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Conor Kennedy Barrister-at-law Law Library Four Courts Dublin 7. Web: www.conorkennedy.ie. Tax Issues – Solicitors May 2010. Irish Taxation System. Direct Taxes Income, Corporation & Capital Gains Penal Statutes- Strict Interpretation Common Law Guidance Notes – Legitimate Expectation

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Conor kennedy barrister at law law library four courts dublin 7 web www conorkennedy ie
Conor KennedyBarrister-at-lawLaw LibraryFour CourtsDublin 7.Web: www.conorkennedy.ie

Tax Issues – Solicitors

May 2010


Irish taxation system
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


  • Capital acquisitions tax
    Capital Acquisitions Tax

    • Discretionary Trust

    • Gift Splitting

    • Dwelling Relief

    • Finance Act 2010

    • Reporting Requirements

    • Same event


    Capital acquisitions tax1
    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


    Capital acquisitions tax2
    Capital Acquisitions Tax

    • Gift Splitting

    • 3 yr restriction

    • Prevents transfers to avail of higher thresholds

      • Grandfather

      • Son

      • Grandson


    Capital acquisitions tax3
    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


    Capital acquisitions tax4
    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


    Capital acquisitions tax5
    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


    Capital gains tax
    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


  • VAT

    • Sale of a business

    • Licence Agreements

    • VAT on Property

    • Invoice in accordance with Regs


    Vat on property
    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


    Vat on property capital good scheme cgs
    VAT on PropertyCapital 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


    Sale of “old” property

    • 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


    Capital Goods Scheme

    • VAT life = 20yrs

    • Held for = 10yrs

    • Therefore partial clawback of initial VAT deducted

    • Formula

      B x N

      T

      Where B = Total Reviewed Deductible Amt

      N = No. of full yrs remaining + 1

      T = Total no. of intervals in adj period


    CGS - Example

    B = Tot Revd Deductible Amt = €675,000

    N = No. of full yrs remaining + 1 = 9 + 1

    T = Total of intervals in adj period = 20

    €675,000 x (9 + 1) = €337,500

    20

    Clawback = €337,500


    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


    Ongoing business
    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.


    Ongoing business1
    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.


    Ongoing business2
    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


    Vat on property cgs
    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


    Transitional properties
    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


    Corporation tax
    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


    Income tax
    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


    Miscellaneous
    Miscellaneous

    • Legitimate expectation

      • Keogh v CAB

    • Appeal Commissioners

      • Menolly Homes

      • Importance of setting out facts

    • Internal review

    • Statutory Interpretation

    • EU Influences


    Take nothing for granted
    Take nothing for granted

    • Limited partnerships & land losses

    • CGT loss relief not against dev gains


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