Click to edit Master subtitle style 16/09/10 Conor Kennedy Barrister-at-law Law Library Four Courts Dublin 7. Web: Tax Issues – Solicitors May 2010

16/09/10 Irish Taxation System  Direct Taxes  Income, Corporation & Capital Gains  Penal Statutes- Strict Interpretation  Common Law  Guidance Notes – Legitimate Expectation  EU Treaty  4 Fundamental Freedoms  1. capital 2. persons 3. services 4. goods  Indirect Taxes  VAT  Recast directive  ECJ Jurisprudence

16/09/10 Capital Acquisitions Tax  Discretionary Trust  Gift Splitting  Dwelling Relief  Finance Act 2010  Reporting Requirements  Same event

16/09/10 Capital Acquisitions Tax  Discretionary Trust  property is held on trust to accumulate the income or part of the income of the property,  6% initial charge  1% annual  20% income tax charge

16/09/10 Capital Acquisitions Tax  Gift Splitting  3 yr restriction  Prevents transfers to avail of higher thresholds  Grandfather  Son  Grandson

16/09/10 Capital Acquisitions Tax  Dwelling Exemption  Dwelling House  Beneficiary occupies – 3 yrs before gift/inheritance  If gift - disponer cannot be still in property  No entitlement to any other dwelling at that time  To avoid clawback – reside for 6 yrs  Form of rollover relief

16/09/10 Capital Acquisitions Tax  Finance Act 2010  Secondary accountability abolished  Pay & File procedures  Val date - Jan-Aug – pay by 31st Oct in same yr.  Val date Sept – Dec – pay by 31st Oct in following yr.  Grant of probate  No need to procure Inland Revenue Affidavit in advance  CAT charge on property unless Revenue certifies is abolished  Joint bank account – limit increased to €50,000  Non resident beneficiaries – may require Irish solicitor

16/09/10 Capital Acquisitions Tax  Same event  Happening of same event  Parent gifts shares to child  CGT for parent  CAT for child  Retention period of 2 yrs  Reporting requirements  80% of relevant threshold exceeded  New pay and file procedures – FA 2010

16/09/10 Capital Gains Tax  What is a disposal  Section 613 Exemptions  Interaction with CAT  Assets passing on death  Valuation date  Credit relief  Happening of same event  Anti-Avoidance – 2 yr retention  Foreign Disposals

16/09/10 VAT  Sale of a business  Licence Agreements  VAT on Property  Invoice in accordance with Regs

16/09/10 VAT on Property  Everything is taxable unless specifically exempt  Is the property exempt?  The property must not have been developed  If already completed, must not be further developed within 5 yrs prior to the current supply  If sold to an unconnected party & thereafter occupied in aggregate for a continuous 24 mths  5 yr old building which has had no significant development or not materially altered  Less than5 yr old building sold to an unconnected party & thereafter occupied for a continuous 24 mths and has had no significant development or not materially altered

16/09/10 VAT on Property Capital Good Scheme (CGS)  CGS - mechanism for regulating deductibility over the “VAT-life” of a capital good.  VAT life  20yrs for new buildings  10yrs for refurbishment

16/09/10 Example  Ms Fit Retires & sells building- 1st July 2019  Acquired building 1st May 2009 for €1 million  Reclaimed VAT - €675,000 (13.5% x €1 million)  No significant development work  Firm of accountants offer €10 million Sale of “old” property

16/09/10  VAT life = 20yrs  Held for= 10yrs  Therefore partial clawback of initial VAT deducted  Formula B x N T WhereB = Total Reviewed Deductible Amt N = No. of full yrs remaining + 1 T = Total no. of intervals in adj period Capital Goods Scheme

16/09/10 B = Tot Revd Deductible Amt= €675,000 N = No. of full yrs remaining + 1= T = Total of intervals in adj period= 20 €675,000 x (9 + 1)=€337, Clawback = €337,500 CGS - Example

16/09/10 Example – Avoid Clawback Avoid clawback Joint option to tax sale Vat charged on €10 million = €1,350,000 Accountant self accounts for VAT Reverse charge Accountant’s initial interval = 1st July 2019

16/09/10 Ongoing Business  Steps to be taken – Continuing entitlement  Review entitlement to VAT after 1st 12mths  If the proportion of taxable use in 1st 12 mths (‘initial interval’) differs from the proportion of the VAT claimed - adjustment is required.  Too much has been deducted, the taxpayer must pay back the excess.

16/09/10 Ongoing Business  Accountants  Acquired building for €10 million on 1st July 2019  Price - €10 million plus VAT of €1,375,000  Use 70% of property for accountancy services  Use 30% for exempt financial services business  Year end is 31 December 2019.

16/09/10 Ongoing Business 1st 12 mths Total tax incurred=€1,375,000 Total revd ded amt (70%)=€ 962,500 Refund to Revenue=€ 412,500 2nd & Subseq intervals Total tax incurred=€1,375,000 Base tax amt (€1,375K/20)=€ 68,750 Ref ded (€962,500/20)=€ 48,125 Int ded amt (ditto)=€ 48,125 Adjustment= Nil

16/09/10 VAT on Property - CGS  Steps to be taken – Continuing entitlement  Too little initially deducted, claim the deficiency as an input credit.  Quantified VAT entitlement for the first twelve months is the benchmark figure  Annual review of the vatable use of the property  Any change in the proportional tax use compared with the use during the initial 12 mths - an adjustment required

16/09/10 Transitional Properties  Property in existence prior to July 2008  Sale – possibly exempt  CGS  Legacy leases  Assignment or surrender  Taxable if entitled to recover VAT  Not taxable if not entitled to recover VAT  Option to tax

16/09/10 Corporation Tax  Surcharge – Professional Firms  15% tax on 50% of undistributed profits  Start up Companies – exemption  Tax less than €40,000  Period of 3 years

16/09/10 Income Tax  Section 811  Permits Revenue to recharacterise a transaction  McGrath v McDermott  O’Flynn Construction  Section 806  Transfer of Assets abroad  Foreign Property – Rented holiday home  Section 817  Liquidation of companies  No significant reduction in ownership

16/09/10 Miscellaneous  Legitimate expectation  Keogh v CAB  Appeal Commissioners  Menolly Homes  Importance of setting out facts  Internal review  Statutory Interpretation  EU Influences

16/09/10 Take nothing for granted  Limited partnerships & land losses  CGT loss relief not against dev gains