Tax News

US Senate approves Swiss/US DTA protocol

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On 17th July 2019, the U.S. Senate approved the 2019 Protocol to amend the Switzerland USA Double Taxation Agreement.

 

Formally, the protocol will enter into force on the date the instruments of ratification are exchanged.

 

The core element of the protocol of amendment is the exchange of information.

 

The protocol provides for the following changes:

  • Currently there is no differentiation between tax evasion and tax fraud in Switzerland. This was in line with the international standard on information exchange. Switzerland applied this to in excess of one hundred jurisdictions however, the United States was not one of them. The protocol will erase this difference within the context of administrative assistance in relation to the U.S. It will also apply to other categories of information requests.
  • For pillar 3a solutions (i.e. dividends paid to individual retirement arrangements), it will provide for an exemption from the source country (i.e. the Us) withholding 15% tax on cross border dividends from 1st January 2020 provided the protocol of amendment comes into force in 2019.
  • Mandatory binding arbitration of unresolved competent authority cases will be implemented where the competent authorities cannot reach agreement in the mutual agreement procedure. This will eliminate exposure to double taxation.
  • Under the new provision, the United States will be able to make group requests under the FATCA Agreement. The IRS will submit the group requests to the Swiss Federal Authority. The affected Swiss financial institutions will have ten days to deliver the required information on receipt of the request from the Swiss Federal Authority.

This milestone in the Switzerland and USA tax relationship is likely to make Switzerland far more appealing to U.S. multinationals.

UK Private Residence Relief

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If you have recently moved to the UK and intend selling your home in Ireland, please be aware that even if you qualify for Principal Private Residence Relief under Section 604 TCA 1997 in Ireland you may not qualify for UK Private Residence Relief.

This article is aimed at individuals who have become UK resident and who are in the process of selling their Irish principal private residence.

 

In general, you do not pay Capital Gains Tax when you sell or ‘dispose of’ your home if all the following conditions apply:

  • you have only one home and you’ve lived in this property as your main home for the entire time you’ve owned it
  • you have not let part of it out (Please be aware that this does not include having a single lodger)
  • you have not used part of the property for business purposes only
  • the grounds, including all buildings, are less than 5,000 square metres in total
  • you did not buy the property with the sole or main intention to make a gain

If all the above conditions apply you will automatically get a tax relief called Private Residence Relief.

 

 

Your period of ownership begins on the date you first acquired the dwelling house or on 31st March 1982 if that is the later date. It ends when you dispose of or sell the property.

The final 18 months of your period of ownership will always qualify for Private Residence Relief regardless of how you use the property during that time but providing the property has been your only or main residence at some point.

 

 

The following periods of absence are treated as periods of occupation for the purposes of calculating Private Residence Relief:

  • Any periods of absence, for whatever reason, not exceeding three years in total
  • Any period of absence when carrying out the duties of your employment outside the United Kingdom
  • Any periods not exceeding four years in total which are due specifically to employment requirements.

 

In order for these periods of absence to qualify as “deemed occupation” there must be a time both before and after the absence when the dwelling house is the individual’s sole or main residence. It is important to keep in mind that absences due to the conditions of an employment will qualify for the Relief even if the individual does not return to the dwelling house afterwards provided the reason for not their returning is due to their contract of employment requiring them to live somewhere else.

 

Any period of absence which requires the individual to live in job/work related accommodation will qualify for Private Residence Relief if there is an intention to occupy the dwelling as a main residence at some point.

 

HMRC will, by concession, allow a period of up to one year before the individual begins to occupy the property as his/her principal private residence to be treated as a period of occupation provided the property is then occupied as his/her only or main residence. In exceptional cases, HMRC may extend this period to two years.

 

From April 2015, the PRR rules were amended so that a property may only be treated as an individual’s main or sole residence for a tax year where that person or his/her spouse/legally registered partner has either:

(a) been tax resident in the same country as the property for the tax year in question (For further information on residence rules please follows this link:  https://www.gov.uk/government/publications/residence-domicile-and-remittance-basis-rules-uk-tax-liability/guidance-note-for-residence-domicile-and-the-remittance-basis-rdr1) or

(b)  has stayed overnight in the property at least 90 times in that UK tax year.  Time spent in another property owned in the same jurisdiction/country can also be included in the ninety day count so that the total number of days in all properties in the territory in question are added together.

 

The new rules apply equally to a UK resident individual disposing of an overseas home as well as to a non-UK resident disposing of a home in the United Kingdom.

 

Finally, Lettings Relief may be available in circumstances where Principal Residence Relief is restricted because all or part of a property has been rented out.

This Relief is particularly important for individuals who, due to the current economic climate, experience difficulty selling their former home and, as a result, find they need to rent it out while they’re trying to sell it.

A maximum gain of £40,000 per owner is exempt from Capital Gains Tax provided that property has at some time been the main or only residence of the owner.

From 6th April 2020 there will be a change to this Relief whereby Lettings Relief will only be available in situations where the owner shares occupancy with the tenant.

 

Form 46G

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Traders (including farmers), professionals and other persons carrying on a business, as well as non-trading or non-profit making organisations and bodies of persons (including charitable organisations and statutory bodies) are required to file Forms 46G annually containing details of payments made by them to third parties for services provided.

 

For individuals / persons (other than companies) the return should include payments made

  1. in the twelve month period to 31st December each year or
  2. up to the date on which accounts of the trade or profession are normally prepared

The Form 46G must be filed on or before 31st October of the following year.

 

For companies, the Form 46G should cover all relevant payments in an accounting period and be submitted no later than 9 months following the end of the relevant accounting period.

 

A non-compliant taxpayer (i.e. where a taxpayer fails to deliver a true and correct return) may be liable to a penalty of €3,000. In addition to which a tax clearance certificate may not be granted and tax refunds may be withheld.

 

Details of payments must be returned where the total amount paid to one individual or company in the year exceeds €6,000.

 

Relevant payments include:

  • Payments for services provided in connection with the trade, profession, business etc.
  • Payments for services provided in connection with the formation, acquisition, development or disposal of the trade or business
  • Periodical or lump sum payments made in respect of any copyright.

 

Revenue provides a list of services that must be specifically disclosed. This list should be reviewed prior to filing a Form 46G on an annual basis.

 

The following categories of services were recently added:

  • Call Centre/Customer Service
  • Childcare
  • Fitness, Sport & Leisure Services
  • Fleet Management Services
  • Health & Safety Services
  • HR/Recruitment Services
  • Internet & Information Technology related services (including website design or re-design, cloud services etc.)
  • Landscaping/Gardening/Horticulture
  • Marketing /Business Analysis
  • Printing & Publishing
  • Research

 

Certain payments are not required to be disclosed such as:

  • Payments for essential services/utilities such as electricity, gas and telephone
  • Payments from which income tax has been deducted
  • Payments from which withholding tax has been deducted.  This includes payments which are subject to PAYE, fees paid subject to withholding tax, payments subject to Relevant Contracts Tax (RCT), etc.
  • Payments to non-residents
  • Payments for services where the value of any goods provided as part of the service exceeds two thirds of the total charge

 

For further details, please follow the link:

https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-38/38-03-13.pdf

Electronic VAT Refund (EVR) Deadline – 30th September 2019

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Has your business incurred VAT costs in another EU member State between 1st January and 31st December 2018?

If the answer is “yes” then you should begin preparing your ‘EVR’ refund claim.

As you’re aware, if you are an Irish VAT registered business who has incurred VAT in another E.U. state, you can’t reclaim this VAT in your Irish VAT 3 Form.  Instead, you must submit an online claim through the Electronic VAT Refund (EVR) service.

 

This EVR claim is made via the tax authorities’ portal in the trader’s own country.  In other words, an Irish VAT registered business must submit its application to the Irish Revenue Authorities via ROS.

It is the responsibility of the Irish Revenue Authorities to then forward the EVR claim to the E.U. state in question to process the refund.

The EVR application must include the following:

  • The Supplier’s details
  • The Country
  • Import information
  • The VAT details
  • Details regarding the type of supply made
  • In some member states invoices may need to be included with the claim.

The EVR application must be filed on or before 30th September 2019 in relation to VAT incurred between 1st January and 31st December 2018.

The refund payment will be made by electronic funds transfer (EFT) to the bank details provided in the claim.

A maximum of five applications can be made via the EVR  in a calendar year.  The refund period can’t be greater than one calendar year (i.e. 1st January to 31st December) and it can’t be less than three calendar months except in circumstances where the application is in relation to the last quarter of the year.

It is not possible to amend a claim to increase a VAT refund.

Please be aware that EVR reclaims are governed by the VAT recovery rules of the E.U. member state to which the claim relates.  In other words, if you are an Irish VAT registered business making an EVR reclaim in, say, France then you must comply with the French VAT rules and not the Irish rules.

If, however,  you are registered or have an obligation to register for VAT in a particular EU member state then, any reclaim of VAT incurred there must be made directly to the tax authorities of that particular E.U. jurisdiction.

 

For further information, please click on to the link:

https://www.revenue.ie/en/vat/reclaiming-vat/irish-vat-registered-traders-reclaiming-vat-from-european-union-eu-member-states.aspx

 

 

Benefit in Kind (BIK) – Electric Vehicles – Finance Act 2018

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From 1st January to 31st December 2021 (i.e. for a three year period) there will be no Benefit in Kind charge on vehicles solely powered by electricity if the original market value is less than €50,000.

 

Please be aware this favourable treatment does not apply to hybrids.

 

In situations where the open market value of the vehicle is greater than €50,000 the excess will be liable to tax as a Benefit in Kind.

 

Electric vehicles valued at in excess of €50,000 that were provided to the employee between 1st January 2017 and 9th October 2018 continue to be exempt from a BIK charge.  Please keep in mind, however, that this exemption could be affected if the electric car which was provided to the original user  between 1st January 2017 and 9th October 2018 is subsequently provided to a new user.

 

For further information, please follow this link:

https://www.revenue.ie/en/employing-people/benefit-in-kind-for-employers/private-use-of-company-cars/exemptions.aspx

Special Assignee Relief Programme (SARP)

Group of Happy Students

 

There have been two updates to SARP legislation in the most recent Finance Act.

 

Revenue’s guidance on Special Assignee Relief Programme (SARP) has been updated to take into account the recent changes introduced by Finance Act 2018:

 

1. Details of the cap of €1 million introduced from 1st January 2019 for the years 2019 (for new entrants only) and 2020 (for all claimants).

A cap has been reintroduced on the amount of the employment income to which SARP relief can apply.

The upper income threshold of €1 million will apply to any relevant employee who first arrives in Ireland on or after 1st January 2019.

For the tax year 2020, the upper income threshold will apply to all relevant employees.

 

2. Clarification regarding the requirement to file Form SARP 1A within the 90 day time limit

From 1st January 2019 the time limit for the submission of the form SARP 1A will be extended from within 30 days of the date the employee first arrives in Ireland to carry out his/her employment duties to 90 days.

 

For further information, please click on the following link:

https://www.revenue.ie/en/personal-tax-credits-reliefs-and-exemptions/income-and-employment/special-assignee-relief-programme/index.aspx

UK BUDGET – AUTUMN 2018 – Stamp Duty and Land Tax

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The Chancellor announced today that the government will extend first-time buyers relief to all first-time buyers of shared ownership properties in England and Northern Ireland.

 

The relief will not apply to purchases of properties valued over £500,000.

 

This amendment will apply to relevant transactions with an effective date of on or after 29th October 2018.  The measure will also apply retrospectively to transactions with effective dates on or after 22nd November 2017, which was the date first-time buyer’s relief was originally introduced.

 

The relief must be claimed in an SDLT Return or by amending an SDLT return which has already been filed.

 

For those who completed their transaction before 29th October 2018, the opportunity to amend their SDLT Return will be extended by a further 12 months until 28th October 2019.

 

A technical correction was included to extend the time frame in which the 3% SDLT on additional dwellings can be reclaimed.  This applies to situations where an individual sells his or her home within three years of making a replacement purchase.  The amendment, which comes into effect from 29th October 2018, extends the reclaim period from three to twelve months following the sale of the old home.

 

UK BUDGET – AUTUMN 2018 – ENTREPRENEURS’ RELIEF

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The Chancellor announced two key changes to Entrepreneurs’ Relief in today’s budget which will impact shareholders and business owners.

 

 

What is Entrepreneurs’ relief?

Entrepreneurs’ Relief reduces the rate of Capital Gains Tax on disposals of certain business assets from 20% to 10%.

 

 

What changes were introduced today?

 Today’s Budget introduced two new additional tests to be met:

  1. The First one which extends the qualifying holding period from one year to two years for disposals on or after 6th April 2019.  In other words, it increases the holding period for shares held by individual shareholders. Individuals will now be required to hold the shares for at least 24 months rather than the current 12 months before they can claim Entrepreneurs’ Relief on the disposal of their shares. This change will apply to disposals made on or after 6 April 2019.
  2. The second change immediately introduces two further tests that must be satisfied before Entrepreneurs’ Relief is available. These tests will require the claimant to have at least a 5% interest in both (a) the distributable profits and (b) the net assets on a winding up of the company. The measure will have effect for disposals on or after 29 October 2018.

 


What does the 5% Rule mean?

 The changes introduced in today’s Budget mean that along with existing conditions that an individual must hold at least 5% of the ordinary share capital and voting rights of a trading company, the individual must also be entitled to:

a)       5% of distributable profits and

b)       5% of assets available on a winding up of that company.

 

 

 

How is Entrepreneurs’ Relief affected by Dilution?

 As previously announced, the Government confirmed that legislation will be implemented from 6th April 2019 in relation to individuals’ shareholdings diluted below 5% as a result of a commercial cash investment.

 

These individuals will be able to elect to preserve their Entrepreneurs’ Relief on gains to the date of dilution by treating their shareholding as having been disposed of and simultaneously reacquired at market value at the time of dilution. Another way of looking at this is, under the new rules, a shareholder can elect to claim Entrepreneurs’ Relief on the capital gains accrued before dilution below 5%.  This is provided the dilution resulted from an issue of new shares for cash. The Entrepreneurs’ Relief will be claimed on the eventual disposal of those qualifying shares.  There is, of course, the prerequisite that the share issue has not occurred for the purposes of tax avoidance.

 

There will also be an election allowing the individual to defer any tax due until a future liquidity event.

 

It is important to keep in mind that this provision will also not be available if the percentage entitlement falls below 5% due to a part-disposal of shares.

 

 

 

What about Entrepreneurs’ Relief in situations where there has been a transfer of a business to a limited company?

 The changes to Entrepreneurs’ Relief introduced in today’s Budget will affect the availability of the relief on the sale of shares originally issued after the incorporation of a trade.

 

A transfer of a trade in exchange for shares in a trading company should benefit from Entrepreneurs’ Relief if the trade existed for at least two years prior to the date of incorporation.

Under the current regime the claimant was required to hold the resultant shares for at least two years prior to the date of disposal.

 

Therefore, this amendment to the Entrepreneurs’ Relief is deemed to benefit sole traders who incorporate the trade shortly before selling their business.

 

 

UK – AUTUMN BUDGET – CGT on Disposal of Principal Private Residence

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Current UK Legislation

Principal Private Residence Relief (PPR) is a capital gains tax relief on the disposal of an individual’s only or main residence.

 

Under current U.K. legislation, an individual can claim relief for any period where the relevant property is deemed to be the individual’s “Principal Private Residence” (PPR).

 

The individual can claim Principal Private Residence relief for the final eighteen months of ownership providing the property had been that individual’s principal or main residence at any point during his or her ownership.  In other words, the final eighteen months always qualify for Principal Private Residence Relief even if the dwelling was no longer the individual’s only or main residence.

 

Lettings relief currently provides relief of up to £40,000 to individuals who let out a property which is or has been their main or principal residence.

 

 

 

Budget 2018 Amendments

The government proposes to make the following two changes with effect from April 2020:

1)      The Lettings Relief will be reformed so that it only applies where the owner of the property is in “shared-occupancy” with a tenant.  The relief can reduce the capital gain, per person, by up to £40,000, giving a potential tax saving of up to £11,200 (£40,000 x 28%) and

2)      The final period of exemption, which applies if a property has been an individual’s PPR at any point during their period of ownership, will be reduced from eighteen months to nine months.   There are no proposed amendments to the thirty six months that are available to disabled persons or those residing in a care home.

The government will consult on the proposed changes before legislating.

BUDGET 2019

 

The Minister for Finance, Public Expenditure and Reform Paschal Donohoe T.D. delivered Budget 2019 today, 9th October 2018.

 

 

PERSONAL TAX

A number of changes aimed at easing the tax burden on low and middle income earners were announced in this year’s budget which include the following:

 

 

INCOME TAX

The income tax standard rate band will increase by €750 for a single earner.

 

This will raise the entry point to the 40% income tax rate

a)      from €34,550 to €35,300 for single earners and

b)      from €43,550 to €44,300 for married couples (with one earner).

 

The marginal rate of tax on income on earnings up to €70,044 per annum is now 48.5%.

 

The marginal rate of tax for those earning over €70,044 will remain at

a)      52% for employees and

b)      55% for self-employed individuals earning in excess of €100,000.

 

 

BENEFIT IN KIND

The 0% rate on BIK on electric cars has been extended to 2021 subject to a €50,000 cap in car value.

 

 

UNIVERSAL SOCIAL CHARGE

There will be a reduction in the third band of USC from 4.75% to 4.5%.

There will be an increase of €502 in the existing lower band of USC. This is worth a maximum of €139 per annum.   In other words, the band to which the 2% USC rate applies will be increased from €19,372 to €19,874.

 

 

TAX CREDITS

There will be a €200 increase in the Earned Income Credit for the Self Employed from €1,150 to €1,350.

There will be a €300 increase in the home carer credit from €1,200 to €1,500.   This credit can be claimed by a jointly assessed couple where one spouse/civil partner works in the home to care for children or other dependents, as defined.

 

 

PRSI

The weekly income threshold for the higher rate of employer’s PRSI will be increase from €376 per week (€19,552 per annum) to €386 per week (€20,072 per annum).

There will be a 0.1% increase in employers’ PRSI in 2019 from 10.85% to 10.95% and from 10.95 to 11.05% in 2020.

 

The National Training Fund Levy will increase from 0.8% to 0.9% from 1st January 2019. The levy forms part of employer’s PRSI for Class A and Class H employments.

 

 

 

BUSINESS TAX

There is strong reaffirmation of the Government’s long-term commitment to 12½% corporation tax rate.

 

 

Key Employee Engagement Programme (KEEP)

There are Increases to the KEEP scheme. The scheme provides for tax relief for certain share remuneration provided to key employees by unquoted SMEs. The three separate amendments are as follows:

  1. The ceiling on the maximum annual market value of shares that can be awarded must equate to the full amount of the employee’s salary.
  2. A replacement of the three-year limit with a lifetime limit.
  3. An increase in the value of shares granted under the scheme from €250,000 to €300,000.

 

Further clarification on these measures is expected in the forthcoming Finance Bill.

 

 

Film Relief

Film relief, which was due to expire at the end of 2020, has been extended until 2024.

 

 

Three Year Start Up relief

The Start up Relief from corporation tax has been extended until end of 2021.

 

 

Controlled Foreign Company (CFC) rules

Controlled foreign corporation rules are to take effect from 1st Jan 2019.

 

 

Capital Gains Tax Exit Tax

CGT Exit Tax at 12½% is to apply from midnight on 9th October 2018 for companies ceasing to be Irish tax resident on any unrealised capital gains arising as well as in situations where the company transfers assets out the State.  This new exit tax regime is to ensure compliance with the EU Anti-Tax Avoidance Directive (ATAD) by 1st January 2020.

 

 

 

AGRICULTURAL SECTOR

 

Income averaging

The Minister has proposed removing the restriction on income averaging for farmers with income from a non-farming source.

 

The current situation is that where a farmer or his/her spouse

a)      carries out another trade or profession or

b)      owns more than 25% of the share capital of a trading company

then they cannot avail of the income averaging provisions.

 

 

Stamp Duty Relief for Young Trained Farmers

The Young Trained Farmer Stamp Duty Relief which was due to expire at the end of 2018 will be extended for a further three years to 31st December 2021.

 

 

Stock Relief

The current stock relief measures will be extended for a further 3 years up to and including 31st  December 2021.

 

 

 

PROPERTY TAX

 

Interest relief for landlords

Interest relief on loans used to purchase, improve or repair a rental property will be increased from 85% in 2018 to 100% in 2019.

 

 

Review of local property tax

Any future changes will be moderate and affordable.

 

 

 

 

INDIRECT TAX

The Minister confirmed that the reduced 9% VAT rate which applies to certain tourism activities will be increased 13½% from 1st January 2019.

 

The 9% VAT rate which applies to the provision of facilities for taking part in sporting activities is being retained.

 

The 9% VAT rate which applies to certain printed matter  will also be retained, e.g. newspapers

 

The VAT rate on e-books and electronically supplied newspapers will be reduced from 23% to 9% with effect from 1st January 2019.

 

 

 

 

CAPITAL ACQUISITIONS TAX

 

CAT Threshold

The CAT Group A tax free threshold has been increased to €320,000 for gifts and inheritances received on or after 10th October 2018.

Group A generally applies to gifts and inheritances from parents to their children.

 

 

 

Additional Measures

  • The VRT relief available for hybrid vehicles including plug-in electric hybrids is being extended for one year i.e. until 31st December 2019.
  • A 1% VRT surcharge will apply to diesel engine passenger vehicles registered in Ireland from 1st January 2019.  This VRT rate is being introduced across all VRT bands.
  • Betting Duty on bets entered into by a bookmaker with an individual in Ireland will be increased from 1% to 2% effective from 1st January 2019.
  • From 1st January 2019, the duty on commissions earned by betting exchanges or intermediaries which are used by persons in Ireland will be increased from 15% to 25%.
  • The measure to allow accelerated capital allowances for employer provided fitness and childcare facilities, as introduced by Finance Bill 2017, will now take effect from 1st January 2019.
  • An accelerated capital allowances scheme will be introduced for refuelling equipment and gas propelled vehicles.