New tax measures for holding companies and group headquarters, announced in December 2003, will be introduced shortly following clearance by the European Commission, writes Colm Keena.

The measures were announced by the Minister for Finance, Mr McCreevy, in the 2004 Budget but were subject to a commencement order and clarification by the Commission of certain issues.

The Commission has now ruled that the measures do not constitute state aid.

The order, when made, will bring the measures into effect from February 2nd, 2004, the date the Finance Act provisions were published.

The measures provide for an exemption from capital gains tax for Irish resident companies on the disposal of a shareholding in an Irish or foreign subsidiary.

They also provide for a number of changes to the scope of Irish double taxation provisions for dividend income paid to parent companies.

In order to address concerns expressed by the Commission, the capital gains tax exemption is to be amended, removing monetary thresholds and replacing them with a flat 5 per cent shareholding requirement.

The amendments will be introduced in next year's Finance Act, according to the Minister yesterday.

"I am confident the new arrangements will help Ireland compete internationally for reputable, high-level headquarter/ holding companies that will create additional high-quality employment in the years ahead," Mr McCreevy said. "The tax exemption on gains will remove a barrier to the location of headquarter/holding companies in Ireland."

The announcement by Mr McCreevy was welcomed by IDA Ireland.

"Ireland is already an excellent location for European headquarter operations and today's announcement only improves that position," said Mr Seán Dorgan, the agency's chief executive.

He said the new legislation meant the Republic had a further product offering that would be attractive to many multinationals looking to enhance and grow their headquarter and holding company activity.

Mr William Slattery, chairman of Financial Services Ireland, said that the new measures would greatly assist in keeping business already located here as well as in creating new opportunities.

"The measure will strengthen our competitiveness and help to sustain and develop quality employment. The Minister is to be applauded for recognising the potential of the measure," Mr Slattery said.