U.S. Tax Reform and it’s impact on Ireland

, , ,

President Trump signed into law H.R. 1, originally known as the “Tax Cuts and Jobs Act”, on 22 December 2017, resulting in the most significant U.S. tax reform in over 30 years.

The key business measures in the U.S. tax reform package are:

  • The corporate income tax rate is reduced to 21% from 35% with effect from 1 January 2018.
  • There is a move to a full dividend exemption regime for dividends from non-US companies, requiring a 10% holding.
  • As part of the transition to a participation exemption regime, a one-time mandatory tax will be imposed on foreign earnings retained outside the US. This “deemed repatriation” tax applies in respect of any company in the world (including Ireland), if it is controlled by either a U.S. company or by U.S. citizens. This includes either:

(a) any company where the shares are owned (directly, indirectly or constructively) 50.01%+ by US shareholders, or

(b) where 10% of the shares are owned by a US corporate shareholder.

  • The deemed repatriation tax rates for the transition to a territorial tax system are 15.5% for earnings held in cash or liquid assets and 8% for the remainder.
  • There will be a minimum tax on profits arising to foreign subsidiaries of US multinationals from the exploitation of intangible assets, known as “global intangible low-taxed income” (GILTI).
  • A “base erosion anti-abuse tax” (BEAT) will be adopted. The BEAT will generally impose a minimum tax on certain deductible payments made to a foreign affiliate, including payments such as royalties and management fees but excluding cost of goods sold.
  • Interest deductions for tax years beginning after 31 December 2017 are restricted to 30% of EBITDA (earnings before interest, tax, depreciation and amortisation). For tax years beginning after 31 December 2021, the limitation will be 30% of a measure similar to EBIT (no add-back for depreciation and amortisation).
  • Other provisions target cross-border transactions, including revised treatment of hybrids and a new special tax incentive for certain foreign-derived intangible income.

Any business with U.S. connections should consider what exposure to U.S. tax (if any) may exist in light of the above changes.

Should you require any further details on the above, please contact Edward Murphy, Head of Tax Services.

/by

Capital Acquisitions Tax (CAT) Strategy

, , ,

Revenue has published a new Capital Acquisitions Tax (CAT) Strategy for 2018 to 2020.

We welcome the publication of the CAT strategy which aims to improve the management of CAT by improving service to support compliance and minimise interaction with compliant tax-payers. The improved services will help to increase customer awareness of Gift Tax and Inheritance Tax obligations.

All tax-payers should be aware of possible CAT liabilities and what they can do to reduce those costs when carrying out Estate planning.

Should you require any further information please contact us.

/by

Change in the 7-Year Capital Gains Tax Exemption

, ,

Finance Act 2017 introduced a change to the current 7-year capital gains tax exemption (“CGT”) which allows for investors to sell their property after 4 years instead of the previous minimum 7-year holding period.

The recent amendment means that rather than holding the property for a minimum of 7 years, taxpayers can sell the property between the 4th and 7th anniversary of the acquisition date and qualify for full exemption from CGT. This change only applies to disposals on or after 1 January 2018.

No relief is available if the property is sold during the initial four-year acquisition period.

If the property is held for longer than seven years, relief will only apply to the portion of the gain relating to the first 7 years ownership and the balance is taxable in the normal way.

The relief continues to apply to both residential and commercial property situated in Ireland or a member of the European Economic Area and to property held by individuals and corporates.

Taxpayers must continue to meet the other conditions of the relief to qualify for the CGT exemption.

Example:

Purchase a commercial property on 1 January 2014:

  • Cost €200,000
  • Stamp Duty €4,000

Sell the commercial property on 1 March 2019:

  • Sales Proceeds €350,000

Capital Gains Tax:

  • Capital Gain = €146,000 (€350,000 – €200,000 – €4,000)

Relief:

  • Full CGT relief will apply as the property was disposed of between the 4thand 7th anniversary of the acquisition date. As such, no CGT is payable on the gain of €146,000

For more information on the above tax relief, please contact us.

 

/by