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Conor Kennedy Barrister-at-law Law Library Four Courts Dublin 7. Web: www.conorkennedy.ie

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

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  1. Conor KennedyBarrister-at-lawLaw LibraryFour CourtsDublin 7.Web: www.conorkennedy.ie Tax Issues – Solicitors May 2010

  2. 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

  3. Capital Acquisitions Tax • Discretionary Trust • Gift Splitting • Dwelling Relief • Finance Act 2010 • Reporting Requirements • Same event

  4. 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

  5. Capital Acquisitions Tax • Gift Splitting • 3 yr restriction • Prevents transfers to avail of higher thresholds • Grandfather • Son • Grandson

  6. 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

  7. 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

  8. 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

  9. 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

  10. VAT • Sale of a business • Licence Agreements • VAT on Property • Invoice in accordance with Regs

  11. 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

  12. 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

  13. 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

  14. 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

  15. 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

  16. 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

  17. 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.

  18. 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.

  19. 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

  20. 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

  21. 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

  22. 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

  23. 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

  24. Miscellaneous • Legitimate expectation • Keogh v CAB • Appeal Commissioners • Menolly Homes • Importance of setting out facts • Internal review • Statutory Interpretation • EU Influences

  25. Take nothing for granted • Limited partnerships & land losses • CGT loss relief not against dev gains

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