Tax News

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

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 21^st 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.

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.

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 1^st January to 30^th 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 

The Registrar of Companies has decided to extend the filing deadline for companies with an Annual Return Date falling on 30th September 2020 or later  until Friday, 11 June 2021.

The extension of the deadline from 28th May 2021 was in recognition of difficulties being experienced when trying to file Annual Returns in the run-up to the filing deadline, which the CRO are currently working to resolve.

For further information, please click the link: https://www.cro.ie/en-ie/About-CRO/Latest-News/filing-extension?

From 21st May 2021 Revenue will recommence their assessment of the tax clearance status of businesses.

Please be aware that this may result in the rescinding of the tax clearance status of businesses that are currently in receipt of the EWSS and/or the CRSS.  It is essential to check the status of your tax clearance as your business may becoming ineligible to receive further payments under these schemes until the compliance issues concerned are fully resolved.

If Revenue have contacted you to remind you of your requirement to file outstanding returns or to address other compliance issues in order to retain your tax clearance status, please make sure you do so as a matter of urgency.

In summary, businesses which are reliant on the EWSS and/or the CRSS should take immediate action by contacting Revenue and addressing the outstanding issues.

Ireland’s Research and Development tax credit system is a valuable tax based incentive, providing major benefits to both multinational companies and SMEs operating in Ireland.  The R&D tax credit was first introduced in the Finance Act 2004 and has been subject to various amendments in the subsequent Finance Acts.

The credit operates by providing up to 25% of R&D expenditure incurred by a company on qualifying R&D activities (both revenue and capital) in a tax credit or in cash (subject to certain conditions being met). This 25% tax credit can be claimed in addition to the normal 12½% revenue deduction available for the R&D expenditure.  Therefore, the total tax benefit to a limited company is 37½% being the 12½% standard corporation tax rate plus the 25% R&D Tax credit.

How can the Credit be used?

Companies are entitled to a credit of 25% of the incremental R&D expenditure incurred for periods commencing on or after 1st January 2015.

The credit can be used to:

• Reduce the company’s corporation tax liability of the current period.  Where the credit exceeds the corporation tax liability for the current year, the excess can be carried forward indefinitely to offset against future corporation tax liabilities or
• Reduce the corporation tax liability of the previous year i.e. the company can make a claim for the excess to be carried back or offset against the preceding period’s corporation tax liability or
• If unused, the credit can be refunded by the tax authorities subject to certain restrictions.  The only restriction in obtaining a cash refund is that the R&D credit refund cannot exceed the PAYE/PRSI remitted by the company to Revenue in the last two years or the corporation tax liability for the prior ten years if higher.

The claim must be made within one year of the end of the accounting period in which the expenditure has been incurred.

Broadly,

It can alternatively be used as a key employee reward mechanism to remunerate R&D staff effectively, tax free subject to certain conditions.  The effective income tax rate for such key employees may be reduced to a minimum of 23%, provided certain conditions are met by the company and the individual.

Revenue published Tax and Duty Manual Part 29-02-03 – Research and Development (R&D) Tax Credit today.

These updated guidelines clarify Revenue’s treatment of rental expenditure as well as including information on the treatment of subsidies received under (i) the Temporary Wage Subsidy Scheme (TWSS) and (ii) the Employment Wage Subsidy Scheme (EWSS).

According to previous guidance material on this matter issued on 1st July 2020 Revenue’s position was that “rent is expenditure on a building or structure and is excluded from being expenditure on research and development by section 766(1)(a) TCA 1997”.

Since then, Revenue’s position has been the source of continuous discussion and debate with many disagreeing with Revenue’s interpretation of the treatment of rent in relation to R&D claims.

Clarity had been sought from Revenue with regards to their position on rent in relation to both historic and new claims for Research and Development tax relief.

In this latest update, Revenue has clarified that rent will qualify in such circumstances where “the expenditure is incurred wholly and exclusively in the carrying on of the R&D activities.”

According to Paragraph 4.2 of the updated Revenue Guidance Manual:

“In many cases expenditure incurred on renting a space or facility, which is used by a company to carry on an R&D activity, may be expenditure that is incurred “for the purposes of”, or “in connection with”, the R&D activity but will not constitute expenditure incurred wholly and exclusively in the carrying on of the R&D activity. The eligibility of rental expenditure incurred by a company will relate to the extent to which it is incurred wholly and exclusively in the carrying on of the R&D activities. Where the nature of the rented space or facility is such that it is integral to the carrying on of the R&D activity itself then it is likely that the rent can be shown to be more than merely “for the purposes of” or “in connection with” the R&D activity.”

Therefore, it is possible for rental expenditure to be included as part of an R&D tax relief claim but only where that rented building is deemed to be integral to the carrying on of R&D activities.  According to Revenue’s guidance material, an example of a rental expense that may be considered qualifying expenditure might relate to the rental of a specialized laboratory used solely for the purposes of carrying out R&D activities. This is contrasted with the rental of office space necessary to house an R&D team, but which is not deemed to be integral to the actual R&D activity.  In this case, this rent would not be treated as eligible expenditure.

Revenue have confirmed that this position will only apply for accounting periods commencing on or after 1st July 2020. 

Revenue’s Manual has also been updated to include:

• Confirmation that the EWSS and TWSS are considered State support and therefore expenditure from such assistance will not qualify for relief.  In other words, such amounts will reduce the qualifying allowable expenditure or qualifying R&D tax relief expenditure.
• The COVID-19 practice for 2020, in relation to the use of a building in a ‘specified relevant period’ under section 766A TCA 1997.
• A further example of a subcontractor who would not be eligible to claim the R&D tax credit.

For further information, please follow the link: https://www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-29/29-02-03.pdf

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.

The new CORE Portal will be launched on 16^th December 2020.

The new Portal will make filing with Companies Registration Office easier and more efficient.

Main Features of the new CORE Portal include:

1. The ability to upload signed PDF signature pages. This removes the requirement to post signature pages to the CRO and should greatly reduce issues such as lost or delayed post as well as missed filing deadlines. A signature page must be generated and signed then a PDF version of the signed signature page can then be uploaded to the system. Please be aware, the option of E-signatures to sign the signature page will not be available.

2. An automatic Fifty Six days to file Annual Returns. This replaces how presenters file annual returns.  Currently the Form B1 can be filed and a signature page generated twenty eight days after the ARD with a further twenty eight days to file the accounts.  From 16^th December 2020 companies will have an automatic 56 days from its ARD (annual return date) to complete the entire filing process which will include (a) preparing the annual return in CORE, (b) uploading the financial statements, (c) generating the signature page once the financial statements have been successfully uploaded, (d) uploading the signed signature page in a PDF format and (e) make the necessary filing payment.

3. From 16^th December 2020 it will be possible for CORE users to preview, remove and upload a new version of the financial statements before the B1 signature page is generated. Currently a new signature page is created every time a set of financial statements is removed and a new version is uploaded.

In response to the Covid-19 outbreak in Ireland, the Government has asked people to take all necessary measures to reduce the spread of the virus and where possible individuals are being asked to work from home.

Today Revenue updated their e-Working and Tax guidance manual (i.e. Revenue eBrief No. 045/20) in which it published Government’s recommendation as to how employers can allow employees to work from home.

The content of Tax and Duty Manual Part 05-02-13 has been updated to include:

• An explanation of what constitutes an e-worker along with examples.
• The conditions that apply to employer payments of home expenses of e-workers.
• Clarification that current Government recommendations for employees to work from home as a result of COVID-19 meet the conditions for relief.
• Guidance for employees claiming relief for allowable e-working expenses, who are not in receipt of e-working payments from their employers.

Revenue has defined e-working to be where an employee works:

• at home on a full or part-time basis
• part of the time at home and the remainder in the normal place of work
• while on the move, with visits to the normal place of work

The guidance material goes on to state that e-working involves:

• logging onto a work computer remotely
• sending and receiving email, data or files remotely
• developing ideas, products and services remotely

The revised Revenue guidance clarifies that the following conditions must also be met:

• There is a formal agreement in place between the employer and the employee under which the employee is required to work from home
• An employee is required to perform substantive duties of the employment at home; and
• The employee is required to work for substantial periods at home

The guidance confirms that e-working arrangements do not apply to individuals who in the normal course of their employment bring work home outside standard working hours.

It would appear from the updated material, that where there is an occasional and ancillary element to work completed from home, the e-working provisions will not apply.

The revised guidance does not specify what a “formal agreement” between the employer and employee might contain therefore it would be advisable for businesses/employers going forward to consider putting in place a formal structure for employees looking to avail of the e-worker relief in the future.

The guidance material states in broad terms that employees forced to work from home due to the Covid crisis can claim a tax credit.

“Where the Government recommends that employers allow employees to work from home to support national public health objectives, as in the case of Covid-19, the employer may pay the employee up to €3.20 per day to cover the additional costs of working from home.  If the employer does not make this payment, the employee may be entitled to make a claim under section 114 TCA 1997 in respect of vouched expenses incurred wholly, exclusively and necessarily in the performance of the duties of the employment”.

The revised guidance advises that employers must retain records of all tax-free allowance payments to employees.

In situations where an employee is working from their home but undertakes business travel on a particular day and subsequently claims travel and subsistence expenses, please be aware that if the e-workers daily allowance is also claimed by that employee for the same day, then it will be disallowed and instead, treated as normal pay in the hands of the employee/e-worker i.e. it will be subject to payroll taxes.

Where an employee qualifies as an e-worker, an employer can provide the following equipment for use at home where a benefit-in-kind (BIK) charge will not arise provided any private use is incidental:

• Computer, laptop, hand-held computer
• printer
• scanner
• software to facilitate working from home

There is no additional USC liability imposed on the provision of this work-related equipment to an employee.

Please be aware, however, that laptops, computers, office equipment and office furniture purchased by an employee are not allowable deductions under s. 114 of the Taxes Consolidation Act (TCA) 1997.

e-Working expenses can be claimed by completing an Income Tax return.  An individual can complete this form on the Revenue website as follows:

• sign into myAccount
• click on ‘Review your tax’ link in PAYE Services
• select the Income Tax return for the relevant tax year
• click ‘Your Job’
• in the ‘Claim for Tax Credits, allowances and Reliefs’ page select ‘Remote Working (e-Working) Expenses’ and insert the full amount of the expense in the “Amount” section.

As a claim may be selected for future examination, all documentation relating to a claim should be retained for a period of six years from the end of the tax year to which the claim relates.

Finally, for employees who meet the relevant conditions and are deemed qualify as e-workers:

• Using part of his/her home for the purposes of e-working will not affect his/her entitlement to principal private residence (PPR) relief when selling his/her home in the future.
• There is no reduction in the Local Property Tax (LPT) where part of the property is used for the purposes of e-working.

For further information, please follow the link: https://www.revenue.ie/en/tax-professionals/ebrief/2020/no-0452020.aspx