International Taxes

UK Tax. Corporation Tax. Interest and Penalties on late payments. Instalment Arrangements.

Today, HMRC announced an increase in its interest rates, due to another increase in the Bank of England base rate, from 4.25% to 4.5%.  The new rates will take effect from Monday, 22nd May 2023, for quarterly tax instalment payments.  The aim of the late payment rate is to encourage prompt tax payment by UK Taxpayers and to ensure the system is fair for those individuals who pay their liabilities within deadline.

The new rates will take effect from Wednesday, 31st May 2023, for non-quarterly instalments payments.

Today, HMRC has announced increases to interest charged on both the late payment of tax as well as on tax repayments/refunds.

The two new increased rates of interest are:

• Late Payment Interest which is set at base rate plus 2.5%.  This will increase from 6.75% to 7% on 31st May 2023.
• Repayment Interest which is set at base rate minus 1% with a lower limit of 0.5% (known as the ‘minimum floor’).  This will increase to from 3.25% to 3.5% from 31st May 2023.

IN SUMMARY:

The interest rate on unpaid instalments of Corporation Tax liabilities will increase to 5.5% from 22nd May 2023.

The interest rate for the late payment of other taxes will increase to 7% from 31st May 2023.

The interest rate paid by HMRC on the overpayment of tax will increase to 3.5% on 31st May 2023.

For further information, please click: HMRC late payment interest rates to be revised after Bank of England increases base rate – GOV.UK (www.gov.uk)

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so.. This information should not be acted upon without full and comprehensive, specialist professional tax advice.

EU VAT Advice. International VAT on Goods and Services. B2C supplies. Customs Duty and Excise Duty. Mini One Stop Shop. OSS. Distance Sales.

From 1st July 2021, major new VAT changes will be introduced.  New VAT rules in relation to B2C supplies will apply in all EU Member States.  The aim is to ensure that goods imported from outside the EU will no longer have a preferential VAT treatment as compared to goods purchased from within the EU, including Ireland.  According to Ms. Maureen Dalton, Principal Officer in Revenue’s Customs Division “Consumers need to be aware that as of midnight tonight the current VAT exemption for imported goods with a value of €22 or less will end. This means that goods purchased from a non-EU country that arrive into Ireland for delivery any time after midnight tonight will be subject to VAT, regardless of their value and regardless of when they were purchased. The applicable VAT rate to these goods will be the relevant rate that would apply if the goods were purchased in Ireland.”

From 1st July 2021 there will be major changes including:

• The current distance sales thresholds will be abolished.
• All B2C sales of goods will be taxed in the EU Member State of destination.
• The Mini One Stop Shop will be extended to include the B2C supply of goods in circumstances where those goods are shipped from one EU Member State to consumers in another EU Member State.  It will become the One Stop Shop.
• Existing thresholds for intra-Community distance sales of goods will be abolished and replaced by a new EU wide threshold of €10,000.
• The current VAT exemption at importation of small consignments up to €22 will be abolished.
• A new special scheme for distance sales of goods imported from third countries of an intrinsic value up to a maximum of €150 will be created called the Import One Stop Shop (IOSS).
• The IOSS will enable goods to be imported into the EU without the need for import VAT.  Instead VAT will become due in the country of the consumer. This can be paid through the monthly IOSS return and will only be applied to consignments of less than €150 in value.

1. The extension of the VAT Mini One Stop Shop (MOSS) to the One Stop Shop (OSS)

The Mini One Stop Shop (MOSS) has been in existence since 2015 and currently only covers the supply of telecommunications, broadcasting and electronic services from business to non-business customers (B2C) services within the EU.

Prior to the introduction of MOSS, it was possible for a business to have a VAT registration obligation in several jurisdictions.  By opting to use MOSS, however, that business is able to report its sales for all EU member states via one single quarterly return made to one Member State thereby notifying the Revenue Authorities in that jurisdiction of TBE sales in other EU Member States as well as facilitating the payment of VAT.  There are currently two types of MOSS scheme in existence: one for businesses established within the EU and the other for those established outside the EU.

From 1st July 2021, MOSS will become the One Stop Shop (OSS).

The scope of transactions covered by this declarative system will be extended to all types of cross-border services to the final consumers within the EU as well as to the intra-EU distance sales of goods and to certain domestic supplies which are facilitated by electronic interfaces.

The choice of the EU Member State in which a business can register for the One-Stop-Shop will depend on where they are established and whether they have one or more fixed establishments within the EU.

The use of the VAT One Stop Shop procedure will be optional.

Those businesses who opt for the procedure will only be required to submit a single quarterly return to the tax authorities of the country of their choice, via a dedicated OSS web portal. They will be required to apply the VAT rates applicable in the consumer’s country.

If the OSS is not availed of, then the supplier will be required to register in each Member State in which they make supplies to consumers.

Businesses will be required to follow certain rules, including the sourcing and retaining of documentary evidence in relation to where the customer is located in order to determine the country in which the VAT is due.

In summary, from 1^st July 2021, the MOSS Scheme will become the One Stop Shop and will include the following: (i) B2C supplies of services within the EU other than TBE services, (ii) B2C Intra-EU distance sales of goods, (iii) Certain domestic supplies of goods which are facilitated by electronic platforms/interfaces and (iv) Goods imported from third countries and third territories in consignments of an intrinsic value up to a maximum value of €150.

 2. Current distance selling thresholds will be abolished.

For the intra-EU distance sales of goods, the thresholds amounts of €35,000 to €100,000 within the EU will be abolished.

Currently a supplier who sells to consumers from other EU member states by mail order is obliged to register for VAT in the country to which the goods are delivered once the threshold amount has been reached.

From 1^st July, however, the current place of supply threshold of €10,000 for Telecommunications, Broadcasting and Electronic services will be extended to include intra-Community distances sales of goods.

This €10,000 threshold will cover cross-border supplies of TBE services as well as the intra-Community distance sales of goods but will not apply to other supplies of services.  This will result in a requirement to register for VAT in multiple jurisdictions, where the total EU supplies of goods and TBE services to consumers exceed €10,000 per annum.

To avoid this obligation the EU OSS scheme can be availed of.

In situations where the value of the sales does not exceed or is unlikely to exceed this threshold amount of €10,000, then local VAT rates may be applied instead of the VAT in the country of the consumer.  In other words, in such circumstances an Irish business can charge Irish VAT on its supplies.

In summary, from 1^st July 2021, the individual EU Member State’s distance selling thresholds will be abolished and replaced with an aggregate threshold of €10,000 for all EU supplies.  Please be aware that this exemption threshold will not apply on a State by State basis nor will it apply to separate income streams.  It is calculated taking into account all TBE services and intra-community distance sales of goods in all EU states.

3. VAT exemption at importation of small consignments of a value of up to €22 will be removed

Currently, imports of goods valued at less than €22 into the EU are not liable to VAT on importation. From 1^st January 2021 the low value consignment stock relief for goods valued at €22 or below will be abolished resulting in all goods being imported into the EU now being liable to VAT.

For consignments of €150 euros or below, however, a new import scheme will apply. The seller of the goods or, in the case of non-EU retailers, the agent, will only be required to charge VAT at the time of the sale by availing of the Import One Stop Shop.  If they decide not to opt for this scheme, they will be able elect to have the import VAT collected from the final customer by the postal or courier service.

4. Special provisions where online marketplaces/ platforms facilitating supplies of goods are deemed for VAT purposes to have received and supplied the goods themselves i.e. deemed supplier provision

Over the last number of years, there has been considerable growth in online marketplaces and platforms providing B2C supplies of goods within the EU.  Currently, however, this environment is difficult to monitor and as a result, businesses established outside the EU are slipping through the VAT net.

From 1^st July Special provisions will be introduced whereby a business facilitating sales through the use of an online electronic interface will be deemed, for VAT purposes, to have received and supplied the goods themselves – this will be known as the “Deemed Supplier” Provision.

In other words, the online marketplace / platform provider will be viewed as (a) buying and (b) selling the underlying goods and will, therefore, be required to collect and pay the VAT on relevant sales.

Digital marketplaces will be responsible for collecting and paying VAT in relation to the following cross-border B2C sales of goods they facilitate:

1. On the importation of goods from third countries by EU or non-EU sellers to EU consumers in consignments of an intrinsic value not exceeding €150 and/or
2. On intra-EU sales of goods by non-EU sellers to EU consumers of any value. This also applies to domestic supplies of goods.

The payment and declaration of VAT due will be made by the Electronic Interface through the One Stop Shop system for Electronic Interfaces.

The Import One Stop Shop (IOSS) will apply to supplies made via an Electronic Interface where this online market/platform facilities the importation of goods from outside the EU.

The deeming provision will not apply in situations where the taxable person only provides payment processing services, advertising or listing services, or redirecting/transferring services in circumstances where the customer is redirected to another online market/platform and the supply is concluded through that other electronic interface.

Online Markets/Platforms will also be required to retain complete documentation, in electronic format, in relation to their sellers’ transactions for the purposes VAT audits/inspections.

The application of this provision is mandatory for traders/taxable persons.  The use of the other schemes, however, will be optional.

5. The introduction of the Import One Stop Shop

There is currently a VAT exemption in relation to the importation (from outside the EU) of consignments valued at less than €22.  From 1^st July this exemption will be abolished and as a result, all goods imported into the EU will be liable to VAT.

The current customs duty exemption covering distance sales of goods imported from third countries or third territories to customers within the EU up to a value of €150 remains unchanged providing the trader declares and pays the VAT, at the time of the sale, using the Import One Stop-Shop.

For Non EU based suppliers there are two options:

1. They must either register for IOSS through an EU established intermediary or,
2. They can register for IOSS directly if the country where they are established has a mutual assistance agreement with the EU.

With regard to the appointment of an intermediary for the purposes of IOSS, please be aware that:

1. A taxable person cannot appoint more than one intermediary at the same time.
2. It is possible for an EU established supplier to appoint an intermediary to represent them.

The IOSS will facilitate traders registering and declaring import VAT due in all Member States through a single monthly return in the Member State in which they have registered for the Import One Stop Shop scheme.

Where the IOSS is used, the supplier will charge VAT to the customer at the time of the supply and, as a result, the goods will not be liable to VAT at the time of importation.  The VAT collected by the supplier will then be submitted through their monthly IOSS return.

The use of this scheme is not mandatory.

As the supplier/taxable person will only be required to register for IOSS in one Member State this will considerably reduce the administrative burden involved in accounting for VAT. After registration for IOSS, the supplier will be issued an IOSS identification number and this should expedite customs clearance.

If, however, the IOSS Scheme is not availed of, the supplier will be able to use another simplification procedure for the purposes of importing goods at a value not exceeding €150 whereby the import VAT may be collected by the postal services, courier company, shipping/customs agents, etc. from the customer, and the operator will then report and pay the VAT over to the relevant Revenue Authority on monthly basis.  This special arrangement will only apply where both conditions are met: (i) the IOSS has not been availed of and (ii) where the final destination of the goods is the Member State of importation.

The special arrangement allows for a deferred payment of VAT on the same basis.

In summary, the purpose of the IOSS is that suppliers who import goods into the EU can declare and pay the VAT due on those goods through the Import One Stop Shop in the member state where they have registered for the scheme.

For further information, please click:

https://www.revenue.ie/en/corporate/press-office/press-releases/2021/pr-063021-new-vat-rules-for-goods-bought-from-non-eu-countries.aspx

https://www.revenue.ie/en/corporate/press-office/press-releases/2021/pr-053121-revenue-upcoming-vat-rule-goods-non-EU-countries.aspx

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.

Discretionary Trusts. Inheritance Tax. Gift Tax. Discretionary Trust Tax. Estate and Succession Planning.

Effective estate and succession planning enables you to tax efficiently transfer your assets, during your lifetime or at death, to your beneficiaries.  Trusts can play an important role in estate planning.   When setting up a Trust, it is essential to take into consideration the following tax heads: (i) Income Tax, (ii) Capital Gains Tax, (iii) Capital Acquisitions Tax, (iii) Stamp Duty and (iv) Discretionary Trust Tax.

INCOME TAX

The tax residence of the trustees is what determines the extent of their liability to Irish income tax.

If all the trustees are Irish resident then they are liable to Irish income tax on the worldwide income of the trust from all sources.

If, however, the trustees are resident in say France or the U.S. for tax purposes, then the trustees will only be liable to Irish income tax on Irish source income.

The Trustees must pay income tax at the standard rate of 20% on any income arising but they will not be entitled to claim any of tax credits, allowances or reliefs as they are not deemed to be individuals.

If the income of the trust has not been distributed within eighteen months from the end of the year of assessment in which the income has arisen, there will be a 20% surcharge on this accumulated income.

In circumstances where a beneficiary has an absolute right or entitlement to the trust income as opposed to the Trustees then Revenue will assess the beneficiary directly.  In other words if the terms of the trust state that income is to be paid directly to a particular beneficiary as opposed to the trust then the beneficiary will be liable to Income Tax on the amounts received.  That individual must file the appropriate tax return and pay the relevant taxes within the deadline dates.

CAPITAL GAINS TAX

For the purposes of CGT, the trustees will to be Irish resident and ordinarily resident if the general administration of the trust is carried out in Ireland and if all or the majority of the trustees are resident or ordinarily resident in Ireland.

In general, if the trustees are resident or ordinarily resident in Ireland they will be liable to Irish capital gains tax on their worldwide gains.

If, however, the trustees are not resident or ordinarily resident in Ireland they will be liable to Irish capital gains tax in respect of any gains arising on disposal of specified assets including:

• Land and buildings in Ireland .
• Minerals in Ireland including related rights, and exploration or exploitation rights in a designated area of the continental shelf.
• Unquoted shares deriving their value, or the greater part of their value, from such assets as mentioned above.

Please keep in mind that, just as for Income Tax purposes, the trustees are not deemed to be individuals and are therefore not entitled to the annual CGT exemption of €1,270 which is only available to individuals.

Apart from selling/distributing the trust assets, the trustees will be deemed to have disposed of assets for CGT purposes in the following three situations:

1. Where the trustees cease to be Irish resident or ordinarily resident.
2. Where a life interest in the trust property has ended but the property continues to be settled property.
3. Where a beneficiary becomes absolutely entitled in possession to the settled property except in situations where it occurred as a result of the death of the individual with a life interest in that property.

Market Value rules are imposed on this event with the Trustees being deemed to have disposed of and immediately reacquired the property at open market value.  As with all CGT computations, the liability is calculated on the difference between its base cost and the deemed market value.

CAPITAL ACQUISITION TAX

Capital Acquisition Tax is only payable when the beneficiary actually receives a gift or inheritance.  Where a beneficiary receives the gift/inheritance under a deed of appointment from a trust then he/she/they will be taxed as if the benefit was received from the settlor/testator.

Capital Acquisition Tax at 33% is payable by the beneficiary and is charged on the value of the gift or inheritance to the extent that it exceeds the relevant tax-free threshold amount.

A charge to Irish Capital Acquisition Tax will arise in the following situations:

• If the beneficiary is Irish resident or ordinarily resident on the date he/she/they receives the benefit.
• If the settlor is Irish resident or ordinarily resident either (a) at the date of setting up the trust or (b) on the date the beneficiary receives the benefit.
• In circumstances where the settlor is Irish resident or ordinarily resident at the date of his/her/their death a liability to Irish CAT will arise on any benefit taken on the settlor’s death
• Where the property, which comprised the benefit, is situated in Ireland.

Points to keep in mind

• The creation of a discretionary trust or the transfer of funds to a discretionary trust will not give rise to a charge to capital acquisitions tax.
• Distributions from a trust, however, can potentially give rise to both an Income Tax and a Capital Acquisitions Tax liability. You’re probably asking yourself if a double charge to tax has arisen.  It has.  Regular or periodic distributions to a beneficiary will be subject to the individual’s marginal rate of Income Tax but can also, at the same time, be liable to CAT.  A Revenue concession exists where CAT is chargeable on the net benefit i.e. the benefit after Income Tax has been deducted.  Don’t forget, the small gift exemption of €3,000 per annum can also be deducted.

STAMP DUTY

Stamp Duty can arise on the transfer of assets into a trust at 1% in the event of shares, residential property valued at less than one million euros, etc. or 2% in the event of commercial property, business assets, etc.

There is no Stamp Duty on the transfer of assets into a trust that is created by a Will.

Where trust assets are appointed by the Trustees to the beneficiaries then no Stamp Duty charge will arise i.e. there is an exemption from Stamp Duty in this situation.

DISCRETIONARY TRUST TAX

Discretionary trust tax of 6% is a once off charge based on the value of assets comprised in a discretionary trust.

If the Trust is wound up and all the assets are appointed within a five year period then 50% of this initial charge will be refunded i.e. 3%

The initial charge is due and payable on the later of the following dates:

• The death of the settlor or
• Where the last of the “principal objects” (i.e. spouse, child or child of a predeceased child of the Disponer) has reached his/her 21st birthday.

A 1% annual charge on undistributed assets comprised in a discretionary trust will arise every year on 31st December.  This annual levy, however, will not arise within the same twelve month period as the initial charge of 6% has been levied.

For further information, please click:

https://www.revenue.ie/en/tax-professionals/tdm/capital-acquisitions-tax/cat-part05.pdf

https://www.revenue.ie/en/gains-gifts-and-inheritance/discretionary-trust-tax/initial-once-off-6-charge.aspx

https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-19/19-03-03.pdf

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.