Multinational groups continually review their position in terms of optimal location for operational and fiscal purposes. Current holding structures may appear under threat by recent announcements against perceived offshore tax havens. The possibility of the taxation of foreign profits or the imposition of withholding tax on payments has come to the fore and many corporate groups with a parent company incorporated in countries like Bermuda or the Cayman Islands have migrated to other jurisdictions to locate their top holding company in a jurisdiction that has a good network of tax treaties and trade agreements. A migration may also be efficient for groups located in jurisdictions with overly complex tax systems, including strict controlled foreign company (CFC), transfer pricing, thin capitalisation and other rules that add to compliance costs. For example, migration will generally be beneficial for a UK corporate group which has low taxed non-UK profits or significant finance or IP income as compliance costs associated with CFC and transfer pricing rules in the UK can be reduced.

How to Migrate

The tax residence of an existing holding company can sometimes be changed by moving its place of effective management and control outside of its existing jurisdiction for tax purposes. However, since this can trigger a tax charge on exit in some jurisdictions (eg the UK), it is often more effective to incorporate a new parent company in the new jurisdiction and interpose the new parent company between the existing parent company and the public shareholders. For public companies incorporated in a common law jurisdiction, this can often be done by way of a cancellation scheme of arrangement approved by the court or share-for-share exchange. In effect, the public shareholders agree to the cancellation or swap of their shares in the existing parent company in return for shares of an equivalent amount in the new parent company. For public companies incorporated in the EU, this can also be achieved by re-registering the existing parent company as a Societas Europaea or SE (the new form of European public company) and then moving its registration to Ireland. EU parent companies can also migrate to Ireland by merging with an Irish public company under the Cross-Border Merger regulations.

Establishing a new parent company as a resident outside the jurisdiction of the existing parent is often only part of the migration process as it is often beneficial to transfer the foreign operations of the group from the original parent company to the new parent company and restructure the group to derive maximum benefit from the migration.

A decision to migrate cannot be taken lightly. It is likely to have substantive consequences for the governance and operations of the group and it is important therefore to select a jurisdiction that requires the minimum of changes while at the same time offering the maximum flexibility.

Why Ireland

The reasons for selecting Ireland include the following:

• Irelands low corporation tax rate (corporation tax on trading profits is 12.5%) and the ability to repatriate profits to Ireland without tax costs.
• Ireland has a signed comprehensive double tax treaties with 68 countries, including the U.S. and all EU member states; of which 64 are in effect with the remainder to come into force shortly, including many with the Middle Eastern states.
• Ireland is a member of the OECD and the EU and is the only English-speaking jurisdiction in the eurozone.
• Like the UK and the U.S. Ireland is a common law jurisdiction and its legal concepts will be recognised by most investors; in addition, the laws relating to personal property and the transfer of assets and the concepts of legal and equitable title are similar to those in the UK and the U.S.
• A new parent company can be incorporated speedily in Ireland as either a public limited company or as a Societas Europaea (SE).
• Irish public companies must prepare their accounts in accordance with IFRS and must prepare consolidated group accounts where they have subsidiaries (but, for certain companies, relief is available to enable modified US GAAP to be used).
• The Irish Stock Exchange (ISE) currently has responsibility for the approval of any public offer prospectus required to be issued by an Irish company. The ISE provides an efficient and comparatively speedy approval procedure for prospectuses.
• Takeover bids for public companies incorporated in Ireland are regulated by the Irish Takeover Panel whose rules are based on the Takeover Code of the UK Takeover Panel as well as incorporating the EU Takeover Directive 2004/25/EC.
• Ireland has an experienced and efficient Commercial Court which can resolve disputes speedily in a cost effective manner.
• Dublin is an established international financial centre.
• Ireland has a skilled and well-educated labour force.

Taxation

Key reasons for Irelands popularity as a destination for corporate migrations are its favourable tax regime, the fact that it is an onshore EU jurisdiction and the professional and administration services that are available locally. In addition, as the tax laws in Ireland are objectively ascertainable, tax rulings prior to a transaction proceeding are rarely required but may be available if desired. The following tax points are of particular relevance:

• 12.5% rate of corporation tax applies to trading profits and trading dividends. A rate of 25% applies to passive income.
• The rate of capital gains tax is 33% however the sale of shares by a non- Irish resident is usually exempt from capital gains tax. An exemption also exists for disposals of 5%+ corporate shareholdings held for at least 12 months in trading companies/groups that are EU/tax treaty resident.
• Shares in Irish incorporated companies can be transferred through the CREST System. They can also be deposited with a depository bank so that they can then be traded as ADRs or under an arrangement that is equivalent to an ADR structure. The transfer of ADRs (or shares held under an arrangement that is equivalent to an ADR structure) which are issued in respect of Irish companies and traded on a stock exchange in the U.S. or Canada are not subject to stamp duty. Shares in Irish incorporated companies which are transferred through the CREST System are subject to stamp duty at the rate of 1%.
• No dividend withholding tax applies to dividends paid to persons resident in an EU or an Irish tax treaty country or on U.S./Canadian listed shares held through ADRs (subject to collection of relevant forms). It is also possible to implement structures using income access shares where it is necessary to allow shareholders to continue to receive non-Irish dividends.
• Dividends received by an Irish incorporated company are taxed at 12.5% or 25% but a flexible credit system usually eliminates any tax liability on receipt; also other tax free cash repatriation techniques are available.
• No interest withholding tax applies to interest paid (i) to persons resident in an EU or an Irish tax treaty country or (ii) on listed bonds or commercial paper.
• A specific tax credit is available in Ireland for research and development activity.
• Ireland operates a favourable and flexible securitisation and finance company regime.
• Ireland does not have any thin capitalization rules.
• Ireland does not have any controlled foreign company / Subpart F rules.
• Ireland has limited transfer pricing rules.
• Ireland currently has a comprehensive framework of double taxation agreements. The agreements generally cover income tax, corporation tax and capital gains tax (direct taxes).

Obtaining and maintaining tax residence in Ireland for the new parent company is not simply a matter of ensuring that it is incorporated in Ireland. It is also generally necessary for the central management and control of the company to be located in Ireland and not elsewhere. The central management and control of a company is located in the jurisdiction in which the significant decisions relating to the strategic direction of the company are taken. In a case where those decisions are taken by the directors of the company at board meetings, this will generally be the jurisdiction in which those board meetings are held. However, the location of board meetings is not determinative where the powers of the board have been delegated or where the board simply rubber-stamps decisions taken outside the board meeting. These rules mean that a multinational group moving to Ireland must ensure that all the significant strategic decisions relating to the group are taken at board meetings held in Ireland, in which the directors actively address the issues being put to them and reach a considered decision.

Why Arthur Cox

Arthur Cox has represented most of the companies that have migrated their tax residency to and/or incorporated/ established in Ireland, including:

• Accenture
• Charter plc
• Cooper Industries
• Covidien
• Experian
• Ingersoll-Rand
• James Hardie
• Shire Pharmaceuticals
• TBS Shipping
• Warner Chilcott
• Willis

Arthur Cox is one of Irelands largest law firms, and has a long established history of advising foreign multinationals locating in Ireland. An international firm, we comprise almost 300 lawyers, including over 100 partners. We are an all-island law firm, with full-service offices in Dublin and Belfast. The firm also has an offices in London, New York and Silicon Valley. A number of our attorneys are admitted, and have practised, in the U.S. and the UK. Our practice encompasses all aspects of corporate and business law. We provide a comprehensive service to an international client base ranging from multinational organisations, banks and financial institutions and established global leaders to government agencies and new players in emerging industry sectors. Our reputation is based on proven professional skills, a thorough understanding of client requirements, sound judgment and a practical approach to resolving commercial problems. We offer breadth and depth across every facet of corporate, financial and business law and have the resources to successfully manage and drive forward transactions on schedule, helping our clients achieve their business objectives. We have a dedicated corporate migration group which coordinates all of the firms activities.

This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.

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