Although the measures were first announced in the 2004 budget, delivered in December of last year, the EC requested clarification on certain issues, in order to ascertain whether the proposals constituted illegal state aid.

Under the terms of the new rules, which will come into force retrospectively from February 2, 2004, Irish resident companies will receive a capital gains tax exemption on the disposal of shareholdings in Irish or foreign subsidiaries. The tax treatment of dividend income paid to parent companies has also been amended.

However, in order to address a concern expressed by the EC with regard to the capital gains tax exemption, the government has removed the monetary thresholds initially suggested, replacing them with a 5% shareholding requirement.

In one of his final acts as Finance Minister before assuming his new role as Internal Market Commissioner, Charlie McCreevy announced on Friday that he will sign the Commencement Order in the near future, thereby bringing into effect the provisions.