Tax News

Deduction for Digital Services Taxes

 

 

On 5th August 2022 the Irish Revenue Commissioners issued a new Tax and Duty Manual Part 04-06-03, which provides guidance on the tax deductibility of Digital Services Taxes (DSTs).

 

For full information, please click: https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-04/04-06-03.pdf

 

The guidance provides that certain Digital Services Taxes (DSTs) incurred wholly and exclusively for the purposes of a trade (taxable under Case I and Case II Schedule D) are deductible in calculating the income of that trade for the purposes of computing Irish corporation tax.

 

The Revenue’s position is that Digital Services Taxes are a turnover tax.

 

They are levied on revenues associated with the provision of digital services and advertising and not on the profits.

 

The guidance provides that, in circumstances where the following DSTs have been incurred wholly and exclusively for the purposes of a trade, the Irish Revenue Commissioners will accept that they are deductible expenses in calculating the income of that trade:

  • France’s Digital Services Tax;
  • Italy’s Digital Services Tax;
  • Turkey’s Digital Services Tax;
  • United Kingdom’s Digital Services Tax; and
  • India’s Equalisation Levy.

 

 

The Guidance material doesn’t distinguish between the two forms of equalisation levy under the Indian regime. At this time there is no clear guidance available however, it would be expected that that since both types of levy are so similar that both should be covered. If this situation applies to you, it is advisable to contact the Irish Revenue Commissioners to seek clarification via MyEnquiries.

 

This Guidance should be interpreted as an initial list.  According to The Revenue Commissioners “The list of DSTs above may be updated as required.”

 

Residential Zoned Land Tax (RZLT)

 

 

On 19th July 2022 the Irish Revenue Commissioners published eBrief No. 148/22.

 

 

For full information please click: https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-22a/22a-01-01.pdf

 

 

Residential Zoned Land Tax (RZLT) applies to land that, on or after 1st January 2022, is zoned as being suitable for residential development and is serviced, with certain exclusions.

 

 

It does not apply to existing residential properties.

 

 

Where land is within scope of the tax on 1st January 2022, the tax will be charged from 1st February 2024 onwards.

 

 

RZLT is an annual tax, calculated at 3% of the market value of the land within its scope.

 

 

Owners of residential properties with yards and gardens greater than 0.4047 hectares will be required to register for RZLT, but will not need to pay it.

 

 

Each local authority will be required to prepare and publish a map identifying land within the scope of the tax.  This must be updated annually.

 

 

An owner of land which is zoned as being suitable for residential development and serviced on 1st January 2022 and where this development has not commenced before 1st February 2024 will be liable to file a return and pay the Residential Zoned Land Tax on or before 23rd May 2024, with certain exclusions.

 

 

Where land comes within the scope of the RZLT after 1st January 2022, the tax will be first due in the third year after it comes within scope.

 

 

The tax will continue to be payable each year in respect of the land unless a deferral of the tax applies or the land ceases to be liable to the tax.

 

 

RZLT will operate on a self-assessment basis.

 

 

From 2024 onwards, owners of the land in scope will be required to register for RZLT and then (i) make an annual return to Revenue and (ii) pay any tax liability in May of each year.

 

 

Interest, penalties and surcharges will apply in cases of non-compliance, including undervaluation of the land in scope and late filing of returns, etc.

 

 

Taxation of crypto-assets transactions – Remittance Basis

 

On 27th April 2022 Revenue updated its guidance material to provide clarity on the tax treatment of transactions involving crypto-assets.  This latest publication also provides worked examples.

 

The terms “cryptocurrency” and “cryptocurrencies” are not defined.

 

The Irish Central Bank places cryptocurrencies, digital currencies, and virtual currencies into the same category of digital money. It is important to bear in mind, however, that although defined in this manner, these “currencies” are unregulated and decentralised which means that no central bank either guarantees them or controls their supply.

 

Throughout Revenue’s updated document the term “crypto-asset” is used, which includes cryptocurrencies, crypto-assets, virtual currencies, digital money or any variations of these terms.  Revenue state that the information contained in their most updated guidance is for tax purposes only.

 

Under Section TCA97 Ch4 s71–5, an individual who is resident in Ireland but not Irish domiciled is liable to Irish income tax in full on his/her/their income arising in Ireland, and on “non-Irish income” only to the extent that it is remitted to Ireland.

 

This is known as the remittance basis of taxation.

 

It’s important to keep in mind that the remittance basis of taxation does not apply to income from an office or employment where that income relates to the performance of the duties of that office or employment which are carried out in Ireland.

 

Section 29 TCA 1997 is the charging section for Capital Gains Tax.

 

s29(2) TCA 1997 states that a person who is Irish resident or ordinarily resident and is Irish domiciled is chargeable to Irish CGT on gains on all disposals (on his/her/their worldwide assets) arising in the year of assessment regardless of whether the gains are remitted to Ireland or not.

 

s29(4) TCA 1997 states that an individual who is Irish resident, or ordinarily resident,  but not Irish domiciled is chargeable on gains arising on disposals of Irish assets in the year of assessment as well as on remittances to Ireland in the year of assessment in respect of gains on the disposals of foreign assets.  In other words, an Irish resident/ordinarily resident but non domiciled individual is liable to Irish CGT on remittances in respect of gains arising on the disposal of assets situated outside the state.

 

From professional experience, the location of the crypto asset is often difficult to prove.

 

According to Revenue’s most recent publication:

“… where a crypto-asset exists ‘on the cloud’, it will not actually be situated anywhere and therefore, cannot be
viewed as ‘situated outside the State’.”

 

If the crypto-asset isn’t located anywhere and isn’t, therefore, considered to be a “disposal of an asset outside the state” then the remittance basis of taxation does not apply and the gain arising will be liable to Irish Capital Gains Tax based on the residency rules of the individual.

 

As you can see, it is very much the responsibility of the taxpayer to be able to prove the location where the gain arose on the disposal of the crypto-assets.

 

Revenue have outlined their record keeping provisions in relation to all taxes as follows: https://www.revenue.ie/en/starting-a-business/starting-a-business/keeping-records.aspx

 

In situations where the records are stored in a wallet or vault on any device including a personal computer, mobile phone, tablet or similar device, please be aware that these records must be made available to Revenue, if requested.

 

As with all taxes, full and complete records must be retained for six years in accordance with legislation. It is important to keep in mind that these provisions apply to all taxpayers, including PAYE only taxpayers.

 

 

For further information, please follow the link: https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-02/02-01-03.pdf

 

 

 

Revenue concession for Ukrainian citizens working remotely for Ukrainian employers

 

 

Today, 14th April 2022. the Irish Revenue published guidance (Revenue eBrief No. 090/22) on the tax treatments of Ukrainians, who continue to be employed by their Ukrainian employer while they perform the duties of their employment, remotely, in Ireland.

 

The Guidance material outlines a number of concessions which will apply for the 2022 tax year.

 

 

PAYE

As you’re aware, income earned from a non-Irish employment, where the performance of those duties is carried out in Ireland, is liable to Irish payroll taxes irrespective of the employee’s or employer’s tax residence status. However, by concession, the Irish Revenue are prepared to treat Irish-based employees of Ukrainian employers as not being liable to Irish Income Tax and USC in respect of Ukrainian employment income that is attributable to the performance of duties in Ireland.

 

Ukrainian Employers will not be required to register as employers in Ireland and operate Irish payroll taxes in respect of such income.

 

Please be aware that this concession only relates to employment income which is (a) paid to an Irish-based employee (b) by their Ukrainian employer.

 

 

In order for the above concessions to apply, two conditions must be met:

  1. The employee would have performed his/her/their employment duties in Ukraine but for the war there and
  2. the employee remains subject to Ukrainian income tax on his/her/their employment income for the year.

 

 

 

Corporation Tax

The Irish Revenue will disregard for Corporation Tax purposes any employee, director, service provider or agent who has come to Ireland because of the war in Ukraine and whose presence here has unavoidably been extended as a result of the war in Ukraine.

 

Again, such concessionary treatment only applies in circumstances where the relevant person would have been present in Ukraine but for the war there.

 

For any individual or relevant entity availing of the concessional tax treatment, it is essential that he/she/they retain any documents or other evidence, including records with the individual’s arrival date in Ireland, which clearly shows that the individual’s presence in Ireland and the reason the duties of employment are carried out in the state is due to the war in Ukraine.  These records must be retained by the relevant individual or entity as Revenue may request such evidence.

 

 

For further information, please follow link: https://www.revenue.ie/en/tax-professionals/ebrief/2022/no-0902022.aspx

 

 

VAT and Excise Reductions

 

 

Today the Irish Government announced the following measures to help with the rising costs of energy, in addition to the cost of living measures of €2 billion which were previously announced:

 

  • A temporary reduction in the rate of VAT on the supply of gas and electricity, from 13.5% to 9%, from 1st May until 31st October (at an estimated cost of €46 million to the Exchequer).
  • An additional once off €100 lump sum to households eligible for the fuel allowance (for an estimated 370,000 recipients).
  • A further reduction of 2.7% per litre in the excise levy on marked gas oil or green diesel.
  • The reduced rates of excise duty on petrol (20 cents per litre), diesel (15 cents per litre) and green diesel (2 cents per litre), which were announced last month, will be extended to Budget Day at the end of August (at a cost of €80 million to the Exchequer).

 

The Minister for Finance also confirmed that the Public Service Obligation (P.S.O.) Levy will be set to zero by October 2022.

 

 

For full information, please follow link:  https://www.gov.ie/en/press-release/0a129-government-announces-further-measures-to-help-households-with-rising-cost-of-energy/?_cldee=lcXqBawaGsFsOWw3I_ME4giIjrsplWXd-72lcBtEruyHtX5gNJK0C75jcfN8DtDRoL9I-M69U5_UiLjbKHtHpQ&recipientid=contact-baa265b900fae71180fd3863bb3600d8-34a5f9f973f64e0ead12cc385e40b831&esid=f492a4af-0abc-ec11-983f-6045bd8c5c09

 

Tax charge for non-Irish resident corporate landlords

 

Section 18 of the Finance Bill 2021 brings non Irish resident companies, in receipt of Irish rental income, within the charge to Corporation tax. Previously these companies were liable to income tax on their Irish rental profits.

 

Prior to the Finance Act 2021 amendment, non Irish resident companies, where no Irish branch existed, were liable to income tax at 20% on their rental income while Irish tax resident companies were, instead, liable to corporation tax at 25% on their rental income.

 

In circumstances where non-resident companies dispose of assets which had previously generated Irish rental income, any chargeable gains are now within the charge to corporation tax at 33% as opposed to capital gains tax, which is also at 33%. In other words, this amendment does not give rise to any additional tax as the effective rate of tax is 33% but the Corporate Tax rules now apply as opposed to the Capital Gains Tax rules.

 

There are no restrictions on the carry forward of rental losses and capital allowances in the change from the income tax regime to the corporation tax rules.

 

The payment date for certain affected companies’ preliminary corporation tax for 2022 has been adjusted. Those companies whose accounting period ends between 1st January 2022 and 30th June 2022 have until 23rd June 2022 to pay preliminary corporation tax in a further measure to ease the transition from the Income Tax to the Corporation Tax regime.

 

From today, non-resident corporate landlords will now also be subject to the new interest limitation rules which have been introduced to comply with the EU’s Anti-Tax Avoidance Directives. These new rules link the taxpayer’s allowable net borrowing/financing/leverage costs directly to its level of earnings.  The ILR does this by limiting the maximum tax deduction for net borrowing costs to 30% of Tax EBITDA.  In other words, the ILR will cap deductions for net borrowing costs at 30% of a corporate taxpayer’s earnings before interest, tax, depreciation, and amortisation, as measured under tax principles.

Update of COVID Restrictions Support Scheme – Expansion of supports for businesses impacted by COVID-19 restrictions

 

On 21st December 2021, the Government announced the expansion of supports for businesses impacted by public health restrictions that came into effect from 20th December 2021 to 31st January 2022 including changes to:

  1. the Employment Wage Subsidy Scheme (EWSS)
  2. the Covid Restrictions Support Scheme (CRSS) and
  3. the Debt Warehousing Scheme

 

A summary of the developments to the schemes is outlined below.

 

 

1. The Employment Wage Subsidy Scheme (EWSS)

On 9th December 2021 it was announced that the enhanced subsidy rates under the EWSS will continue until 31st January 2022.  In other words these enhanced rates will be paid in respect of payroll submissions which have pay dates in December 2021 and January 2022.

 

Today, Minister Donohoe confirmed that the EWSS will also be reopened for certain businesses who would not otherwise be eligible for the scheme.

 

Employers can re-join the scheme from January 2022 if they meet the following conditions:

  1. they previously claimed support under EWSS which they were correctly entitled to
  2. they anticipate that their combined turnover for December 2021 and January 2022 will be down by at least 30% as compared with their combined turnover for December 2019 and January 2020.
  3. for businesses established between 1st May 2019 and 31st December 2021 their average monthly turnover for December 2021 and January 2022 must be down by at least 30% when compared with the average monthly turnover across the period August 2021 to November 2021 or on a pro-rata basis in circumstances where the business was established during this period.
  4. The business must have tax clearance.

 

Employers who qualify for re-entry to the EWSS will receive support from 1st January 2022 onwards. These businesses can remain in the scheme until its expiry date of 30th April 2022.

 

Please bear in mind that the business must experience a 30% reduction in (a) turnover or (b) customer orders during a particular reference period to qualify.

 

Businesses that commence trading operations from 1st January 2022 onwards will not be eligible for the scheme.

 

For further information, please click: https://www.revenue.ie/en/corporate/press-office/budget-information/2021/crss-guidelines.pdf

 

 

 

2. The Covid Restriction Support Scheme (CRSS)

From 20th December 2021, the CRSS opens to businesses within the hospitality and indoor entertainment sector such as bars, restaurants and hotels as well as theatres and cinemas that are now required to close by 8pm each night until 31st January 2022.

 

The eligibility criteria regarding the reduction in turnover has also increased to no more than 40% of 2019 turnover.  Previously it was no more than 25% of the 2019 turnover.

 

Companies, self-employed individuals and partnerships that carry out a taxable trade can apply for the CRSS.

 

A qualifying person who meets the revised eligibility criteria can make a claim to Revenue in respect of each week that the eligible business/trading activity is affected by the imposed Covid restrictions.

 

A qualifying person who carries on such a business is eligible to make a payment claim under the Covid Restrictions Support Scheme if:

  • the weekly turnover from the relevant business activity in the claim period will be no more than an amount equal to 40% of the average weekly turnover in a reference period.
  • For most businesses the reference period will be 2019.
  • For businesses established between 26th December 2019 and 26th July 2021, the reference period will depend on the date on which the business was established.
  • the eligible business must have tax clearance for the relevant claim period and must intend to resume trading after the Covid-19 restrictions have been lifted.

 

For businesses established in the period between 13th October 2020 and 26th July 2021, they are eligible to apply for support under the scheme, however, they are first required to register for CRSS via ROS.  It will only be possible to make a claim once the business has an active CRSS registration.

 

If the eligible business meets the revised criteria to qualify for the scheme and has previously received CRSS payments in relation to a business premises carrying out a trading activity which was affected by the current public health restrictions, this business can make a CRSS claim using the ROS e-Repayments facility from 22nd December 2022.

 

Claims can be made in blocks of up to three weeks at a time.  The respective amounts due will be paid by Revenue in one single payment. The normal repayment period is three days from the date the claim was submitted.

 

In circumstances where a qualifying person carries on more than one eligible business activity from separate/different business premises, then it is possible to make a separate claim in relation to each trading /business activity.

 

If it’s possible for the business to reopen without having to prevent or significantly restrict access to it’s premises, then this business will not qualify for CRSS.  A business will not be eligible for the CRSS for periods where it chooses or decides not to open.

 

In situations where it is not feasible for a qualifying person to continue carrying on a relevant business activity during the period of restrictions, a claim for support under the CRSS can still be made.  This is on condition that the eligibility criteria have been met. In order to qualify, the person must have actively carried on the relevant business activity up to the date the latest public health restrictions were imposed and must intend to continue carrying on that same activity once those restrictions have been eased.

 

The weekly payment is calculated as follows

  • 10% of average weekly turnover up to €20,000 i.e. €2,000
  • 5% of average weekly turnover in excess of €20,000 up to a maximum of €60,000 i.e. €3,000
  • The maximum payment is €5,000 per week.

 

For the purposes of the CRSS, the “Average weekly turnover” is defined as:

  • the average weekly turnover in 2019 in the case of a business established before 26th December 2019,
  • the average weekly turnover between 26th December 2019 and 12th October 2020 in the case of a business established during that period, or
  • the average weekly turnover in the period 13th October 2020 to 26th July 2021 in the case of a business established during that period.

 

For further information, please click the link: https://www.revenue.ie/en/corporate/press-office/budget-information/2021/crss-guidelines.pdf

 

 

 

3. Debt Warehousing Scheme

The Revenue Commissioners have confirmed that November/December 2021 VAT liabilities and December 2021 PAYE (Employer) liabilities will be automatically warehoused for businesses which are already availing of the scheme.

 

The Government confirmed that the Covid restricted trading phase of the Debt Warehousing Scheme (Period 1) will be extended by three months to 31st March 2022 for taxpayers who are eligible for the COVID-19 support schemes. This effectively means that tax debts arising for such affected businesses in the first three months of 2022 can be warehoused.

 

The zero interest phase of the Debt Warehousing Scheme or Period 2 will begin on 1st April 2022 for those businesses and will run until 31st March 2023.

 

For further information, please click the link: https://www.revenue.ie/en/corporate/communications/documents/debt-warehousing-reduced-interest-measures.pdf

 

Revenue announces extension to ROS Pay and File deadline 2021

 

 

The Revenue Commissioners acknowledge the on-going efforts by taxpayers and agents and in light of the current Covid-19 developments, the Pay and File deadline for ROS customers has been extended to Friday, 19th November at 5.00pm.

 

 

For full information, please follow link: https://www.revenue.ie/en/tax-professionals/ebrief/2021/no-2112021.aspx

 

 

Digital Games Tax Credit

 

 

On 12th October 2021 the Irish Government announced the introduction of a Digital Games Tax Credit, i.e. a refundable Corporation Tax Credit available to digital games development companies.

 

On 21st October, Section 33 of the Finance Bill introduced section 481A TCA 1997 in relation to the new tax credit for the digital gaming sector which provides relief at a rate of 32% of the qualifying expenditure incurred in the development of digital games (i.e. the design, production and testing of a digital game) up to €25 million.

 

In other words, the credit of 32% will be on the lower of:

  1. 80% of the qualifying expenditure per project or
  2. €25 million per project

 

In order to qualify for the relief, the minimum expenditure per project is €100,000.

 

The digital gaming corporation tax credit will be available up to 31st December 2025.  

 

This tax credit is available to companies who are resident in Ireland, or who are EEA resident and operate in Ireland through a branch or an agency.

 

 

To qualify for this tax credit, the digital game must be issued with one of two types of Certificate from the Minister for Tourism, Culture, Arts, Gaeltacht, Sport and Media:

  1. An interim certificate which is issued to companies who are in the process of developing their game or
  2. A final certificate which is issued to companies who have completed the development of their game.

 

A digital games development company may not make a claim for the tax credit unless it has been issued with either an interim or a final certificate.

 

If a company has been issued with an interim certificate, it can claim the tax credit within twelve months of the end of the accounting period in which the qualifying expenditure is incurred.

 

Relief will not be available for digital games produced mainly for the purposes of advertising or gambling.

 

A digital game development company will be required to sign an undertaking in respect of “quality employment” which is similar to the requirements contained in section 481 TCA 1997 for tax relief for investment in films.

 

A claimant company will not be allowed to qualify for any additional tax relief under Section 481 Film Relief or the R&D tax credit.

 

As the credit will require EU state aid approval, it is to be introduced subject to a commencement order.

 

EWSS Eligibility from 1st July 2021

 

The Finance (Covid-19 and Miscellaneous Provisions) Bill 2021 has extended the Employment Wage Subsidy Scheme (EWSS) until 31st December 2021.

 

It also amended the comparison periods for determining eligibility for EWSS for pay dates from 1st July 2021.

 

The main criterion for eligibility is that employers must be able to prove that they were operating at no more than 70% of either (a) turnover or (b) customer orders received for the period 1st January to 30th June 2021 as compared with 1st January to 30th June 2019.  It must also be able to clearly demonstrate that this disruption was caused by Covid19.

 

In other words, an employer must be able to show, to the satisfaction of Revenue Commissioners, that their business is expected to suffer a 30% reduction in turnover or customer orders, which was due to Covid19.

 

Simultaneously, Revenue introduced a new requirement for employers to submit a monthly Eligibility Review Form (ERF) on ROS.  The ERF requires (a) data relating to actual monthly VAT exclusive turnover or customers order values for 2019 in addition to actual and projected figures for 2021 for all relevant businesses as well as (b) a declaration.

 

The initial submission should be made between 21st and 30th July 2021 and by 15th of every month from August onwards.

 

On 15th of every month during the operation of this scheme, employers will be required to provide the actual results for the previous month, together with a review of the original projections they provided so as to ensure they continue to remain valid.

 

The eligibility for EWSS must be reviewed on the last day of each month.  If the business is deemed ineligible, then that business must de-register for EWSS from the following day.

 

If, however, the situation changes, then the business can re-register again.

 

The following subsidy rates, based on employee’s gross pay per week, will continue to apply for the months of July, August and September 2021 as follows:

  • €400 and €1,462 gross per week, the subsidy is €350
  • €300 and €399.99 gross per week, the subsidy is €300
  • €203 and €299.99 gross per week, the subsidy is €250
  • €151.50 and €202.99 gross per week, the subsidy is €203.

 

Additional Points:

  1. EWSS support is available for Employers with a valid Tax Clearance Certificate, providing they can demonstrate that the Covid-19 Pandemic disrupted their business resulting in a reduction in their turnover or customer orders by at least 30%.
  2. Childcare businesses which have been registered in line with Section 58C of the Child Care Act 1991, are not required to meet the 30% reduction in turnover or customer order test to be eligible.
  3. As and from 1st July, 2021, the eligibility criteria for the scheme will be calculated with reference to a twelve month period, as opposed to the six month period, as before.
  4. Revenue requires employers to retain appropriate documentation, including copies of projections, to demonstrate continued eligibility over the specified period.
  5. Employers must operate normal deductions of Income Tax, USC and employee PRSI from employees’ wages/salaries on all EWSS payments through the payroll. A reduced rate of employer PRSI of 0.5% applies in relation to wages/salaries which are eligible for the subsidy payment.
  6. If an employer fails to complete and submit the EWSS Eligibility Review Form, this will result in the suspension of EWSS subsidy payments by Revenue.

 

For further information please visit: https://www.revenue.ie/en/employing-people/ewss/how-to-claim-for-employees-and-subsidy-rates.aspx