A Guide to Saving Tax May 2008 Ireland

7/30/2019 A Guide to Saving Tax May 2008 Ireland

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A Guide to Saving Tax

May 2008


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Dublin

24-26 City Quay

Dublin 2.

T +353 (0)1 6805 805

E [email protected]

Limerick

Mill House

Henry Street

Limerick.

T +353 (0)61 312 744

E [email protected]

Newbridge

Suites 3 & 4

Courtyard House

Courtyard Shopping Centre

NewbridgeCo Kildare.

T +353 (0)45 449 322

E [email protected]

www.grantthornton.ie


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Contents

1. Business Structures 1

2. Business Tax 3

2.1 Business Taxation, Remuneration and Extracting Profts 3

2.2 Reducing Taxable Profts 6

2.3 Relie For Business Expenditure 6

2.4 Capital Allowances 7

2.5 Selling A Business 8

3. Capital Acquisitions Tax (CAT) 9

4. Employment Taxes 14

4.1 Benefts in Kind 14

4.2 Tax Efcient Benefts 15

4.3 Share Schemes 175. Personal Tax 19

5.1 Compliance 19

5.2 Planning 19

6. Capital Gains Tax 21

7. VAT 22

7.1 Compliance 22

7.2 Planning 22

8. Revenue Audits and Investigations 24

Appendix I: Personal Tax Compliance 26

Appendix II: Vat Compliance 27Appendix III: Income Tax & CGT Rates 2007 & 2008 28

Appendix IV: PRSI Rates 29

Appendix V: Corporation Tax Rates 30

Appendix VI: VRT 31

Our Specialists 32

Corporate M&A/Corporate Reorganisations & Reconstructions 32

Corporate Tax Planning 32

Estate Planning 32

Family Business Planning 32

Financial Services 32International Tax 32

Inward Investment 32

Personal Financial Planning 32

Personal Tax Planning 32

Property 33

Share Schemes 33

Stamp Duty 33

Tax Investigations/Revenue Audits 33

Tax Based Investments 33

Vat 33


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Introduction

Contact

For urther inormation contact a member o our tax team -

Dublin

Frank Walsh

Partner

T: +353 (0)1 6805 805

D: + 353 (0)1 6805 607

M: + 353 (0)87 805 7542

F: + 353 (0)1 6805 806

E: [email protected]

Bernard Doherty

Partner

T +353 (0)1 6805 805

D: + 353 (0)1 6805 611

M: +353 (0)86 856 8453

F: + 353 (0)1 6805 806


Limerick

Leslie Barrett

Partner

T +353 (0)61 312 744

D: + 353 (0)61 312 220

M: + 353 (0)87 987 1085

F: + 353 (0)61 317 691


Welcome to Grant Thorntons guide to saving tax. Within this guide wecover; Business Structures, Business Tax, Capital Acquisitions Tax (CAT),

Employment Taxes, Personal Tax, Capital Gains Tax, VAT and Revenue

Audits and Investigations.

We are ranked as one o the leading tax planning and tax transactional

advisers in Ireland.

Our tax specialists can assist you in saving tax and growing your business.

We place great emphasis on developing personal relationships with clients.

With the highest technical prociency, we deliver our services with the

hand-holding that other rms orget.


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1. Business Structures

Peter Vale

Director

T: +353 (0)1 6805 805D: +353 (0)1 6805 952

F: +353 (0)1 6805 806


Eamonn Murphy

Director

T: +353 (0)61 312 744

D: +353 (0)61 313 221

F: +353 (0)61 317 691


1.1 Business Structures Overview

In tax terms there are two basic types o businessstructure unincorporated and incorporated

businesses. The tax treatment o each type o

structure is dierent and care must be taken in the

early stages to decide which is appropriate.

Unincorporated businesses include sole traders and

partnerships, the eatures o which are:

Protsaretaxedastheyaccrueatthe

proprietors marginal rate o tax (usually

46% - 41% income tax + 5% PRSI & Health

Contribution); and

Lossesmayberelievedastheyarisebysetting

these o against other taxable income o the

proprietor.

In comparison, the tax treatment o a company is asollows:

Protsnotextractedfromthecompanyare

mainly taxed at 12.5% (trading) or 25%

(passive); and

Valuecanbebuiltupinthecompany,possibly

enabling tax savings on a sale owing to the

availability o various capital tax relies or

enhancing the unds available or investment

with higher ater tax income.

1.2 Incorporation o an Unincorporated Business

For tax purposes incorporation involves the

disposal o a business and its assets and this may

trigger a capital gain. Incorporation relie allows

this gain to be rolled over into the cost o the

shares acquired in other words it reduces the base

cost o the shares or tax purposes. The company

acquires the assets at their market value and can

subsequently dispose o them at that value with no

capital gain arising. The transer must be wholly or

partly or shares in the company. Relie is given to

the extent to which the proceeds are given by wayo shares. There may be a Stamp Duty charge i

property, or an interest in property or goodwill, is

to be transerred into the corporate structure.

There may be ongoing tax savings ollowing

incorporation and these should be weighed against

the additional costs o running your business

through a company. The level o savings will

depend on the level o any prots and the overall

percentage o prots retained within the business.

The decision-making process is not straightorward

and proessional advice should be sought to assist

both with this process and with any subsequent


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implementation o an incorporation strategy. In

contrast to incorporation, there are no specic

tax relies available or disincorporation and it

can be dicult to convert rom a company to a

partnership or sole trader.

1.3 Participation Exemption - Sale o

Subsidiaries

Since February 2004 there has been an exemption

rom tax or any gains made by parent companies,

provided certain conditions are met, on the sale o

shareholdings in qualiying trading subsidiaries or

subsidiaries that orm part o a trading group.

1.4 Dierent Share Classes

There can be problems where a company with

only one class o share wants to pay dierent

amounts o dividends to its shareholders which are

not in proportion to their shareholdings. Some

shareholders could ormally waive their dividends,

but to be eective or tax, this must be done in a

specic way and can have unexpected tax results.

One solution is to have dierent classes o shares,

with dierent levels o dividends voted on each

class o shares. This has been aided by the abolition

o capital duty rom 7 December 2005.

1.5 Demergers

Revenue concession is available or splitting amily

trading companies into two or more parts. Where

the conditions are satised, the only tax due will be

stamp duty.

This demerger concession is useul where it is

perceived that greater shareholder value can be

achieved through splitting out part o the business

rather than keeping it all together. Advance

clearance should be sought rom the Revenue toensure that the relie is available.

1.6 Purchase o Own Shares

A purchase o a companys own shares is a useul

tax planning technique. Depending on whether

or not certain criteria are met, the proceeds o the

repurchase are either treated as income and taxed as

a dividend or more attractively as a capital receipt

(particularly useul where CGT retirement relie

is available). It should be possible to structure the

purchase o a companys own shares to achieve the

desired treatment or all parties.

1.7 Share or Share Relie

I shares in a company are exchanged or shares

in that company or another company and no cash

proceeds are received, then or CGT purposes,

there is no sale and the new shares are deemed, ortax purposes, to be the same asset as the original

shares they replace.

CGT is deerred until there is a subsequent disposal

o the new shares.



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2. Business Tax

Sasha Kerins

Manager

T: + 353 (0)45 449 322

D: + 353 (0)45 448 852

F: + 353 (0)45 449 324


2.1 Business Taxation, Remuneration andExtracting Profts

2.1.1 Corporation Taxsel-assessment fle on time

A companys corporation tax sel assessment return

must be led within 9 months o the end o the

accounting period but no later than the 21st day

o that month. Late returns are subject to a tax

related surcharge between 5% and 10% o the tax

liability, up to a maximum o 12,695 where less

than two months late and 63,485 where submitted

thereater. The surcharge operates to increase the

tax liability which increases the interest or late

payment. In addition to the surcharge, there are

restrictions on the use the company can make ocertain relies and allowances in the event o the

return not being lodged on time.

A penalty amounting to 950 may also be imposed

by Revenue or ailure to make a return. This

penalty may also increase to 1,520.

2.1.2 Corporation Tax Rates

With eect rom 1 January 2003 the ollowing rates

o corporation tax apply:

The standard rate applies to trading income o a

company resident in Ireland.

The higher rate o 25% applies to passive income

(interest, dividends, rental prots, royalties etc),

certain land dealing activities and income rom

working minerals and petroleum activities.

The manuacturing rate applies to the trading

prots o manuacturing companies and certain

IFSC and Shannon Airport Zone companies. This

10% rate is currently being phased out and is to be

completely phased out by 31 December 2010.

2.1.3 Use o Trading Losses

A company can maximise its use o losses to

reduce taxable prots over a number o accounting

periods. Trading losses can be oset against total

taxable prots on a value basis or the current year

or the previous year. All unutilised trading losses

can be carried orward indenitely to be osetagainst uture trading income o the same trade.

Loss relie is restricted i the returns are submitted

late (see 2.1.6).

2.1.4 Buying Capital losses

There are rules to deny the use o capital losses

brought into a group o companies. In a group

situation, generally the pre-entry losses o a

company joining a group cannot be used to oset

subsequent capital gains within the group. The

company entering the group will, however, be ableto use such losses in the normal way, as i it had

never joined the group.

Standard rate Higher rate Manuacturing rate

12.5% 25% 10%


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2.1.5 Corporation Tax Instalment Payments

For accounting periods ending on or ater 1 January

2006 preliminary tax is due and payable one month

prior to the end o the accounting period, but not

later than the 21st day o that month.

The minimum payment which must be paid is

either;

90%ofthenaltaxliabilityforthecurrent

accounting period, or

100%ofthenaltaxliabilityfortheprevious

accounting period where the company is deemed

to be what the Revenue term a small company

because its total tax liability or that period did

not exceed 200,000.

2.1.6 Groups

The concept o scal unity or consolidated

group tax does not exist in Ireland. However,

trading losses may be oset on a current period

basis, against taxable trading prots o another

group company. Being in a group coners certain

tax benets. The principal benets are that inter

group payments can be made without deduction

o tax and group losses can be surrendered by one

group company or the benet o another groupcompany.

The denition o group companies diers or

intra-group payment and group loss relie. There

is a 51% shareholding requirement in respect o

intra-group payment relie and a 75% shareholding

requirement in respect o group loss relie. Group

relie is restricted where a company submits a

corporation tax return late.

2.1.7 Close Company Surcharge

A surcharge o 20% is chargeable on a close

company where it does not distribute its ater tax

passive income (e.g. rental and investment income)

within 18 months o the end o its accounting

period. A close company is a company which

is controlled by ve or ewer participators or

under the control o its directors. A participator

includes any person who has a share or interest in

either the capital or income o the company.

The Finance Bill 2008 has provided that where adividend or a distribution is paid rom one Irish

tax resident close company to another and an

appropriate election is made by both companies,

then the distribution will not attract the close

company surcharge in the receiving company.

A surcharge o 15% also applies to proessional

service companies.

No credit is given to the shareholders or the

surcharge i and when the balance is distributed.

2.1.8 Dividends

Dividends are not an allowable expense or the

purposes o calculating corporation tax. A company

may wish to pay a dividend in order to avoid a close

company surcharge.

A company when paying a dividend may have to

deduct dividend withholding tax, at the standard

rate (currently 20%). In some instances, however,

the dividend may be paid gross, or example:

DividendstoanIrishresidentcompany;

Dividendstoindividualsresidentinacountry

with which Ireland has a tax treaty; and

Dividendstoindividualsresidentinacountry

within the EU.

Companies must make a return o all dividends

paid by the ourteenth day o the month ollowing

the distribution.

2.1.9 Tax Treaties

The Irish tax treaty network continues to be

expanded and updated and now numbers 44

tax treaties. A new treaty has been negotiated

with Chile and subject to necessary parliament

procedures being completed by Chile, it is expectedthat this treaty will become eective or tax periods

beginning in 2009. Negotiations are underway

on treaties with Argentina, Egypt, Kuwait, Malta,



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Morocco, Serbia, Singapore, Thailand, Tunisia,

Turkey and Ukraine. In addition, some existing

treaties, such as those with Cyprus, Germany, Italy,

Korea, Pakistan, and France are being reviewed.

Irish resident companies may avail o these treaties.

The double tax treaties can mean a reduction or

elimination o withholding taxes on royalties and

interest.

Where a double taxation agreement does not exist,

unilateral credit relie is available against Irish

tax or tax paid in the other country in respect o

certain types o income (e.g. dividends and interest).

2.1.10 Foreign DividendsDouble taxation relie is available on dividends

paid by subsidiaries to parent companies. The

relie is part o Irelands holding company regime

and it makes it more attractive or headquarter

operations to be located in Ireland by reducing

the shareholding requirements rom 25% to more

than 5% and by also allowing the Irish recipient

company to pool the tax credits arising on

oreign dividends. In addition, credit can also be

taken or local tax suered by a branch o a oreign

subsidiary.

Onshore pooling is useul as it allows companies

to mix the credits or oreign tax on qualiying

dividends received rom dierent oreign countries

and to use up any excess credit above the Irish

tax payable on a dividend, against another oreign

dividend where Irish tax would still be payable in

the same period. Any unused overall credit balance

can be carried orward and oset against tax or

dividends in subsequent accounting periods.

The Finance Bill 2008 revises the treatment ooreign dividends rom EU or tax treaty resident

companies, which will apply to dividends received

on or ater 1 January 2007. Eectively dividends

paid out o trading prots will in uture be

chargeable to tax in Ireland at 12.5% instead o the

25% rate. Where dividends do not qualiy to be

charged at the 12.5% rate they will continue to be

charged at the 25% rate.

The Finance Bill also amends the rules or pooling

o the tax credits arising on oreign dividends so

that in the uture the rules apply separately to

dividends taxable at 12.5% and 25%. Any surplus

o oreign tax arising on dividends taxable at the

12.5% rate will not be available or oset against

tax on dividends taxable at the 25% rate. However

there will be no similar restriction in the case o

dividends taxable at 25%.

2.1.11 Other Foreign Income

Foreign taxes paid by an Irish resident company

(or EU branch), whether imposed directly or by

way o withholding tax, may be available in Ireland

as a credit against Irish tax. The credit is limited

to the Irish tax reerable to the particular item o

income. The credit is computed on an item-by-item

basis (except or dividends rom 5% subsidiaries as

above) and excess credits can be relieved only by

deduction; there is no carry-back or carry-orward

o excess credits.

2.1.12 Corporate Capital Gains

Irish tax resident companies are taxable on world

wide gains. Non resident companies are chargeable

on capital gains arising on the disposal o Irish sites

assets and shares in unquoted companies whose

value is derived rom Irish lands. Capital losses

may only be utilised against uture capital gains.

In addition a capital loss cannot be oset against a

gain in another company within a group; however

it may be possible to transer an asset intra-groupbeore its disposal outside the group to utilise

capital losses generated or to oset group capital

losses against such a gain.

As part o Irelands holding company regime there

is an exemption rom tax on capital gains arising

to Irish-based holding companies on disposals o

certain shareholdings or assets related to shares in

an EU/double tax treaty resident (DTA) company

(which is a 5% subsidiary o the Irish parent

company) see section 1.3.

2.1.13 Salary v Dividend

Shareholders o a private company requently have

the ability to decide how to extract the prots o

their business. This is normally done via a salary

or a dividend. Dividends have the ollowing

disadvantages:

Theydonotcountaspensionableearnings;and

Theyarenottaxdeductibleforthecompany.



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As a rule o thumb, salary is usually more tax-

ecient.

2.2 Reducing Taxable Profts

2.2.1 Accounting Policies

The amount o a companys prot which is subject

to tax is based on the accounting prot, as adjusted

in line with tax law. There are many situations

where accounting practice permits dierent

methods o recognising income and expenditure.

You should consider the options careully in

situations where there are alternatives.

2.2.2 Change o Year-End

A change o year-end can be useul in group

situations. Companies can shorten or lengthentheir accounting period (subject to company

law) to maximise the amount o losses being

transerred rom one company to another. Only

contemporaneous losses can be surrendered and

claims are limited to prots o a corresponding

accounting period.

Where accounting periods are shortened, payment

o tax liabilities may be accelerated. For seasonal

businesses, it can be benecial to choose a year-

end date just beore a seasonal surge in income

and protability so as to give the maximum delay

between earning the prots and paying the tax.

2.2.3 Employment o Spouses

The payment to a spouse o a wage o up to 26,400

per annum (2008) may result in the ull utilisation

o the 20% rate band and use up any otherwise

wasted personal allowances. It is important that

the spouse carries out duties which justiy a salary

o this level.

The spouse may also qualiy or the contributory

old age pension i they are in an insurable

employment.

2.2.4 Subcontracting

From an employers point o view, there is a lower

PRSI cost i sel-employed workers can be used

instead o employees. However, the distinction

between employed and sel-employed is a grey areaand oten the Revenue Commissioners disagree

with an employer over the status o workers. Care

needs to be exercised i you do engage subcontract

workers in your business, as it can be expensive i

you get it wrong.

2.3 Relie or Business Expenditure

2.3.1 Non Deductible Expenditure

Non-capital expenditure incurred in the course

o business will normally be tax deductible.

Exceptions to this rule include certain

entertainment expenses, general provisions,

depreciation and a proportion o lease expenses or

cars costing over 24,000.

2.3.2 Pre-trading Expenses

Non-capital expenditure incurred three years prior

to commencement o business is an allowable

deduction in the computation o business prots.

Capital allowances may also be available on pre

trading capital expenditure.

2.3.3 Interest

Interest incurred wholly and exclusively or the

purposes o the trade is tax deductible rom income

on an accruals basis. The main exception is interest

paid to a non-resident non trading parent or

associated company where there is a 75% or greater

ordinary shareholding relationship. Such interest

is classied as a deemed distribution and is not tax

deductible. Since 6 February 2003, non-tradinginterest paid to a 75% related company in an EU

Member State is treated as a tax deduction rather

than as a deemed dividend. In addition, there is a

restriction on the amount o interest deductible in

the case o interest payable to an Irish tax resident

(or oreign company controlled by Irish tax

resident persons) connected person. The cumulative

deductions or loan interest cannot exceed the

cumulative amount chargeable to tax in the hands

o the recipient in the same chargeable period.

Interest on borrowings used or non-trading

purposes, or example or the acquisition o sharesin other companies, may be deductible on a paid

basis subject to certain conditions.



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2.3.4 Expenditure on Scientifc Research and

Development

A credit o 20% o the incremental expenditure

on revenue items, royalties, plant and machinery

related to research and development (R&D) isavailable or oset against a companys corporation

tax liability. This credit is in addition to any

existing deductions or capital allowances or R&D

expenditure. The ollowing conditions must be

ullled in order to qualiy or this credit:

R&Dactivitiesmustbecarriedoutinthe

European Economic Area;

Reliefisgrantedprovidedtheexpenditureisnot

deductible in any other territory;

Qualifyingexpenditurewillbereducedbyanygrant or State Aid received;

Paymentstoaconnectedpartyinrespectoftax-

exempt patent royalty income will not qualiy

or the relie; and

Paymentsmadeotherthanatarmslengthwill

not qualiy or relie.

Any amount o the credit unused in a particular

period can be carried orward until it is used up but

there are no carry back provisions.

There is signicant relie or qualiying R&D

expenditure on buildings or structures. The credit

or such expenditure is given over a 4-year period.

There is a provision or clawback o the relie

granted where the building or structure is sold

or ceases to be used or R&D activities within 10

years o the period in which the expenditure was

incurred.

The base year or expenditure which is used to

calculate the qualiying incremental expenditure

on R&D under the tax credit scheme is being xed

at 2003 or a urther 4 years to 2013. The change

will provide an additional incentive or increased

expenditure on Research & Development in uture

years.

Where R&D is incurred, it is worth exploring

whether there are any patents which can be

registered.

2.4 Capital Allowances

2.4.1 Plan the Timing o Capital Expenditure

Where capital allowances are available on

expenditure incurred within an accounting period,there is a cash fow benet i the expenditure

is incurred near the end o the period. For tax

purposes, the expenditure is incurred when the

obligation to pay becomes unconditional. In some

circumstances you can place an unconditional

order late in an accounting period and claim capital

allowances or that period, even i you do not pay

until the ollowing period (provided the assets are

in use at the year end).

2.4.2 Plant and MachineryCapital allowances or plant and machinery are

calculated on a straight line basis at a rate o 12.5%

per annum. Computer sotware is treated in the

same way as plant and machinery. State grants are

deducted in arriving at the qualiying expenditure.

Most buildings contain plant and machinery on

which capital allowances can be claimed. It can be

worth investing in specialist advice so as to obtain

the relie on all eligible items.

2.4.3 Industrial Buildings

Expenditure on industrial buildings may qualiy or

an industrial building allowance (IBA), provided

that the building is in use or the purpose o a

qualiying trade carried on by the company. It

should be noted that the qualication o a building

as an industrial building depends on the nature

o the trade or which it is in use and not on the

characteristics o the building itsel. Allowances are

given at rates between 4% and 15% per annum on a

straight line basis.

In relation to administrative oces, i they are part

o a single building, and represent no more than



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10% o the total cost, they could qualiy in ull or

IBAs. I they are created as a separate block, they

will not qualiy or any relie at all.

2.4.4 Acquisition o Second-hand

Industrial Buildings

Industrial buildings have a deemed tax lie and the

purchaser o a second-hand industrial building

needs to be aware o how old it is at the time the

ownership changes. I it is approaching the end

o its tax lie, this can be advantageous or the

purchaser. On the sale o an industrial building, the

original owner will have all the allowances clawed

back i he sells or at least the original cost. These

allowances are then potentially available to the

purchaser, spread evenly over the remaining lie othe industrial building. Thereore, i the building

is bought second-hand in the nal year o its lie,

the whole o the original cost will be given as a

deduction in that period to the purchaser, with

no restriction being made to the writing down

allowance.

2.4.5 Avoid Clawback o IBAs

I an industrial building is sold within its tax lie

or more than its tax written down value there will

be a clawback o the allowances previously given.However, there is no clawback i the owner o the

building grants a lesser interest rather than sells the

property. This means that the owner o the reehold

industrial building can grant a 999 year lease (which

is, or all intents and purposes, the same as selling)

but because he retains the reehold there will not

be a clawback o allowances. Similarly, the grant

o an inerior lease out o a lease will not trigger a

clawback.

IBAs will not be available to the purchaser in these

circumstances.

2.4.6 Motor Vehicles

The wear and tear allowance on new and second-

hand passenger motor cars is restricted by reerence

to the cost o the vehicle. From 1 January 2007

the maximum amount claimable in respect o any

passenger motor vehicle is restricted to 24,000

regardless o actual cost. This restriction does not

apply to commercial vehicles.

A revised scheme o capital allowances and leasing

expenses or cars used or business purposes is

being introduced. For capital allowance purposes

cars will be categorised by reerence to CO2

emissions. Vehicles are to be categorised as ollows:

Category A 0 120g/kmCategory B/C 121 155g/km

Category D/E 156 190g/km

Category F/G 191g/km and over

Vehicles under categories A, B and C continue to

qualiy or the same capital allowances as present

up to a value threshold o 24,000. Vehicles in

categories D and E will only qualiy or 50% o the

allowances. Vehicles in categories F and G will not

qualiy or capital allowances.

The granting o leasing expenses incurred will be ona similar basis to the new capital allowance scheme.

The revised scheme will come into eect in respect

o cars purchased or leased on or ater 1 July 2008.

2.5 Selling a Business

2.5.1 Assets or Shares

I you have shares in a company, it generally makes

sense to sell them rather than the assets o the

business, thus paying one charge to tax and makinguse o the CGT relies. In contrast, i you sell assets

rom the company there are two charges to tax

one on the company on the gains it realises and

another when those proceeds are extracted rom the

company by the shareholders.

When selling the shares in a business as opposed

to the assets, the purchaser may seek a discount on

the basis that there are underlying tax liabilities in

respect o the assets in that business.

2.5.2 Due Diligence

Normally there is more risk in purchasing an

incorporated business as the business would have

underlying liabilities, tax and otherwise. Thereore

the purchaser will undertake an enquiry process

(due diligence) prior to purchase. In order to

reduce the costs and time involved in the sale o

a business, the part o the business being sold can

be transerred to a newly ormed company. The

newly ormed company would have no underlying

liabilities and thereore the due diligence process

would be more straightorward and less costly.


8


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Aoie Walsh

Director

T: +353 (0)1 6805 805

D: +353 (0)1 6805 984

F: +353 (0)1 6805 806


3.1 Annual Exemption

Everyone has a 3,000 annual exemption or small

gits received rom any one donor.

3.2 Estate Planning

Planning the transer o assets rom one generation

to the next is a task which throws up many varied

circumstances. It is important to strike a balance

between maintaining nancial independence and

security or retirement, while providing scope or

the most ecient transer o assets at the earliest

opportunity.

It is likely that most people will dispose o their

assets in a combination o the ollowing ways:

Bygiftsmadeduringtheirlifetime;

Throughtheuseoftrustsmadeduringtheir

lietime and intended to carry on or a period

ater death; and

Byinheritancestakenondeath.

The making o gits and transers to trusts will

involve capital gains tax (CGT) (with the possibility

o retirement relie) and CAT. Inheritances willtrigger liabilities to CAT unless they are covered by

one o the relies.


3. Capital Acquisitions Tax (CAT)Planning or the transer o assets requiresconsideration o a number o legal and tax issues.

Ater these issues have been discussed and decisions

have been taken, appropriate mechanisms must be

put in place to give eect to the decisions made.

Where no immediate git is intended, provision or

transer should be made through an appropriately

drated Will.

The importance o having an appropriately drated

Will cannot be overstated. The Will should give

eect to the wishes o the testator while taking

account o legal and taxation issues.

3.3 Tax Free Threshold

Every individual has a threshold below which they

will not pay CAT. This is a lietime threshold i.e.

the threshold may be reduced by the value o any

relevant previous gits and inheritances received

since 5 December 1991.

The indexed Group thresholds or 2006, 2007 and

2008 are set out in the table below.

3.4 Legal Issues

The Succession Act 1965 imposes obligations on

individuals to make certain provision or their

spouses and children in disposing o their assets by

Will.

A surviving spouse is entitled to a one-third share

o the estate o the deceased spouse who has made

Group Relationship to Disponer Group Threshold 2008(ater indexation)

A Son/Daughter e521,208

B Parent/Brother/Sister/

Niece/Nephew/Grandchild e52,121

C Relationship other that Group A or B e26,060

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a Will. This is a legal right and a recent Supreme

Court decision has conrmed that a one third share

o the estate o the deceased vests automatically in

the surviving spouse, where no provision has been

made or that spouse in the Will.

Pursuant to Section 117 o the Succession Act 1965

a child o any age has the right to apply to court or

a level o benet i they consider their parents have

ailed in their moral duty to provide or them. This

is a more dicult issue to advise on because there

are no statutory guidelines indicating the level o

benet to be conerred. A broad range o actors

will be taken into account including the lietime

provision made or that child, their age and position

in lie and their conduct.

It is dicult to give denitive advice in relation to

Section 117; it is sucient to say that the position

o all children should be careully considered when

a Will is being prepared.

I an individual dies intestate (having made no

Will), the Succession Act 1965 regulates the division

o that persons estate. I an individual is survived

by a spouse only, the spouse takes the entire estate.

When an individual is survived by a spouse and

children, the surviving spouse takes a two thirdsshare and the children take the remaining one

third share between them equally. I an individual

is survived by children only, the entire estate is

divided among them in equal shares.

Under the rules o intestate succession, where

survivors include a spouse and children, no

provision will be made or remoter relatives who

may have been in receipt o inormal support in a

amily situation. In making a Will an individual

should consider all o these issues as they apply.

Making a Will also provides an opportunity to

appoint Testamentary Guardians or children who

may be let without a parent while under the age

o 18. I guardians are not appointed by Will, an

application has to be made to the Circuit Court to

make an appointment ater the parents death.

A Will should be prepared to give eect to long

term decisions which have been made about the

distribution o the property and to ensure that

available tax relies are used to best eect.

3.5 Discretionary Trusts to Provide or

Incapacitated Relatives

A common use or a discretionary trust is to

provide or incapacitated relatives, usually children.

Where proper provision is not made or an

incapacitated person, the Courts may step in and

institute Wardship proceedings in order to

make that person a Ward o Court. Wardship

proceedings take place when a Court decides that a

person is incapable o managing his/her own aairs.

Ward o Court procedures can be expensive, they

are very slow and it can be dicult to access unds.

A discretionary trust is a useul mechanism through

which the welare o an incapacitated amilymember can be provided or. Funds within a

discretionary trust are administered at the absolute

discretion o the Trustees and are not under the

control o the beneciary. Thereore the choice

o trustee is very important. A proessional

trustee is usually chosen or their impartiality in

administering the trust. It can also be a good idea

to appoint a amily member as a co-trustee who

would be aware o the settlors wishes as to how

the trust should be administered and who would

personally know the beneciary. Wishes as to

how the trust is to be administered can be also

separately expressed through a letter o wishes.

It is important to choose the trust assets careully

depending on the requirements o the beneciary

i.e. income or capital.

Where the trust deed clearly states that the trust is

exclusively or the maintenance and upkeep o the

beneciary, discretionary trust tax does not apply.

There is an exemption rom CAT on payments

made by the trust or medical care and related

expenses but all other distributions/payments may

be subject to CAT.


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A discretionary trust can be set up either during

a persons lietime or by Will. The advantage o

setting one up during a persons lietime is that any

payments made to the beneciary rom the trust

(even ater your death) would qualiy or the annualsmall git exemption o 3,000 (6,000 i there are

two settlors). This is provided the settlor(s) survive

or two years ater the creation o the trust.

Trustees pay income tax at the standard rate o 20%

on the trust income and are not entitled to claim

any o the personal allowances or relies which

are normally available to individuals. Income is

also subject to a surcharge at a rate o 20% i it is

accumulated and has not been distributed within

eighteen months o the end o the year. Where

the beneciary o the trust is the sole personentitled to the trust income, the Revenue can

assess the beneciary to tax directly instead o the

Trustees. The beneciary will receive a credit i any

additional tax has been suered by the trust.

There is no CGT on the transer o cash into a

trust. However, on the transer o assets into the

trust, CGT at 20% is payable on the deemed gain.

I the trustees make a disposal o any assets in the

trust, the trustees are liable to CGT at 20% on any

gain on the disposal.

3.6 Dwelling House Relie

This relie was introduced in Finance Act 2000

and is not to be conused with principal private

residence relie which applies in the case o CGT.

This relie allows an individual to receive a git or

inheritance o a residential property ree rom CAT

i the ollowing conditions are met:

Thepropertywasthebeneciarysprincipal

private residence or three years prior to the git

or inheritance. Where the dwelling house has

directly or indirectly replaced other property,

this condition may by satised where the

beneciary has continuously occupied both

properties as his or her only or main residence

or a total period o three o the our years

immediately prior to the date o the git or

inheritance. Theindividualhasnobenecialinterestinany

other residential property at the date o the

benet.

Theindividualremainsinthepropertyora

replacement property or six years ater taking

the benet. The requirement to continuously

occupy the property or six years is relaxed in

the case o absences imposed by employment

obligations and removed i the beneciary dies,

is over 55 years old or has to sell the property to

go into a nursing home.

Finance Act 2007 introduced the ollowing

restrictions to this relie in relation to a git o

residential property:

Unlesstheindividualmakingthegiftwas

compelled by reason o old age or inrmity to

depend on the services o the beneciary, the

period o occupancy during the initial three year

period by the beneciary will be disregarded or

the purposes o this relie. Theindividualgiftingthehousemusthave

owned the house during the initial three year

period.

There is no requirement that the disponer and

beneciary be related and there is no cap on the

value o the property which can qualiy or the

relie.

This relie is useul or cohabiting couples because

one partner may inherit the house rom the otherree o CAT i the conditions are satised. It is also

o use in a situation where a child has remained

at home to look ater their parents and ultimately

receives the amily home.

3.7 Business Property Relie

Business property relie reduces the taxable value

o relevant business property by 90%. This

combined with the 20% rate o CAT means thatassets qualiying or business relie would suer an

eective tax rate o 2% ater the relevant thresholds

have been used up.


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The eatures o the relie are as ollows:

Thereliefappliestobusinesspropertyas

ollows:

a) Property consisting o a business or aninterest in a business;

b) Unquoted shares or securities o a company

(whether Irish incorporated or not) subject to

certain conditions;

c) Land, buildings, machinery or plant owned

by the disponer but used by a company

controlled by the disponer or by a partnership

in which the disponer was a partner;

d) Quoted shares or securities o a company

which were owned by the disponer prior to

their becoming quoted.

Thebusinesscarriedonmustnotconsistwholly

or mainly o dealing in land, shares, securities or

currencies or o making or holding investments.

Therelevantbusinesspropertymusthavebeen

owned by the disponer, or by the disponer and

his spouse, or at least ve years prior to a git, or

or at least two years or an inheritance taken on

the disponers death.

Assetsnotusedwhollyormainlyforthe

business concerned are ignored in valuing therelevant business property.

Agriculturalpropertyqualiesfortherelief

whether held by a company or an individual,

provided all the above conditions are satised

and that agricultural relie does not apply.

Businessreliefwillbeclawedbackifthe

business property is sold or otherwise disposed

o within a six-year period ater taking the git

or inheritance. This clawback provision was

extended in Finance Act 2006 to the eect that i

the business asset comprises development land

or shares in a company holding development

land and the land or company shares are sold

ater six years but beore the expiration o ten

years, the relie attributable to the development

value will be clawed back i.e. the relie

attributable to the current use value only is

allowed.

Wherethegift/inheritanceconsistsofquoted/

unquoted shares in a company, the beneciary

must ater taking the git or inheritance:

- control more than 25% o the voting rights

relating to all questions aecting the company

as a whole; or

- control the company within the meaning o

section 27 o the Capital Acquisitions Tax

Consolidation Act 2003 (i.e. the beneciarys

shareholding taken together with his/herrelatives shareholdings exceed 50%); or

- own 10% or more o the aggregate nominal

value o all the issued shares and securities

o the company and have worked ull-time

in a management or technical capacity in

the company (or in the case o a group, or

any company or companies in the group)

throughout the period o 5 years ending on

the date o the git or inheritance.

3.8 Agricultural Relie

Where a donee or successor is a armer within

the meaning o the Act, the market value o all

agricultural property is reduced by 90%. For

qualiying assets the eective rate o CAT in the

case o a git or inheritance is 2%.

A armer is an individual 80% o whose property,

ater taking the git or inheritance, consists o

agricultural property on the valuation date o the

git or inheritance. He or she must be resident in

the State or each o the three years o assessment

immediately ollowing the year o assessment in

which the valuation date alls. Prior to Finance Act

2006 it was necessary that he or she is domiciled in

the State but this is no longer the case.

Agricultural property is dened as meaning

agricultural land, pasture and woodland in the State

and crops and timber grown thereon, together

with houses and other buildings appropriate to the

property. It also includes livestock, bloodstock andarm machinery.


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The relie is clawed back i the agricultural property

is sold or compulsorily acquired within six years

rom the date o the git or inheritance and is not

replaced within one year by other agricultural

property. As with business relie, the clawbackprovisions were extended to the eect that i the

agricultural property comprises development land

and the land is sold ater six years but beore the

expiration o ten years, the relie attributable to the

development value will be clawed back.

3.9 Favourite Nephew Relie

The relie is set out in Schedule 2 CATCA 2003

and it provides two signicant benets where anindividual qualies or it:

Theindividualcanobtainthebenetofthe

Group A threshold in relation to certain benets

rom his aunt or uncle.

TheauntorunclecanclaimCGTretirement

relie under Section 599 TCA 1997 on a disposal

to a avourite nephew/niece as i he or she was

their child.

A beneciary who is a nephew or niece o the

disponer is regarded as a child o the disponer

or the purposes o the relie i he or she worked

substantially on a ull time basis:

Inthedisponersbusiness,tradeorprofession

and the benet consists o property used

in connection with that business, trade or

proession,

Inacompanycarryingonthebusiness,tradeor

proession and the benet consists o shares in

the company.

Working substantially on a ull time basis means:

Wherethebenetconsistsofapropertyusedin

connection with the disponers business trade

or proession, more than twenty our hours perweek, or

Morethanfteenhoursperweekforthe

disponer i the business is carried on exclusively

by the disponer, the disponers spouse and the

beneciary.

Favourite nephew relie does not apply to a benet

taken rom a Discretionary Trust.

3.10 CGT/CAT Set O

This relie applies where CAT and CGT are

payable on the same event. It was modied in

Finance Act 2006.

The relie applies where CAT is payable on the

happening o an event and that event is also a

disposal o an asset or CGT purposes. In these

circumstances, in calculating the amount o CAT

payable, a credit is allowed or the amount o

CGT payable on the same event. The amount othe credit is to be the lesser o the CGT and CAT

attributable to the relevant asset. What happens,

in eect, is that the CGT is payable in priority and

any CAT payable on the same event is relieved up

to the maximum o the CGT that was paid on that

event.

Finance Act 2006 modied this relie to include

a two year holding period: the relie claimed is

clawed back i the beneciary does not retain the

benet or a period o at least two years.


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4. Employment Taxes

4.1 Benefts in Kind

4.1.1 Employer ObligationsFrom 1 January 2004 employers are obliged

to calculate the taxable value o benet in kind

items and operate PAYE/PRSI on the relevant

amounts by processing them through the payroll.

New company law obligations, expected to be

introduced shortly, will mean that directors o

certain companies will be obliged to conrm in

writing that they have implemented procedures that

ensure compliance with company law, tax law and

other laws that may have a material eect on the

companys nancial aairs.

Emma Meehan

Manager

T: +353 (0)1 6805 805

D: +353 (0)1 6805 774F: +353 (0)1 6805 806


Claire Condron

Manager

T: +353 (0)1 6805 805

D: +353 (0)1 6805 802

F: +353 (0)1 6805 806


4.1.2 Benefts rom EmploymentBenets rom employment are a legitimate orm

o remuneration and can be very attractive to

employees. Governments oten pursue their

wider policy objectives by oering tax breaks

to encourage the provision o certain benets. A

current example is pension contributions, which

attract generous relie rom both tax and PRSI. Also

the exemption threshold or an annual git rom an

employer to an employee increased rom 100 to

250 rom 1 January 2005.

To be tax-ecient, a benet in kind must give a

taxable amount which is signicantly below the

true value o the benet. Despite the legislation

gradually catching more items, there are still

some which give a tax benet. Examples include

monthly or annual bus or rail passes, proessional

subscriptions and the provision o canteen meals.

The PRSI rules mean that most benets now

attract employers PRSI and usually employee

contributions as well.

4.1.3 Valuation Rules

The amount o the taxable benet in kind which is

liable to PAYE and PRSI is the higher o:

theexpensesincurredbytheemployerin

providing the benet to the employee; or

thevaluerealisablebytheemployeeforthe

benet in money or moneys worth;

less any amount made good to the employer by the

employee.

4.1.4 Cars Used or Business

The benet o a company car to an employee

is measured by determining a cash equivalent

o the private use o the company car. The cash

equivalent is determined by applying a business

mileage related percentage to the Original Market

Value (OMV) o the car supplied.

It may however be worth allowing employees

to use their own cars or business purposes. Theemployer can then reimburse business mileage

using the Revenue Commissioners authorised

mileage rates which are ree o tax and PRSI.

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These rates are oten higher than the cost incurred

by the employees in using their cars. In considering

running costs, employees need to think about the

depreciation in the value o the cars that they own.

Personal leasing or contract hire arrangements may

be more cost-eective over the lie o the car.

The new VRT system (Appendix VI), which will

come into eect rom 1 July 2008, will result in the

OMV o the car being lower or cars with low CO2

emission levels and higher or cars with high CO2

emission levels. Thereore the CO2 emission levels

should be considered when acquiring a company

car as this will aect the charge to BIK or new cars

acquired ater that date.

4.1.5 Alternatives to the Company Car

It may be worth looking at alternatives to the

company car. These include:

Extrasalaryinplaceofthecompanycar

Employeesleasingdirectlyfromavehicle

provider

Loantotheemployeetohelpbuyacar

Offeringcompanyvans.

When doing the calculations, consider:

Aretherepenaltiesforchanginganexistinglease?

Willextrasalaryandpensionschemepayments

cost more than the car?

Ifemployeesbuytheirowncarswillitportray

the right image or your company?

Willemployeesbedisgruntledifyoutakeaway

their company cars?

Whataboutemploymentcontracts?

Howmuchvaluedoestheemployeeplaceon

having a ully expensed company car?

4.1.6 Company Vans

The taxable benet o a company van is calculated

at 5% o the Original Market Value o the vehicle

supplied. There will be no tax where an employee

that is required to take a van home at night, isallowed no other private use, spends at least 80% o

his / her time away rom the work premises and the

van is necessary in the perormance o the duties o

the employees employment.

4.1.7 Loans to Employees

Loans given by employers to employees at

preerential rates o interest are subject to PAYE

and PRSI. The taxable benet is the dierence

between the interest paid or payable on the loan

and the amount o interest which would have beenpayable i the loan had been subject to interest

at the specied rate. From 1 January 2008 the

specied rate or qualiying home loans is 5.5% and

or all other loans is 13%.

4.1.8 Accommodation

Where a company owner/director wishes to acquire

a second home, this could be purchased by the

company and provided to him/her as a benet in

kind. The director will pay tax by reerence to the

annual value o the use o the house. This valueis the annual rent which would be obtainable i

the property were let on the open market. The

company should get a ull tax deduction or the

interest payments on the money used to buy the

house.

4.2 Tax Efcient Benefts

4.2.1 Car Parking

There is currently no benet in kind charge arisingrom the provision o a car parking space at or near

the employees place o work, regardless o how it

is provided or paid or. This can be a very valuable

benet in city centres.

4.2.2 Travel Pass

PAYE and PRSI is not applied to the value o

certain monthly or annual bus, train and Luas

passes given to employees or use on a licensed

passenger transport service and commuter erries

operated within the State.


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4.2.3 Mobile Phones/Laptops/Home High

Speed Internet Connection

When employers provide the above or business

use and bear the costs o installation and use, a tax

charge will not apply to the employee provided thatprivate use is merely incidental to the business use

o the item.

4.2.4 Computers

The employer can provide computer equipment

in the employees home without a taxable benet

arising to the employee provided that it is or

business use and private use is incidental. A

computer supplied or the employees private use

is taxable. The amount o the taxable benet is

calculated at 5% o the market value o the asset

when rst provided to the employee.

4.2.5 Company Pension Schemes

There is no tax charge arising on contributions to

Revenue-approved superannuation schemes or

Personal Retirement Savings Accounts (PRSA) by

the employer in respect o an employee.

4.2.6 Crche/Childcare Facilities

A taxable benet does not arise where the employer

is at least partly involved in nancing and managing

the provision o childcare or employees children

and the premises meets certain requirements o the

Child Care (Pre-School Services) Regulations 1996.

4.2.7 Medical Check-ups

I employees are required by their employer

to undergo medical check-ups it will not be

considered a taxable benet where provided or bythe employer.

4.2.8 Course or Exam Fees

Course or exams ees paid by an employer will

not give rise to a taxable benet i the course

undertaken by the employee is relevant to the

business o the employer.

4.2.9 Proessional Subscriptions

Proessional subscriptions paid by an employer will

not give rise to a taxable benet i membership o

that proessional body is relevant to the business o

the employer.

4.2.10 Examination Awards

Examination awards paid to an employee will

not give rise to a taxable benet i the amount

can be regarded as a reimbursement o expenses

considered to be incurred while studying or

an examination relevant to the business o the

employer.

Special increments o salary awarded on passing an

examination are chargeable as part o an employees

remuneration in the normal way.

4.2.11 Long Service Awards

No taxable benet will arise in respect o an award

made to mark long service where the ollowing

conditions are met: -

Theawardmarksserviceofnotlessthan20

years;

Theawardtakestheformofatangiblearticle(s)

o reasonable cost;

Thecostdoesnotexceed50foreachyearof

service;

Nosimilarawardhasbeenmadetotherecipient

within the previous 5 years.

The treatment does not apply to awards made in

cash or in the orm o vouchers, bonds, etc.

4.2.12 Termination Payments

Where a payment is made on retirement or removal

rom an employment, and it is not otherwise

chargeable to income tax, tax is charged only on the

excess o the payment over the basic exemption or

an amount calculated by a ormula (SCSB) based on

the number o years o service.


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The basic exemption is 10,160 plus 765 or each

complete year o service in that employment. This

basic exemption may be increased by claiming

an additional 10,000 exemption, once every 10

years. This additional 10,000 is available wherethe individual is not a member o an occupational

pension scheme or irrevocably gives up the right

to receive a lump sum rom such a scheme. I the

member receives or is entitled to receive a pension

lump sum, then the additional 10,000 exemption

is reduced by the pension lump sum. Approval is

required rom the Inspector o Taxes beore the

additional exemption can be applied.

4.3 Share Schemes

4.3.1 Employee Share Schemes

The Government has been keen to promote the

concept o extending share ownership to the

workorce generally and also to key managers. Tax

relies have been applied to particular arrangements

(approved schemes) by bringing them into the

more avourable CGT regime.

4.3.2 Share Option Schemes

Share options are agreements entitling the holder to

buy shares in the uture at a xed price, usually the

current value o the shares. The holder can make a

prot i the shares increase in value and the option

is exercised. Options are oten used to motivate

selected, key sta in a company by tying their

remuneration to the share price.

UnapprovedShareOptionsSchemes

Under unapproved share option schemes

Income Tax is charged or the year o exercise

o the option, on the dierence between the

price paid (option price) and the market valueat that date. I the option is capable o being

exercised more than seven years rom the date o

grant and it is granted at less than market value,

Revenue reserve the right to tax the employee on

the dierence at grant at the marginal tax rate.

For share options exercised on or ater 30 June

2003 the tax due is payable within 30 days ater

the exercise. In addition Capital Gains Tax ispayable on disposal o the shares. Tax is charged

on the dierence between disposal proceeds and

original cost (option price).

ApprovedShareOptionSchemes

A company may qualiy to operate an approved

share option scheme by applying in writing

to the Revenue Commissioners. Under

an approved scheme the employee will be

chargeable to capital gains tax on the ull gain on

disposal o the shares. There is no income tax

chargeable on the exercise o the option. Thereare certain conditions which must be met in

order to gain Revenue approval, including:

Theoptionpricemustnotbelessthanthe

market value o the shares at date o grant;

Thesharesacquiredmustnotbesoldwithin3

years o the date o grant;

Shareoptionsmustbeawardedtoalleligible

employees on similar terms.

However it is permissible to have a discretionaryelement whereby the level o options granted to

certain key employees might be determined at the

discretion o the company and not under the similar

terms provisions. The number o discretionary

options cannot exceed 30% o the total number o

options granted under the approved scheme in the

same tax year. In addition, where a key employee is

granted discretionary options in any year he cannot

also be granted options under the regular employee

element.

4.3.3 Share Subscription Schemes

Where an eligible employee subscribes or eligible

shares in a qualiying company he/she will be

entitled to a deduction against their total income up

to a maximum o 6,350, subject to the ollowing

conditions:

Sharesmustbesubscribedforatnotlessthan

market value

Sharesmustbenewordinarysharesinthe

employer company


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Companyissuingsharesmustbeatrading/

holding company, resident in Ireland and not

resident anywhere else and incorporated in

Ireland

Shares must be retained or 3 years or tax relie will

be withdrawn.

The tax deduction granted is excluded or the base

cost on uture sales.

4.3.4 Save As You Earn (SAYE) schemes

This scheme allows employees to save part o

their ater tax salary over a three year period at the

end o which the employee can use those savings

to purchase shares in their employer company.Membership o this scheme must be made available

to all employees. The minimum savings amount

is 12 per month and the maximum is 320 per

month. The shares can be purchased at a discount

o 25% o their market value at the beginning o the

three year savings period. No charge to income tax

arises on the purchase at this discounted price. I

you acquire shares under a SAYE scheme, consider

putting them into your personal pension plan i

the plan rules allow. The value o the shares will be

grossed up at the basic rate o tax like a normal cashcontribution to a pension plan.

4.3.5 Approved Proft Sharing Scheme (APSS)

Under an APSS the costs o providing shares in a

prot sharing scheme and the costs o running the

scheme are tax deductible or the company subject

to certain restrictions. The recipient employee is

exempt rom income tax on shares received up to

an annual limit o 12,700 in a tax year and is also

granted avourable income tax treatment on any

growth in the value o the shares. However i the

employee sells the shares within three years income

tax is charged at 100% o the value o the shares

at the date o sale. However this holding period

will not apply where shares are transerred rom

an Employee Share Ownership Trust (ESOT)

to an APSS subject to certain conditions. The

disposal o shares will be subject to capital gains tax.

Participation is open to every ull-time director/

employee and part-time employee chargeable totax under Schedule E who satises the qualiying

period (not more than 3 years). Shares may not

be allocated to any individual holding a material

interest (more than 15% o the ordinary shares) in

the company where it is a close company.

4.3.6 Employee Share Ownership Trusts (ESOT)

An ESOT is a tax-avoured trust mechanism

within which shares can be retained or up to 20

years or distribution to employees (and ormer

employees, within certain limits). They aredesigned to work with prot sharing schemes so

that shares can be released rom the ESOT each

year into the companys prot sharing scheme. All

employees and certain ull-time directors o the

ounding company or a group company who are

chargeable to tax under Schedule E and who satisy

the qualiying period (not more than 3 years) must

be eligible to be beneciaries under the ESOT.

However, employees and directors with material

interest (5% o the ordinary share capital) cannot

be beneciaries under the ESOT.

The ollowing are some o the relies available to

the company operating an ESOT:

Anychargeablegainarisingfromthetransfer

o shares rom the ESOT to an approved prot

sharing scheme is exempt rom capital gains tax;

TheESOTisnotchargeabletoincometaxon

dividend income arising on the shares i that

income is used or a qualiying purpose within

nine months o the date o receipt;

Acorporationtaxdeductionmaybeclaimedfor

the costs o setting up the scheme.


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5. Personal Tax

Lorcan Hand

Director

T: +353 (0)1 6805 805

D: +353 (0)1 6805 770F: +353 (0)1 6805 806


In recent years, the amount o paperwork

associated with tax compliance has increased

dramatically. However, it is important to keep-

up-to date to ensure that you claim all the relies,

allowances and credits to which you are entitled

and retain the supporting documentation This will

also ensure that you avoid interest and penalties or

ailing to comply with Revenues requirements.

5.1 Compliance

See Appendix I.

5.2 Planning

5.2.1 Bare Trusts

Parents can pass ownership o assets to theirchildren by means o a bare trust. Any gains are

those o the child, who can take advantage o the

annual CGT exemption. This arrangement is not

eective or income tax purposes and the income

is taxed as that o the parent. Consider using a

bare trust to hold assets designed to achieve capital

growth rather than income-producing assets.

5.2.2 Individualisation

For the tax year 2008 the ollowing tax bands

apply:-Single Person 35,400

Married Couple - One Income 44,400

Married Couple - Two Income 70,800

The 70,800 band or a two income couple istranserable rom one earning spouse to the other,

subject to a maximum individual band o 44,400

or either spouse.

5.2.3 Medical Expenses

Relie at the marginal tax rate is available on

certain medical expenses which are not reimbursed

by medical insurers/other authorities. Medical

expenses incurred on behal o a relative may

also be claimed. It may be worth considering

re-arranging the nancial aairs o a dependentrelative who is not availing o tax relie to ensure

maximum tax eciency.

Routine dental treatment and ophthalmic treatment

are specically excluded rom the relie.

5.2.4 Rent Relie

A tax credit may be claimed by tenants or rent paid

on residential accommodation. For 2008 the credit

is 400 per person under 55 years and 800 per

person where over 55 years.

5.2.5 Third Level Educational Fees

Tax relie is available at the standard rate or ees

paid or third level education. The relie is granted

where an individual pays the qualiying ees on his

or her own behal, or on behal o a dependent.

The maximum relie available or the academic

years 2007/2008 and 2008/2009 is 5,000.

5.2.6 Service Charges

A tax credit is available or local authority service

charges paid in ull and on time. The maximum

amount qualiying or relie is 400 per annum.

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5.2.7 Charitable Donations

Relie may be claimed by both individuals and

companies on charitable donations over 250 in a

year. Donations by PAYE taxpayers are granted

relie on a grossed up basis to the charity ratherthan a separate claim by the donor. Sel-employed

taxpayers make a claim or relie as part o their

return and there is no grossing up arrangement.

Tax relie is only available on donations to Revenue

approved charities and other approved bodies.

5.2.8 Interest Relie

Interestpayable

Relie is available or interest on money borrowed:

Forthepurposeofatradeorprofessioncarriedon by an individual or company (but may be

restricted in certain tax avoidance situations);

Forthepurchaseof,orexpenditureon,arented

property (relie is given against rental income);

Byanindividualtoinvestinortolendtoa

trading partnership in the conduct o whose

business the individual acts as a partner.

Individuals borrowing to acquire an interest in

property companies are no longer able to claim

the interest as a deduction. The deduction was

abolished in the Finance Act 2006 and applies to

loans taken out ater 7 December 2005.

The Finance Act 2006 also restricted interest relie

against rental income. A deduction or interest

paid on rented premises is only available where the

registration requirements o the Private Residential

Tenancies Board are met.

Relie is also available to individuals and companies

or interest on money borrowed to acquire aninterest in or to lend to a company, which is a

trading company, a rental company or a holding

company subject to certain conditions. This is

a very valuable relie, as it is given against the

individuals highest marginal rate o tax and there

is no monetary limit on the amount o the loan. It

thereore makes sense, rom a tax standpoint and

where commercially possible, or owner-managers

to organise their aairs so that they use all their

borrowings to lend to their business, thereby

obtaining maximum tax relie on the interest. Inthis respect it is possible to re-arrange existing

borrowings to meet this aim.

5.2.9 Restrictions on Tax Relies or High

Income Individuals

A limit on the use o tax relies by certain high

income individuals will apply rom the tax year

2007 onwards. The restriction will only apply tothose individuals with income and tax relies in

excess o 250,000 per annum.


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6. Capital Gains Tax

Paula Keaney

Director

T: +353 (0)1 6805 805

D: +353 (0)1 6805 769F: +353 (0)1 6805 806


David Keary

Director

T: +353 (0)1 6805 805

D: +353 (0)1 6805 767

F: +353 (0)1 6805 806


6.1 Use o Annual Exemption

The annual exemption or CGT o 1,270 is lost

i it is not used. Thought should be given beore

the end o each tax year to realise gains to use this

exemption.

6.2 Negligible Value Claims

It is not always necessary to dispose o assets whichhave become valueless, a loss can sometimes be

claimed without sale or liquidation. Such a loss is

allowable only in the year o claim. However, in

practice, a claim made within twelve months o the

end o the year o assessment or accounting period

or which relie is sought will be admitted, provided

that the asset was o negligible value in the year o

assessment or account period concerned.

6.3 April 5th 1974 Valuation o Shares

An asset owned beore 5 April 1974 can take its

value at that date as its base cost or CGT purposes.

In the case o unquoted shares, large discountsusually have to be applied in valuing minority

shareholdings to take into account their relative

lack o control and marketability. Where shares

are held by both husband and wie, it may be

possible to reduce the impact o this principle by

transerring shares between them to create a larger

single holding by one spouse and thereby establish

a higher 1974 value.

6.4 Retirement Relie

Where a person who has attained 55 years o age

disposes o the whole or part o his/her qualiying

assets or a consideration which does not exceed

750,000 relie is given or the ull amount o the

Capital gains tax chargeable.

Qualiying assets include, in the case o a sole

trader/partnership, chargeable business assets held

or 10 years and in relation to shares in a amily

company, where the individual has owned and

worked in the company or the last 10 years, 5 othem as a ull time director.

Marginal relie is available on disposals over

750,000.

There is no limit on the consideration where

the disposal is to a child or avourite nephew.

However, there is a clawback o the relie i the

child or avourite nephew disposes o the

property within six years o acquisition.

6.5 Transer o a Business to a Company

This relie provides that where the consideration or

the transer o assets o a business to a company is

the issue o shares in the company, the total gain is

not assessed but the base cost o the shares or the

purposes o a uture disposal is reduced by the total

gain on the transer o the assets.

The business must be transerred as a goingconcern.

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7. VAT

Finbarr OConnell

Manager

T: +353 (0)1 6805 805

D: +353 (0)1 6805 771F: +353 (0)1 6805 806


Some o these ideas oer outright VAT savings,

whilst others aim to provide cash fow benets.

For most ully taxable businesses, cash fow

planning represents the biggest opportunity or

VAT savings. Depending upon the size o the VAT

cash fows, the benets can be signicant.

7.1 Compliance

See Appendix II.

7.2 Planning

7.2.1 Property Transactions

Short term leases (lettings o less than 10 years) are

exempt rom VAT. This means that the property

owner would be unable to reclaim the VATincurred on associated costs. It is possible to make

an election to waive the exemption or commercial

properties only, so that rents are subject to standard

rate VAT enabling VAT to be recovered on

related costs. The Finance Act 2007 introduced

a new Section which removed the right to waive

exemption rom VAT or residential lettings. The

provision applies to properties acquired on or

ater 2 April 2007 and does not aect lettings in

existence prior to this date. The new VAT rules to

be introduced in July 2008 will reer to this as optto tax.

From 1 July 2008, all leases o property (other thanownership-type leases) will be exempt rom VAT.

Landlords will be entitled to opt to tax such lettings

(i.e. charge VAT) assuming certain conditions are

satised. Options to tax will be on a property-by-

property basis. Depending on the history o the

property and the prole o the tenant, it may be

attractive or a landlord to opt to tax certain lettings

while not opting to tax other lettings. For example,

a landlord who owns a property and has a potential

tenant with no VAT recovery may (in consultation

with the tenant) choose not to opt to tax the letting

and increase the rent amount instead. While this

course o action may have implications or the

landlord under the capital goods scheme, the extra

rent achieved may be more signicant.

Due to the introduction o the Capital Goods

Scheme on 1 July 2008, it will be important to

consider the VAT consequences o the transer o

second-hand properties ater that date. It may be

that in certain cases, vendors and purchasers will

be satised that VAT is not chargeable on certain

sales. This may be the case in particular where thepurchaser does not have ull VAT recovery.

It is also possible that there will be transactions

whereby a vendor will want to charge VAT on

the sale o a second-hand property. For example,

a nancial institution may be able to recover a

substantial amount o VAT in the event that it sells

a second-hand property and charges VAT (this

assumes that it was not able to recover all o the

VAT when the property was acquired, which is

generally the case).

It will be vital that detailed records are kept o all

property transactions including reurbishment

work etc. These records will be required when

properties are being sold or i businesses are being

transerred (e.g. as part o due diligence process). It

is a legal requirement to maintain such a record.

Note: Property-related transactions are generally

complicated and the specic circumstances will

dictate the best course o action. Specialist advice

should be sought in advance o concluding any

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transaction. Some o the scenarios reerred to

above would have potential implications or other

taxes.

7.2.2 Accruing or Purchase Invoices

VAT can be reclaimed on all purchase invoices

received and dated within the period covered by

the return. However, it is possible that by the end

o a VAT period not all purchase invoices will

have been posted to the purchase ledger. Consider

making an accrual or VAT on purchase invoices

dated within, but not posted until ater, the end o

the VAT period. Any such accrual must, however,

be reversed at the beginning o the next VAT

period.

7.2.3 Credit Notes

In certain cases provided both parties agree, VAT

can be excluded rom credit notes. This means

that the supplier will not have to reund the VAT

element to the customer and may give them a cash

fow benet.

7.2.4 Business Gits

Subject to certain rules, no VAT is due on business

gits costing not more than 20 (excluding VAT).

In addition, gits in reasonable quantities to actual

or potential customers o industrial samples in a

orm not normally available or sale to the public

are also not subject to VAT.

7.2.5 Bad Debt Relie

Ensure you have systems in place to recover VAT

accounted or on sales invoices that must be written

o. Where the actual payment received in respect

o a debt is less than the amount which would

otherwise be liable due to a bad debt, relie is given

or the sum not received. Bad debts are subject to

agreement with the Inspector o Taxes and it is

possible to seek advance approval beore claiming a

VAT deduction or bad debts.

There is one situation where VAT relie in respect

o bad debts is not available - where the bad debt

is in respect o VAT arising on the grant o a longterm lease (10 years or greater) o immovable

goods. This should not apply to leases granted ater

1 July 2008.

7.2.6 Recovery o VAT on Pension FundExpenses

The management o a pension und or a companys

own employees (excluding the business activities

o the pension und) is part o the employers

business. An employer who is registered or VAT

can recover any input tax incurred on establishingthe und and its on-going management (subject

to the normal rules). This recovery can be made

even i the management o the und is undertaken

by trustees and they are responsible or paying the

management costs.

7.2.7 Export Companies

Businesses with signicant export sales can achieve

cash fow savings by obtaining authorisation rom

the Revenue Commissioners to receive goods and

services without incurring VAT. A trader whoderives 75% or more o annual turnover rom zero

rated intra-Community supplies o goods or rom

exports o goods may apply to have most goods

and services received by him and intra-Community

acquisitions and imports made by him zero rated.


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8. Revenue Audits and Investigations

Jim Kelly

Director

T: +353 (0)1 6805 805

D: +353 (0)1 6805 780F: +353 (0)1 6805 806


8.1 Revenue Code o Practice

There is a Revenue code o practice which now

applies to notications o all Revenue audits

ater the 1st September 2002. There has been a

undamental revision by the Revenue to their

auditing procedures and there is a greater onus odisclosure (in writing) placed on the taxpayer.

Following is a brie summary o what is involved in

the new procedures:

Greateronusonthetaxpayertomakea

written voluntary disclosure to the Revenue

Commissioners in advance o their visit;

Withinfourteendaysofnoticationthetaxpayer

must inorm Revenue i he wishes to make a

voluntary disclosure; Withinsixtydaysthetaxpayermustselfassess

or penalties and interest on late payment o

tax as well as the tax involved. Previously, a

taxpayer was simply required to disclose an

underpayment o tax when Revenue visited and

it was then a subject o negotiation. From 1st

September 2002 the taxpayer is now required

to make an up-ront eective admission o tax

underpayment. A cheque or tax, interest and

penalties is to be paid at the outset o a Revenue

audit. This eliminates the old negotiation tactics; Thevoluntarydisclosuremustbeinwritingand

signed with a certiying statement o complete

disclosure;

IfthereisanincompletedisclosuretoRevenuethe penalties are now much more signicant.

These risks include the imposition o ull civil

penalties and the possible consideration by

Revenue o urther proceedings;

Therecanbesevereconsequencesensuingfrom

making a less than complete voluntary disclosure

or indeed rom not making any disclosure at

all when one should have been made. Revenue

have stated that both o these cases are ones that

they will consider or urther prosecution;

IfthenetunderpaymentofVATforthetwo-month period being corrected is less than

5,000, the amount o the tax can be included

(without interest or notication to Revenue)

as an adjustment on the next VAT return to be

submitted. The only tax this applies to is VAT

and the taxable person must be a bi monthly

remitter;

Thecodealsoprovidesforahard-lineapproach

in relation to underpayments o Capital

Gains Tax where Revenue orms a view that

proessional valuations o property werespurious;

Thecodeintroducesaconceptofself-correction

o tax returns. Where the taxpayer becomes

aware o an underpayment o tax due to

negligence, they can avoid penalties (but not

interest) by advising Revenue in writing o the

underpayment and by submitting a cheque in

payment o tax and interest due.

In summary, the new code takes a hard-line

approach and puts a much greater emphasison up-ront disclosure and payment o tax by

the taxpayer. There has been an increase in the

requency o audits and this is likely to increase in

the uture.

To urther complicate matters, negligence is not

dened but the code sets out three categories o

negligence each o which carries their own penalties

which can be urther reduced depending on the

level o disclosure and co-operation (see table

below). There is also the concept o prompted andunprompted qualiying disclosure and there is even

a urther concept o a repeat voluntary disclosure.

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8.2 Revenue Investigations

Revenue Investigations are becoming a regular

eature o the Irish tax system. The RevenueCommissioners have recently undertaken an

audit and intervention programme targeting the

construction and property development sectors.

Up to 25% o the Revenues audit personnel have

been concentrating specically on the construction

sector.

The Revenue Commissioners are currently

examining tax compliance in a number o business

sectors. Current reviews include the property /

rental income sector, computer and sotware sector,

the licensed trade, the building industry (relevant

contracts tax), hairdressing and beauty parlours,

management consultants, high earning doctors and

late lers o annual VAT returns.

8.2.1 General Pattern

The investigations have been ollowing the same

general pattern. Firstly there is an announcement

by the Revenue Commissioners that an

investigation into a particular source o income

will commence. This is generally ollowed by a 60day period

A Guide to Saving Tax May 2008 Ireland

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