Ireland is considered to be a very attractive holding company location, the benefits of which include:

Ireland is considered to be a very attractive holding company location, the benefits of which include: Extensive tax treaty network; Favourable tax treatment of dividend income; No Withholding Tax ( WHT ) on dividends from Irish Holding Company to EU / tax treaty countries; No Capital Gains Tax on disposal of shareholdings in subsidiaries; Favourable tax regime for R&D/intangibles; Tax deductions for interest on qualifying borrowings; and No WHT on qualifying interest and royalty payments. This memorandum sets out some of the main considerations associated with the use and application of Irish International Holding Companies. FOREIGN TAX CREDIT Irish legislation gives credit for foreign taxation already paid by its underlying subsidiary by way of: 1. Unilateral relief; or 2. The EU Parent-Subsidiary Directive; or 3. The provisions of a Double Tax Treaty entered into between Ireland and the jurisdiction of the subsidiary. The Irish tax system does not impose additional taxation on foreign dividends received by an Irish company provided that the foreign tax suffered on the profits giving rise to the dividends is in excess of the Irish tax. Where such relief is not available, the Irish tax system taxes the receipt of dividends from foreign trading subsidiaries at a rate of 12.5% (see below in relation to dividends from a trading subsidiary) and dividend income from non-trading foreign subsidiaries at a rate of 25%. Where an Irish holding company receives dividends from a trading subsidiary resident in an EU or treaty country, or a country that has ratified the OECD Convention on Mutual Administrative Assistance in Tax Matters, once the rate of underlying tax is at least 12.5%, there will be no Irish tax payable on the dividends. Following the Finance Act 2010, the 12.5% rate also applies to dividends received from a company, the principal class of shares in which (or its 75% parent) is substantially or regularly traded on certain recognised stock exchanges. There is no requirement that the paying company be EU or treaty state resident. An exemption from corporation tax has been introduced for foreign dividends received by portfolio investors (typically less than 5% shareholders) where the dividend is part of the shareholder s trading income this would apply mainly to financial institutions. Page 2 of 10 Pearse Trust July 2015

Onshore Pooling allows foreign dividends to be pooled together before they are offset against the Irish tax liability. However excess tax on foreign dividends liable at a rate of 12.5% cannot be used against those liable at the 25% rate. Where a dividend has an effective rate of tax of greater than 25%, the excess tax credit can be applied against other dividend streams where the effective rate of tax on such dividends would be less than 25%. The tax credits do not need to be utilised in the year in which the dividend is received. They can be carried forward indefinitely or offset against Irish tax on future foreign dividends. MINIMUM SHAREHOLDING For the Irish company to avail of the tax credit relief under unilateral provisions or under the EU Parent Subsidiary Directive, the Irish company must hold at least 5% in the subsidiary company. Underlying tax relief under the provisions of a Double Tax Treaty will normally require a minimum holding of voting power. Where there is a two year holding period provision in a treaty between Ireland and the other country, when applying the Directive a two year holding period test applies. IRISH DIVIDEND WITHHOLDING TAX Ireland applies dividend withholding tax (currently 20%) to dividends paid by Irish resident companies. However an exemption from this withholding tax can be claimed where: Dividends are paid to companies entitled to the benefit of the EU Parent-Subsidiary Directive; or Dividends are paid to companies resident in a treaty country or another E.U. Member State, and that are not under the control of Irish residents; or Dividends are paid to companies in any jurisdiction and ultimately controlled by residents of tax treaty countries or other EU member states; or Dividends are paid to certain quoted companies; or Dividends are paid to individuals who are residents of a treaty country or another EU Member State. In order to qualify for these exemptions (other than that under the Parent Subsidiary Directive) it is necessary for the Irish paying company to receive/obtain from the recipient company, a declaration that includes:- An undertaking from an authorised signatory that the recipient company is beneficially entitled to the distribution in respect of which the declaration is made; and Page 3 of 10 Pearse Trust July 2015

Details of the tax residency of the recipient company; and An undertaking to provide any further supporting documentation relating to the residency or control of the recipient company to Revenue upon request. It is possible to pay a dividend free of DWT to a non-eu company, such as for example an offshore IBC company, provided that the IBC is under the ultimate control of an EU resident or a resident of a Double Tax Treaty country. In this situation, a declaration as explained above, must be made by the IBC to the Irish paying company. Unless there are any changes in the circumstances of the recipient company in subsequent years, the declaration remains valid until the end of the fifth year after the year in which the declaration is signed. Taking all of the above into account, let us consider the following example to illustrate how dividends can be received and paid on by an Irish company without incurring Irish taxation. A non-trading company, incorporated in the European Union ( EUROCO ) is wholly owned by an Irish company ( IRECO ). An EU or treaty resident company, in turn, wholly owns IRECO and the EU or treaty resident company is not, itself, under the control of Irish residents. It is assumed that the provisions of the EU Parent-Subsidiary Directive have been met throughout. Tax Calculations Pre-tax profits for the year ended 31 st December 2009 for EUROCO: 1,000,000 Profit taxed at say 40%: 400,000 Dividend declared to IRECO: 600,000 (No withholding tax applied under EU Parent-Subsidiary Directive) Add-back foreign tax paid by EUROCO: (i.e. 600,000 + 400,000) 1,000,000 Irish tax at 25% on 1,000,000 ( 250,000) Credit for tax already paid by EUROCO 400,000 Liability to Irish corporation tax Nil Dividends can be then paid from the Irish company to the EU or treaty company free of Irish withholding tax as evidenced in the overleaf diagram:- Page 4 of 10 Pearse Trust July 2015

600,000 dividend (0% WHT) Foreign Tax credit relief= 0% Irish Corporation Tax 600,000 dividend (0% WHT) EU/Treaty Company Irish Company EUROCO 100% shareholding 100% shareholding CAPITAL GAINS TAX The provisions regarding exemptions for Irish companies from Capital Gains Tax have applied from 2 nd February 2004 and they provide that a gain arising from the disposal of shares held by an Irish company will be exempt from Irish Capital Gains Tax where:- The Irish holding company has held at least 5% of the shares in the subsidiary for a continuous period of 12 months in the previous 24 months; and The subsidiary company is tax resident in the EU or in a country with which a Double Tax Treaty is in force with Ireland at the time of the disposal; and The subsidiary itself carries on a trade or is part of a trading group. The shares in the subsidiary company do not derive their value from specified Irish assets (broadly, Irish land, buildings, mineral or mining rights). TAX RELIEF FOR CAPITAL EXPENDITURE ON INTELLECTUAL PROPERTY As one of a number of measures to encourage Ireland s attractiveness to innovative and research oriented companies, a new relief for the capital cost of acquiring Intellectual Property ( IP ) was introduced in 2009. Capital expenditure incurred on or after 7 May 2009 on certain intangible assets used for the purposes of a trade will be available for offset against a company s taxable income. Capital allowances (or tax depreciation) are given on qualifying expenditure so as to reduce a company s profits that are liable to corporation tax. The type of expenditure that qualifies for the relief is quite broad and includes capital expenditure on patents, trademarks, licences, Page 5 of 10 Pearse Trust July 2015

copyrights, brands, industrial know-how, and goodwill directly attributable to any of these intangible assets. The tax relief will be the same as the amount of depreciation or amortisation on the intangible asset charged to the profit and loss account of the company. However the company may decide to claim the relief over 14 years at 7% per annum and 2% in year 15. The relief applies to capital expenditure on intangible assets acquired from group companies, but this is capped at an arm s length price. The relief does not apply unless the expenditure was incurred wholly and exclusively for bona fide commercial reasons, and was not incurred as part of tax avoidance arrangements. DEDUCTION FOR INTEREST Interest payable for trade related purposes is allowed as a trading expense. Interest on borrowings for non-trading purposes can qualify as tax deductible as a charge on a paid basis, subject to certain conditions being met and the loan on which interest is charged being used for specific purposes including:- Investment in subsidiaries; or Loans to subsidiaries for investment purposes. In certain circumstances, interest paid to a non-resident is treated as a distribution and is not tax deductible. R&D TAX CREDIT The Irish Finance Act 2004 introduced a Research and Development ( R&D ) Tax Credit scheme in the State which was designed to encourage both foreign and indigenous companies to undertake new and/or additional R&D activity in Ireland. Over the years, various amendments to Finance Acts have greatly improved this original scheme. A tax credit of 25% against Irish corporation tax is available to Irish tax-resident companies and branches engaged in in-house qualifying R&D undertaken within the European Economic Area (EEA), provided such expenditure is not otherwise eligible for tax benefit elsewhere within the EEA. In summary: 25% tax credit on qualifying R&D expenditure by Irish tax-resident companies within the EEA; Flexibility in the R&D tax credit system grants relief to companies whose corporation tax liability is insufficient to claim the credit via a refund by the Revenue Commissioners over three accounting periods; Page 6 of 10 Pearse Trust July 2015

The R&D tax credit is available on qualifying buildings which are defined as buildings with a minimum R&D usage of 35% over a defined 4 years period; and R&D work sub-contracted to unconnected parties also qualifies for the credit, up to a maximum of 15% of the company s qualifying R&D expenditure in any one year and in addition, up to 5% of R&D expenditure can be outsourced to European universities. The Irish tax legislation has recently introduced measures that permit key employees engaged in R&D activities to share the tax credit relief. This measure gives Irish companies the opportunity to provide their employees with tax efficient packages. STAMP DUTY ON INTELLECTUAL PROPERTY Stamp duty does not apply to the sale, transfer or other disposition of IP in Ireland. This exemption also applies to the value of any goodwill attaching to the IP. For the purpose of this exemption, IP includes any patent, trademark, copyright, registered design, design right, invention, domain name, supplementary protection certificate or plant breeders rights. Certain clawback provisions apply where a company or group ceases to be within the charge to Irish tax. IRISH TAX RESIDENCE A company resident in Ireland is subject to Irish corporation tax on its worldwide income and gains. Under the Finance Act 2014, the Irish government introduced changes into Irish tax legislation with respect to Ireland s corporate tax regime. The changes will in effect remove the trading exception from the Irish incorporation test applicable in determining Irish corporate tax residence for companies incorporated after 1 January 2015. Under the new rules, a company is regarded as resident in Ireland for tax purposes either by virtue of being incorporated in Ireland (subject to the treaty exception), or by virtue of it being centrally managed and controlled in Ireland (irrespective of where it is incorporated). The treaty exception applies where the company is not regarded as resident in Ireland under the provisions of a double taxation treaty between Ireland and another country. For companies incorporated after 1 January 2015, the new rules will apply from 1 January 2015. For companies incorporated before 1 January 2015, the new rules will in the vast majority of cases apply from 1 January 2021. Notwithstanding the above, as mentioned, a company is still tax resident in Ireland under general principles if its central management and control is in Ireland. The meaning of management and control is derived mainly from tax case law. Central management and control typically means the highest level of control of the business of the company, i.e. key strategic decisions. It is largely determined by the facts, focusing particularly on whether those who are legally entrusted to exercise the management and control of the company in fact do so in Ireland. Page 7 of 10 Pearse Trust July 2015

Some of the factors which will determine where central management and control reside include- Where the directors' meetings are held Where key questions of company policy are determined Where the majority of directors reside Where the shareholders meetings are held, both general and extraordinary Where the negotiation of major contracts is undertaken Where the head office of the company is located Where the books of account are kept, the accounts prepared and examined, the accounts audited, minute book, company seal and share register kept The place where directors meet is usually indicative of where central management and control is exercised and consequently where the company is resident. This is because central management and control is in most cases actually exercised through the medium of directors meetings. In summary, it is important that the directors meeting in Ireland in fact effect control and management over the company s affairs. Care needs to be taken to ensure that the above factors help demonstrate that Ireland is the place of central management and control. Similarly, major decisions/conclusion of contracts, etc. should not take place in any country other than Ireland. This will minimise the risk that a company could be deemed tax resident in another jurisdiction. Board meetings should be held at regular appropriate intervals and the board members should have the expertise appropriate to carry out their roles. OTHER CONSIDERATIONS (i) Stamp duty Ireland imposes a 1% stamp duty (based on the fair market value of the shares) on the transfer of shares in Irish companies. Where a charge of stamp duty does arise, it is payable within 30 days of the execution of the relevant documents. Low rates of stamp duty apply on the transfer of both residential and non-residential property. (ii) Closely held companies An Irish resident company that is controlled by five or fewer persons is called a close company under Irish tax law. A close company is liable to an additional 20% tax charge where certain passive income (rent, bank interest and certain dividends) is accumulated and not paid out as dividends. Dividends from subsidiary companies entitled to benefit from the Page 8 of 10 Pearse Trust July 2015

CGT exemption for substantial shareholdings are excluded from the close company surcharge. In addition, the close company legislation can impose a withholding tax (currently 25%) on loans made to related companies that are not resident in the EU. While this withholding tax is refunded when the loan is repaid to the Irish company, it does not make an Irish company a good vehicle for group financing of companies resident in countries outside of the EU. Where an Irish closely held company controls a foreign subsidiary, Irish tax legislation can attribute capital gains, made by the foreign subsidiary, to the Irish holding company. However, any tax arising on these attributed gains, can be mitigated under Ireland s system of double tax agreements. Other relief on the taxation of such attributed gains may be available in certain circumstances. It should be noted that these restrictions, in general, do not apply where the Irish company is owned by a quoted company or is controlled by more than five non related people. (iii) Controlled Foreign Company legislation Ireland does not have controlled foreign company legislation. (iv) Transfer pricing Ireland has recently introduced a transfer pricing regime. The regime applies to 12.5% companies, however there is an exemption for small and medium sized enterprises ( SME ). A company is an SME if it has- Less than 250 employees; and Either a turnover of less than 50 million, or assets of less than 43 million. These figures apply to the worldwide group and are reviewed on an annual basis. (v) Thin capitalization rules Ireland does not operate thin capitalization rules requiring the satisfaction of debt-equity or interest cover ratios before granting full tax relief for qualifying interest costs. (vi) Capital duty Capital duty does not apply on the issues of shares in Irish companies. For foreign parent companies this means that there is no tax cost in capitalising an Irish subsidiary. (vii) Group relief for losses Until the introduction of new provisions in Finance Act 2012, only EU, or EEA, companies in a group could be traced through. FA2012 allows the surrender of losses between Irish resident companies, where both companies are members of the same 75% group, and the Page 9 of 10 Pearse Trust July 2015

group contains companies that are resident in a double tax treaty country, or quoted on a recognised stock exchange. (viii) Sale of shares in an Irish company Although stamp duty does apply on the sale of shares, it is worth noting that there is no Irish capital gains tax on the sale of shares of an Irish company by non-residents where the value of the shares in the Irish company is not derived from Irish real estate, or Irish minerals and mining rights. For further information, please contact Ms. Grainne Riordan (griordan@pearse-trust.ie) at Pearse Trust Limited, or your usual Pearse Trust contact The information in this document is of a general nature and is not intended to address the circumstances of any particular individual or entity. There can be no guarantee that the information in this document is accurate as of the date it is received, or that it will continue to be accurate in the future. No individual or entity should act on the contents herein without appropriate professional advice and only after a complete examination of their particular circumstances. Page 10 of 10 Pearse Trust July 2015