why ireland? geoffrey lewis declan o’luanaigh niall o’connor 22 october 2013

Why Ireland?

Geoffrey LewisDeclan O’Luanaigh

Niall O’Connor

22 October 2013

What Ireland offers today?

Major European/EMEA/Global business hub

Low tax rate that is here to stay

Highly skilled and educated workforce

Globally experienced senior management

Only English speaking country in the Euro zone!


Ranked number 1 as place to do business in Eurozone (Forbes 2012)

2nd globally (1st Europe) for business sophistication (Global Innovation Index 2012)

1st in Europe for ease of paying taxes (PwC 2012)

1st Europe for ease of starting business (Global Innovation

Index 2012)


Ranked 1st globally for education (Global Innovation Index 2012)

1st globally for availability of skilled labour (IMD World

Competitiveness Yearbook 2012)

48% 25-34 year olds third level qualified (CSO 2012)

54% workforce under 35 (IDA Ireland 2012)

Proven track record of FDI

9 of the top 10 global Pharma companies

15 of the top 20 Medical Technology companies

8 of the top 10 Technology companies

Top 10 “born on the internet” companies all here


3 of worlds top 5 gaming companies

Top 5 exporter of software in the world

Highest concentration of ICT activity in OECD

1st for hedge fund administration and listed investment funds


50%+ of the world’s banks

9 out of 10 global aircraft leasing companies

41% worlds alternative investment funds administered from Ireland

U.S. investment in Ireland is greater than combined US investments in BRIC countries!

Ireland’s Changed Landscape

Historically, manufacturing operations and used as a European gateway location

Although manufacturing moves east, Ireland’s relevance to global tax strategies continues

Smart Economy Strategy has successfully moved Ireland’s tax offering up the value chain

Irish Tax Policy Development

Risk/ Functions

& Tax Policy

Exports of Raw Material

Head Office /Management

Manufacturing

Regional HQ

Rewards / Profits & Time

Export Sales Relief

10% Tax Rate

Abolition of capital duty

Holding Co. CGT exemption

Stamp Duty exemption for IP

R&D Tax Credits / IP

12.5% Dividends

12.5% Tax Rate for all active business


Focus is on portable profit drivers: IP & risk• Headquarters & Holding Companies

• IP ownership & exploitation

• Supply Chain Management / Shared Services

• Finance & Treasury

Key tax advantages

Funds Flowing In Extensive DTA

Network / EU Directives

Policy of 0% WHT in DTAs

12.5% CT - qualifying dividend income

Credit for foreign taxTax in Ireland

Low tax policy – 12.5%

No Thin Capitalisation, No CFC

No Capital Duty

IP and R&D Tax Incentives

Funds Flowing Out No WHT on interest,

dividends, royalties to EU / DTA typically

Irish Business Taxes

• Trading income 12.5%

• Qualifying dividends 12.5% (0% with FTC)

• Passive income 25%

• R&D incentive 25% (37.5% relief)

• CGT participation 0% (other 33%)

Business Modeling & 12.5% rate

Need to be “trading” to avail of 12.5%

Attractive location for valuable supply chain elements

Greater risks, assets and functions located in Ireland, the greater the profits which could be reported

Also, limiting the risks assumed by foreign subsidiaries will reduce the amount of profits accruing to them

Irish Group Entrepreneur (Principal)

raw materials

finished goods

IRIR(12.5%)

finished goods

Information flowsLegal title flows

Material flows

Suppliers

Manufacturing

Customers

Shared servicecentre

Call centre

Sales force

Commissionaires

IP managementR&D

Title

Title

Irish Principal

Centralised supply chain and strategic activities

Either owns IP or has licensed in IP

Purchases from suppliers & consigns to local toll manufacturer for routine processing

Local commissionaires responsible for routine sales activities, remunerated with routine commission

Residual profit attributed to the IRIR

Transfer Pricing

Limited Transfer Pricing (TP) rules introduced 2011

Apply to “trading” transactions only not passive activities (royalty & interest free structures possible)

Exemption for SMEs • < 250 employees and • either Turnover < €50m or Assets < €43m

Rulings / Ease of start up

No requirement to obtain a ruling

Revenue can give confirmation of tax treatment

Such rulings are effective unless the underlying facts change or a change in Irish tax law – no time limit

Holding Company Benefits

Tax exemption for domestic & foreign gains (EU & DTA) on sales of trading subsidiaries

Tax exemption for Irish dividends with effective tax exemption for foreign dividends (FTCs)

Extensive domestic withholding tax exemptions

No thin capitalisation or CFC rules

IP Exploitation Benefits

Amortisation for IP acquired for trade purposes (80% limit)

No clawback on IP sale after 10 years

Deduction for licensed-in IP rights

Tax efficient IP structuring opportunities

R&D Benefits

Refundable 25% tax credit (effective benefit 37.5%).

Cash refunds possible – repaid over 3 years

Credit converted to tax efficient bonuses R&D team

Possible R&D grant aid also

Corporates - Tax Residency

Irish registered (IR) companies automatically deemed to be Irish tax resident but can have IRNRs

Irish DTAs - “effective management and control” tie breaker rule for dual resident companies

Non Irish registered companies need to be managed and controlled here to be tax resident

Double Irish

IRNR initially Irish tax resident and buys in group IP

IRNR owns an Irish tax resident trading subsidiary (IRIR) to which it licences the IP (tax deduction)

IRNR migrates its residence to haven after time

No tax in IRNR on royalty income once migrated

Typically can structure royalties so that no Irish WHT applies or route through the Netherlands to avoid

IRNR-IRIR (“Double Irish”)

IRNR

Buy-in license /

cost sharing

Customers

USMNC

IRIR(Opco)

Sales & MktFrance

Sales & MktUK

Sales & MktGermany

Sales & MktHolland

Sales & MktSweden

Commission

License

IP

Commission

Royalty payment

Ireland IRNR will typically buy the economic right to exploit the IP outside of the US

Slide 23

Contracts with customers

Shelbourne Systems Inc.

• US based Technology Company

• Traditionally US based sales but now rapid growth expected in non-US sales – focus on EMEA & Asian markets

• Senior personnel employed by sales subs in UK, France & Germany already


Phase 1 - 2014

• SS Inc. sets up 2 Irish subs IRNR (IP licensing co) and IRIR (operating co)

• IRNR enters into a cost sharing agreement with SS Inc. for non-US IP

• UK, French & Germany execs transfer to IRIR


• IRNR will license IP to IRIR who will sell / license to non-US customers.

• IRIR commences to trade, leases office space etc.

• After a period of time, IRNR’s tax residency is migrated to haven location.


IRIRs financials (€’000) – 2014

Sales – non US 3,000Costs (300)Royalty – IRNR (1,500)Taxable profits 1,200

Irish Corporation Tax 150Effective tax rate 5.6%


Phase 2 - 2015

• Non-US sales / operations grow

• Given the success of the Irish operations, decision made to relocate an element of group R&D function from US to IRIR

• New R&D & sales hires also made in Ireland



Sales – non US 5,000Costs – incls R&D 300k (800)Royalty – IRNR (2,500)Taxable profits 1,700

Irish Corporation Tax 137.5 Effective tax rate 3.3%


Phase 3 - 2016

• Given expected tax changes, decision is made to transfer non-US IP from IRNR to IRIR

• Value of IP is €40m – amortise over 10 years SL

• No Irish Stamp Duty applies to this transfer



Sales – non US 8,000Costs (1,000)R&D costs ( 800)Profits 6,200Capital allowances – IP (4,000)Taxable profits 2,200



Irish CT @ 12.5% 275R&D Tax Credit (200)CT payable 75

Accounting Profits – non US 6.2mEffective Tax Rate 1.2%

Employee Taxation

Irish tax resident – either 183 days in the tax (calendar) year or 280 days in aggregate this year and prior year.

Ordinarily resident concept for 3 years

“Split” year rules - not be taxable on earnings arising before the date of your arrival or after the date of your departure

Employer Withholding

Payroll withholding tax - Pay As You Earn (PAYE)

Stock option gains - Irish income tax may be due on the exercise of share options granted while resident outside Ireland by reference to the amount of time spent working in Ireland over the vesting period

Remittance Basis

Foreign employment contract & non Irish duties

Irish employer not required to operate PAYE where• Employee DTA resident & not resident in Ireland • Employee not paid by Irish resident employer• Cost not borne by Irish PE foreign employer; and• Duties performed in Ireland < 60 days in tax year

SARP

Applies to qualifying individuals coming to Ireland to work for a period of at least one year

Irish tax will apply to the greater of:• Total employment earnings and benefits received

in or remitted to Ireland; and• The first €100,000 plus 50% of earnings and

benefits in excess of €100,000.

Relocation Expenses

Specific reimbursements of many expenses are generally exempt from tax

Expenses include travel, moving personal and household effects, and temporary living expenses for a limited period (3 months)

R & D Bonuses

Key R&D team members

Spend 50% of their time on R&D activities

Tax free remuneration - transfer R&D Tax Credit

Cannot reduce effective tax rate below 25%

Foreign Earnings Deduction (FED)

Incentive support Irish companies’ efforts to expand overseas (BRICs and other locations)

Maximum deduction is €35,000 and maximum tax saving is €14,350.

FED cannot be claimed where SARP is claimed or the employee R&D tax credit relief applies

Investor Tax - CGT

Irish CGT charge applies to gains on disposals of Irish property irrespective of residence or domicile of investor – “specified asset”

Irish CGT “7 year holiday” for property purchased up to 31 Dec 2013 i.e. sell after 10 years, 70% gain exempt etc.

Investor Tax - REITs

REIT not liable to Irish tax on income and capital gains arising from its property rental. Non resident investors not be liable to Irish CGT

Irish DWT at the rate of 20% on distributions to non residents - recover either as a credit against tax in home country and / or directly from Irish Revenue

Transfer of shares in the REIT - 1% stamp duty

Investor Tax – Section 110s

Securitisation vehicle - subject to Irish tax at 25% however structured so profits negligible

Resident in Ireland, carry on a business of managing qualifying assets and the market value > €10m

Eligible to take advantage of Irish treaty network which should eliminate or reduce WHT on cross border income flows into and from Ireland

Investor Tax – CAT exposure

Gifts and Inheritances within charge to CAT (current rate 33%) if any of the following met:

1. Disponer resident or ordinarily resident in Ireland at the date of the benefit

2. Donee/successor is resident or ordinarily resident in Ireland at the date of the benefit; or

3. Assets being gifted/inherited are situate in Ireland at the date of the benefit

why ireland? geoffrey lewis declan o’luanaigh niall o’connor 22 october 2013

Documents

irelands tax

irelandlow tax policy

ida ireland

rd tax incentivesfunds

global pharma companies

key tax advantagesfunds

iprd tax credits ip

gaming companies