The corporation tax rate is 12.5% for active income from the conduct of a trade in Ireland, as well as certain dividends from EU and tax treaty territories. A corporation tax rate of 25% applies to passive income and to income from certain defined activities. Capital gains are taxed at 33% with a participation exemption for gains on the sale of substantial shareholdings in companies resident in EU member states or a tax treaty country. Certain conditions must be met to qualify for the exemption.
Ireland has offered special tax deals to foreign MNE’s resulting in illegal State Aid. See the cases below.
Ireland also offers IP box rules exempting revenue from qualifying patents from Irish corporation tax. The old IP exemption are now beeing replaced by a new “Knowledge Development Box” offering a reduced tax rate of 6.25% on qualifying profits generated in periods commencing on or after 1 January 2016. The new rules are in compliance with the OECD Nexus approach.
Ireland plays an important role as both a conduit- and low tax jurisdiction. Oxfam’s list of corporate tax havens places Ireland as No. 6.
Ireland provides MNEs with both low tax centers for European activities and conduit holding companies serving as hubs for transferring profits and capital to low tax jurisdictions such as Cyprus and Bermuda. Especially MNEs within the IT sector have been known to use a combination of subsidiaries in Ireland, Luxembourg, the Netherlands, and Bermuda to reduce their taxes (“Double Duch Irish sandwich”). Ireland has been involved in investigations concerning corporate taxes in both the EU and US. An investigation of Apple discovered that two of the company’s Irish subsidiaries were not classified as tax residents in the U.S. nor Ireland, despite being incorporated in Ireland. Ireland offers low tax, many tax treaties, low or zero withholding taxes, unilateral tax agreements, stabil legal systems and good reputations for enabling the quiet transfer of profits and capital to low tax jurisdictions.
Ireland’s domestic legislation is construed in accordance with the OECD’s Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2010 (“TPG”).
In 2010, Ireland introduced broad-based transfer pricing legislation. The legislation endorses the OECD Transfer Pricing Guidelines and adopts the arm’s-length principle. The introduction of general transfer pricing legislation in Ireland was widely anticipated and brings the Irish tax regime into line with international norms in this area.
Prior to the publication of the new legislation, the transfer pricing provisions contained within the Irish tax legislation were previously only of limited application, and few resources were devoted to the issue by the Irish tax authorities. Despite the absence of local regulations and scrutiny prior to the 2010 Finance Act, transfer pricing was already a significant issue both for multinationals operating in Ireland and for Irish companies investing abroad because of the transfer pricing regulations in place in many overseas jurisdictions where the affiliates trading with Irish companies were located. For this reason, it is considered that the introduction of equivalent transfer pricing rules into the Irish system is not expected to result in significant changes to the underlying pricing for these transactions.
Part 35A, Section 835A to Section 835H, of the 1997 Taxes Consolidation Act (Part 35A), now contains Ireland’s domestic law dealing with transfer pricing. Part 35A confers a power on the Irish tax authorities to audit taxable profit or loss of a taxpayer where income has been understated or expenditure has been overstated. The new transfer pricing rules apply to arrangements entered into between associated persons (companies) on or after 1 July 2010.