Paschal Donohoe (Dublin Central, Fine Gael)
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The EU list of non-co-operative jurisdictions for tax purposes is intended to encourage jurisdictions with harmful tax practices in place to address those features of their tax code in order to enable fair and effective corporation taxation in the European Single Market. The purpose of the list is to encourage positive change through co-operation. The listing of countries is based on screening countries through the objective application of agreed criteria comprising international tax standards.

Ireland’s defensive measures involve modifying the controlled foreign company, CFC, rules in terms of their application to non-co-operative jurisdictions by turning off existing exemptions so that CFCs located in jurisdictions on the list cannot avail of them. This will strengthen the application of Irish CFC rules to Irish-resident companies with a CFC resident in a non-cooperative jurisdiction by imposing less favourable conditions and, potentially, imposing a CFC charge which would not otherwise exist.

With regard to the data the amendment requests to be included in a report, it is not possible to provide this information. The requested report is sought within a period of six months of the passing of the Bill. The information sought will only be available in September 2022 at the earliest, at which point it will only be available in a limited fashion. This is because the section only commences for the accounting periods of companies starting on or after 1 January 2021. For example, a company with a 12-month accounting period starting on 1 January 2021 will file its corporation tax returns in September 2022. Companies with accounting periods commencing later than January will file their corporation tax returns in the months subsequent to September 2022.

The Irish tax code relies on self-assessment and taxpayers will be obliged to ensure they do not avail of the exemptions for CFCs based in listed jurisdictions. Revenue does not expect that the introduction of these measures will impact on a significant number of companies, but it is considering how best to collect the data. However, it should be noted that data around changes in the value of cross-border transactions will not be captured under either the existing or amended CFC rules as this is not the focus of those rules. Rather, CFC rules can result in the income of a foreign subsidiary being subject to Irish tax as if the income was earned by the Irish-resident controlling company, where certain conditions are met.

Ultimately, the purpose of CFC rules is to discourage the artificial diversion of income to low-tax or no-tax jurisdictions. As such, they are not designed primarily to raise Exchequer revenue, but rather to modify taxpayer behaviour, which is in keeping with the purpose of the EU list of non-co-operative jurisdictions for tax purposes.

As the actual risk presented by the existence of corporate structures involving Irish-resident companies and companies resident in non-co-operative territories is thought to be very limited, these defensive measures are intended to act as a deterrent rather than as a revenue-raising measure.