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Complex Tax Issues Conor Kennedy Law Library. Property as a means to evaluate and impose taxation. Window type tax Land taxes, custom and excise duties,

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Presentation on theme: "Complex Tax Issues Conor Kennedy Law Library. Property as a means to evaluate and impose taxation. Window type tax Land taxes, custom and excise duties,"— Presentation transcript:

1 Complex Tax Issues Conor Kennedy Law Library

2 Property as a means to evaluate and impose taxation. Window type tax Land taxes, custom and excise duties, stamp duties, probate and other death duties Creates & transfer personal wealth Property investment Use of trusts Introduction

3 Forms of Taxation Governments grip on property : Income Tax Corporation Tax Value Added Tax Stamp Duty Capital Gains Tax Capital Acquisitions Tax

4 Purpose of Investment Commercial viability McGrath Case S.811 TCA ‘97 to address certain tax avoidance Constitutionality

5 Evolution of Property Ownership Ownership of assets in a corporate or personal capacity Common practice for companies to acquire properties Cost of obtaining funds through salary was unusual Income Tax rates were in excess of 60%

6 Evolution of Property Ownership Lowering of the personal tax rates S.23 type reliefs Huge appreciation in the value of property Exasperated by double charge to Capital Gains Tax

7 Commercial viability Tax as a factor in structuring investments Level and rate of stamp duty VAT Capital Gains Tax Inheritance tax issues Use of trusts Property Transactions

8 Double charge to Capital Gains Tax Surcharge on undistributed company profits Director’s fees limited to 7.5% - 12.5% Make the investment less marketable No stamp duty relief Annual costs of servicing a company Property Ownership

9 Capital allowances on industrial buildings Income and wealth enjoyed by individuals

10 Lower rate of Stamp Duty Personal guarantees For reasons of confidentiality To protect the property against litigation Corporate Ownership

11 Holding Companies CGT Exemption Shares held in EU or treaty countries Must hold at least 5% Interest held for at least 12 months Greater value not derived from land in State Credit for foreign taxes on dividends Entitlement to “pool” credits

12 Company Reorganisations Three party Swap Transfer trade to Newco Consideration = Shares in Newco Same identity of ownership Subsequent disposal



15 Tax issues Stamp & Capital Duty (S.80 SDCA 1999) Share reorganisation (S.587 TCA 1997) Corporation Tax Relief (S.615 TCA 1997) Income Distribution (S.130 TCA 1997) Tax Neutral

16 Availability of capital allowances Property must be relatively self financing Tax breaks shoring up the potential shortfall Capital Allowances

17 Section 268 Buildings A trade carried on in either a mill factory or similar premises A dock undertaking The growing of fruit, vegetables or other produce in the course of a trade The trade of hotel keeping Intensive production of cattle and other livestock Operation or management of an airport, where the structure is an airport

18 Section 268 Buildings Operation or management of a registered nursing home Operation or management of a convalescent home for the purpose of medical and nursing care Operation or management of a qualifying hospital Qualifying sports injury clinics Qualifying mental health centres

19 Deemed Industrial Buildings Tax incentive areas Leased industrial buildings Clawback of allowances

20 Expenditure incurred in qualifying period Construction, conversion or refurbishment Qualifying areas 100 per cent of qualifying expenditure excluding site cost Relief against all rental income Clawback of relief Section 23 Type Relief

21 Minimising Tax Costs Capital Allowances Plant & Machinery Definition Functional test Setting in which trade carried on

22 Minimising Tax Costs S.311 TCA 1997 Apportion expenditure on commercial property Extract value from plant & machinery Formula Plant x Purchase Price – Land Building Cost

23 Qualifying Type Assets Gas, electrical, cold water and sewage systems. Heating, ventilation and air conditioning systems. Storage systems, display equipment, counters and cold rooms. Furniture and sanitary ware. Escalators and lifts. Sound insulation. Telecommunications and surveillance systems. Alarms and sprinkler systems. Moveable partition walls. Displays, signs and advertising hoardings. Consultants fees. Carpeting. Blinds and canopys.

24 Property Developers Two aspects of the legislation Land dealers and individuals who purchase land for speculative profits 20% rate Any work which does not constitute construction Construction of houses will be liable to Income Tax at the marginal rate

25 Dealings with Revenue Kinsella v The Revenue Commissioners Legitimate Expectations Glencar Exploration Representation Identifiable person actually affected Expected to abide Keogh v Criminal Assets Bureau

26 Revenue’s Annual Report 2006 Tax Receipts €45.5 billion 14 tax schemes challenged Special Investigations now at €2.28 billion Revenue audits - €691.8 million 4,127 comprehensive audits 176,064 assurance checks 601 tax defaulters published 7 convictions for serious tax evasion

27 Revenue Audit Findings Large Cases Division Residency of Companies Film investments Property based investments Property owned companies Liquidations S.806 & EU Treaty

28 General Audit Issues Pubs Irish Independent article Compliance issues in 50% of Dublin pubs New methodology Unfounded Allegations Licence agreements Finance Act 2007 S.4(5) VATA 1972 S.10(3) VATA 1972

29 Licence Agreements Example Build cost €275 per sq ft Apartment 1,000 sq ft Cost €275,000 Sale Price €475,000 Land Price €175,000 VAT liability €20,815 per apartment Unforeseen cost to the landowner

30 Internal Review What is it? Jurisdiction “Revenue’s handling of his or her tax or customs affairs or decisions made by a Revenue official …” Publication Discrimination Proportionality Appeal Commissioners Human Rights issues

31 Revenue ’ s Lifestyle Profile 2001 2002 2003 2004 2005 € €€€ € €€€ € € Income per tax return 100,000125,000 156,250195,313 244,141 Total Income 100,000125,000 156,250195,313 244,141 Outgoings (est)40,000 45,00050,000 55,00060,000 Income Tax Due34,00074,00042,50087,50053,125103,12566,406121,40683,008143,008 Estimated Balance 26,00037,500 53,12573,906 101,133 €€ €€ € Estimated opening cash 026,000 63,500116,625 190,531 Estimated cash surplus for year 26,00037,500 53,12573,906 101,133 Estimated closing balance 26,000 63,500 116,625 190,531 291,664

32 Revenue’s Asset Reconciliation € Estimated Funds 2005291,664 Estimated Return @ say 3% 8,750 Where is it?

33 Risk Analysis Late filing Screening Risk Evaluation Analysis Profiling Enormous database Crest VRT Rental Stamp duty CGT

34 Risk Analysis Screening 3 - 4 times a year In-depth profile Behavioural profiling Substitution effect RCT issues Double dip (treble) EU Savings Directive – 1 st tranche of information All tax head audit Seek adjournment

35 Public Accounts Committee Comptroller & Auditor General Report Extending Tax Information Exchanges Mutual Assistance Information exchanged Automatic Spontaneous Capital gains risks Correlation with stamp duty information Substitution effect Stamp duty clawback Miscellaneous

36 Constituents of a Business Definition ? Trade or Business American Leaf Korean Noddy Subsidiary Rights Cadbury Ireland Relevance S.600 TCA 1997 S.97 CATA 2003 VAT Reconstructions Trade Badges 12.5% CT Rate Substitution Effect

37 Finance Act 2007 CGT – Sale of business assets/ shares in family trading companies BES Improvements VAT – Waiver of exemption Offshore funds Revenue Powers

38 Professional Negligence Duty of care Breach of duty Plaintiff suffered loss Damage caused by that breach

39 Professional Negligence Competency of the practitioner Hurlingham Estates v Wilde & Partners Letters of engagement Sample Letter 1 – Tax Advisor Sample Letter 2 – Accountant Sample Letter 3 – Solicitor Information omitted

40 Agent Mistake Rowland v HM Revenue & Customs Reasonable Excuse Relied on agent Vicarious liability Employer main beneficiary Better position Implement safer practices Absorb losses Offers better protection to claimant

41 Revenue Penalties The ‘Code of Practice for Revenue Auditors’ 9.1 provides that: A tax return prepared and delivered on behalf of a taxpayer by some other person acting on his or her behalf is treated in all respects as if it had been made by the taxpayer. The taxpayer’s statutory responsibility to complete and file a correct return cannot be devolved to his or her agent. 9.5 provides … the taxpayer cannot devolve the responsibility of making the correct return to an agent. If all relevant matters have not been brought to the attention of the agent, the taxpayer has not taken due care.

42 Finance Act 2005 S.142 amends S.1078 TCA 1997 Revenue Offences – 3 rd party implications “knowingly concerned in the fraudulent evasion of tax” “ … is reckless as to whether or not the person is concerned in facilitating the fraudulent evasion of tax ….”

43 Revenue’s Annual Report 2007 Tax Receipts €47.2 billion Tax schemes challenged Special Investigations now at €2.414 billion Revenue audits - €736 million 3,900 comprehensive audits 237,000 assurance checks 14 convictions for serious tax evasion

44 New VAT on Property Regime Property leases exempt from tax Option to tax New Buildings Old Buildings Capital Goods Scheme More Tax Avoidance Schemes challenged New Commission of Taxation Refinement of profiling

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