A growing number of corporate groups with a parent company incorporated in Bermuda have redomiciled, or have announced plans to redomicile, in Ireland in recent times, eg. Cooper Industries, Ingersoll Rand, Accenture.
Multinational groups with their parent-company in Bermuda face growing uncertainty: uncertainty as to changes affecting Bermuda’s offshore tax regime or as to taxation of foreign profits. President Obama has pledged to shut down off-shore tax havens and, as a Senator in 2007, was a co-sponsor of the Stop Tax Haven Abuse Bill which expressly listed Bermuda as an “offshore secrecy jurisdiction”. There has been continued criticism of, and negative publicity regarding, companies incorporated in Bermuda, which does not have a tax treaty with the U.S. nor with many other important countries.
William Fry, one of Ireland’s largest law firms, with a long established history of advising foreign multinationals operating in and through Ireland, has a dedicated re-domiciliation group, including specialists from our corporate, tax and insurance law groups. If you are considering re-domiciling your parent company from Bermuda to Ireland or a similar transaction, please do not hesitate to contact David Fitzgibbon or Ross Little (Partners, Corporate Group), Martin Phelan (Partner, Tax Group) or Eoin Caulfield (Partner, Insurance Group).
Ireland is the jurisdiction of choice for many reasons, including:
- a very favourable holding company regime offers a number of fiscal benefits such as:
- a 12.5% corporate tax rate on trading profits and the ability to repatriate profits to Ireland without tax cost
- an exemption from Capital Gains Tax for sales of subsidiaries
- tax deductions for debt incurred to acquire shares in subsidiaries
- withholding tax exemptions on dividend and interest payments made to EU member states and tax treaty countries
- favourable government support in the form of generous development incentives such as:
- a tax credit of 25% of capital and revenue expenditure on qualifying research and development. The credit is in addition to the general corporation tax deduction of 12.5% thus giving an effective tax rate of 37.5% where research and development expenditure is incurred
- tax relief on the acquisition of intellectual property;
- a clear, transparent and stable taxation system
- Ireland also has a comprehensive network of double taxation treaties with 46 countries, including the U.S
- under U.S. federal income tax law, U.S. holders of shares in a Bermuda holding company which re-domiciles to Ireland will generally not recognize a gain or a loss in the standard re-domiciliation transaction
- a workable and less onerous financial regulation regime for entities and directors involved with financial services
- a responsive, yet responsible financial regulator with a well established track record e.g. in the insurance and investment funds space. Furthermore, the Irish financial regulator is well versed in dealing with the specific redomicilation points which may arise
- a common law jurisdiction (like Bermuda), and it is considered to be less prescriptive than many civil law jurisdictions
- a labour friendly jurisdiction for both employees and employers due to reasonable and fair labour laws closer to U.S. legal practices than mainland European practices
- close proximity to London and other major European capital cities with an exceptionally low fares airline network
- an English speaking population which facilitates easy relocation for ex-pats and their families and for schooling
- wide skills base in high end areas, especially global business services
- the benefit of Euro zone currency which encourages price stability
Effecting the move
Those Bermuda companies which have re-domiciled to Ireland have all done so by way of incorporating a new Irish public limited company (“New Company”), which must be managed and controlled in Ireland to ensure that it is Irish tax resident. New Company in turn acquires the entire issued share capital of the existing Bermuda parent company (“Old Company”), usually on a share for share basis. The laws of Bermuda govern the terms of the takeover by New Company, and it is effected through a Scheme of Arrangement approved by both the shareholders of Old Company and by the Supreme Court of Bermuda. Once the transaction is effected, the corporate group’s new holding company (New Company), will be domiciled in Ireland.
The opportunity afforded by re-domiciliation can also be used in order to create a credit to the profit and loss account of New Company. This credit can be achieved by means of an Irish High Court order reducing the share premium account (which arises on the share for share exchange) and crediting the amount of the share capital reduction to the profit and loss account of New Company. This credit could then be used to fund future distributions (e.g. dividends, redemptions, share buybacks etc.).
The Irish Government has shown itself willing to address a number of technical legal and accounting changes in order to further facilitate redomiciliations. For example, legislation was introduced in 2009 to permit the use by Irish companies of US GAAP in the preparation of their accounts on a transitional basis. This was specifically aimed at companies that report under US GAAP and were redomiciling to Ireland. The same legislation amended Irish company law to facilitate share buy-back programmes where the company had its share listed on markets such as NASDAQ.
Obtaining and maintaining tax residence in Ireland is not simply a matter of ensuring that the parent company is incorporated in Ireland – the central management and control of the company must be located Ireland. Central management and control of a company is located in the jurisdiction where the significant decisions relating to the strategic management and direction of the company are taken. Where the directors of the company make such decisions at board meetings, the board meetings need to be held in Ireland. However, the location of board meetings is not the determinative factor 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 multi-national group wishing to maintain its headquarters in its existing jurisdiction 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.