From an international tax perspective, the key highlights were:

A.   Introduction of transfer pricing,
B.   An enhancement of the fiscal attractions for investment fund and asset
      management in Ireland,
C.  Enhancement of Ireland’s “IP box”,
D.  Improvement of exemptions from withholding on royalty, interest and
      dividends,
E.  Further Corporation Tax Incentives for Insurance and other Companies,
F.   Introduction of a formal tax system for Islamic finance,
G.  14 new double tax agreements or tax information exchange agreements and
      other double tax relief enhancements,
H.  A levy on ultra-high net worth Irish domiciliaries wheresoever resident,
I.    Preservation of system of taxing non-domiciliaries on a remittance basis.

A.  Transfer Pricing

The Act introduces transfer pricing for accounting periods beginning on or after 1 January 2011.

Transfer pricing rules will apply to any arrangement involving the supply of goods, services, money or intangible assets, where the parties are associated.  The  legislation is limited as it only applies to transactions that are regarded as part of a trade carried on in the State.  Many transactions that are structured in and through Ireland do not give rise to such trading income or expense and such transactions will remain outside the scope of the legislation.  Despite widespread speculation, there is no general carve out for loans entered into between associated parties, however where the receipt of income or relief for interest paid would fall to be taxed or relieved other than as trading income, transfer pricing will not apply.

The effect of these rules is that where the amount payable or receivable exceeds arm’s length consideration then profits or gains will be computed as if arm’s length amounts were payable.  This effectively imposes arm’s length rules on understated profits or over stated trading expenses.

The test of arm’s length pricing is whether the consideration would have been agreed if the parties were independent.  In addition, the OECD transfer pricing guidelines are adopted in order to give effect to this rule.  However, the Double Tax relief arrangements contained in Ireland’s tax treaties can override the application of these rules.

It will be necessary to maintain documents to support transfer prices.  However, no additional documents are required and there is no requirement to file such documents unless specifically requested.  In this respect, it would appear that this aspect of the regime is light touch and deliberately business-friendly.

Transactions entered into before 1 July 2010 will be grandfathered and will therefore not come within the new rules.  Transactions entered into on or after 1 July 2010 will become subject to the new rules from 1 January 2011.

B.  Enhancement of Fiscal Attractions for Investment Funds and Asset 
      Management

i)   The Act seeks to encourage the development of a hub in Ireland for 
      management companies of foreign UCITS managed under UCITS IV.  It 
      removes a charge to Irish tax on the foreign EU fund merely by reason of 
      the presence of an Irish management company.

ii)   Where funds are re-domiciling to Ireland, stamp duty has been a hurdle.  
       The Act extends an exemption from stamp where an investment 
       undertaking issues units to a foreign fund in return for its investment 
       undertaking.

iii)   To make investment funds sold exclusively outside Ireland more attractive, 
        and enable them to pay returns gross, the fund will no longer be required 
        to obtain a non resident declaration from each investor.

C.  Enhancement of Ireland’s “IP Box”

Ireland’s Intellectual Property box provides tax depreciation over a period of 15 years, or if shorter, the account’s amortisation applicable to the IP.

The Act proposes;

i)  an extension of the definition of intellectual property to include capital 
     expenditure on;

a.  the application for the grant or registration of IP, including 
     patents, and

b.  the acquisition of secret processes or formulae or other secret information 
     concerning industrial, commercial or scientific experience, whether 
     protected or not by patent, copyright or a related right, including know-how.

i)  relief for expenditure incurred before a licensing trade commences,

ii)  an ability to obtain a tax write-off for IP impairment, and

iii)  no clawback of allowances on IP disposed of after ten years of use.

D.  Improvement of some practical features of Exemptions from Withholding 
      Taxes

The standard rate of withholding tax on dividends, interest and royalties is 20%.  Where payments are within the EU/EEA or the countries with whom Ireland has a double tax treaty (“relevant territories”), withholding can be eliminated, provided certain third party documentation criteria are fulfilled.  The administrative complications of such arrangements have been simplified.

i)      For dividends paid to non resident companies, it is proposed that such 
        third party documentation be replaced by a self-assessment regime of the 
        non resident.

ii)    For interest paid to relevant territories after the passing of the Act, no
       withholding will apply provided that it is liable to tax in the relevant territory. 
       This exemption will extend to countries which have negotiated double tax
       treaties with Ireland but do not yet have the force of law (see below). The  If
        such payments are not liable to tax in the       
       recipient's jurisdiction, the rate of withholding will be reduced to the
       applicable treaty rate.  Existing financing arrangements may need to be
       reviewed in the light of this legislative change.

iii)    For royalty payments made on or after 4 February 2010, withholding tax is 
       abolished where payments are made by an Irish resident company or a 
       branch or agency of a non resident company that is carrying on a trade in 
        the State to a recipient that is liable to tax in a relevant territory.

E.    Further Corporation Tax Incentives for Insurance Companies and other 
        Portfolio Companies

The Act provides exemption from corporation tax on foreign dividends received by portfolio investor companies where the income is a trading receipt.  This provision is likely to cause further insurance groups and others that hold portfolio investments as part of their trade to invert under an Irish holding company.

F.   Formal System for Islamic Finance

The prohibition of making or receiving interest under the principles of Islamic finance is catered for in new provisions.  The Act extends the taxation regime attaching to interest in relation to conventional financial products to Shari’a products.  The legislation concerns credit, deposit and investment transactions.  It seeks to treat the commercial return as if it is treated as interest for the purposes of the Irish Taxes Acts.

G.  14 New Double Tax Agreements or Tax Information Exchange 
       Agreements and other Double Tax Relief Enhancements

Treaties

The Act increases the list of countries in which Ireland has entered into a Double Tax Agreement by six.  The new treaties are with Bahrain, Belarus, Bosnia & Herzegovina, Georgia, Moldova and Serbia.

Tax Information Exchange Agreements have been extended to include Anguilla, Bermuda, The Cayman Islands, Gibraltar, Guernsey, Jersey, Liechtenstein and The Turks and Caicos Islands.

Ireland has existing treaties with Australia, Austria, Belgium, Bulgaria, Canada, Chile, China, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, India, Israel, Italy, Japan, Korea, Latvia, Lithuania, Luxembourg, Macedonia, Malaysia, Malta, Mexico, Netherlands, New Zealand, Norway, Pakistan, Poland, Portugal, Romania, Russia, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Switzerland, United Kingdom, United States, Vietnam and Zambia.

Double Tax Relief

A key feature of Ireland’s double tax relief system is that foreign income passes through Ireland without attracting corporation tax by reason of its credit relief system.

Ireland operates a credit relief system for providing relief for overseas tax charged on, inter alia, profits appropriate to pay dividends to an Irish corporate.  Ireland taxes such foreign income at either 12.5% or 25%.  The scope of the 12.5% tax rate is extended to include dividends paid out of underlying trading profits of a company resident in a country which does not have a double tax treaty with Ireland.  To obtain the 12.5% rate, the non resident payor must be ultimately owned by a quoted company.

The system of unilateral credit relief for royalties received from non-treaty countries has been extended.  The relief is now available to all trading companies that incurred foreign withholding tax on royalties paid from non-treaty countries.

Moreover, under the Act, Irish branches of foreign corporations will be able to carry forward excess double tax relief credits.

H.  Levy on Irish Domiciliaries wheresoever Resident

The Act introduces a €200,000 annual levy on a “relevant individual”.  This is defined as –

“an individual –

(a)  who is domiciled in, and is a citizen of, the State in the tax year,

(b)  whose worldwide income for the tax year is more than €1,000,000,

(c)  whose liability to income tax in the State for the tax year is less than   
       €20,000, and

(d)  the market value of whose Irish property on the valuation date in the tax year is in excess of €5,000,000.”

It is designed to apply to non residents but will apply also to Irish residents.  The individual will be allowed to credit against the levy for Irish income tax already paid for that tax year.  The ability of the Irish Revenue to collect this levy from non residents is likely to create significant hurdles.

Interestingly, the definition of market value is specified as the

“… price which such property would fetch if sold on the open market on the valuation date in such manner and subject to such conditions as might reasonably be calculated to obtain for the vendor the best price for the property.”

I.   Preservation of System of Taxing Non-Domiciliaries on a Remittance 
     Basis

In Summer 2009 the Commission of Taxation recommended the gradual abolition of the tax exemption for non Irish domiciliaries.  Significant industry representations were made to highlight the importance for inward investment of attracting high net worth individuals.  Legislation has been introduced to prevent Irish citizens returning to Ireland from availing of the relief.  However, there is no legislation denying income and capital gains exemptions for non-domiciliaries in Ireland.  It is persuasive evidence that industry representations have been heard.

Moreover, the Act extends the ability of employees from the EU or other countries with which Ireland has double tax treaties to relocate here and obtain a substantial tax rebate linked to their overseas duties.