Tax News

What happens in a Share Buy Back Situation?

Providing the shareholder meets the necessary statutory conditions, the company can buy back its shares from that shareholder thereby allowing him/her to get the benefit of the Capital Gains Tax treatment as opposed to the more costly Schedule F Treatment.  In other words if the CGT Treatment doesn’t apply, any payment for the shares in excess of the amount the company originally received for the subscription of those shares will be treated as a distribution under Section 130 TCA 1997 and will be liable to Income Tax at the shareholder’s marginal rate plus PRSI plus Universal Social Charge.

Generally the only occasions where funds can be extracted from a limited company without the recipient being exposed to tax at his/her marginal rate of income tax are:
(i) on a repayment of capital at par or
(ii) on the sale/disposal of the shares or
(iii) on a liquidation.

What are the typical scenarios?

1. The departure of a disgruntled Shareholder.
2. The retirement of a controlling shareholder who wishes to stand aside and make way for new management/the next generation.
3. Situations where one shareholder wants to continue carrying on the trade, the other shareholder would prefer to exit the business and the company has the necessary funds to buy back its own shares.
4. Access to company surplus funds as part of succession planning
5. An outside shareholder who initially provided equity finance but who now wants the return of that finance.
6. A marriage break-up, etc.

What are the rules as outlined in the Taxes Consolidation Act 1997?

Where an Irish resident company repurchases/redeems/acquires/buys back its own shares then any amount paid to the shareholder in excess of the original price paid at issue will be treated as a distribution under Section 130 TCA 1997.

A more beneficial Capital Gains Tax treatment can be applied under Section 176 TCA 1997 providing certain conditions are met.

S176 – 186 TCA 1997 contain the legislative provisions relating to share buybacks as follows:

• The company must be an unquoted trading company or the unquoted holding company of a trading group.
• The shareholder participating in the share buyback must be both Irish resident and ordinarily resident in the tax year in which the share buyback takes place
• The redemption, repayment or repurchase of the shares must be made wholly or mainly for the benefit of a trade carried on by the company or any of its 51% subsidiaries.  It cannot form part of any scheme or arrangement, the purpose of which is tax avoidance.  In cannot be used to enable the shareholder to extract the profits of the company, or any of its 51% subsidiaries, and avoid being treated as having received a dividend.
• The shareholder must own the shares for a period of at least five years ending on the date of the disposal.
• There must be a substantial reduction in the shareholder’s interest following the buy back. Don’t forget, you must include the shares of (a) the shareholder whose shares have been brought back and (b) any associates of that shareholder.  For completeness, the term “associate” includes husband, wife, civil partner and minor child.  The term “substantially reduced” means that there is a reduction in the nominal value of the participating shareholder’s shares of at least 25%.  Another way of saying it is that the shareholder’s remaining shareholding, following the redemption of the shares, cannot exceed 75% of its value pre Buy Back.
• The shareholder must no longer be connected with the company i.e. the shareholder and his/her associates, together, must own less than 30% of the company post buy back.

Under Section 186 TCA 1997, they cannot hold or be entitled to acquire more than 30% of [s186]:

(a) the ordinary share capital of the company

(b) the loan capital and issued share capital of the company

(c) the voting power in the company or

(d) the assets on a winding up in the company.

Let’s go back to the Trade Benefit Test

The repurchase of its shares by a limited company must be made “wholly or mainly for the purpose of benefiting a trade carried on by the company or any of its 51% subsidiaries”.

Tax Briefing 25 provides guidance on the “Trade Benefit Test:”

(i) It must be shown that the sole or main purpose of the buyback is to benefit a trade carried on by the company or of one of its 51% subsidiaries.
(ii) The Trade Benefit Test would be breached if the sole/main purpose was to benefit the shareholder by reducing his/her tax liability as a result of the more beneficial CGT treatment.
(iii) From the company’s perspective, the test would not be met if the sole/main aim was to benefit any business purpose other than a trade.

Situations where the Buy-Back will benefit the trade include:

Where there is a disagreement between the shareholders of the company over its management and that disagreement is or will negatively impact on the company’s trade if the situation were to continue.  Enabling the shareholder to cease his/her association with the company without having to sell his/her shares to a third party would benefit the company’s trade.

Revenue has listed a number of examples which involves the shareholder selling his/her entire shareholding in the company and making a complete break from the company which would benefit the trade.

Revenue also recognises that the shareholder may wish to significantly reduce his/her shareholding and retain a limited connection which the company.  For example, a shareholder with a majority shareholding  wishes to pass control to his/her children but intends to remain on as director as an immediate departure from the business would have a negative impact on the trade.  In such circumstances it may still be possible for the company to show that the main purpose is to benefit its trade.

In circumstances where a company isn’t certain as to whether the proposed “Buy Back” is deemed to be for the benefit of the trade and providing all the other legislative requirements have been meet, Revenue will issue an advance opinion on whether the Buy Back satisfies the “Trade Benefit Test” if requested.

Are there any situations where the above conditions don’t apply?

The conditions as outlined in Section 176 – 186 TCA 1997 will not apply where the shareholder uses the entire proceeds received from the redemption of the shares to:

(a) Settle his/her inheritance tax liability in respect of those shares.  This must be done on or before 31st October in the year in which the CAT is payable in relation to the inheritance of those shares or

(b) Discharge a debt which arose in order to settle this CAT liability within one week of the buy-back;

AND where the shareholder could not otherwise have discharged the tax liability without incurring undue hardship.

Administration

In the event of a company buying back its own shares or those of its parent company it must file a Return within nine months of the accounting period in which the redemption occurred or within thirty days if requested in writing by the Inspector of Taxes.

The Return must include all payments liable to the Capital Gains Tax Treatment.

If any individual connected with the company is aware of any scheme to avoid the “Connected Person’s Rule” they must notify Revenue within sixty days of becoming aware of that information.

Are there any other issues to be considered?

A liquidation instead of a share buyback might be considered for succession planning purposes.

CGT Retirement Relief and CAT Business Property relief can be used to minimise (a) the tax on the transfer of the business/company by the parent and (b) the gift tax for the child receiving it.

A company and not a sole trader is entitled to a tax credit equivalent to 25% of qualifying R&D expenditure incurred in a particular accounting period which can be offset against the corporation tax liability.

For accounting periods beginning on or after 1st January 2015, the base year restriction has been removed which means the credit is now available on a volume basis as opposed to an incremental basis.

The 25% Tax Credit is in addition to the normal Case I deductions for expenditure incurred against trading income which may result in a corporation tax refund. For a 12.5% taxpayer, this can result in a net subsidy of 37.5% (i.e. 12.5% corporation tax deduction + 25% R&D tax credit). Please be aware, however, that certain restrictions apply to limit the extent of the refund.

 What are “Qualifying R&D Activities”?

Revenue guidelines state that qualifying R&D activities must:

• Be systematic, investigative or experimental in nature,
• Be carried out within a Revenue approved field of science and technology,
• Involve basic research, applied research or experimental development,
• Seek to achieve scientific or technological advancement, and
• Involve the resolution of scientific or technological uncertainty

 What areas are considered for “qualifying” R&D Activities?

• Natural sciences including food science, software development, chemical sciences, biological sciences. „
• Engineering and technology including mechanical, material, electronic, electrical, and communication engineering, food and drink production. „
• Medical sciences including basic medicine, clinical medicine, health sciences.
• Agricultural sciences including forestry, fisheries, veterinary medicine.

Points in relation to “qualifying” expenditure:

1. Expenditure covered by grant assistance received from the State, the EU, or EEA does not qualify for the credit.

2. Eligible expenditure includes expenses such as salaries, overheads, materials consumed, etc. which are allowable trading deductions for the purposes of computing corporation tax.

3. Expenditure incurred on plant and machinery may also qualify as R&D expenditure. To do so, however, it must be eligible for wear and tear capital allowances and must be used for the purposes of R&D activities.

4. Expenditure incurred on R&D activities outsourced to a third-party or to third level institutions may also qualify as R&D expenditure for the purposes of the R&D Tax credit subject to certain conditions:

• Payment to a third party is limited to the greater of 15% of the company’s overall R&D spend or €100,000. „

• Payment to a third level institution/university is limited to the greater of 5% of the company’s overall R&D spend or €100,000. „

• The total amount claimed must not exceed the qualifying expenditure incurred by the company itself in the period. „

• The company must notify the third party provider in writing that it cannot also claim the R&D tax credit for the work it has been contracted to carry out.

5. Companies who build or refurbish buildings or structures for both R&D and other activities may claim an R&D tax credit in respect of the portion of the construction and/or refurbishment costs that relate to R&D activities.

• To qualify, the company must be entitled to claim industrial buildings capital allowances on the building. It’s important to bear in mind that the cost of the site is excluded.

• A minimum of 35% of the building must be used for conducting R&D activities for a four year period.

• The building must be used for R&D for a period of ten years.

• The relief will be clawed back if the building is sold or ceases to be used within ten years by the company for research and development activities or for the same trade as when the building is first brought into use.

• An R&D tax credit of 25% of relevant expenditure can be claimed in full in the year in which the building is first put into use for the purpose of the trade.

 The order of offset of the R&D Tax Credit is as follows: 

1. Firstly against the current period’s corporation tax liability.
2. Secondly, where the company does not have sufficient corporation tax liability in the current accounting period, that company can make a claim to carry back the unutilised portion of the tax credit against the corporation tax liability of a preceding accounting period of corresponding length.
3. Thirdly, if any portion of the credit remains after making this claim the company can make a claim under Section 766(4B) for a cash refundpayment of this excess in three instalments. Please be aware that this payment is subject to a cap (see below).
4. Finally, any remaining portion of the R&D Tax Credit will be carried forward and offset against the corporation tax liability of the future accounting periods

The amount of cash refund that a company can claim under (Section 7664B) is limited to the greater of:

1. The corporation tax paid by the company during the period of ten years prior to the previous accounting period i.e. prior to the period in which Section 766(4A) TCA 1997 relief is claimed. It’s important to bear in mind that these payments are reduced by any claims already made under Section 766(4B)TCA 1997 in those earlier periods or
2. The sum of the payroll tax liabilities for the period in which the expenditure on R&D was incurred as well as the prior period’s payroll, subject to restrictions if the company has previously made a claim based on its preceding payroll.

Points to keep in mind

• The amount of any payment made by the Revenue Commissioners following a Section 766(4B) claim by a company will not to be treated as income of the company and therefore not included in the CT computation.
• Instead it will be deemed to be a refund of corporation tax.
• By doing this, Revenue Commissioners can offset the payment against any outstanding tax liabilities of the company.
• The company must make a claim for the R&D Tax Credit within twelve months of the end of the accounting period in which the expenditure was incurred.
• If possible the claim should be made when filing the corporation tax return of the relevant accounting period.
• Relief can be claimed for expenditure incurred prior to the commencement of the company’s trading activity.

As Tax Advisers, we’re frequently asked to advise business owners stepping down from running their businesses; individuals passing the farm or business to one or more family members or providing for the next generation with assets other than business assets.  To provide the most accurate, relevant and comprehensive advice possible, it is essential that we understand not just the basic conditions of the main Reliefs and Exemptions but that we have an in-depth knowledge of these rules including exceptions, anti-avoidance provisions, etc.

Agricultural Relief is one of the most significant Reliefs from Capital Acquisitions Tax i.e. the tax that affects recipients of gifts and inheritances.

As you’re probably aware, Agricultural Relief takes the form of a 90% reduction in the market value of the agricultural property which means that only 10% of the market value is liable to Capital Acquisitions Tax.

The relevant piece of legislation is Section 89 CATCA 2003 which provides tax Relief as follows:

1. To recipients who meet the “Farmer Test”
2. In respect of gifts and/or inheritances of “Agricultural Property”
3. On the “Valuation Date”

 Who is a “Farmer”?

To qualify for Agricultural Relief, the individual receiving the gift or inheritance must be deemed to be a “Farmer” on the Valuation Date.

For the purposes of Agricultural Relief, a “Farmer” is defined as an individual in respect of whom at least 80% of the market value of his or her assets, after taking the gift or inheritance, consists of agricultural property on the valuation date of the gift or the inheritance.  This is calculated as follows:

                         Agricultural Property                         x 100% = 80% at least

Agricultural Property + Non-Agricultural Property

Finance Act 2014 Changes

The following conditions were introduced for gifts or inheritances taken on/after 1st January 2015 where the “Valuation Date” is also on/after 1st January 2015:

The beneficiary must:

1. Farm the agricultural property for a period of at least 6 years starting on the valuation date or lease the agricultural property for a period of at least 6 years beginning on the valuation date.
2. Have an agricultural qualification i.e. a qualification as listed in Schedule 2, 2A or 2B of the Stamp Duties Consolidation Act 1999 or farm the agricultural property for not less than 50% of his or her normal working time.
3. Farm the agricultural property on a commercial basis with a view to making a profit although the timeframe isn’t specified.

The individual may lease the agricultural property to a number of lessees as long as each lease and lessee satisfies the conditions of the relief.

If the beneficiary farms the agricultural property but then decides to lease it within the six year period, then NO clawback of Agricultural Relief will arise providing the lessee and the lease meet the relevant conditions for the remainder of the six year period.

If, following the gift or inheritance the beneficiary leases the agricultural property and within the six year period decides to farm it him/herself, NO clawback of Agricultural Relief will arise.

There is one exception to the “Farmer Test” requirement. To qualify for Agricultural Relief, the beneficiary doesn’t need to meet the conditions of the “farmer test” where the agricultural property consists of trees or underwood.

This concession does not apply to the lands on which the trees or underwood grow.  To be eligible for Agricultural Relief on the lands, the beneficiary must meet the “farmer” criteria.

What’s included in the Farmer Test?

When carrying out the Farmer Test, the following must be included:

1. The gross value of any assets taken under the gift or inheritance and
2. The gross value of any existing assets held by the beneficiary prior to the gift or inheritance including cars, bank accounts, property, agricultural property, etc.

As you have seen, the liabilities of the beneficiary are not taken into account when carrying out the Farmer Test.  There is, however, one exception and that is any mortgage on the main or principal private residence of the individual, providing it is not deemed to be agricultural property.  Therefore, if the beneficiary’s dwelling house is not a farmhouse then he/she can deduct the amount of the mortgage from its value thereby reducing the value of this non-agricultural asset in the Farmer Test calculation. It is important to remember that the mortgage can only relate to borrowings used for the purchase, repair or improvement of that property.

This is known as the Farmer Test and only by meeting this test will the done or successor be eligible for the 90% Agricultural Relief.

The Farmer Test isn’t quite as straight forward as it seems.  If the individual is taking a life interest in agricultural property or some other limited interest, the gross market value of that interest should be included in the Farmer Test i.e. the value before the age/gender factor is applied.  This point can often be overlooked when carrying out the all too important calculations.

Another point to be aware of is where a benefit is taken subject to a condition in a Will or Deed of Gift that the benefit must be invested in agricultural property. If that condition is fulfilled within two years from the date of the benefit, then Agricultural Relief will apply providing the beneficiary passes the Farmer’s Test because the benefit is considered to be agricultural property both at the date of the benefit and at the valuation date.

The beneficiary cannot claim Agricultural Relief in respect of this benefit unless it was subject to the condition to invest in agricultural property. It is also important to remember that if the benefit is not invested in agricultural property then it will fail.  However, if the client inserts a “gift over” clause in the Will or Deed of Gift then even if the beneficiary doesn’t invest in agricultural property within two years as per the condition, he/she can still receive the benefit.

Anti-Avoidance Provisions 

If the individual is beneficially entitled in possession to (a) an interest in expectancy (e.g. a future interest) and/or (b) property contained in a discretionary trust which was set up by and for the benefit of the done/successor then these amounts should be included in the 80% Farmer Test Calculation.

This is to prevent the donee/successor from using artificial means to reduce his/her non-agricultural property in an attempt to meet the 80% Farmers Test and qualify for the 90% Agricultural Relief.

A future interest is taken into account whether it is vested or contingent i.e. it’s taken into account even where there is only a possibility that the beneficiary may actually receive the benefit.

In the event of a remainder interest, its value is arrived at by deducting the value of the life interest from the market value.

Shares in a company carrying on a farming trade

“Agricultural property” does not include shares in a company carrying on a farming trade.

Agricultural property and other assets used in a farming business carried on by a company may, if conditions are met, qualify for Business Relief.

Where both business relief and agricultural relief can be claimed by a beneficiary, Agricultural Relief must be claimed.

 Agricultural Relief and Dwelling House Exemption

In circumstances where the agricultural property includes a farmhouse on which Agricultural Relief is available, you should also check to see if the Dwelling House Relief also applies.

Where both Reliefs apply you should:

1. Include the value of the farmhouse in the Farmer Test Calculation
2. Then Claim Dwelling House Exemption
3. Apportion the costs and expenses between the farmhouse and the agricultural property in your computation.

Clawback

A clawback of Agricultural Relief arises if the agricultural property, contained in the gift or inheritance, is disposed of within a six year period commencing on the date of the gift or inheritance and is not replaced by other agricultural property.

For benefits received on or after 1st January 2015, a clawback of agricultural relief will also arise where the farmer or lessee ceases to farm all or part of the agricultural property, except for crops, trees or underwood, for at least 50% of that person’s working week within a six year period beginning on the valuation date of the gift/inheritance.

This clawback applies in all cases except where the farmer dies prior to the cessation of the farming activity.

In circumstances where there a clawback of agricultural relief arises, the CAT on the gift/inheritance is recalculated as if Agricultural Relief never applied in the first place.

There will be a clawback of Agricultural Relief if the agricultural property is sold, otherwise disposed of or compulsorily acquired within six years beginning on the date of the gift/inheritance and the full proceeds are not reinvested in replacement agricultural property within one year of the sale/disposal or six years of the compulsory acquisition.

If the disposal or compulsory acquisition takes place after the beneficiary dies the Agricultural Relief will not be clawed back.  Equally the Relief will not be withdrawn on the death of a life tenant within six years of taking the benefit or where the beneficiary receives an interest in agricultural property for a period certain which is less than six years.

If only a portion of the proceeds is re-invested in agricultural property, then only a portion of the relief can be clawed back. For example, if a Farmer disposes of 100% of the land he inherited but only reinvests 75% of the proceeds back into agricultural property then CAT will be calculated as if 25% of the value of that farm had not ever qualified as agricultural property.

If the beneficiary disposes of agricultural property that qualified for Agricultural Relief, he/she cannot use the proceeds from that sale to buy “replacement” agricultural property from his/her spouse/civil partner.

We referred above to a situation where an individual didn’t need to qualify as a Farmer to be eligible for Retirement Relief.  Where that beneficiary, in relation to trees or underwood, disposes of these assets within six years of the date of the gift or inheritance there will be no clawback of the relief.

For Development Land, the Clawback period is extended from six to ten years in the following circumstances where:

1. a gift or inheritance of agricultural property is taken on or after 2nd February 2006 and Agricultural Relief was claimed and
2. the agricultural property is “development land” which is disposed of in the period beginning on the sixth anniversary of the date of the gift or inheritance and ending four years after that date.

“Development land” is defined as land in Ireland where the market value at the date of a gift or inheritance exceeds the current use value of that land on that same date.  It also includes shares which derive their value, wholly or mainly, from such land.

As you are aware, when calculating agricultural relief, the relief is based on the market value. Where the market value is comprised of both development value and current use value and Section 102A CATCA 2003 applies, then only the relief relating to the development land will be clawed back.  This relief will be clawed back even if the sales proceeds were used to purchase replacement agricultural property.

In Summary

Therefore to fulfill the criteria of being a “Farmer” means:

• At least 80% of the individual’s assets must be agricultural as the date of transfer and he/she must farm or lease the land for a minimum of six years
• He/she must have an Agricultural qualification including the Green Cert or an Agricultural Science Degree or must secure that qualification within four years from the date on which the farm was transferred.
• He/she must farm that land on a commercial basis with a view to making a profit.
• If he/she doesn’t hold an agricultural qualification that individual must spend at least 50% of his/her normal working time farming (i.e. at least twenty hours a week farming)
• Even if the individual doesn’t meet these criteria, he/she may still be eligible for Agricultural Relief if he/she leases out the agricultural property transferred to him/her to a Farmer for six years, providing that individual meets the “Farmer” criteria as listed above.

For all those individuals currently preparing his/her own 2015 Tax Return, please be aware of the significant changes in Finance Act 2014, especially in the areas of:

1. Research & Development Tax Credits
2. Capital Allowances for the Provision of Specified Intangible Assets
3. Three Year Relief for Start-up Companies
4. Employment and Investment Incentive (EII)
5. Company Residence

R&D Tax Credit

Up to 1st January 2015, Section 766 TCA 1997 provided that the 25% tax credit applied to the amount of qualifying R&D expenditure incurred by a company in a given year that was in excess of the amount spent in 2003 (i.e. the base year).

For accounting periods beginning on or after 1st January 2015, the base year restriction has been removed which means the credit is now available on a volume basis as opposed to an incremental basis.

Capital Allowances for the Provision of Specified Intangible Assets

 This provides capital allowances for expenditure incurred by a company on the provision of certain intangible assets for use in a trade.

Up to 1st January 2015 the use of such allowances in any accounting period was restricted to a maximum of 80% of the trading income from the “relevant trade” in which the assets were used.  Another way of wording this is, for accounting periods ending on or before 31st December 2014 only 80% of the income from the “relevant trade” could be sheltered by the capital allowances and interest.

Finance Act 2014 introduced an amendment to this rule stating that for accounting periods beginning on or after 1st January 2015 the restriction has been removed meaning all the “relevant trade” income can now be sheltered.

Finance Act 2014 also introduced the following:

1. a flat five year period for all disposals on or after 23rd October 2014.
2. an amendment to the “connected party” rules stating that from 23rd October 2014 the purchaser can claim capital allowances on the lower of (a) the purchase price paid or (b) the tax written down value.

Three Year Relief for Start-up Companies

 This relief from corporation tax on trading income (and certain capital gains) of new start-up companies in the first three years of trading has been extended to new business start ups in 2015.

Employment and Investment Incentive

The EII is being amended as follows:

1. The amount a company can raise in a lifetime has been increased from €10 million to €15 million (s. 491(2) TCA 1997).
2. The amount a company can raise in EII funds in any one year had been increased from €2.5 million to €5 million (s. 491(4) TCA 1997).
3. The scheme has been expanded to include medium sized enterprises in certain non-assisted areas, the management of nursing homes and IFSC services, subject to certain conditions.
4. The period for which shares in an EII company must be held by an investor to avoid a clawback of the relief has been extended to four years (s. 496(1) and s.488(1) TCA 1997).
5. any claim for EII relief will not be allowed unless, at the time the claim is made, the company in which the investment is made qualifies for a tax clearance certificate

Previously income tax relief was given for 30/41 of the investment made. The remaining tax relief of 11/41 was given in the year after the holding period ended. Finance Act 2014 amended the income tax relief which will now be 30/40 and 10/40 respectively.

Company Residence

Finance Act 2014 introduced amendments to the corporate tax residence rules to address concerns about the “double Irish” structure.

The new rules state that an Irish-incorporated company will be regarded as Irish tax resident here unless it is deemed to resident in another country under the terms of a Double Taxation Agreement.  Therefore if, under the provisions of that treaty, an Irish-incorporated company is considered to be tax resident in another jurisdiction then the company will not be regarded as Irish tax resident.

These changes are in addition to the existing “central management and control test” which means that the new legislation does not prevent  a non-Irish incorporated company that is managed and controlled in Ireland from being considered resident for tax purposes in Ireland.

The new provisions take effect from 1st January 2015 for companies incorporated on or after 1st January 2015.

For companies incorporated before 1st January 2015, the new provisions will come into effect from 1st January 2021.

As an anti-avoidance measure, however, the new legislation take effect for companies incorporated before 1st January 2015 where there is (a) a change in the ownership of the company as well as (b) a major change in the nature or conduct of the business of the company within the time-frame that begins one year before the date of the change of ownership and ending five years after that date i.e. occurring within a period of up to six years.

The aim of this anti-avoidance provision was to restrict the incorporation of companies between 23rd October 2014 and 31st December 2014 to 1st January 2015 where the primary intention was to avail of the extension.

It is always essential to keep up to date with changes to the Finance Act especially if you are preparing your own tax returns.

The due dates for the payment of your Capital Gains Tax liability arising in the tax year 2015 are as follows:

1. 15^th December 2015 if you made any disposals or transfer of assets in the period 1^st January 2015 to 30th November 2015 inclusive.
2. 31^st January 2016 for all asset disposals and transfers made between 1^st and 31^st December 2015 inclusive.

In Summary

If an asset was disposed of or transferred between 1^st January to 30^th November 2015 giving rise to a chargeable gain then any liability to CGT is due and payable by 15^th December 2015. If, on the other hand, it was disposed of or transferred in the month of December 2015 then any liability arising will be due for payment on or before 31^st January 2016.

Other Points

1. If you have made a disposal under an unconditional contract, the date of disposal is deemed to be the date the contract is signed.
2. If the contract is subject to a condition, then the date of disposal is deemed to be the date the condition is satisfied.

What about CGT Refunds?

Please be aware that there is a 4 year time limit or Statute of Limitations for claiming tax refunds. If, for example, you are entitled to a refund from the tax year 2011, then you must ensure that you complete and send your refund claim to the Revenue Commissioners before 31st December 2015 otherwise you will forfeit this refund.

The Minister for Finance Michael Noonan T.D. presented his 2016 Budget yesterday which outlined a wide range of changes to the tax system with particular emphasis on personal taxation, initiatives to begin equalising the tax treatment of the self-employed and employees as well as steps to support businesses in Ireland.

The key features of yesterday’s Budget are outlined below.

PERSONAL TAX

Universal Social Charge

Comprehensive changes were introduced to the Universal Social Charge for 2016 which are aimed at reducing the tax burden on low and middle income earners.

The entry threshold for Universal Social Charge (“USC”) will be increased from €12,012 to €13,000.

Otherwise, rates of USC will be reduced as follows:

• Income up to €12,012 – Rates reduced from 1.5% to 1%.

• Income from €12,013 to €18,668 – Rates reduced from 3.5% rate to 3%.

• Income between €18,669 – 70,044 – Rates reduced from 7% to 5.5%

• Income between €70,045 – €100,000 – 8% (no change)

• PAYE Income in excess of €100,000 – 8% (no change)

• Self-employed income in excess of €100,000 – 11% (no change)

The top rate USC exemption will be retained for all medical card holders and individuals aged seventy years and older providing their total income does not exceed €60,000.

 Income Tax

There have been no changes to the income tax rates and bands.

 PRSI (Pay Related Social Insurance) 

Budget 2016 introduced a tapered PRSI tax credit for employees up to €624 per annum.

The entry point to the higher rate of employers’ PRSI of 10.75% will be increased to €376 per week which will be a welcome introduction by all employers.

The reason for this tapered PRSI credit being introduced is to ensure low income earners benefit from the increase to the minimum wage which will take effect in January 2016.

The credit applies to individuals earning between €18,304 and €22,048 per annum and is be subject to a maximum of €12 per week.

Earned Income Tax Credit

In an attempt to equalise the tax treatment of the self employed with employees paid through the PAYE system, the government will be introducing an Earned Income Tax Credit of €550 per annum in 2016.

This new tax credit will be available to individuals who are not eligible for the PAYE Tax Credit including those earning self employed trading or professional income (subject to Income Tax under Cases I and II Schedule D), those in receipt of Case III Schedule D income as well as to business owners who, up to now, didn’t qualify for a PAYE credit on their salary.

 Pensions

There was no reference made to tax relief on pensions in this Budget.

The “additional” pension levy of 0.15% will expire at the end of 2015.

The original 0.6% pension levy ended in 2014.

 Home Carer’s Tax Credit

The Home Carer’s Tax credit increased by €190 to €1,000 per annum.

1. An income tax credit worth up to €5,000 per annum for five years was introduced for family farming partnerships to facilitate the transfer of family farms to the next generation.
2. There was an extension of general and young farmers’ stock relief for a further three years.
3. Profits or gains from the occupation of woodlands are being removed from the High Earners’ Restriction.

Apart from the Earned Income Tax Credit, Budget 2016 announced a number of new tax measures aimed at encouraging and supporting entrepreneurs and small business owners including:

• The introduction of a Knowledge Development Box to provide for a 6.25% corporation tax rate on profits arising to certain IP assets which are the result of qualifying R&D activity that is carried out in Ireland. The Minister stated today that the KDB would add “a further dimension to our ‘best in class’ competitive corporation tax offering, which includes the 12.5% headline rate; the R&D tax credit; and the intangible asset regime.”
• The Start-up Relief from corporation tax is being extended for new start-ups commencing to trade over the next three years.  This relief applies where the total corporation tax payable for a period does not exceed €40,000 and the amount of relief available is linked to employer’s PRSI.
• The amendments to the Enterprise and Investment Incentive Scheme (EII) announced in Budget 2015 took effect from midnight. They have been pending EU State Aid approval for the past year.  These included an increase in the annual limit companies can raise to €5 million and an increase in the lifetime cap to €15 million. Investments in the extension, management and operation of nursing homes will also qualify for the EII.
• The cap on eligible expenditure for Film Relief is being increased from €50 million to €70 million subject to State Aid approval.
• The entry point to the top rate of employer’s PRSI increases by €20 per week to €376 per month.
• Commercial Road Tax is to be simplified and reduced. The current 20 rates are being replaced with 5 rates, which will range from €92 to €900. The new rates will take effect from 1st January 2016.
• The Bank Levy has been extended to 2021 and is expected to yield circa €750 million over the period of extension.
• The scheme of capital allowances for the construction of facilities used in the maintenance, repair, and overhaul and dismantling of aircraft is being amended to comply with State Aid rules. The scheme is also being commenced with effect from Budget night.

 CAPITAL TAXES

• A 20% Capital Gains Tax rate will to apply to the disposal in whole or in part of a business up to an overall limit of €1million in chargeable gains.
• Other than the reduced rate of CGT which applies to the disposal of a business, there has been no change to the Capital Gains Tax rate of 33%.
• The Group A threshold for capital acquisition tax will be increased from €225,000 to €280,000 with effect from 14th October 2015. The Group A threshold typically applies to transfers between parents and their children. The current Class B and Class C thresholds remain unchanged and there has been no change to the CAT rate of 33%.

 Local Property Tax (LPT)

The Local Property Tax revaluation date for the Local Property Tax has been extended from 2016 to 2019. This follows recommendations in the “Review of the Local Property Tax” report which has also recommended exemptions for properties significantly affected by pyrite.

NAMA is to deliver 20,000 houses between now and 2020. 90% of these in the Dublin area and 75% of the overall total will be starter homes.

OTHER CHANGES 

1. The Home Renovation Incentive is being extended until 31 December 2016.
2. The existing €5 Stamp Duty on Debit/ATM cards is to be replaced with a 12 cent charge for ATM transactions.  This is subject to a cap of €2.50 or €5 depending on the card type.
3. The reduced 9% rate for the tourism and hospitality sector will be retained.
4. There will be no changes to the reduced VAT rate of 13.5% or the standard VAT rate of 23% in 2016.

 FINALLY

This is the first time since the Budget in April 2009 that the marginal rate for middle income earners has fallen below the 50% rate.

When faced with a large tax bill and the administrative burden of having to file Tax Returns in two jurisdictions, people always regret not getting professional taxation advice BEFORE they completed the transaction.

Over the past number of years I’ve been contacted by several Irish citizens returning home from the UK where they’ve lived and worked for a number of years.

In the majority of cases, these individuals have had difficulty selling their UK homes and, as a result, may have rented them out for a number of years until a suitable buyer was found.

Their main question they asked was “Do I have an Irish and a UK Capital Gains Tax liability?”

Up until 5^th April 2015 the UK domestic law did not impose a Capital Gains Tax liability on non residents which meant if you were Irish resident, for example, then you had no exposure to UK CGT on the sale or disposal of a UK asset.  Because the UK domestic tax law didn’t and couldn’t impose a charge to UK CGT on the disposal of the asset by a non-resident then the Double Taxation Treaty didn’t need to be consulted but the individual would have a CGT liability in his/her place of residence.  Under Section 29(2) Taxes Consolidated Acts 1997, an Irish resident individual only paid Capital Gains Tax in Ireland.

From 5^th April 2015 the UK Government amended the taxation of gains made by non-residents disposing of UK residential property.

The New UK Rules

The new CGT charge on non-residents deals with “property used or suitable for use as a dwelling” and will include residential property used for letting purposes.

There are, of course, exclusions for certain types of property in communal use which include boarding schools, nursing homes and certain types of student accommodation.

What differentiates this new charge from the existing ATED-related CGT charge is that all residential property falling within the definition comes within the scope of this new legislation regardless of the value of the property.

The existing ATED-related CGT charge limited the charge to properties where the consideration on sale/disposal exceeded a specified “threshold amount” which for all gains arising on or after 6^th April 2015 is £1m.

So who will be affected by this new charge?

The charge will apply to gains made by

• Individuals
• Trustees
• Closely held non-resident companies
• Funds – to the extent that these gains are not within the ATED-related CGT charge

Who will not be affected by this new charge?

Companies and funds which are not closely-held as well as the majority of institutional investors.

Tax rates (UK)

The tax rates for the new CGT charge on non-residents are the same for UK residents who pay CGT at their marginal rate of Income Tax.

What does that mean?

For taxpayers paying at a Basic Rate, the rate will be 18%

For taxpayers liable at the higher/additional rate, it will be 28%.

For non-residents, the rate will depend on their total UK Income and Gains.

Is there an Annual Exemption?

The annual exempt amount for gains of £11,000 is also be available to non-residents.

Paying and Filing (UK)

In circumstances where the non resident person has an “existing relationship” with HMRC and providing the disposal is not exempt, he/she will be required to file a self-assessment Tax Return following the end of the tax year and make the relevant payment within the usual deadline dates.

A person who does not have an “existing relationship” must submit a Tax Return and make the appropriate tax payment within thirty days.

What about Tax Returns requiring Amendments?

Amendments or changes to these Tax Returns are allowable within the twelve months following the normal filing date for the tax year in which the disposal is made.

In Summary

• For non-residents disposing of UK residential property, Capital Gains Tax was not an issue up until 6th April 2015.

• With the introduction of the new legislation, which takes from 6th April 2015, non resident individuals, trustees and/or closely held companies or funds may be exposed to a UK CGT Charge.

• Non-resident individuals, trustees or closely-held entities can avoid a CGT charge on a disposal of UK residential property where the property qualifies for Principal Private Residence Relief.

• The new legislation governing Principal Private Residence Relief has prevented some non-residents from claiming the CGT relief.

• Under this new rule, a residence will not qualify for PPR for a tax year unless (a) the person making the disposal is tax resident in the country where the property is located for that tax year or (b) the person spent at least 90 days in that property in that tax year. (For further information regarding the amendment to PPRR please contact us)

• Non-residents can defer the payment of the CGT due until the self-assessment filing date provided they register with HMRC.

If you’re a provider of digital services to customers in Japan, please be aware that the changes being introduced on 1st October 2015 may affect you.

Old Rules

Under the Consumption Tax Act (Act No. 108 of 1988), a service rendered in Japan is subject to Consumption Tax which is equivalent to VAT (i.e. Value Added Tax).

The criteria for determining whether a service is rendered in or outside Japan varies, depending on the nature of the service.

Under the current rules (i.e. pre October 2015), the tax treatment relating to the provision of e-commerce services, such as e-books, internet delivery of music, etc. is determined by the location of the service provider.

Therefore, such e-commerce services provided by offshore service providers (e.g. companies located in Ireland) to Japanese customers are not subject to Japanese Consumption Tax under the current legislation.

New Rules

From 1st October 2015 there will be new rules. These will be different for (a) Business to Business services and (b) Business to Consumers services.

If, for example, an Irish company is providing digital services directly to Japanese consumers then the Irish company will be obliged to collect Consumption Tax from its customers in Japan and pay this collected Consumption Tax to the NTA or National Tax Agency.

As a result of this amendment, Irish companies/businesses providing digital services to Japanese customers will be required to file consumption tax returns. If this applies to you, it would be advisable to nominate a Tax Agent (i.e. an agent in Japan who will handle all the tax procedures necessary for foreign companies/sole traders/individuals).

For business to business transactions, a reverse-charge mechanism will be introduced. This requires the recipient of the service in Japan to declare both (a) the taxable sales and (b) the related tax due on its consumption tax return. There will be no obligation for the Irish company to file tax returns in Japan under these circumstances.

What should you do?

1. Identify the type of services you provide i.e. is it Business to Business or Business to Consumer services?

2. If it’s Business to Consumer service then you should contact the NTA’s website and register as a Foreign Supplier as soon as possible or alternatively contact a qualified and professional Tax Agent to handle your tax affairs.

3. You should review your terms and conditions to ensure that these changes are reflected.

4. You should review your processing procedures to ensure the mechanisms are in place for the correct collection of consumption tax.

What to keep an eye out for

You should keep an eye out for similar type emails from your Agents stating the following:

“A recent change to Japan Consumption Tax (JCT) regulations will impact your  account.

Beginning on 1st October 2015, you will be responsible for determining and charging JCT for sales to customers in Japan.

The current JCT rate is 8%.

You will also be responsible for remitting and reporting on any JCT amount to the NTA (Japanese National Tax Agency)

This applies to all digital products sold to customers in Japan, even if your business is not located there.”

A number of Revenue Guidance Documents have been introduced following Finance Act 2014 being signed into law on 23^rd December 2014.

This article will be focusing on the following documents:

1. Transfer of a Business to a Company (Section 600 Taxes Consolidation Act 1997 Relief and Assumption of Business Debt) – eBrief no. 111/14 (24^th December 2014)
2. Deduction for Income Earned in Certain Foreign States (Foreign Earnings Deduction) – eBrief no. 106/14 (24^th December 2014)
3. Guidance on Compensation Payments under Section 2B of Employment Permits Act 2003 – eBrief no. 112/14 (24^th December 2014)
4. Guide to the Capital Acquisitions Tax Treatment of receipts by children from their parents for their support, maintenance or education – eBrief no. 109/14 (24^th December 2014).
5. Relevant Contracts Tax – Revised Penalties from 1^st January 2015 for the failure of a Principal Contractor to operate R.C.T. correctly on relevant payments to a contractor – eBrief no. 110/14 (24^th December 2014)
6. Capital Gains Tax – Finance Act 2014 – Vodafone Shareholders – eBrief no. 107/14 (24^th December 2014).

1. Transfer of a Business to a Company (Section 600 Taxes Consolidation Act 1997 Relief and Assumption of Business Debt) – eBrief no. 111/14 (24^th December 2014)

 Section 600 TCA 1997 provides that Capital Gains Tax on the transfer of a business and all its assets to a company may be deferred providing four conditions are met:

1. The business is transferred as a going concern
2. The transfer is for bona fide commercial reasons and not for the purposes of tax avoidance
3. All the assets of the business, excluding cash, are transferred and
4. The consideration consists wholly or partly of shares in the company.

Any liabilities taken over are to be treated as cash consideration but in practice, Revenue may no enforce this rule in circumstances where:

1. The transfer is in exchange for shares only and
2. The liabilities are genuine trade creditors i.e. in cases where the business assets exceed its liabilities and the only other consideration is the assumption by the company of liability for bona fide trade creditors.

Revenue has clarified in this eBrief that bona fide trade creditors will not be treated as other consideration for the transfer.  By this, they mean genuine trade creditors who provide goods and/or services to the business.

The Revenue Concession does not apply to business debts such as bank loans or tax liabilities.

2. Deduction for Income Earned in Certain Foreign States (Foreign Earnings Deduction) – eBrief no. 106/14 (24^th December 2014)

The Foreign Earnings Deduction (F.E.D.) was introduced in Finance Act 2012.

It was designed to encourage and incentivize individuals who perform their duties of employment in the specific countries Ireland was targeting for the purposes of business development and export growth.

In 2012 this tax relief applied to Irish resident employees who carried out significant duties in Brazil, Russia, Indian, China and South Africa.

From 2013 to 2014 the list of countries was extended to Egypt, Algeria, Senegal, Tanzania, Kenya, Nigeria, Ghana and the Democratic Republic of Congo.

According to this eBrief the number of relevant states now include: Japan, Singapore, South Korea, Saudi Arabia, United Arab Emirates, Qatar, Bahrain, Indonesia, Vietnam, Thailand, Chile, Oman, Kuwait, Mexico and Malaysia.

Prior to Finance Act 2014 the rules for claiming the relief were as follows:

1. The individual was required to exercise the duties of his/her employment for at least sixty days in the above mentioned countries i.e. those listed from 2012 to 2014.
2. Each visit must consist of four days to be considered for F.E.D. Relief.
3. The formula to determine the deduction was as follows:

Employment Income   x  Qualifying Days

                                        Total Days

4. The deduction was capped at €35,000.
5. “Qualifying Days” related to days carrying out the duties of employment and did not include days travelling.

Finance Act 2014 introduced the following changes for the years 2015, 2016 and 2017:

1. The required number of qualifying days abroad dropped from sixty to forty days.
2. The length of time spent working abroad was reduced from four days to three days.
3. The time spent travelling from Ireland to a relevant state or from a relevant state to Ireland or to another relevant state is deemed to be a “Qualifying Day.”

By “Qualifying Day” we mean a day, the whole of which is spent in a relevant state for the purposes of carrying out the duties of an office or employment.

Other Points to Consider

1. Employment Income includes stock options but excludes pension contributions, tax deductible expense payments, benefits-in-kind, termination payments, etc.
2. There is no tax relief from PRSI.
3. There is no tax relief from Universal Social Charge.
4. The relief does not apply to those working in the civil and public services.
5. The Relief is not available in respect of income from an office or employment which is chargeable on the remittance basis.
6. The Relief is not available in respect of income which qualifies for:

a)      Section 472D – Research and Development Credit

b)      Section 825C – Special Assignee Relief Programme

c)      Section 822 – Split Year Residence Relief

d)     Section 825A – Relief for Income Earned outside the State.

3. Guidance on Compensation Payments under Section 2B of Employment Permits Act 2003 – eBrief no. 112/14 (24^th December 2014)

 The best starting point in relation to understanding the tax treatment of awards/settlements is Section 192(A) Taxes Consolidation Act 1997.  It can be summarised as follows:

• If the award/settlement relates to a loss of wages/salary such as a Payment of Wages Claim or an Unfair Dismissal Claim then it is liable to tax.  In other words, if the award/claim relates to financial loss then it’s taxable.
• If the award/settlement relates to compensation for a breach of the employee’s statutory entitlements (i.e. which are not deemed to be remuneration or arrears of wages) then the payment is not taxable.  In other words, it’s exempt from tax if it relates to an infringement of the employee’s rights.

Now that we’ve established that the main distinction between a taxable award/settlement and a tax exempt award/settlement is the distinction between wages/salary and compensation, let’s look at Section 2B of the Employment Permits Act 2003.  This piece of legislation was introduced to prevent or at least deter employers from employing foreign nationals without a valid employment permit.

How does it work?

It allows the foreign national to take a civil action against his/her employer for compensation in relation to work done or services carried out even if there is no legal contract in place.

 As the compensation is not deemed to be for an infringement of a right, rather, it’s considered to be the reimbursement of a salary or wages then it is liable to tax.

 The compensation is calculated by a court order based on a national minimum hourly rate of pay (or any rate of payment which is fixed under, or pursuant to, any enactment).

 What is the tax treatment?

 The tax treatment of these compensation payments is covered by two new provisions:

1. Section 124A Taxes Consolidation Act 1997 and
2. Section 5A of Section 192(A) TCA 1997

which were introduced by Section 37 of the Employment Permits (Amendment) Act 2014.

If compensation payments are made to individuals under Section 2B of the Employment Permits Act 2003 they are liable in full to PAYE and the Universal Social Charge.

They will not be liable to PRSI as they are not treated as “reckonable emoluments” as defined in the Social Welfare & Pensions Act 2012.

4. Guide to the Capital Acquisitions Tax Treatment of receipts by children from their parents for their support, maintenance or education – eBrief no. 109/14 (24^th December 2014).

As you are all aware, Capital Acquisitions Tax is the tax levied on gifts and inheritances received by individuals where the value of the gift/inheritance exceeds that individual’s lifetime tax free threshold amount.

Section 82(2) of the Capital Acquisitions Tax Consolidation Act exempts from tax “normal and reasonable” payments (in money or monies worth) made by the disponer during his/her lifetime for the support, maintenance or education of his/her

• Children or
• Civil Partner’s children or
• A person to whom the individual stands in loco parentis or
• A dependent relative of the disponer

While carrying out compliance programmes, the Revenue Commissioners identified ways in which this exemption was being abused.  As a result, Section 81 Finance Act 2014 amended Section 82 Taxes Consolidation Act 1997 to ensure that where there is a need to provide for the support, maintenance and education of children the exemption is confined to the following:

• A minor child of the disponer or of the civil partner of the disponer or
• A child of the disponer or of the civil partner of the disponer who is under twenty five years of age and is in full time education or
• A child, regardless of age, who is permanently incapacitate by reason of physical or mental infirmity from maintaining himself/herself.

So what do we mean by “normal and reasonable” payments?

 Revenue’s view is that “normal” refers to the nature of the payment or expenditure.  Examples include the payment of fees and accommodation costs for a dependant child attending college.

“Reasonable” refers to the financial circumstances of the disponer.  Even though there is no ceiling on the value of what can be provided by way of maintenance or support, the exemption will not apply if the disponer makes payments which are disproportionate to his/her means.

Back to the eBrief:

 Section 82(2) does not cover all payments by a parent to a child.  Revenue does not accept that gifts to a child who is financially independent are exempt from Capital Acquisitions Tax nor does it accept that gifts of a capital nature are tax exempt.

Examples of non-exempt benefits/gifts/payments are as follows:

1. House purchase
2. Free use of a house
3. The deposit on a house in excess of €3,000
4. money if in excess of €3,000 per annum

 Summary

So what benefits/gifts/payments are tax exempt?

1. The non exclusive occupation of the family home by a child who is a family member.
2. Free use of a house by a child attending university who is not more than twenty five years old providing the support and maintenance falls within the “normal and reasonable” provision.
3. The cost of family functions paid by a parent.  For example, a wedding paid by a parent.
4. Payments to cover the child’s normal costs associated with attending college including rent, food, clothing, educational material, tuition fees, transport costs, pocket money, etc. to a child under the age of twenty five years.

5. Relevant Contracts Tax – Revised Penalties from 1^st January 2015 for the failure of a Principal Contractor to operate R.C.T. correctly on relevant payments to a contractor – eBrief no. 110/14 (24^th December 2014)

Before we examine this guidance document, I will briefly explain the Relevant Contracts Tax system in Ireland.

 What is Relevant Contracts Tax (R.C.T.)?

 R.C.T. is a tax that applies to the following industries in Ireland:

1. Construction
2. Forestry
3. Meat Processing

 R.C.T. applies to payments made by a Principal Contractor to a Subcontractor under a Relevant Contract i.e. a contract for a Subcontractor to carry out relevant operations for the Principal Contractor.

Important Points to Note:

1. An employment relationship does NOT exist i.e. the Subcontractor is NOT an employee of the Principal Contractor.
2. The Subcontractor provides his/her own labour or the labour of other individuals when carrying out the relevant operations for the Principal Contractor.

So, how does this tax work?

 Before 31^st December 2011, the Principal Contractor was required to deduct withholding tax from the gross payments made to a Subcontractor under a relevant contract and submit this tax to the Irish Revenue Commissioners on the Subcontractor’s behalf.  At the time there was only one rate and that was 35%. 

The Principal provided the Subcontractor with a Certificate outlining the tax paid on his/her behalf (Form RCTDC 45) and the Subcontractor could then receive a credit or in some cases a refund of this tax withheld once he/she filed an annual Income Tax Return.

The Principal was required to file a monthly Return of tax deducted (RCT 30) and pay the relevant RCT deducted to Revenue.  The Principal Contractor was also obliged to file an Annual Return of Gross Payments and Tax Withheld on an RCT 35 which had to be filed by 23^rd February following the year end.

If, however, the Subcontractor had a Certificate of Authorisation or a C2, the Principal could pay the Subcontractor without deducting R.C.T.

On 1^st January 2012 the rules changed with the introduction of three rates of withholding tax:

1. Zero rate for Subcontractors who previously held a C2
2. 20% for Subcontractors who were registered for tax and had a record of substantial tax compliance
3. 35% for Subcontractors in all other situations.

 Back to eBrief 110/14

Section 17 Finance Act 2014 introduced a revised sanction for situations where the Principal Contractor fails to operate RCT on relevant payments to Subcontractors.  The level of penalty will depend on the percentage of tax withheld from the Subcontractor’s payments.

From 1^st January 2015 the Principal will be liable for the following penalties in the event of non operation of R.C.T.:

1. If the Subcontractor is registered with Revenue and usually liable to a deduction of zero percent, the Principal will be liable to a civil penalty of 3% of the relevant payment.
2. If the Subcontractor is registered with Revenue and is tax compliant and therefore liable to a RCT deduction rate of 20% then the Principal will be liable to a civil penalty of 10% of the relevant payment.
3. Where the Subcontractor is registered with Revenue but is not tax compliant and, as a result, all payments are liable to an RCT deduction rate of 35%, the Principal will be liable to a civil penalty of 20% of the relevant payment.
4. Where the Subcontractor is not registered with Revenue i.e. the individual to whom the payment was made is not known to Revenue, then the Principal will be liable to a civil penalty of 35% of the relevant penalty.

What about filing obligations?

In all the above four situations the Principal Contractor will be required to submit an Unreported Payment Notification to Revenue.

6. Capital Gains Tax – Finance Act 2014 – Vodafone Shareholders – eBrief no. 107/14 (24^th December 2014).

 On 14^th May 2014 the Irish Revenue Authorities issued a detailed Tax Briefing outlining the tax treatment of the Vodafone Return of Value to its Shareholders.  I wrote an Explanatory Blog, which was published on this site on 16^th May 2014, outlining the comprehensive guidance on the calculation of the base cost for Capital Gains Tax purposes.  In my Blog, I discussed the Income Tax Treatment for shareholders who opted for “C Shares”:

“individuals who opted for the ‘C Shares’ received a dividend from Vodafone which consisted of (a) a cash amount and (b) shares in Verizon.

The individual was then required to include both amounts in his/her annual Income Tax Return i.e. (a) the cash actually received and (b) the market value of the Verizon Consideration Share Entitlement received.

Income Tax, P.R.S.I. and the Universal Social Charge were then levied on this dividend.”

On 23^rd December 2014 Revenue issued additional guidance on the tax treatment where Returns of Value of €1,000 or less were received by Vodafone shareholders.  eBrief 107/14 contains details of a tax relieving measure which was introduced by Section 48 Finance Act 2014.

What is this Tax Relieving Provision?

 Section 48 Finance Act 2014 allows individuals who received a “Return of Value” payment of €1,000 or less under the terms of the Return of Value to be treated as having received a Capital Sum which, if the individual had acquired the Vodafone shares as a result of originally investing in Eircom back in 1999, would result in a NIL Capital Gains Tax liability.

It should be noted that individuals can opt to have the payment treated as income should they wish in which case the payment sum would be liable to Income Tax, PRSI and the Universal Social Charge.

What are the filing requirements?

 In situations where Vodafone shareholders made a capital loss on the “Return of Value” of €1,000 or less and providing these individuals had no other chargeable gains arising in the 2014 tax year, then there is NO requirement to file a Tax Return in relation to the Vodafone “Return of Value” unless of course, these individuals are otherwise required to do so under a different section of the Taxes Consolidation Acts 1997. 

Why is this provision so beneficial to Taxpayers?

The loss arising on the “Return of Value” can be carried forward and written off against gains that may arise in the future resulting in a reduced Capital Gains Tax liability in that tax year.

Any other points to consider?

 If a taxpayer prefers to have his / her “Return of Value” of €1,000 or less treated as Income, this information must be included in his / her annual Income Tax Return as outlined in Revenue’s Tax Briefing dated 14^th May 2014.

The Corporation Tax (Northern Ireland) Bill was published on 8^th January 2015.  The British Government hopes the Bill will be passed before the UK General Election in May.

The Bill, if passed, would allow Northern Ireland to apply its new Corporation Tax rate on most trading profits from April 2015.

The current rate paid by companies in Northern Ireland is 21% while the rate in the Republic of Ireland is 12½%.

According to the UK Government Press Release “if the rate was lowered, around 34,000 businesses in Northern Ireland would stand to benefit including 26,500 SMEs.”

Theresa Villiers, the Secretary of State for Northern Ireland believes the Corporation Tax Bill has the potential “to create thousands of new jobs and stimulate crucial growth in the Northern Ireland Economy.”

It is important to remember that even if the Bill is passed, the headline UK Corporation Tax rate will continue to apply to profits from a non-trading source (i.e. property) and the UK will retain power over the Corporation Tax base including Allowances and Reliefs.

The design of the Bill reflects the following principles: 

1. It must be attractive to businesses i.e. the legislation includes a special regime for smaller companies to ensure proportionate administrative burdens.
2. It must encourage genuine economic activity in Northern Ireland.
3. It must satisfy the E.U.State Aid Rules.
4. It must keep the costs of the N.I. Executive proportionate and to a minimum.

Profits from some trades will remain in the UK main regime including:

1. Lending & Investing Activities
2. Asset Management
3. Finance Leasing
4. Long Term Insurance
5. Reinsurance Activities of both life and general insurance.

The UKs Oil and Gas Tax Regime will remain part of the UK regime.