Business Tax

Ireland has legislated for the Pillar Two rules with effect from:

• 1^st January 2024 for the Income Inclusion Rule and
• 1^st January 2025 for the Under Taxed Profits Rule

The Pillar Two rules provide that income of large groups is taxed at a minimum effective tax rate of 15% on a jurisdictional basis.

These rules apply where the annual global turnover of the group exceeds €750m in two of the previous four fiscal years.

Ireland signed up to the OECD Two Pillar agreement in October 2021.

The new minimum tax rate, which is effective from the 1^st of January 2024, sees an increase from the previous corporate tax rate of 12.5% to 15%, for certain large companies.

Ireland will continue to apply the 12½% corporation tax rate for businesses outside the scope of the agreement, i.e. businesses with revenues of less than €750 million.

There are special rules for intermediate parent entities and partially owned parent entities as well as certain exclusions.

It is understood that Revenue estimates approximately 1,600 multinational entity groups with a presence in Ireland will come in scope of Pillar 2.

In addition, the EU Minimum Tax Directive (2022/2523) provides the option for Member States to implement a Qualified Domestic Top-up Tax (QDMTT).

A domestic top-up tax, introduced in Ireland from 1^st January 2024, allows the Irish Exchequer to collect any top-up tax due from domestic entities before the application of IIR or UTPR top up tax.

The QDTT paid in Ireland is creditable against any IIR or UTPR top up tax liability arising elsewhere within the group.

It is important to keep in mind that IIR or UTPR top up tax may not apply in relation to domestic entities in circumstances where the domestic top-up tax has been granted Safe Harbour status by the OECD.

As there will be separate pay and file obligations and standalone returns for IIR, UTPR and QDTT, Revenue guidance material will be provided, in due course, in relation to all administrative requirements.

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.

From 1^st January 2024 employers will be required to report, collect and remit Income Tax, USC and PRSI, under the PAYE system, on any gains arising on the exercise, assignment or release of unapproved share options by employees and/or directors.  From 1^st January 2024, the tax collection method for share option gains will become a real-time payroll withholding obligation for the employer instead of the individual self-assessment system known as the Relevant Tax on Share Options (RTSO) system.

These new rules are a welcome development for employees and directors who, from 1^st January 2024, will no longer be responsible for filing and submitting Income Tax, USC and PRSI arising on the exercise of their share options.

Employees may still, however, be required to file an Income Tax Return for a relevant tax year, if that individual remains a “chargeable person.”

The due date for such returns is 31st March 2024 and there are different returns required depending on the type of share scheme operated / share remuneration provided.

Penalties for failure to file Returns may apply.

The following Forms are required for the following share schemes:

1. Form RSS1 for share options and any other rights to acquire shares or assets awarded to employees and Directors. https://www.revenue.ie/en/employing-people/documents/form-rss1.xlsm

2. Form KEEP1 – Key Employee Engagement Programme (KEEP) – Details of qualifying share options granted. https://www.revenue.ie/en/employing-people/documents/form-keep1.xlsm

3. Form ESOT1 – Employee Share Ownership Trust (ESOT) – Details of approved Employee Share Ownership Trust (ESOT) schemes. https://www.revenue.ie/en/employing-people/documents/form-esot1.pdf

4. Form ESS1 for details of Approved Profit Sharing (APSS) schemes. https://www.revenue.ie/en/employing-people/documents/form-ess1.xlsm

5. Form SRS01 for details of Save As You Earn Schemes (SAYE) https://www.revenue.ie/en/employing-people/documents/form-srso1.pdf

6. Form ESA – Restricted Stock Units (RSUs), Discounted / Free / Matching Shares, Employee Share Purchase Plans (ESPP), Restricted Shares, Convertible Shares, Forfeitable Shares, Phantom Shares, Stock Appreciation Rights, Growth/Hurdle/Flowering Shares and other Shares. https://www.revenue.ie/en/employing-people/documents/form-esa.xlsm

In circumstances where employers have globally mobile employees working outside Ireland for part of the year, the gains arising on the exercise of the stock option may need to be apportioned based on the number of days those employees worked in Ireland during the grant to vest period.  Employers will need to monitor the Irish workdays for these employees throughout the entire vesting period of the options.  Employers will also need to determine whether the stock option gain is exempt from PRSI.

Consideration must be given as to how the tax liabilities will be funded, especially in situations where there is insufficient income to cover the payroll taxes, where the globally mobile employee is not subject to Irish tax at the date of exercise but a portion of the gain has given rise to an Irish tax liability or where the employee or director has ceased their employment with the organisation. For example, by introducing a “sell to cover” mechanism.

In Summary:

• The RTSO system will be abolished with effect from 1^st January 2024.

• From 1^st January 2024, taxes arising on stock option gains will be collected through the payroll system.

• Currently there are no proposed changes that affect the obligation to file an annual RSS1 informational return by the employer. Therefore, the reporting obligations for share options by employers remain due on or before 31^st March of the following tax year.

• Share Option gains realised before 31^st December 2023 will be liable to tax under the self-assessment system with the employee being responsible for filing a Form RTSO1 along with the relevant tax payment within 30 days of the date of exercise.

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.

Filing an annual return is a legal obligation for every company registered in Ireland.  This is a requirement even if the company hasn’t generated a profit or hasn’t started trading.

There is an obligation on the company officers, being the Directors and Secretaries, to ensure that the annual return is correctly filed with the Companies Registration office.

Failure to comply with this regulation can have serious implications including:

1. Late filing fees
2. loss of audit exemption for two years.
3. Strike off and dissolution of the company
4. Prosecution of the Company and/or its Director

For further information, please click link: CRO – Annual Return – Missed Deadlines

An annual return, also known as Form B1, is a document that every company registered in Ireland must file with the Companies Registration Office (CRO) every year.

An Irish company’s first Annual Return is due within six months of incorporation. No accounts are required with the first Annual Return.

All subsequent Annual Returns must be filed every twelve months.

For second and subsequent annual returns, companies are required to file their annual return or B1, along with their financial statements, within 56 days of the ARD.

An Annual Return Date (ARD) of a company is the latest date to which an annual return must be made up.

An Annual Return Date (ARD) must be filed no more than nine months from the financial year end. For example, if the Irish company has a 31^st December year end, their latest annual return date would be 30th September.

The Annual Return date can be changed from the second Annual Return onwards but no more than once every five years.  A company cannot, however, extend the ARD more than six months from the original ARD and no more than nine months from the financial year end.  The ARD can be set to a later date by filing Form B1B73.  For further information, please click: https://www.cro.ie/en-ie/Annual-Return/Financial-Year-End-Date

The annual return must accurately reflect the company’s details as of the Annual Return Date and include information about the company directors, secretary, registered office, share capital, shareholder details as well as confirmation that the financial statements are attached.  Since 11^th June 2023 Directors are required to disclose their PPS numbers when filing the B1 form and if they do not have a PPSN, RBO numbers and/or VINs can be used.

It is the responsibility of the Board to approve the financial statements for a company. Therefore, it is advisable that a meeting should be held before the financial statements are filed in the CRO.

To file an Annual Return:

1. Complete the B1 Form through CORE or an approved software package.
2. Upload the signed financial statements and/or other required documents in PDF.
3. Download a signature page or request signature page by email.
4. It’s important to keep in mind that the signed financial statements must be uploaded before the signature page is generated.
5. The signature page must be signed by two company officers e.g. one Director and one Secretary. In other words, it cannot be the same person.
6. The signature page cannot be digitally signed.
7. There is an option for an Electronic Filing Agent to sign on behalf of the company. To do this, a Form B77 must be filed.
8. There is an online filing fee of €20.

For further information, please click: https://www.cro.ie/en-ie/Annual-Return/Filing-Electronically

Central Register of Beneficial Ownership

All Irish companies now have a statutory obligation to file their Beneficial Ownership information with the Central Register of Beneficial Ownership within five months from the date of incorporation.

For existing companies, if there is any change in the beneficial ownership details, the Central Register of Beneficial Ownership must be updated within fourteen days of the change.

Unlike the B1 Annual Return above, there is no requirement to make an annual filing with the RBO.

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so.. This information should not be acted upon without full and comprehensive, specialist professional advice.

The Companies Registration Office (CRO), under Section 35 of The Companies Corporate Enforcement Act (2021), will require Company Directors to provide their personal public service numbers (PPSNs) when filing the following forms. This will be a mandatory requirement from Sunday, 11^th June 2023:

1. Form A1- Company incorporation,
2. Form B1 – Annual return,
3. Form B10 – Change of director and, or in their particulars,
4. Form B69 – Notification by the individual that he/she/they has/have ceased to be a director or secretary.

Directors’ PPSNs will be required for validation purposes only.  PPS numbers, RBO numbers and VINs will not be accessible on the public register.

The purpose of the new disclosure requirement is to reduce the risk of identity theft by introducing additional identity validation checks.  This will affect individuals who may, wrongly, hold more than twenty five active directorships under different name variations.

It is important to note that non-compliance will constitute a Category 4 offence.

Please be aware that if the PPS Number does not match the PPS Number held by the Department of Employment and Social Protection, this may result in the submission being rejected.  Therefore, to avoid any discrepancies and delays with filings, Directors should act now to make sure that the information held by the DEASP is consistent with that held by the CRO.  It’s important to keep in mind that CRO rejections could lead to late filing penalties and delays in meeting annual return filing dates.

In circumstances, where a director does not have a PPS Number, but has been issued with an RBO number in connection with filings with the Central Register of Beneficial Ownership, this RBO number can be used for the relevant CRO filings.

In situations where a director does not have either a PPS number or an RBO transaction number, they must apply to the CRO for an “Identified Person Number” by means of a Form VIF i.e. Declaration as to Verification of Identity.

The VIF requires the name, address, date of birth and nationality of the individual. It must be declared as true by the director and verified by a notary.

TO DO

• Directors should check that their personal details are consistent with those on record with the Department of Social Protection.  Where DSP records need to be checked or amended, please be aware that Directors must do so themselves, as filing agents are unable to do so on their behalf

• Directors without a PPSN or RBO number should take steps to obtain a VIN.

For further information, please click the link below:

https://www.cro.ie/en-ie/About-CRO/Whats-New/PPSN-FAQ?_cldee=6g_4nKxbwJzYd6gOdHH3WoVFU8RM7T2gir_xOhjUaYHBA2OGEzy3hGo7s18ZbYuP&recipientid=contact-7f5d2b33fbf9e71180fb3863bb358f88-9a94001c46624edb84969e8300fbbb53&esid=6bd3fe70-e006-ee11-8f6e-6045bd905fa8

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so.. This information should not be acted upon without full and comprehensive, specialist professional advice.

When setting up a foreign company in Ireland, the first step is to decide on the most appropriate structure – a branch or a subsidiary company.

• A branch is not a separate legal entity in its own right.
• Instead, it’s an arm of the external company operating in Ireland.
• In other words, a branch office is an extension of the parent company abroad.
• A branch performs the same business operations and operates under the legal umbrella of the parent/holding/external company.
• The parent/external/holding company has complete control over any of the branch’s decisions.
• All liabilities incurred by the branch are ultimately those of the head office located overseas.

• A subsidiary, on the other hand, is an independent legal entity.
• It can be either partially or wholly owned by the foreign company.
• It has the same compliance requirements as a that of a Limited Company in Ireland.
• A subsidiary is generally considered to be more tax-efficient than a branch because it’s liable to Irish Corporation Tax on its worldwide income.
• The subsidiary will be required to file an A1 and Constitution with the Companies Registration Office.

SUBSIDIARY

Registering a subsidiary is just like setting up a new company in Ireland.

It is an independent legal entity which is different to the parent or holding company.

Incorporation of a subsidiary requires the completion of Irish Companies Registration Office (CRO) statutory documentation and the drafting of a constitution. The only difference is that the parent company must be either the sole or majority shareholder of the new company i.e. holding at least 51% of the shares.

The subsidiary is generally registered a private company limited by shares.

When setting up a company with another company as the shareholder, someone must be appointed who is authorised to sign on behalf of the company.  This would usually be a Director or another authorised person.

The liability of the parent company is limited to the share capital invested in the Irish subsidiary

With a Parent company as the shareholder, all the existing shareholders of that parent company have the same percentage stake in the new Irish subsidiary.

As with all new Irish companies, the subsidiary will require at least one director who is an EEA resident and a company secretary.  It will also be required to have a registered office address and a trading office within the State.  The company must purchase an insurance bond if none of the directors are EEA resident, unless, the subsidiary can demonstrate that it has a “real and continuous economic link” to Ireland.

An Irish subsidiary company can avail of the 12½% Corporation Tax rate on all sales, both within Ireland as well as internationally.

BRANCH

A branch is not a separate legal entity.

It is generally considered to be an extension of its parent company abroad.

The parent company is fully liable for the Branch and its activities.

An Irish branch will only be allowed to carry out the same activities as the parent company.

In accordance with the Companies Act 2014, a branch must be registered within thirty days of its establishment in Ireland.

As a branch is deemed to be an extension of the external company, its financial statements would be consolidated with those of the parent company and legally it cannot enter into contracts or own property in its own right.

An Irish branch company only qualifies for the 12½% Corporation Tax on sales within Ireland.

A Branch is required to file an annual Return with a set of financial statements of the external company, with the CRO.

Disclaimer This article is for guidance purposes only. Please be aware that it does not constitute professional advice. No liability is accepted by Accounts Advice Centre for any action taken or not taken based on the information contained in this article. Specific, independent professional advice, should always be obtained in line with the full, complete and unambiguous facts of each individual situation before any action is taken or not taken.  Any and all information is subject to change.

On 29th July 2019 the Central Register of Beneficial Ownership was launched in Ireland.  This new legal requirement forms part of Ireland’s implementation of the 4th EU Anti-Money Laundering Directive.

The new Central Register of Beneficial Ownership requires that all companies file details of their Ultimate Beneficial Owners with the Companies Registrations Office.

Under the Regulations, the commencement date for the obligation to file on the Central Register was 22^nd June 2019 and companies must deliver their beneficial ownership information to the CRO by 22^nd November 2019.

Going forward, newly incorporated companies will have five months from the date of incorporation to register their information.

It is considered a breach of statutory duty not to file within the deadline date.

This is a new filing requirement, in addition to the other usual requirements, for example, filing a B1 annual return.

A beneficial owner is defined an individual/natural person who owns or controls directly or indirectly:

1. more than 25% of the equity
2. more than 25% of the voting rights or
3. has capacity to control the company by other means.

In situations where no beneficial owners can be identified, the names of the directors, senior managers or any other individual who exerts a dominant influence within the company must be entered in the register of beneficial owners.  In other words, where the beneficial owners are unknown, the company must take “all reasonable steps” to ensure the beneficial ownership information is gathered and recorded on the register.

The following information is required to be filed with the RBO in respect of each beneficial owner:

1. The name,
2. Date of Birth,
3. Nationality,
4. Residential Address,
5. PPS Number, if applicable – The Registrar will not disclose any PPS Numbers and will only use them for verification purposes.
6. A Statement of the nature and extent of the ownership interest held or extent of the control exercised,
7. The date of entry on the register as a beneficial owner,
8. The date of ceasing to be a beneficial owner.

For non-Irish residents who do not hold a PPS number, a Transaction Number must be requested from the Companies Registration Office.  This is done by completing and submitting a Form BEN2 and having it notarised in the relevant jurisdiction.

Failure to comply with the Regulations is an offence and shall be liable on summary conviction to a Class A fine, or conviction on indictment to a fine up to €500,000.

Going forward, any changes to a Company’s Internal Beneficial Ownership Register must be updated in the Central Register within fourteen days of the change having occurred.

Once a company has been dissolved the registrar will delete all information held in relation to that entity, after the expiration of ten years.

Who has access to this information?

As required by EU anti-money laundering laws, members of the public will have restricted access to the CRBO including:

• The name, month/year of birth, country of residence and nationality of each beneficial owner.
• The nature and extent of the interest held or the nature and extent of the control exercised by the beneficial owner.

The 2019 regulations provide for the following to have unrestricted access to the Central Register:

• An Garda Síochána
• The Revenue Commissioners
• Members of the Financial Intelligence Unit Ireland
• The Criminal Assets Bureau

For taxation purposes, Capital Allowances are deemed to be amounts a business can deduct from its profits in respect of “qualifying Capital Expenditure” which was incurred on the provision of certain assets (i.e. plant and machinery) used for the purposes of the trade.

As depreciation is not allowable for the purposes of calculating tax, Capital Allowances allow the taxpayer to write off the cost of the asset over a certain period of time.

The 2018 Finance Act introduced the following amendments to Capital Allowances as follows:

Accelerated Capital Allowances for Energy-Efficient Equipment

Section 285A TCA 1997 came into effect on 9^th October 2008 to provide relief to companies purchasing energy efficient equipment for the purposes of their trade.

This Capital Allowance Relief was provided in the form of a deduction which equalled 100% of the value of the equipment in the year of purchase provided certain conditions were met (see Schedule 4A TCA 1997).  In other words, this relief reduces the taxable profits, in year one, by the full amount incurred on the purchase of the equipment.

Finance Act 2017 amended the definition of “relevant period.”  As a result, the qualifying period was extended until 31^st December 2020.

On 14^th February 2018, Revenue issued eBrief No. 22/2018 confirming that the Tax and Duty Manual has been updated to reflect the extension of the relief to 31st December 2020.

Section 17 FA 2018 contains further amendments to the scheme.

It sets out criteria as to which products qualify for accelerated wear and tear allowances.

To qualify for the relief, the equipment must be new.

Section 17 FA 2018 makes reference to the Sustainable Energy Authority of Ireland (SEAI) being allowed to establish and maintain a list of energy-efficient equipment under the scheme.  In summary, in order for energy equipment to qualify for the accelerated capital allowances, it must appear on the SEAI list.  These amendments remove the requirement for government to issue Statutory Instruments, on a regular basis, setting out the criteria for “qualifying assets.”

This section of legislation comes into operation on 1st January 2019.

Energy-efficient equipment that has not been approved but is deemed to be plant and machinery can of the normal wear and tear allowances being 12½% over an eight year period.

Capital allowances on childcare and fitness centre equipment and buildings

Section 12 Finance Act 2017 introduced a new accelerated capital allowances regime for capital expenditure incurred on the purchase of equipment and buildings used for the purposes of providing childcare services or fitness centre facilities to employees.

The section amended the Taxes Consolidation Acts 1997 to include two new sections: s285B TCA 1997 and s843B TCA 1997.

The Relief was subject to a Commencement Order which was never issued.

Section 19 of Finance Act 2018 amends Parts 9 and 36 as well as Schedule 25B of the TCA 1997.

The scheme commences from 1^st January 2019.

Finance Act 2018 amends the definition of “qualifying expenditure” making the relief available to all employers, as opposed to just those carrying on a trade which wholly/mainly involves childcare services or the provision of facilities in a fitness centre.   In other words, the relief will be available to all employers since the restriction that the relief is only available to trades consisting wholly/mainly of the provision of childcare services or fitness facilities has been removed.

Where a person has incurred “qualifying expenditure” on “qualifying plant or machinery” a 100% wear and tear allowance is allowed in the year in which the equipment is first used in the business under Section 285B TCA 1997.

Section 843B TCA 1997 allows employers to claim accelerated industrial buildings allowances of 15% for six years and 10% for the seventh year in relation to capital expenditure incurred on the construction of “qualifying premises” i.e. qualifying expenditure on a building or structure in use for the purpose of providing childcare services or fitness centre facilities to employees of the company.

The facilities must be for the exclusive use of the employees and can be neither accessible nor available for use by the general public.

The relief will not be available to commercial childcare or fitness businesses nor will it be available to investors.

Accelerated Capital Allowances for gas vehicles and refuelling equipment

Section 18 Finance Act 2018 introduced accelerated allowances for gas vehicles and refuelling equipment which provides for an accelerated capital allowances rate of 100% on “qualifying expenditure” incurred between 1^st January 2019 and 31^st December 2021.  This section amends the Tax Consolidation Act of 1997 by inserting Section 285C.

Qualifying expenditure is defined as capital expenditure incurred during the relevant period on the provision of “qualifying refuelling equipment” or “qualifying vehicles” used for the purposes of carrying on a trade.

“Qualifying refuelling equipment” includes the following:

• a storage tank for gaseous fuel
• a compressor, pump, control or meter used for the purposes of refuelling gas vehicles or
• equipment for supplying gaseous fuel to the fuel tank of a gas vehicle.

The equipment in question must be new and installed at a gas refuelling station

“Qualifying vehicle” is defined as a gas vehicle, which is constructed or adapted for:

• the conveyance of goods or burden of any description
• the haulage by road of other vehicles or
• the carriage of passengers.

The vehicles in question must be new and do not include private passenger cars.

This section comes into operation on 1^st January 2019.

Disclaimer This article is for guidance purposes only. Please be aware that it does not constitute professional advice. No liability is accepted by Accounts Advice Centre for any action taken or not taken based on the information contained in this article. Specific, independent professional advice, should always be obtained in line with the full, complete and unambiguous facts of each individual situation before any action is taken or not taken.  Any and all information is subject to change.

Recently I’ve received a number of queries relating to the Irish tax treatment of CFDs or Contracts for Difference.  Although the information available is plentiful and appears to be straight forward, it’s important to be aware that each situation is different and as a result the tax treatment may vary considerably.

Firstly, what is a Contract for Difference?

Essentially it’s a contract between two parties i.e. the investor and the CFD Provider. At the close of the contract, the parties exchange the difference between the opening and closing prices of a specified financial instrument, including individual equities, currencies, commodities, market indices, market sectors, etc.  In other words, two parties take opposing positions on the difference between the opening and closing value of a contract i.e. the price will rise versus the price will fall.

Contracts for Difference offer wide access to different financial instruments from a single account for a fraction of the cost of buying shares.  They do not carry voting rights like ordinary stock and CFD trades on certain Irish stocks are not liable to Stamp Duty.

CFDs can be traded ‘long’ or ‘short’ to speculate on rising or falling markets i.e. the investor speculates that an asset price will rise by buying (long position) or fall by selling (short position).

CFDs do not confer ownership of the investment.  Instead the investor has access to the price performance which includes any dividend or corporate action equivalent.

What is the Irish tax treatment for profits / gains?

Contracts for Difference are treated as Capital Assets liable to Capital Gains Tax UNLESS they are deemed to be held in the course of a financial trade in which case the profits are liable to Income Tax under Case I, Schedule D.

According to Revenue eBrief No. 36/2007:

“The contracts require two parties to take opposing positions on the future value of a particular asset or index. Investments are often made on a margin of 20% of the contract amount. As well as the difference in value of the asset from beginning to end of the contract period, certain other notional income flows are taken into account in calculating the overall gain or loss.

• The first of these is notional interest, calculated on the non-margined value of the underlying asset for the contract duration.
• The second is the notional income which would have been earned by the asset during the contract period.

Where the contract is long (expectation of a rise in price), notional interest is a deduction and notional income a credit in the calculation.

Where the contract is short (expectation of a fall in price), notional interest is a credit and notional income a deduction.

The chargeable gain will be calculated on the gain or loss resulting from the computations above and including a deduction for all necessary broker fees incurred in the full contract.

Actual interest paid, if any, on the margin amount put up will be chargeable under Case III  in the ordinary way and does not come into the CGT calculation.”

What’s the difference between holding Capital Assets and operating a financial trade?

The concept of a “trade” is a matter of interpretation and is usually determined by a number of factors known as “badges of trade.”

For example, a once off transaction would not normally be considered a “trade.”  Depending on the circumstances and the timing it may be liable to Capital Gains Tax or indeed may be exempt from tax.  If, on the other hand, the investor was involved in a large number of transactions throughout the year of assessment then this activity would be most likely be considered to be a trade and therefore liable to Income Tax.

What are the “Badges of Trade”?

There are a number of factors which will determine the existence of a “trade”. There is, however, no decisive test and no legislative definition.  There is considerable case law concerning this issue and in 1954 a Royal Commission was set up in the United Kingdom to consider what factors should be taken into account in deciding whether a trade exists.  A report was published outlining the “Badges of Trade” which are as follows:

1.      THE SUBJECT MATTER OF THE SALE.

While almost any form of property can be acquired to be dealt in, those forms of property, such as commodities or manufactured articles, which are normally the subject of trading, are only very exceptionally, the subjects of investment.

Again, property, which does not yield to its owner an income, or personal enjoyment merely by virtue of its ownership is more likely to have been acquired with the object of a deal than property that does

2.      THE LENGTH OF PERIOD OF OWNERSHIP.

Generally speaking, property meant to be dealt in is realised within a short time after acquisition. But there are many exceptions from this as a universal rule;

3.      THE FREQUENCY OF SIMILAR TRANSACTION.

If realisations of the same sort of property occur in succession over a period of years or there are several such realisations at about the same date a presumption arises that there has been dealing in respect of each;

4.      SUPPLEMENTARY WORK.

If the property is worked on in any way during the ownership so as to bring it into a more marketable condition, or if any special exertions are made to find or attract purchasers, such as the opening of an office or large-scale advertising, there is some evidence of dealing. When there is an organised effort to obtain profit there is a source of taxable income. But if nothing at all is done, the suggestion tends the other way;

5.      THE CIRCUMSTANCES THAT WERE RESPONSIBLE FOR THE REALISATION.

There may be some explanation, such as a sudden emergency or opportunity calling for ready money that negates the idea that any plan of dealing prompted the original purchase;

6.      MOTIVE.

There are cases in which the purpose of the transaction and sale is clearly discernible. Motive is never irrelevant in any of these cases and can be inferred from surrounding circumstances in the absence of direct evidence of the seller’s intentions.

In Summary

1. If goods or services are provided regularly with a commercial motive this will generally indicate the existence of a trade.
2. The length of ownership of the asset can be relevant but not conclusive in determining the existence of a trade.
3. The frequency and number of similar transactions by the same person should also be considered.
4. Making the items more marketable or improving them is generally considered to be an indication of a trade.
5. The intention of making a profit makes the transaction or transactions more likely to be a trade.
6. The nature of the asset may not be relevant in deciding whether or not trade is involved. The purchase/sale of land and/or shares can often be viewed as trading activities once the above factors have been taken into account.

Say an individual is employed in an investments role by day and makes considerable CFD profits in his/her spare time based on a significant number of transactions, how would this income be taxed?

Although opinions published by Revenue in the context of financial services are primarily concerned with group financing and treasury operations I believe they have direct relevance to this situation and should certainly be taken into consideration in ruling in favour of Income Tax Treatment.

In one such case, Revenue believed that the company was trading on the basis that the company was actively managing the business and making strategic decisions regarding financing and treasury operations. Despite the fact that the activities of the company were outsourced (i.e. no individuals were employed in the company), the outsourcing arrangement was managed and controlled by Irish resident directors with the appropriate level of specialized expertise in this area.

In this example, as the individual’s Irish PAYE employment relates to the area of financial services/investments, it would be difficult to see how Revenue could treat his/her C.F.D. activities as anything other than trading activities liable to Income Tax.

In summary, as the C.F.D. relates to a large number of transactions with a profit motive which requires a considerable amount of skill and expertise, it would be highly probable that this income would be liable to Income Tax and not Capital Gains Tax.

IN CONCLUSION

1. Capital Gains Tax will arise on CFD Gains.
2. Capital Gains Tax will arise on the difference between opening and closing values of an asset.
3. Income Tax will arise on deposit interest earned on margin.
4. The margin is the initial equity investment which is usually up to 20% to show the investor can complete the contract on closing.  If there are significantly negative market variations then additional capital will be required by investors so as to avoid forfeiting or losing the full margin deposit.
5. The ‘non-margin’ is defined as the balance which is leveraged or borrowed to purchase the position at the outset of the CFD.
6. Income Tax will arise on the accounting profits if the CFDs are held in the course of a trade.

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so.. This information should not be acted upon without full and comprehensive, specialist professional tax advice.