The MLI was introduced by the OECD and operates by introducing a series of tax treaty measures with the aim of updating international tax rules and lessening the opportunity for tax avoidance by multinational enterprises.
Article 4 of the MLI provides for a new form of “tie-breaker” rule where a company is considered tax-resident in Ireland and another jurisdiction under the laws of both countries. In such a case, the competent authorities of the relevant jurisdictions shall determine a sole jurisdiction of residence by mutual agreement having regard to that company’s place of effective management. Ireland adopted Article 4 of the MLI in January 2019, meaning the tie-breaker rule will impact on Irish tax treaties where the corresponding treaty partner has ratified the MLI and has also opted for the same rule.
While not all of Ireland’s double tax treaties have been amended for this rule, it is notable that the treaty with the United Kingdom has been amended so that it is no longer possible to automatically deem an Irish-incorporated company as tax-resident in the UK solely on the principle that the effective management of the company takes place in the UK.
When the tie-breaker rule is being considered, the taxpayer may apply to the competent authority of either jurisdiction to initiate the Mutual Agreement Procedures (MAP) request.
This process can be lengthy, and the risk of double taxation for a dual-resident company that previously relied on the standard effective place of management tie-breaker clause needs to be considered and managed as a matter of urgency.
Permanent Establishment (PE)
The MLI includes optional changes to the PE definition. Ireland has adopted the following provisions:
Article 13: Ireland adopted Option B, which sets out anti-fragmentation measures which can operate to aggregate presence and activities in a jurisdiction to meet the threshold for creation of a taxable PE in that jurisdiction.
Article 15: Ireland adopted an anti-avoidance rule against contractual arrangements that artificially seek (using the PE exceptions) to prevent certain building sites from being classified as PEs.
Council Directive 2011/16/EU, as amended by Council Directive 2018/822 (DAC 6) provides for the sharing of taxpayer information between the tax administrations of EU member states and aims at transparency and fairness in taxation. The EU mandatory disclosure regime requires “intermediaries” to provide information regarding “reportable cross-border arrangements” to the tax authorities of member states. A cross-border arrangement becomes reportable where the arrangement satisfies at least one characteristic or feature of a cross-border arrangement which, according to the Directive, presents an indication of a potential risk of tax avoidance.
The Directive requires reportable cross-border arrangements to be reported within 30 days after such arrangement is made available for implementation/ready for implementation, or the first step in the implementation has been made. The disclosure regime became effective in all member states on 1 July 2020, with a “look-back” reporting period for reportable cross-border arrangements where the first step was implemented between 25 June 2018 and 30 June 2020. However, due to COVID-19, Ireland exercised an option given in DAC 6 to defer the first disclosures of information until 28 February 2021.
For advice and support with your corporate tax requirements, please contact a member of our tax team.