Challenging Times for Financial Services .

1. Challenging Times for Financial Services. 11 December 2008

2. Speakers Conor Hynes Partner, Financial Services Tax Richard McDaid Director, VAT Eimear Thornton Director, Global Employer Services FS Finance Bill Event 11 December 2008

3. Conor HynesFinance Bill 2009 FS Finance Bill Event 11 December 2008

4. The Bad *Applicable to accounting period ending on or after 14 October 2008 FS Finance Bill Event 11 December 2008

5. The Good FS Finance Bill Event 11 December 2008

6. The Good FS Finance Bill Event 11 December 2008

7. R&D Activities • Does your company engage in: • If so, you could be entitled to a Research and Development Tax Credit The development of in-house proprietary software solutions The development of sophisticated financial modelling and valuation techniques The mathematical modelling for the development of new financial products, financial engineering, spread betting or life industry products FS Finance Bill Event 11 December 2008

8. Research and Development R&D regime is based on incremental expenditure above a base year. Base year is to remain at 2003 for all future periods. Excess R&D tax credits can be used to reduce the corporation tax of the previous period. Also possible to make a claim to have any remaining excess paid to the company by Revenue over a 3 year period. Full R&D tax credit of 25% can be claimed on a qualifying building in the year expenditure incurred (previously spread out over 4 years.) Minimum of 35% of the building is used for conducting R&D activities for 4 Years FS Finance Bill Event 11 December 2008

9. Research and Development Time Limit R&D tax credit claim must be made with 12 months of the accounting period end in which expenditure is incurred. Claims for R&D credits for accounting periods up to 31 December 2007 must be made before 31 December 2008. FS Finance Bill Event 11 December 2008

10. Industry agenda Participation exemption for dividends Simplification of dividend withholding tax documentation for non residents Exemption from withholding tax on interest for treasury companies Interest deduction for debt treated as Tier 1 capital Carry forward of excess foreign tax credits in respect of tax credit pooling for foreign branches Allow operating leases on short-life assets to be taxed on accounting profits FS Finance Bill Event 11 December 2008

11. Main Opportunity Research and Development tax credit make your claim before 31 December 2008 FS Finance Bill Event 11 December 2008

12. FS Finance Bill Event 11 December 2008

13. Richard McDaidValue Added Tax FS Finance Bill Event 11 December 2008

14. Value Added Tax – Finance Bill 2009 • VAT rate increase • 21 ½% since 1 December 2008 • Issues: • Increase in VAT cost (€5 extra VAT per €1k cost) • Middle of November/December 2008 VAT period • Increase in reverse charge VAT • Impact on existing contracts, leases • IT systems update FS Finance Bill Event 11 December 2008

15. Value Added Tax – Finance Bill 2009 Penalty Provisions Three Categories of Default Significant changes to existing code of practice Tax geared penalties on statutory basis Fixed penalties: Increase to €4,000 per offence Deliberate behaviour Other careless behaviour Careless behaviour with “significant” consequences - 15% test • Subsequent qualifying disclosures see reduction in mitigation FS Finance Bill Event 11 December 2008

16. Value Added Tax – Finance Bill 2009 • Further revisions to Code Of Audit? • Position of inter-group “failures” (interest/penalties?) • Self-correction adjustment threshold - €5k • “Innocent” error FS Finance Bill Event 11 December 2008

17. Value Added Tax – current issues VAT Grouping • FA 2008 specifically allows passive entities to group But..... • EU infringement proceedings could lead to exclusion of • Passive holding companies • Unrelated captive insurance companies (?) – VAT on fees? Head OfficeBranch • Revenue’s more relaxed approach • Wary of EC challenge – not implementing FCE Bank PLC • Reluctance to take first step • Deliberate avoidance • Nothing in writing: Don’t Ask/Don’t Tell FS Finance Bill Event 11 December 2008

18. Value Added Tax – current issues Foreign secondees • Inter-group secondments of senior executives • PAYE & PRSI liabilities discharged • No VAT reverse charge New property rules bedding down • “Technical” adjustments in Finance Bill 2009 • VAT adjustments on lease assignments & surrenders • Passing on of capital goods scheme log book • New leases exempt with option to tax @ 21 ½% • Tax treatment of lessee “compensation” FS Finance Bill Event 11 December 2008

19. Value Added Tax – current issues Revenue focus on fourth schedule services • Reminder of VAT registration obligations • Reverse charge obligations Approach to VAT recovery - funds • Traditional practice - location of assets • Location of investors/shareholders/unitholders • VAT refunds withheld Corporate services - funds • Not traditional “administration” but... • Availability of exemption FS Finance Bill Event 11 December 2008

20. Value Added Tax - current UK issues • UK fund management change – 1 October 2008 • Widened fund management exemption • Can catch management of Irish domiciled sub-funds (of recognised umbrella scheme) marketed to UK investors Risk FS Finance Bill Event 11 December 2008

21. Value Added Tax – EU review • Revision ongoing – but slowly • Draft directive & regulations adopted November 2007 • Directive outlines principal exemptions & exceptions • Regulations confirm detail of exemptions & exceptions • French Presidency pursuing directive – by year end (?) • Six meetings of Tax Working Party under French–next 22 December • Regulations left to Czech & Swedish 2009 Presidencies FS Finance Bill Event 11 December 2008

22. Value Added Tax - EU review banking • Banking and financial products and terms still being revised, e.g. • Transactions relating to the granting of credit and guaranteeing of debts (29/9) • Granting of credit, guaranteeing of debts and dealing in debt guarantees (17/10) • (provides for transfer of insurance or debt guarantee portfolios) • “Account operation” means the administration of accounts, under the contractual conditions applicable (29/08) • “Account operation” means the administration of accounts, for the holders of those accounts, under the contractual conditions applicable (29/9 and 17/10) • (to confirm that the account has to be administered on behalf of the customer) FS Finance Bill Event 11 December 2008

23. Value Added Tax - EU review banking • Financial derivatives – contracts in which parties are committed, on a firm or optional basis: • To the price of financial instruments (as defined) • To the rate of currencies • To the price of goods or services listed on a market, or • More generally to the value of rates or indices of any kind • Strict definition could lead to exclusions from exemption: • Credit default swaps • where swap linked to bankruptcy of a corporate entity (not share price) • Insurance Derivatives • exposure to exceptional events: hurricanes/earthquakes • Lobbying to remove definition & let market decide FS Finance Bill Event 11 December 2008

24. Value Added Tax – EU review insurance • Existing directive exempts – “ insurance and reinsurance transactions,...” • Four re-drafts since May 2008 • Latest draft directive exempts “insurance and reinsurance” FS Finance Bill Event 11 December 2008

25. Value Added Tax – EU review insurance • Intermediary Services Existing directive exempts: “... related services performed by insurance brokers and insurance agents” Current draft directive exempts: “services relating to insurance transactions rendered by a third party (of a distinct act of negotiation concerning the insurance transactions), whose purpose is to do what(all that) is necessary in order for the parties to enter or continue with a contract which affects their legal or financial situation with regard to those services” FS Finance Bill Event 11 December 2008

26. Value Added Tax – EU review - funds Existing directive: • “The management of special investment funds as defined by Member States” Current draft directive: “management of regulated investment funds, where established in the Community” • Regulated investment fund: investment undertakings subject to rules designed to facilitate investment by the public or to protect investors • Definition of funds from UCITS directive – EC/ECJ may exclude non-UCITS from exemption FS Finance Bill Event 11 December 2008

27. Three categories of funds eligible for exemption EU harmonised funds - UCITS Pension Funds (IORP Directive) Non-harmonised funds regulated at national level - Real Estate Funds Revenue aware that ‘regulatory requirement’ results in Inequality of treatment Impact on competitiveness Value Added Tax-EU review - funds FS Finance Bill Event 11 December 2008

28. Value Added Tax - EU review - funds Management/administration companies to: • Irish & Other EU qualifying funds • Services VAT exempt (EU-wide definition of funds) • No deduction • No “look through” to (Irish) fund’s assets • Irish & Other EU non-qualifying funds, & non-EU funds • Services VATable / zero-rated • Full VAT recoveries • Shift VAT cost to: • Irish domiciled clients • Other EU non-qualifying clients (local reverse charge) FS Finance Bill Event 11 December 2008

29. Value Added Tax- EU review option to tax • Member states “may allow” a right of option to tax in respect of: • Insurance • Financial transactions • Fund management • Late French suggestion: • In the absence of the option to tax member states may seek to tax the total profit margin (?????) FS Finance Bill Event 11 December 2008

30. Eimear ThorntonPersonal Tax FS Finance Bill Event 11 December 2008

31. Income Levy Applies to: Gross income before pension contributions tax exempt income such as patent income, certain artists income

32. Annual income up to €18,304 exempt From 1 January 2009 under PAYE system Employer responsible for collection of levy on income liable to PAYE (salaries, bonus, benefits-in-kind). No levy if 2008 Bonus paid pre 31 December 2008 3% levy not applicable to amounts paid from 1 January 2009 to passing Finance Act – income levy only applicable at 1% / 2% rate. Transfer income between spouses to maximise 1% / 2% bands Income Levy – cont’d

33. Income Levy – termination issues Income levy follows tax treatment Applies to taxable element of termination payments Not payable on tax free pension lump sum Minimise impact of Income Levy: Ensure that any payment can qualify for reliefs/exemptions Risk of “salary sacrifice”

35. Company car BIK New rules apply only to new cars provided for first time on/after 1 January 2009 Increased BIK of 35%/40% related to higher C02 emission cars No change to old rules for existing cars (available at 31 December 2008) Business mileage bands changed to kilometres (more favourable than the old mileage bands)

36. Executive cars – BIK calculation

37. Higher level executive cars – CO2 grades • Tax Savings: • Change car before 31 December 2008 to qualify under existing rules. • Review current car policies.

38. Car parking levy Annual flat levy of €200 where employee “entitled” to the use of a parking space for car/van in major Urban centres – Cork, Dublin, Galway, Limerick and Waterford Employer obligation to collect €200 under PAYE system – deduct from net pay Issues Multiple employments/directorships Costs of compensating payment/reimbursement of levy not deductible for employer Tax Savings Reduced to €100 if shared parking arrangements ratio can be reduced to 2:1 Available but occasional/infrequent use should be reconsidered

39. Share based remuneration Statutory provisions for existing practice in relation to restricted (“clogged”) shares and forfeitable shares New Employer reporting obligations Opportunities for share based remuneration in current circumstances: • Approved Share Schemes • Approved Share Option • Approved Save As You Earn (SAYE) • Approved Profit Share (APPS) • Low market values • Accelerate 2008 award of shares to 2008 or pre-passing of Finance Act 2009 • Unapproved Share based schemes

40. Salary sacrifice New legislation introduced by Finance Act 2008 – extended definition in Finance Bill 2009 to Sacrifice “arrangement” May have implications for flex benefit plans/bonus plans/any changes to remuneration – PAYE/PRSI Revenue expected to apply provisions on a broad basis Review existing/proposed remuneration package

41. Pensions Income Ceiling for tax deductible employee contributions reduced from €275,238 to €150,000 from 2009 Effectively halves the maximum allowable tax relief for high earners Indexation of annual earnings and overall pension cap only at discretion of Minister from 2009 Standard Fund Threshold €5,418,085 not indexed for 2009 Will impact on foreign assignees to Ireland

42. Pensions – comparison 2008 & 2009

43. Pensions Tax Savings: Employee should avail of 2008 higher limit (€275,238) Immediate tax saving for employee of Income Tax (41%), Health Levy (2.5%) Immediate saving of 10.75% for Employer PRSI Pension contribution for 2008 can be paid up to 31 October 2009 Wider pension debate Identified different approaches for possible restructuring of pension plans/employment structures to minimise risk/identify potential cost savings Review position of foreign assignees

44. Tax residency rules – mobile employees/cross border issues Temporary Business Travellers/assignments in/out of Ireland Physical presence test based on days in Ireland determine Irish tax residence Cinderella test - a day counted if in Ireland at midnight (purpose not relevant) From 1 January 2009 – any part of a day spent in Ireland will count for residence test

45. Result Tax Savings Tax residence rules – cont’d • Result • Easier to become Irish tax resident • Harder to end Irish tax resident status • Could accelerate individual becoming ordinarily resident/delay loss of ordinary residence • Double Tax Treaty network – Tracking of movements of business travellers. • Need to review position of inbounds/outbounds to identify any potential additional income tax liabilities in Ireland. • PAYE obligations need to be considered • Tax Savings

46. UK assignees From 1 January 2008, for qualifying individuals UK employment taxable only in relation to duties exercised in Ireland Remittance basis extended to gains on UK assets for non-domiciliaries from 20 November 2008 Position regarding UK gains in period 1 January 2008 to 19 November 2008?

47. Non-domiciled and resident in Ireland Resident of non EEA State which has a DTA Employed by foreign employer/associated company in that non EEA State which has a DTA Exercised greater part of employment in that country Assignment to Ireland for at least three years Paid from abroad New relief for unremitted earnings for expatriates

48. Tax on Irish duties based on higher of: Actual amount attributable to Irish duties which is remitted in that year OR €100,000 plus 50% of balance attributable to Irish duties Claim refund of PAYE after year end Remittances of such income in later years triggers original tax liability from date of payment Clawback of tax refund from employee if spends less than three years New relief for unremitted earnings for expatriates

49. 100% duties in Ireland Gross remuneration €200k Tax payable on higher of (a) or (b) Actual Remittances in 2009 € PAYE for 2009 70,700 Additional remittances of earnings 20,000Total 90,700 or €100,000 plus 50% (€200,000 - €100,000) equals €150,000 Tax is computed on € 150,000 Refund due on €50,000 at 41% (€200,000 (originally taxed) - €150,000 (new amount)) Possible impact on VAT New relief for unremitted earnings for expatriates

50. Mobile Employees/Cross Border Tax saving ideas for expatriates • Structure assignments to maximise tax exempt subsistence payments • Structure assignments to avail of new unremitted earnings relief for non-domiciled assignees and maximise tax savings for non-Irish duties • Use EU rules to ensure no liability to Irish PRSI, and qualify for total exemption from income levy • Review foreign pension plans • Use Double Tax Treaty network to ensure no liability to Irish PAYE/income levy for short-term business travellers