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Digital Services Taxes (DSTs) – Corporation Tax – Business Tax

On 5^th 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).  It states that DSTs are a turnover tax  levied on revenues rather than profits. Digital Services Taxes relate to the provision of digital services and advertising.  Revenue have confirmed that certain DSTs which are incurred wholly and exclusively for the purposes of a trade are deductible in respect of computing income of that trade for Irish corporation tax purposes.

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 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.”

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.

Specialist VAT Advisors. International Tax Consultants. Tax Guidance. Finance Act Ireland

The VAT reclaim provisions contained in s74(4) VATCA 2010 have been abolished with effect from 1st January 2022.

From 1^st January 2022, a key change in the Finance Bill 2021 has been introduced in relation to the VAT treatment of cancellation fees, including non-refundable or forfeited deposits, retained by business in the event of a customer cancellation.

Cancellation fees including forfeited deposits would be liable to VAT on the basis that they are either (a) a payment for a vatable service or (b) a right to access a vatable service. This is especially relevant to businesses in the tourism industry including hotels and restaurants.

In this amendment, it would appear that the Irish Revenue Commissioners are applying the CJEU judgements in:

1. Air France–KLM C-250/14 and Hop!–Brit Air SAS C-289/14 and
2. MEO C-295/17 and Vodafone Portugal C-43/19

They also appear to be following HMRC’s lead, which, with effect from March 2019, changed its legislation stating that VAT would remain due on retained payments for unused services and uncollected goods.

Prior to 1st January 2022 the Irish Revenue Commissioners had taken the view that if the supplier received a deposit from a customer that the deposit should be treated as an advance payment and VAT would be due when the deposit is received.  If, however, the supply didn’t proceed then the vendor/supplier could claim a repayment of the VAT on the deposit.  This was on the basis that the receipt of the deposit was not considered to be VATable because no supply of service had taken place.  In other words, prior to the amendment in the Finance Act 2021, if the actual supply didn’t proceed, the supplier or vendor could still claim a refund of VAT which it previously accounted for on receipt of the non-refundable deposit.

Pre 1st January 2022, a number of conditions were needed to apply:

1. the supply didn’t take place because the customer has cancelled it.
2. the cancellation was correctly recorded in the books and records of the supplier.
3. the deposit was not refunded to the customer.
4. the customer wasn’t given any other consideration, benefit or supply in lieu of that amount.

The Finance Act 2021 change has deleted from our legislation the previous entitlement of suppliers to reclaim a refund of VAT in respect of the non-refundable deposit, however, it does not affect the VAT treatment of deposits that are refunded to customers.  The VAT relief should still be available on those deposits.

For further information, please click: https://www.revenue.ie/en/tax-professionals/documents/notes-for-guidance/vat/vat-guidance-notes-fa2021.pdf

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.

Mortgage Interest Relief – Income Tax Consultants – Personal Tax Advisors

The Revenue Commissioners have just published a useful guide on mortgage interest relief (Tax Relief).  As you’re aware, the Mortgage interest relief rate is 30% for first time buyers who took out their first mortgage between 2004 and 2008.  The rate is 25% for first time buyers who purchased in 2012 while the rate is 15% for non first time buyers who purchased in 2012.

The key points in Revenue’s Guide on Mortgage Interest Relief are:

1. Tax relief for mortgage interest on a home loan is tax relief given to mortgage holders based on the interest paid on a qualifying mortgage on your home.

2. This includes a new mortgage for a home, a top up loan used for the purposes of developing or improving your home, a separate home improvement loan, a re-mortgage or consolidation of existing qualifying loans secured on the deeds of your home.

3. The relief is given at source, by your mortgage provider, either in the form of a reduced monthly mortgage payment or a credit to your funding account.

4. You do not have to be earning a taxable income to qualify for mortgage interest relief.

5. You can also claim tax relief in respect of the interest on a mortgage paid by you for your separated/divorced spouse or former partner in a dissolved civil partnership.

6. You can also claim tax relief in respect of a dependent relative for whom you are claiming a dependent relative tax credit (i.e. widowed parent or a parent who is a surviving civil partner or elderly relative).

7. Switching lender or mortgage type to achieve a better interest rate is not the same as taking out a new loan. However, a new mortgage when you move home and take out a mortgage with a new or existing lender is eligible for relief.

8. A mortgage taken out from 1st January 2004 to 31st December 2012 used to purchase, repair, develop or improve your sole or main residence, situated in the state, is eligible for mortgage interest relief until 31st December 2017.

9. Mortgages taken out after 31st December 2012 will not qualify for mortgage interest relief.

10. Mortgages taken out prior to 1st January 2004 are no longer eligible for mortgage interest relief.

11. Top up loans / equity release loans taken out since 1st January 2004 on these pre-2004 loans may be eligible for the relief provided they are used to purchase, repair, develop or improve your sole or main residence situated in the state.

12. From 1st January 2012 the rate of relief for first time buyers who took out their first mortgage between the years 2004 and 2008 and are residing in the property increased to 30% until 2017.

13. If you took out a loan outside those dates the existing rules remain unchanged.

14. Mortgage interest on loans taken out for investment, rental, secondary or any properties other than your main residence does not qualify for interest relief.

15. If you are living in the state and paying a mortgage to a qualifying lender in the state but working in Northern Ireland, you can still claim mortgage interest relief in this country provided you have a PPS number.

16. Other loans such as loans in sterling (UK currency) are not eligible for relief through the Tax Relief at Source Scheme but may be eligible for relief from your local tax office.

17. Where a parent is a co-mortgagor/guarantor and is not living in the mortgaged property or making any repayments on the mortgage, the person’s eligibility for the Relief at the rate applicable to the first time buyer is not affected by the fact that a parent is also party to the mortgage deed.

18. Home loans taken out in 2013 or later do not qualify for mortgage interest relief.

For further information please click: https://www.revenue.ie/en/property/mortgage-interest-relief/index.aspx#:~:text=Mortgage%20Interest%20Relief%20was%20a,31%20December%202012.

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.