Bright Ideas Ltd is an Irish resident company which carries on a trading activity in Ireland. It is wholly owned by a Bermudan company, which in turn is owned by a US privately owned company. The company has a 31st December year end. The Bermudan company advanced two separate loans to the Irish company. The first loan (“Loan #1”) was advanced on the 1st February

2013. Loan #1 was in the amount of €1m and is for a period of 10 months; interest on the loan is charged at 5% per annum. The loan and the associated interest have been repaid before the year end. The loan was used for working capital purposes. The second loan (“Loan #2”) of €5m was advanced on the 1st June 2013 and is for a four year period; Loan #2 was used by Bright Ideas Ltd to fund the acquisition of a patent license from the US. Interest on the loan at 5% has been charged. The interest rate on both loans can be regarded as being arm’s length.

Requirements:

(a) Advise the Irish resident company on its withholding tax obligations relating to interest paid on both loans. Legislative referencing to support your answers should be provided.

(b) Advise the Irish resident company as to whether it is entitled to a tax deduction in Ireland in respect of the interest paid on both loans and what steps (if any) it is required to comply with. Legislative referencing to support your answers should be provided.

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