti-abuse measure, designed to prevent the artificial diversion of profits from controlling companies in the State to offshore subsidiaries located in low- or no-tax jurisdictions.

The controlled foreign company, CFC, rules operate by attributing to the controlling company the undistributed income of the subsidiary which has arisen from non-genuine arrangements put in place for the essential purpose of attaining the tax advantage. A number of exemptions are provided for, including exemptions for CFCs with low accounting profits or a low profit margin in which the CFC pays a comparatively higher amount of tax in its territory than it would have paid in the State.

Section 835 applies the aforementioned exemptions where the CFC is located in the territory which is listed in the EU list of non-co-operative jurisdictions. The list is compiled by Economic and Financial Affairs Council, ECOFIN. Territories that constructively engage with the EU and which meet certain standards are removed from the list. It was anticipated the application of these exemptions for CFCs resident in a non-listed territory would have a twofold effect. First, it would encourage companies to relocate their CFCs from those territories. Second, it would encourage those listed territories to take such actions as are required to remove themselves from the list. The list is kept under review. Countries may be added or taken off the list, depending on circumstances. In that regard, I have amended the section so that the list of 12 countries, which was published on 20 October, applies to CFCs resident in non-co-operative jurisdictions, with accounting periods beginning during the period from 1 January 2021 to 31 December 2021.

The amendment also provides that the list, as updated in October and which now lists nine countries, takes effect for CFCsresident and non-co-operative jurisdictions, with accounting periods beginning on or after 1 January. I want to update the Deputy on the list of the nine countries and where that stands at the moment. Currently, the nine jurisdictions are American Samoa, Fiji, Guam, Palau, Panama, Samoa, Trinidad and Tobago, the US Virgin Islands and Vanuatu. As of the October update, three jurisdictions were removed. These were Anguilla, Barbados and the Seychelles.

To deal with the Deputy’s point about my view on the impact of this measure, it is a powerful way of dealing with this issue. One of the ways it is having an effect is when our ECOFIN meetings are taking place. Jurisdictions that are being moving onto or fear they may be moved onto this list are vocal in describing the effect a listing will have on them. Those jurisdictions that move onto the list do their best to try to move off the list and meet the requirements that are laid down by the European Commission. On the question as to whether I think it deals with the issue of shell companies, I do, because of the procedures the European Commission is now using to deal with issues in the jurisdictions.