Taxes Consolidation Act 1997 section 831

Implementation of Council Directive No 90/435/EEC concerning the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States

Section 831 transposes the EU Parent-Subsidiary Directive into Irish law, providing relief from double taxation on cross-border dividend flows between parent companies and subsidiaries in different EU Member States.

• An Irish parent company receiving a distribution from an EU subsidiary is entitled to credit against Irish corporation tax for withholding tax, underlying foreign tax borne by the subsidiary, and foreign tax borne by lower-tier subsidiaries, provided there is at least a 5% shareholding at each tier.
• A parent company is one that owns at least 5% of the share capital of a subsidiary in another EU Member State, though a bilateral agreement (tax treaty) may impose a stricter test requiring a continuous two-year holding period or substitute a voting rights criterion for the shareholding criterion.
• An Irish resident subsidiary paying a distribution to a non-resident EU parent company is not required to deduct dividend withholding tax, unless the majority of voting rights in the parent are controlled by persons resident outside EU or treaty countries and the parent cannot demonstrate bona fide commercial reasons for its existence.
• The benefits of the section do not apply where an arrangement has been put in place for a main purpose of obtaining a tax advantage that defeats the object of the Directive and the arrangement is not genuine, i.e. not established for valid commercial reasons reflecting economic reality.