Taxes Consolidation Act 1997 section 835R

Controlled foreign company charge

Section 835R sets out the charging provisions for imposing a controlled foreign company (CFC) charge on a chargeable company where a CFC has undistributed income arising from non-genuine arrangements put in place for the essential purpose of securing a tax advantage.

• A CFC charge arises where the CFC group has undistributed income and a chargeable company performs relevant Irish activities (Irish significant people functions) in relation to that group; the charge is the portion of undistributed income reasonably attributable to those Irish activities, valued on an arm's length basis and capped at a proportion corresponding to the controlling and chargeable companies' participation in the CFC.
• The charge does not apply where the arrangements are on arm's length terms, where their essential purpose is not to secure a tax advantage, where the transfer pricing rules under section 835C apply, where the undistributed income has already been subject to a CFC charge, or where any increase in undistributed income attributable to assets held or risks borne by the CFC is negligible.
• Corporation tax on the CFC charge is levied at 12.5% on income that would be taxable under Case I of Schedule D and at 25% on income that would fall under Case III, IV or V; the tax is reduced by any creditable tax under section 835S, but no other reliefs, deductions or set-offs are permitted.
• A CFC is regarded as having non-genuine arrangements where it would not own the assets or bear the risks generating its undistributed income but for the relevant Irish activities, and it is reasonable to consider that those activities were instrumental in generating the income; both elements — non-genuine arrangements and essential purpose of tax advantage — must be present for a charge to arise.