Using two jurisdictions to set up a company can be advantageous, argue Andrew Quinn and Mark Western
International investors and multinational groups are increasingly adopting multijurisdictional solutions to their tax, corporate, financing and public listing requirements.
One example of this trend is multinational groups choosing the London Stock Exchange for their primary listing while using a holding company that may be incorporated outside the EU, but is tax-resident within the EU.
There are many advantages for companies that choose to use a Cayman Islands-incorporated, Irish tax-resident company for this purpose. This structure can be particularly useful for a group holding company, whether the ultimate parent company or an intermediate one, and for certain industry sectors such as aircraft leasing.
Ireland has long had a government-led tax policy committed to ensuring the country remains a leading jurisdiction for attracting multinational investors.
Doubles all round
As an EU and Organisation for Economic Co-operation and Development country, Ireland benefits from a large and growing double taxation treaty network.
It has signed 63 treaties so far, including in Asia, the Gulf region and most of the world’s major economies, and also subscribes to a range of EU tax directives.
Access to Ireland’s double tax treaties is generally driven by the tax residence of the treaty claimant, rather than the place of incorporation.
Ireland offers a headline 12.5 per cent corporation tax rate for trading profits plus a holding company regime that provides exemption from capital gains tax for disposals of qualifying subsidiaries and a broad tax credit regime for foreign dividends.
Critically for holding companies, Irish tax law operates limited thin capitalisation and controlled foreign corporation rules that would otherwise tax foreign subsidiaries.
The Cayman-exempted company is a familiar and leading choice for international investors, with its flexible corporate structure. For example, there are no statutory prohibitions on financial assistance in respect of the acquisition of its own shares – the directors must act in the best interest of the company – and there is an ability to use share premium accounts to fund dividends.
Additionally, there are no requirements for annual general meetings or for share registers and minute books to be maintained in the country, or for any directors or officers to be resident in Cayman. Aside from maintaining an office and certain registers in Cayman, the statutory requirements under local law are simple and cost effective.
To fall within the Irish tax regime, the Cayman-incorporated company must be resident in Ireland for tax purposes. Irish tax residency is primarily determined by what is known as the central management and control test. This is drawn from UK caselaw and relates to the strategic decisions of the company. The board of directors should meet regularly in Ireland and ideally have a majority of Irish residents.
The company will also be required to register as an external company in Ireland as a matter of Irish company law.
Combined harvestThe combined structure has been successfully used by a number of organisations, notably in the aircraft leasing sector.
Reasons for using the structure vary. In particular, the lessor must ensure that it can access a network of double taxation treaties in respect of lease payments it is receiving across many jurisdictions.
Additionally, the structure may enhance financing arrangements and access to rights and protections offered by Ireland’s accession to the Cape Town Convention on international interests in mobile equipment.
In the context of group holding companies, the combined structure offers tax residence in a country with a large double tax treaty network while retaining the flexibility of a traditional offshore jurisdiction. For example, a number of countries impose a withholding tax or capital gains tax on investors exiting a company unless those investors have a double tax treaty with that country. The combined structure may protect those investors from tax on their exit under the double tax treaty between Ireland and their country.
A non-Irish-incorporated company also means that Irish stamp duty will not arise on transfers of shares. Additionally, a non-EU-incorporated company may be entitled to adopt US GAAP with regard to accounting, as opposed to International Financial Reporting Standards. Certain Irish company law rules will not apply to non-Irish-incorpor-ated companies.
In summary, international investors are seeking solutions that can deliver the best of a number of jurisdictions. The combined structure can benefit from Cayman’s flexibility and investor-familiarity while securing the tax advantages outlined above.
Andrew Quinn is head of tax in Dublin and Mark Western is a partner in Hong Kong at Maples and Calder