Controlled foreign company legislation is considered necessary by countries where the opportunity exists for companies to set up subsidiaries in foreign jurisdictions that have very low, or no, corporate tax; to then accumulate tax-free profits in those foreign jurisdictions; and, in time, to repatriate those profits as tax-free dividends to the home country. Where such opportunities exist, controlled foreign company legislation enables the home country, subject to various conditions, to treat the subsidiary's profits as accruing directly to the parent company as chargeable profits of the parent company. Ireland does not exempt dividends, received by Irish parent companies from foreign subsidiaries, from corporation tax. While a common method of preventing double taxation, i.e. taxation in the source country and taxation in the receiving country, of dividends is for the receiving, or "residence", country to exempt the dividends concerned, Ireland relieves any double taxation, that would otherwise arise, by giving credit for the tax, if any, suffered in the source country against the Irish corporation tax on the dividends concerned. On that basis, where the dividends are received from a jurisdiction that has taxed neither the "underlying" profits nor the dividends used to repatriate them, those dividends will be fully chargeable to Irish corporation tax. There will not be the opportunity to accumulate tax-free profits in a foreign subsidiary and then to repatriate them as tax-free dividends, which controlled foreign company legislation seeks to address in other countries.
The Deputy's question appears to refer to structures that have been outlined in recent media reports. Where companies in foreign countries own valuable assets, such as patented intellectual property, it is reasonable that there should be full remuneration for the licensing of those assets to Irish companies. It would be incorrect to assume that the foreign companies concerned are subsidiaries of the Irish licensee companies. In the structures described in media reports the Irish companies would appear to be the subsidiaries of the intangible asset-owning foreign companies concerned. While it is appropriate, in any event, that Irish companies should pay for the licensed use of assets owned by companies resident in other jurisdictions, it is not clear what relevance controlled foreign company legislation could have in such circumstances.
