educating supporting representing construction of the legislation chartered tax consultant stage 2...
TRANSCRIPT
EDUCATING
SUPPORTING
REPRESENTING
www.charteredaccountants.ie
Construction of the Legislation
CHARTERED TAX CONSULTANT STAGE 2 MODULE 1
Brian Keegan
6 & 7 Jan 2012
Introduction
• History of Irish Tax Policy
• Main sources for change
• Legislative Process• International
Dimension• Revenue Structure
Irish Tax
Legislation
Case Law EU Law Double TaxAgreements
Tax Policy
• Political History• 1920s – 1950s Economic Policy• 1958 Policy Paper• Free Trade Challenge
Tax Policy
• Corporate Tax• Income Tax• Value Added Tax• Capital Taxes
Corporate Tax Policy
• Inward Investment low tax regime since 1950s
• 1980 EU pressure
• Financial Services• 2003 to date
• 0% for internationally traded goods
• 10% CT for manufacturing
• IFCS established• 12.5% for all trading• Reduced complex
anti avoidance measures
Income Tax Policy
• Top Tax Rates > 50% until 1992• 1990s to recently – lower taxes on labour
and capital• Tax Shelters gradually eliminated• Recent economic crisis• Marginal Rates – Tax, PRSI and USC
– 52% for incomes > €32,800– 55% for self employed > €100,000
Value Added Tax Policy
• Introduced 1972 replacing retail and wholesale taxes
• EU Directives apply• Minimum impact for policy objectives• Rates 0%; 9%*;13.5% and 21%• (23% from January 2012) *May 2011 Jobs Initiative
** Budget 2012
Capital Taxes Policy
• CGTA 1975• CATCA 2003• SDCA 1999
• RIPs• Wealth Tax 1975-1978• RPT 1983 – 1997• Probate Tax to 2000
Capital Taxes
Capital Gains
Tax
CapitalAcquisitions
Tax
Stamp Duties
Capital Taxes
• CGT Rate halved in Dec 1997 to 20%• Removal of Rollover Relief and Indexation• Property Boom – CGT and SD significant• SD seen as tool to implement policy
Property Reliefs
• Recent policy to remove property-based tax schemes
• High Earner’s Restriction introduced• Widening of tax base
Origins of Tax Code
• Is history of tax legislation vital for CTC?• YES• Understanding why it exists in current
form• Access to older material• Was a provision amended? When?• Back Duty Investigations
Origins of the Tax Code
• The beginning in UK
• Reached Ireland
• Irish State 1922• Irish tax law
• William Pitt 1799• Gladstone’s
Income Tax Act 1853
• Income Tax Act 1918
• Shares same DNA as UK
First Consolidation
• Major consolidation• Effective 6th April
1967• Income Tax Act 1967
IncomeTax Act1967
Income Tax Act1918
Irish Finance
Acts1923 –1966
Taxes Consolidation Act 1997
• TCA 1997 replaced ITA 1967• Prior to 1997 unofficial consolidations
published• Helpful in identifying origins of pre 1997
law• Note references to surtax – pre 1974
TCA 1997 Consolidation of :
• Corporation Tax Act 1976• Income Tax Act 1967• Capital Gains Tax Act 1975• Finance Acts• Enacted 30th November 1997 • Effective 6th April 1997
Legislation not Consolidated
• Provisional Collection of Taxes Act 1927• Waiver of Certain Tax, Interest and
Penalties Act 1993
Legislative TimelineYear Development
1970 RCT Introduced
1980 Manufacturing Relief replaces Export Sales Relief (ESR)
1986 Section 86 FA 1986 – GAAR anti avoidance rule
1986 DIRT introduced
1988 Self Assessment introduced
1997 CGT rate halved from 40% to 20% wef 3rd Dec 1997
1998 CT Rates 12.5% for trading and 25% non-trading replaces Manufacturing Relief
Legislative TimelineYear Development
1999 Place of incorporation test for corporate residence introduced
1999 Euro introduced – restatement of sums from IR£
1999 DWT introduced replacing imputation system. ACT abolished
1999 Radical pension overhaul – ARFs introduction
2000 Individualisation of tax bands; Tax Credits introduced
2001 Tax Year changed to 31st December from 5th April
2001 TRS introduced for medical insurance and mortgage interest
Legislative TimelineYear Development
2001 CT Losses value based; CT Loss Ring fencing; move to different CT Rates for trading and non-trading activities
2002 CGT Indexation Relief abolished from 1st January 2003
2004 Introduction of CGT participation exemption for companies
2005 Companies to compute trading profits in accordance with Accounting Standards
2007 Introduction of High Earner Restrictions for Income Tax
2010 Disclosure of tax avoidance schemes to Revenue Sec 817 TCA 1997
2011 FA 2011 introduces USC – significant broadening of tax baseMerger of Income Levy and Health Contribution
Genises of Tax Code - Why?
• Irish Finance Acts “borrow” UK language• Anti avoidance measures• Wide range of interpretative sources
opened• UK Case Law and HM Interpretation
useful for Irish tax law
Why is History Important?
• Rational behind provision revealed• Access to non–statutory material• Insight into purpose of provision• Dáil Debates
Understanding History
• Anti avoidance perspective• “..an abuse of the provisions having
regard to the purpose for which it was provided”
• Need to access commentary under pre consolidated form
• References still made to Sec 23 properties, Sec 84 Loans etc
Understanding History
• Places legislative provision in context eg Development Land provisions Part 22 TCA 1997 are pre CGT
• Electronic Search tools hugely helpful• Back Duty Investigations
– Tax geared penalties for certain taxes eg PAYE
The Irish Constitution 1937
• Article 15.4.1
• “The Oireachtas shall not enact any law which is in any respect repugnant to this Constitution ..”
• Presumption of constitutionality difficult to displace
Constitution – Case Law
• Madigan v AG• Unsuccessful
challenge to RPT• Property rights
attacked• Article 40.3
• Contrast with Brennan v AG
• Irish and US constitutional guarantees similar
• Tax Laws in category of their own
• Latitude to be allowed to legislature
• Land Rating found unconstitutional
Constitution – Case Law
• Murphy v AG• Taxation of married
couples unconstitutional
• Michael Daly v Revenue
• Change to current year basis of assessment
• Presumption of constitutionality rebutted
• PSWT Case• No credit for PSWT
for one year• Provision found
unconstitutional
Constitution – Case Law
• Paul Browne and others v Revenue
• Kennedy v Hearne
• James G Orange V Revenue
• BIK on private use of cars held not to breach Articles 40.3, 40.3.2 or 40.1
• PAYE estimates not in breach of Constitution
• Serving of notice of attachment case lost
Constitution and Tax LawTax legislation has rarely been found to be in breach of the Irish Constitution
The Tax Code
2010 Revenue Commissioners Report
Duties and Taxes/Levies
2010 Net Receipts
VAT €10,103m
Customs €229m
Excise Duties (inc VRT)
€4,835m
2010 Revenue Annual ReportDuty, Taxes and Levies 2010 ReceiptsIncome Tax PAYE €7,777m
Income Tax Self Employed €815m
Income Tax Professional Services €564m
Income Tax DIRT €446m
Income Tax DWT €218m
Income Levy €1,446m
Income Tax Total €11,266
2010 Revenue Annual Report
Duty, Taxes and Levies 2010 Receipts
Corporation Taxes €3,944m
Stamp Duty €962m
CAT €237m
CGT €345m
Total Capital Taxes €1,544m
2010 Revenue Annual Report
Duty, Taxes and Levies 2010 Receipts
VAT Customs Excise €15,167m
Income Taxes/Levies €11,266m
Capital TaxesCorporation Tax
€1,544m €3,944m
TOTAL €31,921m
Direct Taxes
• Sec 1(2)TCA 1997• “the Capital Gains
Tax Acts”• “ the Corporation Tax
Acts”• “the Income Tax Acts”• “the Tax Acts” (ITAs &
CTAs)
TCA 1997
IncomeTax
Corporation Tax
CapitalGainsTax
Withholding Taxes TCA 1997• RCT Relevant Contracts Tax• PSWT Professional Services Withholding
Tax
• DWT Dividend Withholding Tax• PAYE Pay As You Earn• CGT Capital Gains Tax• DIRT Deposit Interest Retention Tax
Capital Taxes
• Stamp Duty• SDCA 1999
• Capital Acquisitions Tax• CATCA 2003
Value Added Tax
• Indirect Taxes• VATA 1972• Value-Added Tax Consolidation Act 2010• EU Directives and Regulations• ECJ
Finance Acts
• Each Finance Act amends tax legislation
• Finance Acts introduce new taxes– USC: FA 2011
– Income Levy: FA (No2) 2008–VRT: FA 1992
Consolidated Texts
• Published texts are unofficial• Can contain printing errors• Definitive statement is the TCA 1997 plus
Finance Acts published by Government Publications
• Refer to official source when in doubt
Other Charges• USC – part of tax code• PRSI• Health Contribution
• Plastic Bag Tax
Department of the Environment
• NPPR (charge of €200 on “second” homes)
• Part 18D TCA 1997• Social Welfare Acts• Health Acts
• Regulations under Waste Management Acts 1996-2007
• Local Government Charges Act 2009
Non FAs can amend Tax Legislation
• Health Insurance (MP) Act 2009
• National Pension reserve Fund Act 2009
• National Asset Management Agency Act 2009
• Stamp duty on medical insurance policies
• Amended tax code
• Impact on FA 2010
Tax Legislation – other legislation
• Urban Renewal 1998 • Town Renewal Act
2000
• Criminal Justice Acts
• Property Incentive Schemes
• Powers granted to Revenue
Structure of TCA 199763 Parts Nos 1- 49
Additional Parts numbered A, B,C etc
Part 22 A Shipping Tonnage TaxPart 18A Income LevyPart 18B Parking LevyPart 18D USC
50 Schedules Nos 1 - 32
Schedules are part of the legislation
No legislative distinction
Chapters Each Part divided into Chapters
Structure of CATCA 2003
12 Parts Nos 1- 12
Part 2 Gift Tax
Part 3 Inheritance Tax
Other Parts Definitions, Property Valuations, Exemptions, Administration, Reliefs, Companies
Structure of SDCA 199912 Parts Nos 1- 12
Part 3 Valuation
Part 7 Exemptions and Reliefs
Part 8 Companies Capital Duty now abolished
Other Parts Definitions, adjudication, CREST, Levies on ATM and Credit Cards, Enforcement, Penalties and Interest
Statements of Practice• Interpretations of Law• Difficult to sustain a legal challenge• SP IT3/07 Payroll deductions for non-
Irish employments• SP IT1/07 International aspects of
Share Options• SP- Gen/1/94 Revenue Powers
exercised outside Revenue offices
Customer Service Charter
• Replaced Taxpayer Charter of Rights• Charter of Rights withdrawn after
Supreme Court case of Terence Keogh v CAB and Others (2004) IESC 32
• Taxpayer availed of this rights to extend period to make appeal
• Argued Revenue had not provided full information under Charter
Non Statutory Statements
• Supreme Court Judgment in Keogh Case• “contain no more than praiseworthy
statements of an aspirational nature..to give the latter ..assurance that complaints.. will be seriously entertained”
• Customer Service Charter not likely to be enforceable in a court of law
Finance Act Process
• You must know the FA process - WHY?• FA is the key legislative development
each year• FA implements Government policy in
Budget• Usually one FA but:
– 2 in 2008– 3 in 2011
Finance Act Process
• Knowledge of FA process:• Accounting Standards – legislation at
balance sheet date• Effective date(s) for legislation• Timetable important for submissions• Advising clients on draft legislation-
changes and discussions on provisions
Finance Act Process
• Constitution• Article 21- Money Bill initiated in Dáil• Money Bill cannot be amended in Seanad• Money Bill deemed passed if not returned
by Seanad to Dáil within 21 days
Finance Act Process
• Constitution• Article 22 definition of a Money Bill• “A Bill which contains only provisions
dealing with…imposition, repeal, remission or regulation of taxation; …”
• Article 22 does not include local authority taxes
Provisional Collection of Taxes Act 1927
• Allows Financial Resolutions to become law
• FRs become law on Budget night until enactment of Finance Bill
• FRs have statutory effect under Sec 2 PCTA where Dáil resolves new taxes/changes to taxes/public interest
Financial Resolutions
• Increase Excise Duties from Budget night• Anti avoidance measures• Restrict tax reliefs• Can be put forward immediately prior to
Committee Stage of Finance Bill
Financial Resolutions
• Temporary enactments – when do they end?
• Within 84 days if not incorporated into Bill• If Finance Bill rejected in Dáil• Another similar Act comes into force• Within 4 months of passing/taking effect
Budget to Finance Act
• Budget measures must be implemented by a Finance Act within 4 months
Pre Budget ProcessCyclical Process
Culmination of “Estimates Process”
Budget = Annual Financial Statement by Minister for Finance
Pre Budget submissions considered by Department of Finance eg CAI
Tax Strategy Group – minutes published
Revenue discussions with Dept of Finance
Budget Day
• Budget Speech• Budget documents• Financial Resolutions
• Budget night debates on FRs
• No legal standing• Important• Temporary statutory
effect• Oireachtas website
EU/IMF Programme
• Programme of Financial Support for Ireland• Agreed 2010• Conditional upon commitments on economic,
financial and taxation policy• Implementation by Irish CB and Government• Budget must operate within these constraints• National Recovery Plan 2011-2014
EU/IMF Programme
• “Troika” of EU, IMF and ECB must agree deviations
• Release of first instalment of funds was contingent on Budget 2011
• Quarterly reviews• Impact of control of Government over
Budgetary process
EU/IMF Programme
• European Semester approved by EU• Coordination of budgetary and economic
policies• Stability and Growth Pact • Europe 2020 strategy• First European semester was January 2011
European Semester
• Six month cycle• Annual Growth Survey published by
Commission in January• Strategic advice on policies• Member States discuss budgetary strategies• Stability and Convergence Programmes• National Reform Programme drawn up• Submitted to EU in April• Country specific guidance issued by July
Budget Day Documents
Financial Statement Minster’s Budget Speech
Summary of Budget Measures Taxation and Expenditure
Annexes Tables showing effects of tax changes
Estimates of Receipts and Expenditure Covering the coming year
Financial Resolutions Temporary legislative effect
Estimates/Summary Public Capital Programme
For the coming year
Read relevant parts carefully www.budget.gov.ie/Budgets
Budget Day
• Financial Resolutions are specific
• FR not needed for relieving measures
• FRs needed for increases with retrospective effect
• DIRT Rate changes
• Increases in SRB or credits
• To introduce measures from date prior to Finance Act
Financial Resolutions
• Drafted with Parliamentary draftsman• FRs debated and voted upon• Government defeated on FR?• Likely Dáil dissolution• General election called
Finance Bill
• Drafting of Finance Bill• Each Section drafted by Revenue Policy
and Legislation divisions• Forwarded to Parliamentary draftsman• Process facilitates direct discussions with
tax practitioners
Finance Bill StagesFirst Stage Conclusion of Budget
Debate. Publication schedule agreed
Publication of Bill Finance Bill as initiated plus Explanatory Memorandum
Second Stage Minister to Dáil followed by debate. Formal vote within 84 days of Budget
Committee StageAmendments introduced
11 Select Committee members. Debates on Oireachtas website. Bill as amended published
Finance Bill StagesReport StageDáil debate.
Substantial amendments/Recommittal possible
Fifth StageMotion to Dáil to pass Bill.
Bill as passed by Dáil Éireann published. Errors amended.
Bill moves to Seanad Recommendations only. Bill as passed by Dáil rarely changes
Return of Bill to Dáil Bill deemed passed by both Houses
President Signed within 4 months B Day
Finance Act – Effective Dates
• Commencement Provisions
• “Except where expressly provided”
• Individual Sections• Can be retrospective• Capital Allowances• Pensions for GPs
• Towards end of Act
• Most common 1st Jan• Stand alone
commencement dates
• FA 2009 wef 8/5/2009• RAC/GMS SOP 11/10
Pre 7/9/10 policies
Commencement Orders• Finance Act Provisions may be subject to
Ministerial Commencement Order• Statutory Instrument needed• Used where FA provision needs EU
approval• Be careful to check if a CO applies• Parking Levy/S Duty/ R&D/Property
Reliefs• Check Iris Oifigiúil
Regulations
• Finance Acts may provide that matters dealt with by Regulations
• Regulations made by Minister or Revenue• RCT/PAYE/MIRAS – see TCA 1997• New RCT Regulations – FA 2011• Regulations are Statutory Instruments –
powers from Finance Acts
European Influence
• Why is a knowledge of EU issues important?
• EU has significant influence on Irish tax policy – Indirect Taxes in particular
• Community Rules on State Aid• Role of European Court of Justice (ECJ)• EC Treaty overrules Irish Tax law
European Influence
• Lisbon Treaty 1st December 2009• Amended Maastricht Treaty (TEU) and
Treaty of Rome (EC Treaty)• Treaty on the Functioning of the EU (TFEU)• Relevant articles have changed in
numbering• All tax legislation must be compatible with
TFEU
EU – Topics Covered
• Four Fundamental Freedoms• Tax Provisions• General and Final Provisions• EU Directives• Direct Taxation• State Aid
EU Four Freedoms
• Freedom Movement of Workers• Freedom of Establishment• Freedom to Provide Services• Free Movement of Capital and Payments
TFEU Main Provisions
• Article 18• “Within the scope of application of the
Treaties, and without prejudice to any special provisions contained therein, any discrimination on grounds of nationality shall be prohibited”
TFEU
• Article 21• “Every citizen of the Union shall have the
right to move and reside freely within the territory of the Member States, subject to the limitations and conditions laid down in the Treaties and by measures adopted to give them effect”
Four FreedomsArticle 45 Free movement for workers
No discrimination for nationality
Articles 49 and 54 Prohibition on restricting Freedom of Establishment
Branches/subsRight of self employmentSetting up/managing undertakings
Article 56 Freedom to provide services
No restrictions on providing service in another EU State
Article 63 Free Movement of Capital
Free movement of capital and payments
Free Movement of Persons
• Schumacker Case• Germany had taxing rights under DTA• Individual was a Belgian national• Full German personal allowances not
given• Denial of full personal allowances in both
countries• Discrimination arose
Freedom of Establishment• Commission v France C270/83• Leading ECJ tax judgement• French branches of non resident
insurance companies• Treatment of dividends – no French tax
imputed on dividends from branches• Where underlying CT system the same
for both residents and non residents • Dividend credit system for both must be
the same
Freedom to Provide Services
• Case C234/01 – Dutch drummer playing on German radio station
• Held same rules for Dutch person as for German person when allowing deductions from income
• Few cases on this Freedom
Free Movement of Capital
• Numerous Cases• Case C265/04 Bouanich• CGT v Income tax on buyback of shares
by Swedish company for French shareholder
• Non resident can be treated more favourably than resident but not vice versa
Tax Provisions of TFEU• Article 110 Internal taxes on other
Member States products not to exceed domestic rates
• Article 111 Repayment of taxes on exports to EU not to exceed internal taxes imposed
• Article 112 No remissions for exports or charges on imports except for indirect taxes
Tax Provisions of TFEU
• Article 113• Harmonisation of excise duties and
indirect taxation• Avoiding distortion of competition• Functioning of internal market
European Court of Justice
• Direct taxation measures of Member States must conform with terms of EC Treaty
• How is this implemented?• Judicial authority of EU is the ECJ• Uniform Interpretation of Community Law
European Court of Justice
• ECJ Spotlight not on Irish tax to date• ECJ decisions are reflected in Irish tax
code• List of ECJ direct tax judgments• Tax Practitioners should be aware of
these
EU Direct Taxes Recurring Themes
• Sources of Income treated differently in TCA 1997
• Sec 267M
• Sec 747B
• Sec 21B
• Tax rate on int from EU accounts = DIRT accounts
• Tax rate for EU/EEA offshore funds = rate for similar Irish funds
• 12.5% CT on qualifying EU divs from trading profits
EU Direct Taxes Recurring Themes
• Location of Assets Sec 89 CATCA 2003
• Favoured Nations Issues Sec 73 TCA 1997
• Agricultural Relief applies to land in EU
• UK Income was excluded from remittance basis. Sec 73 was repealed wef 1/1/2008
EC Treaty Freedoms
• EEA* extends Treaty Freedoms to• Norway/Iceland/Liechtenstein (exc
Switzerland)
• EEA = EU +Norway/Iceland/Liechtenstein• References to EEA in Tax Legislation
excludes Liechtenstein• EEA = European Economic Area
EU Directive Overview
• EU Directives on Tax need unanimity• Few Direct Taxes EU Directives• Derogations important- exceptions
negotiated by Member States• Examples 0% VAT Rate for certain States• Transported into Irish law or direct effect• Consult Directive wording to interpret
EU Tax Directives
• Parent-Subsidiary Directive• Merger Directive• Interest and Royalties Directive• EC Savings Directive• Capital Duties Directive• VAT Directives
Mergers Directive
• Council Directive No 90/434/EEC • Part 21 TCA 1997 – transfer of assets• Sec 637 TCA 1997 to allow for “merger”• Legislation pre dates Mergers under Co
Law• Sec 308A TCA 97 introduced by FA 2010• No BC on transfer of trade assets during
merger
Parent Subsidiary Directive
• Council Directive No 90/435/EEC• Sec 831 TCA 1997 (& 831A for Swiss)• Elimination of double tax on divs paid to
parent by subs• Lesser impact in Ireland• DWT exemption • Unilateral relief Sch 24 para 9A
Interest and Royalties Directive
• Council Directive 2003/49 EC • Part 8 Chapter 6 TCA 1997 (S 267L
Swiss)• No withholding taxes on interest &
royalties to associated EU companies• Existing exemptions in Irish tax law• Payments from EU group companies
covered
Savings Directive
• Council Directive2003/48/EC• Chapter 3A Part 38 TCA 1997• Targets tax evasion on cross border
savings• Withholding taxes or Exchange of Info• Sec 898H TCA 1997 – Exchange of Info• Sec 898P extends to 3rd countries
Directives on Mutual Assistance• EC (Mutual Assistance if the field of direct
taxation…) Regs 2005• EC (Mutual Assistance for the recovery of
claims relating to certain levies….) Regs 2002
EU Directives - VAT
• EU Directives an integral part of VAT• National law of EU States must be
consistent with EU VAT Directives• Dir 2006/112/EC - “Recast Directive”• Replaced Sixth VAT Directive• Underpins VAT Code
State Aid – EU Rules
• Article 107 TFEU – impacts on Irish tax code
• State Aid that distorts/threatens to distort competition is illegal
• Some State Aid allowed including:• Social Aid; Natural Disasters; Economic
Aid to disadvantaged areas; Culture and Heritage conservation
TFEU Code for Business Tax
• December 1997• Non Binding Code• Guidelines to apply
EC Treaty State Aid Rules to direct business tax
• Art 107 applies to tax exemptions and reductions
• Aid granted by State of State Agencies
• Competition and trade in EU affected
• Measure must be specific or selective
EU Code for Business Tax
• General Measures
• Tax measures open to everyone operating within EU State
• Not regarded as State Aid
• Technical tax measures
• Setting Rates• Loss carryovers• Anti Avoidance Rules• General economic
policy eg R&D, training, employment, the environment
State Aid and Entire Sectors
• Measure targeting all sectors is State Aid• Where the sectors are subject to
international competition• Manufacturing Relief constituted State Aid• Originally a derogation for an entire
section from normal CT Rate
Article 108 State Aid
• Notification to Commission by Member State
• Commission approval required• Recovery of State Aid if found illegal• Legitimate expectation exceptions
Ireland and State Aid Rules
• State Aid Rules taken very seriously• Provision enacted subject to
Commencement Order• Consultation with EU Commission• State Aid approval not same as
compliance with EC Treaty Freedoms
Ireland and State Aid Rules
• Long history of State Aid approvals• See EC website for recent decisions• Some measures need amendment to get
EU approval• Sec 626B TCA 1997 – CGT exemption
could not be restricted to larger gains• Perceived as incentive to multinationals
Ireland and State Aid Rules
• Example of Irish Tax provision and State Aid
• Sec 486C TCA 1997• Start Up Exemption for companies was
subject to SI 516 2009• See Tax Briefing 06/2010• Note cumulative State Aid rules apply
BES and State Aid• BES and Seed Capital Scheme• Approved by EU subject to conditions• EC (Income Tax Relief for Investment in
Corporate Trades…) Regs 2007• “Non- assisted areas” for medium sized
enterprises• De Minimus Rules apply for 3 years• EIIS scheme replaces BES – EC approval
recently obtained
12.5% Corporation Tax Rate
• 1998 Ireland got EU approval• Manufacturing Relief phased out as it was
a State Aid• 12.5% CT Rate for trading companies• Transitional provisions until 2010
State Aid ApprovalsIFSC and Shannon Regimes
Double Rent Deductions CHDA
Manufacturing Relief Tonnage Tax
Rural and Urban ReliefsMid Shannon Corridor
Hotel Capital AllowancesQualifying Hospitals
Film Reliefs Foreign Branch Profits and Dividends
Living over the Shop Scheme
BES and SCSEIIS
Case Law Introduction
• Why is Case Law important for tax?• Findings of Court = element of tax law• Irish Court decision becomes part of law• Until overruled by another decision or• Reversed by a change in law
UK Case Law
• UK and Irish tax law similar• UK Court findings are relevant• UK decisions not binding in Ireland • UK Case law = persuasive authority• Anti Avoidance – note different approach
Court Decisions
• Principles applied by Court to facts of case
• Not the precise wording of judgment• Judgments contain helpful commentary• Read both majority findings and
dissenting judgments
Case Law Life CycleAppeal CommissionersDetermination is final and conclusiveRight of T/P for rehearing in Circuit CourtCase Stated for High Court by either side
Appeal against assessment Sec 933 TCA 1997 30 days time limitTax Return must be filedBurden of proof on taxpayer
Circuit CourtDecision of Judge final and conclusiveRight of Appeal by t/p or Inspector
T/P can request rehearing within 10 days of AC decision
Case Law Life CycleHigh CourtJudgment reverses, affirms or amends earlier decisionAppeal to Supreme Court
AC or CC Judge prepares Case StatedT/P or Inspector submits Case Stated to High Court
Supreme Court Decision final and conclusiveRight to EC Courts of Justice?
Irish Case Law Reporting
• Irish Tax Reports – High Court and Supreme Court decisions
• Courts Service Online• BAILII.org• LexisNexis• www.appealcommissioners.ie
UK Case Law Reporting
• Simons Tax Cases – Lexis Nexis• Report of Tax Cases • Board of Inland Revenue• BAILII.org• Summaries on www.hmrc.gov.uk/
Interpretation of Statute
• General Principles of construction apply to tax law
• Statute taken as a whole• Account taken of legal and other facts• Skilled, professional advice
Rev Comms v Doorley 1993 ITR 539
• Taxing Act to be read as it stands upon its own language
• Duty of Court to examine text• Is tax imposed expressly, in clear and
unambiguous terms?• Tax only applies where it is within the
“letter of the statute”
Mc Grath v McDermott (III ITR 683 (1988))
• Finlay J – function of the Courts• Ascertaining true meaning of statute• Doubt or ambiguity – consider purpose
and intention of law• Not a function of Courts to add/delete to
achieve objectives• Rare cases – words may be implied
Form Over Substance
• Doctrine of “Form over Substance”• Tax Avoidance Cases• Tax imposed by legal nature and not
economic effects of transaction• Transactions or actions not re categorized• Analyses legal rights and obligations
Fiscal Nullity
• Doctrine of “Fiscal Nullity”• Tax Avoidance Cases• Focus on economic substance and not
legal form of transaction• End result is taxed and intermediate steps
ignored
UK Courts
• UK Cases have persuasive authority• Important to know system and access
cases• Magistrates Court/County Court/High
Court• Court of Appeal• The House of Lords• Supreme Court
UK Appeal Process
• Assessment appealed to First Tier Tribunal (Tax) (for older cases = Special Commissioners)
• Right of Appeal to Upper Tribunal (Finance and Tax)
• Superior Court of Record with UK-wide jurisdiction with High Court judges
Anti Avoidance & Case LawDuke of Westminster (UK)
Taxpayers have a right to organise affairs efficiently
Ramsay v IRC (UK) Doctrine of Fiscal Nullity applied
Furniss v Dawson (UK) Principle of Fiscal Nullity further extended
McGrath v McDermott (Irish)
Doctrine of Form over Substance followed by Irish Judiciary
O’Flynn Construction Ltd (Irish)
Sec 811 TCA 1997. ESR Case
Duke of Westminster Case
• Every man entitled to order affairs efficiently
• Tax attaching under Acts can be less as a result of this
• Cannot be compelled to pay increased tax• Doctrine of Form over Substance applied
Ramsay v IRC
• Tax exempt gain on sale of loan with deductible loss on sale of shares
• Held that doctrine of fiscal nullity applied• Revenue not bound to consider each step• Composite transaction viewed as a whole• Pre-arranged artificial steps served no
commercial purpose
Furniss v Dawson
• Series of transactions with commercial effect
• Held steps undertaken for non-commercial purpose
• Capital Gains Tax deferment
McGrath v McDermott
• Famous significant Irish Tax Case• Revenue adopted “new approach” of tax
avoidance• Reliance on connected party rules for
share transactions to produce CGT Loss• Revenue refused loss on grounds that no
economic loss arose
McGrath v McDermott
• Revenue asked Court to introduce rule rendering losses inoperative unless “real”
• Finlay J refused to follow Ramsay Case• Ruled that function of Court is to ascertain
true meaning of statutory provision• Doctrine of Form over Substance applied• Constitutional Separation of Powers
Other Case Law
• Case Law Precedents • Reference to cases in other modules• Topics include: Definitions of Trades;
Allowable Deductions; Employee Matters; Capital Allowances; VAT; Stamp Duty
Case Law Employees• Employed v Self
Employed• Social Security Case
Law• Market Investigations
v Minister of Social Security (1969)
• Henry Denny & Sons v Minister for Social Welfare
• Contract of Service v Contract for Services
• Who provides equipment?
• Opportunity to profit• Right to direct and
control• Degree of financial
risk
Company Residence
• De Beers Consolidated Mines v Howe
Central Management and Control• Bullock v Unit Construction & Egyptian
Delta Land & Investment Co Ltd v Todd
Central Management and Control located where highest level of business located – where Board Meetings held
Revenue Rulings
• SOPs and Revenue Guidance Notes are not law
• Likely judicial review proceedings if challenging Revenue on failure to adopt procedure/position
• Tax Briefings, eBriefs• Freedom of Information Act• Source of past rulings and Revenue
concessions
Anti Avoidance• Commissioner Michael O’Grady• Legal tax planning v tax evasion• “..like the elephant, we’ll know
unacceptable tax planning when we see it”• Divergence with UK – Irish Constitution• UK: Substance over Form is a judge made
legal principle• Ireland: Plain meaning of the law• GAAR introduced in Sec 811
Anti Avoidance Legislation
• Chief Justice in McGrath Case• Role of Revenue to tackle Tax Avoidance
Schemes• General Anti Avoidance introduced in FA
1989• Now Section 811 TCA 1997• O’Flynn Construction case Supreme
Court 2006
Section 811 TCA 1997
• Revenue can re categorize certain transactions not arranged primarily for purposes other than tax
• O’Flynn Construction Case – alleged misuse of ESR – See Tax Point Dec 2010
• Sec 811 open to challenge• Sec 811A – “Protective Notice to Revenue
Mandatory Disclosure
• Section 817D TCA 1997 et seq• Create an obligation on promoters,
marketers and taxpayers to report tax planning to Revenue.
• Includes general schemes and specific types of schemes.
Mandatory Disclosure
• Specific schemes are–use of losses for individuals & corporates, –employment arrangements involving to
reduce or defer employer/employee liability
–devices which convert income into capital or income into gifts.
Mandatory Disclosure
General schemes caught have the following features:• confidentiality. • a “premium fee”• standardisation
Mandatory Disclosure
• Reports to give details of the scheme and client listings
• Where legal professional privilege is claimed, or where the agent is located overseas, reporting onus is on taxpayer.
• Penalties apply for failure to comply with.• Protective notification under Sec 811A
dead?
Double Tax Agreements
• Introduction• Relevant Territory• Irish Legislation• Treaty Process
DTA Introduction
• Mechanism to avoid double tax on income or gains in overseas jurisdiction
• Sec 826 TCA 1997 – Force of law when inserted into Part 1 Schedule 24A
• Treaty ratified when inserted into Schedule 24A
DTA MechanismsWithholding Taxes Reduced or Eliminated
Income and Gains Territorial Scope
Reduced by reference to P/Es
Double Tax on Certain Income/Gains
Exemptions or Credits given
Avoidance of dual Residence Tie Breaker Clauses
Disputes between Tax Authorities
Procedures for Resolution of disputes
Rights of non nationals or non residents
Non discrimination provisions
DTA overrides Irish Law• No PAYE on temporary assignees where
Treaty exemption applies • Place of incorporation test not applicable
where DTA provides for residence outside of Ireland
• Pre CGT Treaties – Section 24 Para 9FB TCA 1997 gives unilateral credit for CGT
• Pre 1976 Treaties – prevented interest as distribution under Sec 130(2)(d)(iv) TCA 97
Treaty Evolution
• OECD Model Treaty – Research Source• Changes -OECD Model not retrospective• DTAs renegotiated over time• France and Germany Treaties to be
renegotiated• Protocols =Codicil to original Treaty eg
Portugal
DTA – Relevant Territory• References in Irish tax law to “Relevant
Territory” to extend certain benefits• Definition not uniform throughout
legislation• Member State of EU• Territory with which Government has
entered into a DTA• DTA = “Sec 826 DTAs
Excluded from Relevant Territory• Sec 826(1A) TCA 1997 – Air Transport
Undertakings with USSR (Ukraine)
• Isle of Man – Exchange of Information Agreement is not a standard DTA for Sec 826(1)
DTAs SummaryFull Double Tax Agreements
64 Signed56 in effectOctober 2011
Information Exchange Agreements
Example Isle of Man
Air Transport Agreements
Ukraine (USSR)
CAT Agreements USA and UK
DTAs Signed – October 2011Australia Austria Belgium Bahrain
Belarus Bulgaria Canada Chile
China Croatia Cyprus Czech Republic
Denmark Estonia Finland France
Georgia Germany Greece Hungary
Iceland
DTAs Signed as at 1/1/2009India Italy Israel Japan
South Korea
Latvia Lithuania Luxembourg
Malaysia Macedonia Malta Mexico
Moldova Netherlands New Zealand
Norway
Pakistan Poland Portugal Romania
Russia Serbia Singapore Slovak Rep
DTAs Signed as at 1/1/2009
Slovenia South Africa Spain
Sweden Switzerland Turkey
UAE UK USA
Vietnam Zambia
DTAs effective from 1/1/2012
Albania Signed 16/10/2009
Hong Kong Signed 22/6/2010
Treaties Signed – not in force
Armenia 14/7/2010
Bosnia & Herzegovina 3/11/2009
Germany (new) 30/3/2011
Kuwait 23/11/2010
Montenegro 7/10/2010
Morocco 22/6/2010
Saudi Arabia 19/10/2010
Treaty Process
• Introductions• Agreement
reached• Draft Order• Signed and put
into Sch 24A• Ratification and
Entry into Force• Example Chile
• Negotiations – Tax Authorities
• Translations and Signing
• Debated by Select Committee of Dáil
• Effective for Irish tax purposes
Structure of Revenue• Administration of
Taxes• Government Order
1923• General Secretary
Rank• Chairman is
Accounting Officer• Under control of
Minister for Finance
Board
ChairmanJosephineFeehily
CommissionerMichael O’Grady
CommissionerLiam Irwin
Revenue Commissioners
• Mission Statement
“To serve the community by fairly and efficiently collecting taxes and duties and implementing Custom controls”
• Taxation policy not Revenue’s role• Dept of Finance responsible for tax policy• See Revenue Annual Report
Role of RevenueAssessment, Collection and Management of taxes and duties
Customs regime administration; Control of Imports and Exports; Collection of duties and Levies for EU
Co-Operation with other State Agencies – cross departmental fight against crime
Agency work for other Departments
PRSI collection for Department of Social Protection
Provision of Policy Advice on tax issues
Revenue Structure
• The Collector General
• Appointed by Revenue Commissioners
• Collector General’s Office
• Gerrard Harrahill• Collect and Levy Tax• Tax Refunds• Debt Management• Tax Relief at Source• International Claims
Revenue Structure
• Inspector of Taxes• Four Regional Tax
Districts
• Regional Districts
• Company Directors
• Border Midlands West; Dublin; East and South East
• Local business and individuals
• District of company
Revenue Structure
• Large Cases District
• Set up under Inspector of Taxes
• LCD contains an anti avoidance unit
• LCD
• Large Business and High Net Worth individuals
• Specialising in Direct Taxes
Revenue Structure
• Investigations and Prosecutions Division
• Tax Evasion Cases and Prosecution
• Special Tax Investigations
• Recent investigation• Offshore assets• SPIPs• BNRAs
Revenue Structure
• Legislation Services Divisions
• Four Divisions
• Functions
• Policy, Legislation and Interpretation of taxes
• Provision of policy advice to Dept of Finance and Government
Associated Bodies
• The Appeal Commissioners
ACs appointed by Min for Finance
AC operate independently of Revenue• Criminal Assets Bureau – CAB
Revenue/Department of Social Protection & Gárda Síochana
Criminal activities including drug dealers
Round Up Slides Summary
• Irish Tax Policy• The Tax Code• Finance Act Process• The European Influence• Case Law Influence• Double Tax Agreements• Structure of Revenue Commissioners
Irish Tax Policy
• Low Corporation Tax• High Income Tax Rates – recent changes• VAT Rates 0%; 9%; 13.5% and 21%• Capital Taxes History – property taxes• Changes ahead?
The Tax Code
• History and development• Legislative deadline• Reasons for understanding Tax Code• Role of Irish Constitution• Tax Legislation and structure of Acts
The Tax Code
• TCA 1997 – IT, CT and CGT• SDCA 1999 - Stamp Duty• CATCA 2003 – Capital Acquisitions Act• VAT – EU Directives and 2010
Consolidation• Revenue Guidance and SOPs
Finance Act Process
• Reasons to understand process• Effective date of legislation• Balance Sheet date legislation• Legislative timetable
Finance Act Process
• Articles 21,22, 25 of Constitution• Finance Bill is a Money Bill• Provisional Collection of Taxes Act 1927• Financial Resolutions
Finance Act Process
• Pre Budget Submissions• Budget Day• When are Financial Resolutions needed?
Finance Act Process
• Finance Bill Stages• When can amendments be made?• What is the role of the Seanad?• What is the deadline for passing the
Budget into law?• Effective dates for tax changes
Finance Act Process
• Finance Bill Stages• When can amendments be made?• What is the role of the Seanad?• What is the deadline for passing the
Budget into law?• Effective dates for tax changes• Regulations and Commencement
Orders?
EU/IMF Programme
• NRP 2011-2014• Deviations agreed with Troika• Quarterly reviews• New EU semester• Budgetary and economic policies • Stability and Growth Pact
EU Influence
• EU influence on Irish tax policy• Name four fundamental Freedoms• What is the ECJ• Recurring themes of ECJ in Irish
legislation• EU Directives• State Aid rules and impact on Irish taxes
Case Law/Anti Avoidance
• Influence on Irish tax law• Appeal and Hearing Process• Interpretation of Tax Law/Statutes• Form over Substance and Fiscal Nullity
Doctrines• Main cases?• Anti Avoidance – Sec 811 TCA 1997• Mandatory Reporting
Double Tax Agreements
• Mechanisms for avoiding double taxation• Sec 826 TCA 1997• Sch 24A TCA 1997• Meaning of “relevant territory”• Four types of DTAs• Treaty Process
Structure of Revenue
• Chairman plus 2 other Commissioners• Names of current Board ?• Role of Revenue Commissioners• Who is responsible for making tax policy?
Structure of Revenue
• Collector General (Name current one)• Inspector of Taxes• LCD• Investigation and Prosecutions • Appeal Commissioners• CAB
Learning Outcome
• Irish Tax Policy, History and Purpose• Structure of Taxes Acts, origins and pre-
consolidation framework• Sources of tax law, case law EU and ECJ• Structure of Revenue Commissioners