Tag: CAIA-tax scheme

In 2009, the Irish Commission on taxation recommended that the Irish State provide capital allowances for the acquisition of intangible assets, creating the CAIA BEPS tool. The 2009 Finance Act, materially expanded the range of intangible assets attracting Irish capital allowances deductible against Irish taxable profits. These “specified intangible assets” cover intangibles such as know-how, goodwill, and the right to use software. It includes types of “internally developed” group intangible assets and intangible assets purchased from “conntected parties”. The only requirement is that the intangible assets must be acceptable under an older 2004 Irish GAAP, and auditable by an Irish IFSC accounting firm.

In the 2010, the CAIA BEPS tool was upgraded, reducing the amortisation and “clawback” period from 15 to 10 years, and expanding the range of intangible assets to include “a broader definition of know-how”. In the 2011 and 2012 additional amendments was made to the rules regarding the acquisition of intangible assets from “connected parties”, and the “employment tax” users of the CAIA BEPS tool must pay. In 2012 the minimum amortisation period was removed for the acquired intangible assets, and the “clawback” was reduced to 5 years for CAIA schemes set up after February 2013.

The first known user of the CAIA tax scheme was by Accenture, the first U.S. corporate tax inversion to Ireland in 2009.

In 2017 Ireland had become the most popular destination for U.S. corporate tax inversions in history, and would have the largest Medtronic (2015), 3rd-largest Johnson Controls (2016), 4th-largest Eaton Corporation (2012) and 6th-largest Perrigo (2013) U.S. corporate tax inversions in history.

The steps in a CAIA:

  • A U.S. CORP develops new software in the U.S. costing $1 million to build;
  • CORP sells it to its wholly owned Bermuda company (BER1) for $1 million (at cost, ideally);
  • BER1 revalues it to $1 billion (as an intangible asset under GAAP), and books gain in Bermuda (tax-free);
  • An Irish subsidiary, IRL1, purchases this intangible asset from BER1, for $1 billion;
  • Under the CAIA rules, IRL1 can write-off the $1 billion paid for this group intangible asset against Irish tax;
  • Additionally, BER1 gives IRL1 a $1 billion 10-year inter-group loan to buy the intangible asset, at an interest rate of circa 7%;
  • Over the next 10 years IRL1 claims tax relief on both the $1 billion purchase (under CAIA), and the inter-group loan interest;
  • During the 10 years, IRL1 charges out this asset to end-customers globally (as per step v. in the Double Irish), accumulating profits;
  • During the 10 years, CORP in line with its product cycle, has created new software and repeated step i. to iii. above;
  • At the end of the 10 years, IRL1 has shielded $1.7 billion of Irish profits against Irish tax;
  • At the end of the 10 years, BER1, who received the $1 billion purchase price, and $0.7 billion in loan interest, has paid no tax;
  • At the end of the 10 years, IRL1, repeats steps iv. to ix. above, and buys a new intangible asset from BER1 for $1 billion.

The Irish subsidiary must conduct a “relevant trade” on the acquired IP. A “business plan” must be produced with Irish employment and salary levels that are acceptable to the Irish State during the period capital allowances are claimed. If the Irish subsidiary is wound up within 5 years, the CAIA intangible capital allowances are repayable, which is called “clawback”.

Accenture settles Swiss tax claim for $200m

Accenture settles Swiss tax claim for $200m

The Accenture settlement with the Swiss tax authorities results from a significant discrepancy in the valuation of intangibles in a 2010 inter-company transfer from Switzerland to Ireland via Luxembourg that was disclosed in 2014 as a result of Lux Leaks. The Lux Leaks documents show that in the 48 hours it took to complete the inter-company transfer, the value of the intangibles had increased by almost 600 percent from $1.2 billion to $7 billion. In a document to the Luxembourg authorities detailing the tax treatment on the transaction, PwC confirmed the re-evaluation, describing the $7 billion as “fair market value”. Accenture was the first known user of the “CAIA-tax scheme” in a U.S. corporate tax inversion to Ireland. Accenture-2010-Tax-Ruling ... Read more