Ireland publishes tax guidance on tie-breaker rule for dual resident companies

Irish Tax and Customs on October 8 published new tax guidance which describes how the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) will amend Ireland’s tax treaties where both Ireland and its treaty partner have opted for a tie-breaker provision to establish residence where companies are resident in more than one jurisdiction.

The MLI came into force for Ireland on May 1 and the new tie-breaker rule will enter into effect in respect of any of Ireland’s tax treaties at the earliest for taxable periods beginning on or after November 1, Irish Tax and Customs said.

New Tax and Duty Manual Part 35-01-11, Dual-Resident Companies, provides that, in the case of corporate dual-residence, the competent authorities of the two countries will attempt to determine a sole jurisdiction of residence by mutual agreement having regard to that company’s place of effective management, the place where it is incorporated or otherwise constituted, and any other relevant factors.

Most of Ireland’s existing tax treaties follow the pre-2017 OECD Model Tax Convention rule for corporate dual residence and the sole jurisdiction of residence is determined using the place of effective management of the company, Irish Tax and Customs explained.

Under the new tie-breaker rule, a dual-resident company will lose its automatic single jurisdiction of residence status for treaty purposes that is based on place of effective management only.

Instead, the competent authorities will endeavor to resolve residency by mutual agreement. If an agreement cannot be reached on the residence status for treaty purposes, the company will only be entitled to treaty benefits to the extent that the competent authorities agree.

Taxpayers affected or potentially affected by the tie-breaker rule must request the initiation of the mutual agreement procedure under the mutual agreement procedure (MAP) article of the relevant tax treaty, the tax agency said.

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