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Tax Debt Warehousing Scheme Updates Interest Reduced to 0%

On 5 February 2024, the Minister for Finance, Michael McGrath, announced significant changes to the Tax Debt Warehousing Scheme.

The Tax Debt Warehousing Scheme allowed businesses who experienced trading difficulties during the COVID-19 pandemic to defer paying certain tax liabilities until they were in a better financial position.

Minister McGrath has reduced the interest rate applying to warehoused tax debt to 0% from 5 February 2024. In addition, Revenue has confirmed that, where a business has already paid warehoused debt, which was subject to interest at 3%, it will get a refund of that interest.

Businesses who availed of this Scheme still have until 1 May 2024 to pay the warehoused debt in full or to enter into a formal payment plan with Revenue. Revenue confirmed that it is taking a flexible approach in relation to payment plans for warehoused debt. This will include the possibility to extend the duration of payment plans beyond the typical three to five-year duration on a case-by-case basis, and that an initial down payment may not always be required.

If you would like our assistance with agreeing a payment plan with Revenue, please contact us.

Tax Appeals Commission Annual Report

The objective of the Tax Appeals Commission (TAC) is to fulfil its obligations under the Finance (Tax Appeals) Act 2015 and the Taxes Consolidation Act 1997 (“TCA 1997”), thereby ensuring that all taxpayers may exercise, where appropriate, their right of appeal to an independent body against decisions and assessments of the Revenue Commissioners and the Criminal Assets Bureau.

It recently published its 2021 Annual Report. The report noted that in 2021 the TAC closed a record-breaking 1,793 appeals valued at €3.146 billion.

It also reduced the quantum under appeal from €4.5 billion to €1.65 billion and reduced the number of appeals on hand to 2,703, a reduction of 10%.

The TAC issued determinations affecting appeals to a value of €443 million. Of the appeals closed in 2021, over 70% were closed by way of being settled or withdrawal by the appellant. Almost 20% of appeals were either dismissed or refused.

Of the appeals opened and closed in 2021, more than 50% of the cases involved Income Tax.

Only 4% of cases involved Corporation Tax but they represented over 90% of the €3.146 billion case value.

In 2021, the TAC continued to improve its case management (with a new case management system to be implemented in 2022), case throughput and case closure.

For further information, please contact Eddie Murphy, Partner & Head of Tax Services.

finance bill 2021

The information below outlines upcoming changes in Finance Bill 2021 which will affect non-resident corporate landlords. The Bill is currently passing through the Oireachtas and is due to be signed into law by the president by 25th December 2021.

Section 18 of the Finance Bill 2021 brings companies not resident in Ireland that are in receipt of Irish rental income within the charge to Corporation tax. At the moment these companies are liable to income tax on their Irish rental profits.

This will result in the rate of taxation on such income increasing from 20 per cent to 25 per cent. This change is due to take effect from 1st January 2022.

There will be no change to the tax deductibility of any expenses in relation to the rental property. Provisions have also been made to ensure that rental losses & capital allowances will not be lost on the transition from income tax to corporation tax.

The Bill also amends the payment date for certain affected companies’ preliminary corporation tax for 2022. Those companies whose accounting period ends between 1 January 2022 and 30 June 2022 have until 23rd June 2022 to pay preliminary corporation tax where the payment is made using ROS.

As these non-resident corporate landlords will now be liable to corporation tax, they will also be subject to the new Interest Limitation Rules (ILR) which have been introduced to comply with the EU’s Anti-Tax Avoidance Directives (ATAD). The ILR seek to link a taxpayer’s allowable net borrowing costs directly to its level of earnings. The ILR does this by limiting the maximum tax deduction for net borrowing costs to 30% of earnings before tax and before deductions for net interest expense, depreciation, and amortisation (EBITDA).

If you have any queries, please contact Eddie Murphy, Partner & Head of Tax Services.

Budget 2019 increased the Home Carer Tax Credit from €1,200 to €1,500 per annum. This tax credit is available to married couples or registered civil partners, where one spouse stays at home to care for a “dependant”.

A dependant can be:
  • a child for whom child benefit is payable;
  • a person aged 65 years or over; or
  • an incapacitated individual.

It does not include a spouse or partner. Often there may be one or more dependants being cared for by the carer spouse. This does not increase the tax credit available.

The Home Carer Tax Credit is often unclaimed as there is a misconception that you must be caring for a sick relative. This is not the case.

Conditions to qualify:
  • You must be jointly assessed for income tax.
  • The dependant person must normally reside with the carer for the tax year. However, if the dependant person is a relative, they can live next door, on the same property or within 2kms of the carer. A relative includes a relative by marriage or a person for whom the claimant is a legal guardian, but not a spouse or civil partner. However, there must be a direct communication link between the two residences such as a telephone or alarm system.
  • The carer spouse must have income of €7,200 per annum or less (excluding any carers benefit or payments received from the Department of Social Protection). If you earn more than €7,200 but less than €10,200 per annum, you may claim a reduced credit:

For example, if the carer spouse earns €8,200 per annum, the maximum tax credit that can be claimed is reduced by the additional earnings as follows €8,200-€7,200=€1,000/2 = €500. The tax credit is reduced by €500 giving a maximum credit of €1,000 available.

If the carer spouse earns €10,200 or above, no Home Carer Tax Credit is available.

This tax credit cannot be claimed alongside the increased standard rate bands for married couples/civil partners. Revenue will grant you the more beneficial option.

Remember; if you qualified for the Home Carer Tax Credit in any of the past 4 tax years (2018, 2017, 2016, and 2015), you can still make a claim to Revenue for it.

If you require any assistance with the home carer tax credit, please contact us.

A recent High Court decision has a significant bearing on the application of dwelling house exemption to beneficiaries who inherit a mixed asset estate, comprising of a number of residential properties.

The dwelling house exemption allows someone to inherit a property tax-free provided that they have lived in it for three years before the homeowner’s death and that it was the main home of the person who has died. Critically, if a person owns even a share in another property “at the date of inheritance”, they lose their entitlement to the relief. Revenue has always been of the view that if someone who would otherwise qualify for dwelling house relief inherits not just the main home of the disponer but another property, or a share in another property, they no longer meet the eligibility criteria.

A Court ruling on 25th September 2018 has changed the rules on dwelling house exemption. The High Court ruled in the case of a successor, who inherited both the family home where the successor had lived with the disponer and an interest in four other properties, was entitled to the dwelling house exemption. The judge held that the successor did not have a beneficial interest in either of the dwelling houses at the date of the inheritance, as a successor cannot become beneficially entitled to a house which forms part of the residue of an estate until the assets available for distribution have been ascertained.

The impact of the Court case is that you will no longer be disbarred from dwelling house relief if you inherit property other than the family home in the same will. Revenue has now adopted a revised approach in distinguishing between dwelling houses inherited as a specific legacy and those inherited in the residue of an estate.

Accordingly, a dwelling house forming part of the residue of an estate is not to be taken into account in determining whether a successor has an interest in another dwelling house at the date of an inheritance. Ownership of property received as part of the residue of a will would occur at a later date than “at the date of inheritance”.

Anyone receiving a specific legacy of an interest in a property as well as receiving the family home will continue to be excluded. This is because, as a specific legacy, beneficial ownership of the “other” property would transfer at the same time as the family home.

Revenue acknowledged that if any taxpayers find themselves in a similar set of facts as this case then they may be entitled to a refund of the tax paid, bearing in the mind the four year limit that applies to refunds of tax.

Should you require any further details on the dwelling house exemption, please contact us.

Exit tax regimes seek to impose a tax on unrealised capital gains where companies migrate their tax residency or transfer assets offshore.

Prior to Budget 2019, Ireland had a limited exit tax regime that was subject to several exceptions. While it was expected that new exit tax rules would be introduced before 1 January 2020 to comply with the EU’s Anti-Tax Avoidance Directive (ATAD), the implementation of new rules from 10 October 2018 was earlier than anticipated.

Old exit tax regime

Under the old exit tax regime, where a company changed its tax residence so that it was no longer within the scope of Irish tax, it was treated as disposing and reacquiring its assets at market value. This triggered a charge to tax at the rate of 33%, the standard capital gains tax rate.

The exit tax did not apply where the assets continued to be used in the State by a branch or agency of the migrating company or where the company was ultimately controlled by residents of a tax treaty country. The exit tax could also be avoided if the company transferring its residency was a 75% subsidiary of an Irish resident company and certain conditions were met for 10 years after the migration.

New exit tax regime

The new rules tax the unrealised gains of corporate entities where the following events occur:

  • A company transfers assets from its permanent establishment (PE) in Ireland to its head office or to a PE in another territory;
  • A company transfers the business (including the assets of the business) carried on by its PE in Ireland to another territory; or
  • An Irish resident company transfers its residence to another country.

The rate of tax applicable will generally be 12.5%. However, there is an anti-avoidance measure that applies a rate of 33% where the event triggering the tax forms part of a transaction to avail of the 12.5% rate rather than the standard capital gains tax of 33%.

Key points on the operation of the exit tax:

  • The exit tax will not apply to the transfer of assets that will revert to the PE or company within 12 months of the transfer, where the assets are:
    • Related to the financing of securities;
    • Given as security for a debt; or
    • Where the asset transfer takes place to meet prudential capital requirements or for liquidity management.
  • The tax may be paid in 6 annual instalments where the company migrates to an EU or EEA state.
  • Where a company ceases to be resident and an exit tax charge is imposed, the tax may be recovered from an Irish tax resident company within the group or from an Irish tax resident controlling director.

While the exit tax rate has been reduced, the new rules have significantly broader application than the old regime and transactions that previously would not have been subject to an exit tax may now trigger a tax charge.

For more information please contact Eddie Murphy, Partner and Head of Tax Services.

There were two amendments made to the Capital Acquisitions Tax Dwelling House Exemption by Finance Act 2017, in such cases where the recipient of the dwelling house is a dependent relative of the disponer.

A ‘dependent relative’ is defined as a relative who is permanently and totally incapacitated due to mental or physical infirmity from maintaining himself or herself, or who is of the age of 65 years or over at the date of gift or inheritance.

The position following the amendments is as follows:

  1. In the case of a gift or an inheritance of a dwelling house taken by a dependent relative, the dwelling house is not required to have been the only or main residence of the disponer.
  2. A gift of a dwelling house that becomes an inheritance as a result of the disponer dying within two years of making the gift can qualify for the dwelling house exemption, where the beneficiary is a dependent relative.

All other provisions to the exemption remain unchanged.

The amendments to the Dwelling House Exemption take effect from the date of passing of the Finance Act 2017, 25 December 2017.

Should you require any further details on the above, please contact a member of our Tax Department.

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.

We welcome Revenue’s issuing of an eBrief on the tax treatment of cryptocurrency transactions.

For further information and details, please view Revenue eBrief No. 88/18.

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.