PAPER IIH IRELAND OPTION

Transcription

1 THE ADVANCED DIPLOMA IN INTERNATIONAL TAXATION Sample Paper PAPER IIH IRELAND OPTION ADVANCED INTERNATIONAL TAXATION SOLUTIONS

2 Solution 1 1) Branch The profits in France will be taxed in Ireland as profits of Big Ideas Ltd. The branch will also be subject to tax in France on the profits attributable to PE in France. Big Ideas Ltd will be entitled to a credit for the French tax suffered on the branch profits against the Irish tax payable on those profits either under the DTA or Schedule 24. If the branch is loss making the losses can be used to reduce the profits of the Irish trade. Where losses are expected in the initial years (due to start up costs etc) it is often recommended to set up a branch first so that the losses can reduce the Irish profits and once the branch becomes profitable incorporate the business. This results in a timing advantage There should be no issues in relation to repatriation transactions between the branch and Irish head office are ignored. The taxable profits in France may be different to the taxable profits of the French branch for Irish tax purposes. French tax advice would be required. Subsidiary A subsidiary is a separate legal entity and transactions between Big Ideas Ltd and the French subsidiary will be respected. Big Ideas will only be subject to tax on the profits of the French subsidiary as the profits are repatriated Consideration will need to be given to how the profits will be repatriated to Ireland dividends, loan etc. The withholding tax rules will have to be considered and whether DTA relief available. No loss relief available between Big Ideas Ltd and French subsidiary unless the Marks and Spencer rules apply The participation exemption under s626b may be available to Big Ideas Ltd if it was to sell the French subsidiary in the future Base erosion: Management fees, interest etc could be paid to Big Ideas Ltd however transfer pricing rules would have to be considered

3 2) Irish measure of foreign income: Net foreign income received 100,000 FER 35% Irish Measure 100,000/0.65 Irish Measure 153,846 Foreign 35% 53,846 Gross Up at lower: Irish rate 12.5% (see below) Foreign rate 35% 100,000/ ,285 Irish 14,285 Credit limited to lower (14,285) Irish tax payable Nil Foreign Credit 53,846 Irish credit (14,285) Deduction (4,945) (53,846 Excess Credit 34,616 Note: On the basis that: French Ideas SARL is a trading company and thus dividend is paid out of trading profits French Ideas SARL is tax resident in the EU An election will be made under s21b in corporation tax return Then the dividend should be taxable at 12.5% (rather than 25%) in Big Ideas Ltd. 3) The CEO needs to be aware of transfer pricing rules. The overall principle behind transfer pricing is that the price at which transactions between connected parties are effected should be the same as the price which should be negotiated between independent parties acting at arm s length. There are a number of methods which may be used to set the appropriate transfer price i.e. what price would a third party (CUP), cost plus, resale price method, transactional net margin method, profit split. However, the cost plus method is usually used for intra group services. With this method, the arm s length price is determined as a mark up on costs incurred in providing the good or services.

4 The appropriate mark up is usually determined by means of a transfer pricing study. In relation to the interest charge, there may be an issue with the deductibility of the interest charge in French Ideas SARL due to thin cap rules. The interest will be taxable at 25% in Big Ideas Ltd (as not trading income) and if it (or a portion of it) is not deductible in French Ideas SARL then the interest charge would not be tax efficient. Thin cap rules impose a limit on company borrowings by reference to the debt/equity ratio and restrict the interest deduction in respect of borrowings in excess of this limit 4) Big Ideas Ltd will make a loss of 100, 000 on the sale of French Ideas SARL. Where s626b applies, no loss relief will be available to Big Ideas Ltd in respect of this 100,000 loss. The conditions for s626b relief have been satisfied in this instance and thus loss relief will not be available. The conditions are as follows French Ideas SARL is a trading company Big Ideas Ltd has held its shares for more than 12 months Big Ideas Ltd holds more than 5% of French Ideas SARL French Ideas SARL does not derive the greater part of its value from land and buildings

5 Solution 2 1) Derek is not tax resident in Ireland in 2011, but he is ordinarily resident. He is not Irish domiciled. As he is Irish resident in 2010, he is liable to Irish CAT on his entire inheritance from his father. Derek would not be deemed to be non resident for 2011 by virtue of s. 11(4) CATCA 2003 as he was tax resident in Ireland for at least 5 consecutive tax years prior to 2011 (i.e. he was tax resident in Ireland for 2006 to 2010 inclusive). As it is likely that the inheritance is also liable to tax in the UK, it is necessary to consider the relevant provisions of the double tax convention between Ireland and the UK in relation to inheritances. Regarding the shares in the UK holding company and the cash on deposit in the UK, as these are UK assets, Derek would be entitled to a credit against his Irish CAT liability on those assets for the inheritance tax paid in the UK on those assets by virtue of Article 8(1) of the convention. Regarding the shares in the Jersey company, as Ireland would have subsidiary taxing rights under Article 5(2)(a) as Derek is UK domiciled, Derek should be entitled to a credit against his Irish CAT liability for the UK inheritance tax paid in respect of the shares in the Jersey company under Article 8(2). While the shares in the UK company might qualify for business property relief (s. 90 to s. 102 CATCA 2003), the transfer of the shares to the discretionary trust in June 2011 would have resulted in a clawback of any relief claimed. Derek would be entitled to deduct his unutilised parent child tax free threshold from the taxable value of the gift when computing his Irish CAT liability. The inheritance would not be liable to Irish stamp duty. 2) CGT As Derek is not Irish domiciled, he is only liable to Irish CGT in relation to gains arising on the disposal of non Irish assets to the extent that the sale proceeds are remitted into Ireland. The gain arising on the transfer of the shares to the discretionary trust would be calculated as the difference between the market value at date of transfer and the market value of the shares at the date of death. Therefore, the gain would amount to 500,000. However, as there were no actual sale proceeds, it appears that there are no proceeds to remit into Ireland. Therefore, it is arguable that the transfer of the shares to the discretionary trust should not be liable to Irish CGT. CAT The transfer of the shares into the discretionary trust would not result in a CAT liability for the children as the children did not become beneficially entitled to receive the shares. The children will not be liable to CAT until they receive assets from the trust. Discretionary trust tax will not apply as the disponer is living. The earliest date that discretionary trust tax could apply is on Derek s death provided the youngest child had reached the age of 21.

6 Stamp duty The transfer of the shares into the trust will not be liable to stamp duty as these are shares in a non Irish incorporated company (s. 88(1)(b)(iv) SDCA 1999). Income tax As the trustees are tax resident in Ireland, the trust would be regarded as Irish resident for Irish tax purposes. The trustees would be required to account for income tax at the standard rate on the income of the trust of 200,000 (s. 15(1) TCA 1997). S. 795 TCA 1997 should not result in Derek being assessed on the income arising in the trust as the settlor is not tax resident in Ireland in 2011 (s. 794(3) TCA 1997). In addition, 796(2)(a) TCA 1997 provides that s. 795 TCA 1997 should not apply as the income in the trust is being accumulated for the benefit of Derek s children. The undistributed income of the trust would also be liable to the 20% surcharge imposed by s. 805 TCA ) S. 806 TCA 1997/ s. 807A TCA 1997 As Derek is ordinarily resident in Ireland, the anti avoidance legislation contained in s. 806 TCA 1997 would seek to attribute the rental income arising in the company to Derek if Derek has the power to enjoy the income. Derek may be regarded as having the power to enjoy the income of the Jersey company as the income increases the value of Derek s shares in the company (s. 806(6)(b) TCA 1997). However, notwithstanding that Derek may have the power to enjoy the income of the Jersey company, the anti avoidance provisions of s. 806 TCA 1997 should not apply as Derek was not the transferor (i.e. he inherited the structure). Instead, the anti avoidance provisions of s. 807A TCA 1997 would seek to charge Irish income tax on any benefit received by Derek from the assets of the Jersey company. A benefit should have the same meaning as a capital sum under s. 806(5) TCA However, as Derek is non domiciled, Derek would only be liable to Irish income tax on any benefit received from the Jersey company to the extent that the benefit is remitted into Ireland (s. 807A(5) TCA 1997). On that basis, it appears that Derek should not have a liability to Irish income tax in 2011 in respect of the income of the Jersey company. S. 590 TCA 1997 The anti avoidance provisions of s. 590 TCA 1997 would seek to attribute the gain arising on the sale of property by the Jersey company in 2011 to Derek for Irish CGT purposes. However, as Derek is non domiciled, the capital gains attributions provisions of s. 590 TCA 1997 would not apply to Derek.

7 4) Informal arrangements Maintenance payments As the maintenance payments were voluntary, they are ignored for income tax purposes. If the voluntary maintenance payments made by one spouse are sufficient to wholly or mainly maintain the other spouse for the tax year in question, the spouse making the payments should qualify for the married person s tax credit (s. 461(a)(ii) TCA 1997). However, this is unlikely to be relevant to Derek as he is non resident for Decree of judicial separation Maintenance payments Derek is not entitled to any tax relief in respect of the lump sum payment to Imelda. The maintenance payments in respect of the children would be ignored (s. 1025(4) TCA 1997). Derek and Imelda would not be entitled to opt to be jointly assessed for income tax purposes as Derek made a lump sum payment in favour of Imelda. Furthermore, Derek is not tax resident in Ireland (s. 1026(1) TCA 1997). Transfer of 50% interest in the family home and 50% interest in the investment property As the transfer took place on foot of the decree of judicial separation, the transfer by Derek would be deemed to take place at no gain/no loss (s. 1030(2) TCA 1997). Transfer of 50% interest in the house in London It is necessary to consider whether the provisions of s. 1030(2A) TCA 1997 could prevent the transfer taking place at no gain/no loss for CGT purposes. If Derek could not be taxed in Ireland on a gain arising on a subsequent sale of the house in London in 2011, then the transfer by Imelda of her 50% interest in the house would not qualify for relief under s. 1030(2) TCA Derek is ordinarily resident in Ireland in 2011, but he is non resident and non domiciled. Therefore, he is only chargeable to Irish CGT on non Irish assets (i.e. the house in London) to the extent that the proceeds are remitted into Ireland. Therefore, Derek could be taxed on a gain arising on a disposal of the London house in 2011 if the sale proceeds were remitted into Ireland. On that basis, the provisions of s. 1030(2) TCA 1997 should apply to the transfer by Imelda of her 50% interest in the house to Derek and therefore a CGT liability should not arise for Imelda. Maximising loss relief If Derek transferred his interest in the investment property and family home further to the judicial separation, he would not be entitled to recognise a capital loss for Irish CGT purposes in respect of the fall in value of his 50% interest in the investment property. In relation to the family home, as Derek would have qualified for PPR relief on any gain arising on the transfer of his 50% interest in the house to Imelda, Derek would not be entitled to recognise a capital loss for CGT purposes in respect of a fall in the value of the family home even if s. 1030(2) did not apply.

8 If Derek transferred his 50% interest in the investment property to Imelda before the decree of judicial separation (i.e. under an informal arrangement), the transfer would not be deemed to take place at no gain/no loss, i.e. the provisions of s. 1030(2) TCA 1997 would not apply as Imelda and Derek were factually separated at the time. By virtue of s. 549(2) and 547(4) TCA 1997, Derek would be deemed to transfer his 50% interest in the investment property to Imelda at market value, thereby crystallising a loss of 200,000 ( 400,000 x 50%). However, by virtue of s. 549(3) TCA 1997, that loss would be ring fenced against gains arising on future disposals of assets to Imelda. 5) Sell the company As Derek is non domiciled, the sale of shares in the Jersey company would only be liable to Irish CGT if the proceeds are remitted into Ireland. As Derek will use the sale proceeds to fund the lump sum payment to Imelda, he will remit the proceeds into Ireland and therefore he will be potentially liable to Irish CGT on the gain. While Article 14(5) of the double taxation agreement between Ireland and the UK provides that the gain should only be taxable in the UK on the basis that Derek is a resident of the UK in 2011, Article 14(6) of the DTA should allow the gain to be taxed in Ireland as Derek disposed of the shares within 3 years of moving residence from Ireland to the UK. Credit should be allowed in the UK for the Irish CGT paid.

9 Solution 3 1) Under general principles, Trees ltd should be entitled to a tax deduction for the interest in accordance with s81 as the interest is incurred wholly and exclusively for the purposes of its trade. However, in accordance with section 130(d)(iv) any interest paid by an Irish company to a non resident company where both companies are part of the same 75% group is treated as a distribution for Irish tax purposes and thus not deductible. However, section 130(2B) provides that distribution treatment does not apply to interest, other than interest to which section 452 or s845a applies, paid to a company resident in the EU. As Elm inc is resident in the US, section 130(2B) does not apply. Section 452(2) provides that the Irish company could make an election to override the distribution treatment if the interest would be allowed as a trading expenses in calculating trading profits of the Irish company except for s130(d)(iv) and the interest is payable to a company which is resident in a relevant territory Relevant territory means the EU or a treaty country. Therefore, s452(2) should apply in this case such that the interest should be deductible in Trees Ltd. From a withholding tax perspective assuming the election is made the interest withholding tax provisions apply. Section 246 needs to be considered. Under s246 (3)(h) as the interest is paid by an Irish company to a company resident in a country with which Ireland has a tax treaty and the US imposes tax on the interest, no withholding tax is required to be deducted from the interest payment. 2) Dividend to Oak Ltd UK The Parent Subsidiary Directive should apply to this dividend in accordance with section 831. Oak Ltd holds directly more than 5% of the share capital of Trees Ltd for an uninterrupted period of at least 2 years and Oak Ltd is resident in the EU. Therefore Trees Ltd is not required to withhold tax from the dividend to Oak Ltd. No declaration is required for this exemption. Trees Ltd will be required to return details of the distribution to the Revenue by the 14 th day of the month following the month in which the distribution is made. 3) Withholding Tax Section 238(2) requires withholding tax at the standard rate to be deducted from patent royalties.

10 The EU Interest and Royalty Directive does not apply as Elm Inc is not resident in the EU Section 242A needs to be considered This section provides an exemption from withholding tax where: The recipient is resident in a relevant territory under s172a The payment is made by a company in a company of its trade The recipient is not resident in Ireland The recipient is taxed on the royalty in the US Relevant territory includes a country with which Ireland has a tax treaty and thus Elm Inc is resident in a relevant territory. The US taxes domestic corporations on their worldwide income and therefore the royalty income will be taxable in the US As the other conditions are also met, no withholding tax should apply on the royalty payment Patent royalties are not deductible as a Case I expenses under s81(2)(m). However, in accordance with s243(3) the gross amount of the patent paid should be deductible as a charge on income 4) Consideration needs to be given to whether s626b would apply to exempt Trees Ltd from corporation tax on chargeable gains on the sale. Lodge Ltd is a property rental company and thus derives the greater part of its value from Irish land and buildings. Therefore, due to the provision s626b (3)(d) CGT relief will not apply to the sale of the shares. Lodge Ltd is leaving the CGT group with an asset it acquired from Trees Ltd in 1999 and in respect of which s617 CGT group relief would have been claimed. However, as more than 10 years has passed since the asset was transferred to Lodge Ltd there is no clawback of CGT group relief.

11 Solution 4 1) Mr Blue Permanent establishment risk The notes on the OECD model treaty contain a number of examples of what would constitute a permanent establishment. Mr Blue could create a permanent establishment either by carrying on Red Ltd s business through a fixed place of business in Mordor or by concluding contracts on behalf of Red Ltd in Mordor. Para 4.2 of the notes on the OECD model treaty state that a person working from a customer s premises is unlikely to create a fixed place of business as they do not have the location at their disposal. However, a salesperson working from home can create a fixed place of business if they are there on a regular basis. It is likely therefore that Mr Red s home would be considered to be a fixed place of business for this purpose. As Mr Blue s work relates to the realisation of Red Ltd s profits, it is unlikely to be considered to be incidental to their business (para 23). Mr Blue is therefore likely to create a permanent establishment of Red Ltd in Mordor. Although Mr Blue does not sign contracts in Mordor, he does negotiate them up to certain limits. If all contracts are signed within 5% of the price list and the head office never has to override Mr Blue or just rubber stamps the terms he agrees then he could still be seen to conclude contracts for the purposes of the treaty (para 32.1). The difference of whether Mr Blue creates a permanent establishment by a fixed place of business or by concluding contracts will be important for determining what business profits should be allocated to the permanent establishment. In the first case, Mr Blue s activity is likely to be able to remunerated on a cost plus basis whereas in the latter, all of the profits of the contract could be pulled into tax in Mordor. Employment tax position An individual s residence and domicile status will determine his liability to Irish tax. Mr Blue is domiciled in Mordor but he will have visits to Ireland, increasing substantially once he buys his house in Ireland. Mr Blue s Irish tax residence status will be determined by the number of days he spends in Ireland. Mr Blue will be tax resident in Ireland for a particular tax year if (i) he spends 183 days or more in Ireland during that tax year, or (ii) he spends 280 days or more in Ireland over the course of that year and the immediately preceding tax year. Mr Blue will not be tax resident in Ireland for any tax year in which he spends 30 days or less in Ireland during that tax year. Mr Blue will be present in Ireland for less than 183 days in a tax year. However, he will still be regarded as being tax resident in Ireland for a particular tax year if he spends 280 days or more in Ireland over the course of the tax year in question and the immediately preceding tax year. In view of Mr Blue s plans, he may be regarded as being tax resident in Ireland in future years depending under the 280 day rule depending on the number of days spent in Ireland. Prior to the time that Mr Blue becomes tax resident in Ireland, he could still be taxed in Ireland on his employment income if he performs employment duties here. However, provided his work related days in Ireland during the tax year do not exceed 30 days, his visits could be argued to be for incidental duties and that they relate to his non Irish duties and are not taxable in Ireland.

12 Red Ltd would be required to operate PAYE on Mr Blue s employment income unless it obtains a PAYE exclusion order. Red Ltd should be entitled to obtain a PAYE exclusion order for Mr Blue for the period during which he is non resident provided he does not perform more than 30 days employment duties in Ireland during the tax year. Red Ltd would have an obligation to operate PAYE from the date that Mr Blue becomes Irish resident. As Mr Blue is in Mordor for over 183 days, he will also be resident in Mordor. For tax years in which Mr Blue is tax resident in Ireland and in Mordor under each country s respective tax laws, it will be necessary to apply the tie breaker clause of the OECD model treaty to determine which country he is regarded as being a resident of for the purposes of applying the provisions of the OECD model to eliminate double tax on Mr Blue s income. Article 4 of the OECD model treaty has a tie breaker for these situations which states that he is resident where he has a permanent home and if he has a permanent home in both states then he shall be deemed to be resident only in the state with which his personal and economic relations are. If this cannot be determined then he will be resident where he has a habitual abode. If he has a habitual abode in both states then he shall be resident in the state in which he is a national and finally, if none of the other tests work then residency will be settled by mutual agreement. In this situation, given Mr Blue has a house in Ireland, is employed by an Irish company and is married to an Irish woman, he is likely to be regarded as a resident of Ireland under Article 4. With regards to PRSI, Mr Blue should continue to pay Mordor PRSI for 52 weeks after he leaves Mordor. In order to avoid having to pay PRSI in two jurisdictions at the same time, Mr Blue will need to consider seeking a Form E101 certificate. With regards to USC, Mr Blue would be required to pay USC on the employment income that is liable to Irish income tax unless a PAYE exclusion order is in place. 2) Miss Green Permanent establishment risk Miss Green will be spending a substantial amount of time in Gondor but she will be moving around on a regular basis. The notes to the OECD model treaty give the example of an employee of a company who is allowed to use the offices of another company for a long period of time (para 4.3). Therefore, as Miss Green has the location at her disposal, there is a risk that she could create a PE of Red Ltd in Gondor. However, as she moves around between offices, she may not be at each long enough to create a PE as each office is in a different geographic location (para 5.4). The different offices do not create geographic co herence. Her activities may also not be enough to create a permanent establishment as they could be regarded as auxiliary in nature and not close to the realisation of profits. Employment taxes risk Miss Green is currently resident in Ireland but she will be spending a substantial amount of time in Gondor and therefore the question is whether this is enough to cease to be tax resident in Ireland. This could occur in two ways: 1. Spending less than 30 days in Ireland during the tax year this is not met as she works only part time in Gondor and works for the rest of the time in Ireland

13 2. Spending less than 280 days in Ireland during the course of the tax year in question and the immediately preceding tax year this is not met due to the amount of time that she plans spending in Ireland Hence Miss Green will continue to be tax resident in Ireland. For similar reasons, she will remain ordinarily resident in Ireland. From a Gondor perspective, she is working around 100 to 150 days in Gondor. Therefore, she may become tax resident in Gondor in the future if she spends 280 days or more in Ireland over the course of the tax year in question and the immediately preceding tax year. As Miss Green is resident, ordinarily resident and domiciled in Ireland, she will be liable to income tax and USC on the full amount of any earnings received in the tax year. Red Ltd will be required to operate PAYE on Miss Green s employment income. Although not resident in Gondor for the current tax year, she will still be taxable there for duties performed in Gondor but can claim double tax relief for any Gondor tax paid on her Irish tax return. She will continue to pay PRSI in Ireland. She may need to obtain a Form E101 certificate to avoid also having to pay PRSI in Gondor. Red Ltd should be able to pay tax free subsistence expenses to Miss Green in respect of her travel costs as long as Gondor is seen as her temporary workplace. The conditions set out in Revenue Information Leaflet Form IT54 will need to be adhered to in this regard.

14 Solution 5 1) US Med Inc PAYE Salary US Med Inc would be required to operate PAYE on the portion of Ralph s salary related to his secondment to Ireland of 105,000. SP IT/3/07 sets out the conditions that would need to be satisfied in order for US Med Inc to be released from its obligation to operate PAYE on Ralph s salary. There are a number of conditions that need to be satisfied in the case of secondments such as Ralph s (i.e. secondments of between 60 and 183 days where payroll taxes are being deducted in another jurisdiction). However, one of the conditions is that the employee is not tax resident in Ireland under Irish tax law for the tax year in question. As Ralph will spend more than 183 days in Ireland in 2011, he will be tax resident in Ireland for Therefore, US Med Inc will not be released of its obligation to operate PAYE on Ralph s Irish employment income. Flights and accommodation costs SP IT/2/07 allows the following expenses to be paid tax free to Ralph: flights at the beginning and end of Ralph s secondment, and certain flights allowing Ralph to see his family, and vouched accommodation expenses. Therefore, the accommodation expenses and flights at the beginning and end of Ralph s secondment may be paid tax free. However, US Med Inc would be required to operate PAYE on the cost to it of flights for Ralph s girlfriend. PRSI Irish PRSI is payable from the first day of Ralph s secondment (SP IT/3/07) unless Ralph has a certificate of coverage under a bilateral agreement or a PRSI exemption certificate from the Department of Social Protection. US Med Inc is responsible for collecting the PRSI through the PAYE system. USC US Med Inc is also responsible for collecting USC on Ralph s taxable secondment income through the PAYE system.

15 IR Med Ltd PAYE If US Med Inc fails to meet its Irish PAYE obligations, IR Med Ltd would be liable under the provisions of s. 985D(3) TCA Salary As Justin is employed under an Irish contract of employment, IR Med Ltd would be required to operate PAYE on Justin s entire salary for However, as Justin left Ireland in 2011 with the intention of not being resident in Ireland for 2012 and provided he does not perform more than 30 days employment duties in Ireland in 2012, IR Med Ltd should be entitled to obtain a PAYE exclusion order for Justin ( of Revenue s Income Tax, CGT and Corporation Tax manual). Accommodation and living costs Form IT54 outlines what expenses may be paid tax free. In the case of long term absences, it allows the following subsistence payments to be made tax free: First month of secondment up to the overnight subsistence rate Remainder of secondment cost of reasonable accommodation plus 50% of the day rate for the location If the amounts paid by Brazil Med Co exceed these amounts, then IR Med Ltd would be required to operate PAYE on the excess. Exercise of share options IR Med Ltd would not be required to operate PAYE on the gain of 15,000. PRSI PRSI would continue to apply for the first 52 weeks of the secondment. If Justin wants to continue to pay PRSI in Ireland for the duration of his secondment, it will be necessary for Justin and IR Med Ltd to agree Justin s PRSI position with the Department of Social Protection. If a PAYE exclusion order is in place, the employer and employee PRSI contributions would be paid via the Special Collection System. A charge to social security taxes may also be imposed under Brazilian domestic law. The gain arising on the exercise of the share options would be liable to employee PRSI. Employer PRSI would not apply. USC Even if there is a PAYE exclusion order in place, s. 531AM(1)(a) TCA 1997 requires IR Med Ltd to account for USC on Justin s salary during his secondment as Ireland does not have a DTA with Brazil. An ebrief issued in December 2011 (ebrief no. 82/11) stating that Revenue accepts that USC is not payable in respect of the employment income of a non resident individual that is attributable to duties

16 exercised wholly outside Ireland where there is no charge to income tax in Ireland and the tax treaty status of the country of residence is not relevant for this purpose. Brazil Med Co Brazil Med Co will not have any Irish PAYE obligations. 2) Ralph Income tax Ralph is tax resident in Ireland for 2011 as he spent more than 183 days in Ireland in He is not ordinarily resident in Ireland and he is not Irish domiciled. Therefore, he will be liable to Irish income tax for 2011 on Irish source income, employment income relating to his secondment to Ireland and foreign income to the extent that it is remitted into Ireland. Therefore, under Irish domestic law Ralph will be liable to Irish income tax on the employment income relating to his secondment to Ireland of 105,000 and the costs of flights provided by the company for his girlfriend. The income tax payable should have been collected through the PAYE system. While Ralph should qualify for split year residence relief (s. 822(1)(a)(ii) TCA 1997) in relation to his departure from Ireland in 2012, split year residence relief is not required as Ralph is only liable to income tax on his 2012 employment income in relation to his secondment to Ireland. The relief afforded by s. 825B TCA 1997 to non domiciled individuals would not apply to Ralph as his secondment is for a period of less than 12 months. By virtue of Article 15(2) of the double taxation agreement between Ireland and the US, Ralph (who should be regarded as a resident of the US under the DTA) does not prevent Ralph being liable to income tax in Ireland on the secondment income as he spent more than 183 days in Ireland in However, Justin should be entitled to a credit for the PAYE suffered in Ireland against his US tax liability on that income (Article 24(1) of the DTA). Justin will not be liable to Irish income tax on the US dividends as the dividends were not remitted into Ireland. PRSI As mentioned in (i), Ralph would be liable for PSRI on his secondment income and on the cost of flights provided by US Med Inc for his girlfriend unless Ralph has a certificate of coverage under a bilateral agreement or a PRSI exemption certificate from the Department of Social Protection. USC Ralph s secondment income would also be liable to USC. Justin Income tax Justin is tax resident and ordinarily resident in Ireland for 2011 and he is Irish domiciled. Therefore, he will be liable to Irish income tax for 2011 on his worldwide income.

17 However, by virtue of s. 822(2)(b) TCA 1997, Justin will not be liable to Irish income tax on the income relating to his secondment to Brazil in 2011 of 95,000 as he will not be tax resident in Ireland in This should also apply to the taxable element (if any) of the amounts paid by Brazil Med Co to Justin in respect of his accommodation and living costs in Brazil. Justin would be liable to Irish income tax on the 15,000 gain arising on the exercise of the share options as they relate to an Irish employment. This is confirmed in SP IT/1/07. Justin would be liable to Irish income tax on his share of the Irish rental income and Irish deposit interest. Ireland does not have a double taxation agreement with Brazil. Therefore, if Justin s income is liable to tax in Brazil under domestic tax law, there is nothing to prevent the income being liable to tax in both Ireland and Brazil. While Justin would not be entitled to a credit for the tax paid in Brazil against his Irish income tax liability on that income (as there is no DTA), he should be entitled to a deduction for the tax paid in Brazil when computing his Irish income tax liability on that income. PRSI As mentioned in (i) above, Justin would be liable to PRSI for first 52 weeks of secondment. PRSI would not apply after that date unless he wishes to continue to pay PRSI in Ireland and agreement is reached with the Department of Social Protection. USCAs mentioned in (i), s. 531AM(1)(a) TCA 1997 requires IR Med Ltd to account for USC on Justin s salary during his secondment as Ireland does not have a DTA with Brazil. Laura Income tax Laura is also liable to Irish income tax in 2011 on her worldwide income. Therefore, under Irish domestic law, Laura would be liable to Irish income tax on all of her 120,000 income as a self employed journalist. Under Article 8(1) of the DTA, Laura s income for the period from 1 July to 31 December 2011 may be taxed in the UK as well as in Ireland if the business is carried on through a permanent establishment in the UK. It would appear that this is the case. However, as Laura should be regarded as a resident of Ireland under the DTA, she should be entitled to a credit for the UK tax paid on the income against his Irish tax liability under Article 21(1) and (3) of the DTA. Laura would be liable to Irish income tax on his share of the Irish rental income and Irish deposit interest. Article 7 of the double taxation agreement between Ireland and the UK does not prevent Laura s share of the rental income being taxed in both jurisdictions. If the rental income suffers tax in the UK, Laura should be entitled to a credit for the UK tax paid on the income against her Irish tax liability under Article 21 of the DTA on the basis that Laura should be regarded as a resident of Ireland under the DTA. Article 12(1) of the DTA provides that the deposit interest is only liable to tax in Ireland. PRSI If Laura wishes to remain on the Irish PRSI system, she would need to obtain an E101 certificate from the Department of Social Protection.

18 USC Laura would be liable to USC on all of her 2011 income. 3) As Ralph is not Irish domiciled, he is not liable to Irish CGT on gains accruing from the disposal of assets situated outside the State unless the proceeds are remitted into Ireland (s. 29(4) TCA 1997). Ralph did not remit the proceeds into Ireland as he lodged the proceeds to his US bank account. However, it is necessary to consider if shares in a limited company are assets situated in Ireland. If yes, then the gain would be potentially chargeable to Irish CGT irrespective of the fact that the proceeds were not remitted into Ireland. S. 533 (e) TCA 1997 provides that registered shares shall be situated where they are registered. Therefore, assuming that the shares in the Irish limited company are registered in Ireland, under Irish law the gain on the sale of the shares would be potentially liable to Irish CGT irrespective of the fact that the proceeds are not remitted into Ireland. However, under Article 13(5) of the double taxation agreement between Ireland and the US, the gain should only be taxable in the US. This assumes that the shares in the Irish limited company do not derive the greater part of their value from land or buildings in Ireland.

19 Solution 6 Option 1 Interest Deductibility BestCo Cyprus loans the 50m to Bestco Ireland Holdings Ltd presumably at interest. Therefore, consideration needs to be given to whether Bestco Ireland Holdings Ltd is entitled to a tax deduction for the interest it pays to Bestco Cyprus. Bestco Ireland Holdings Ltd is an Irish treasury company maintaining cash deposits and loaning to group companies. Therefore it is likely that Bestco Ireland Holdings Ltd is a financing company carrying on a financing trade and in the first instance the interest should be deductible in Bestco Ireland Holdings Ltd. Section 130(d)(iv) will have to be considered which provides that where the interest is paid to a non resident company where both companies are part of the same 75% group is treated as a distribution for Irish tax purposes and thus not deductible. However, section s452(2) provides that Bestco Ireland Holdings Ltd could make an election to override the distribution treatment if the interest would be allowed as a trading expense in calculating trading profits of the Irish company except for s130(d)(iv) and the interest is payable to a company which is resident in a relevant territory. As Cyprus is in the EU, Bestco Ireland Holdings Ltd could make this election. There are no thin capitalization rules in Ireland and therefore there should be no restriction on the interest deduction due to thin cap. The Irish transfer pricing rules will also have to be considered as they apply to trading transactions. Therefore, it will be necessary to ensure that the interest rate charged by Bestco Cyprus is an arm s length price i.e. whether and what a third party would be willing to lend to BestCo Ireland Holdings Ltd and at what interest rate. Transfer pricing rules are relatively new in Ireland and thus the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations are to be used to determine the arm s length nature of an intercompany transaction. To the extent that transactions are covered from the other side (i.e. Cyprus and Cypriot transfer pricing documentation has been prepared, additional Irish specific documentation may not be required. As regards determining a transfer price, a third party bank has said that they would lend to the trading entity at 5% but only with a parent company guarantee. This does not give a comparison for transfer pricing purposes as the group need to consider how much debt the borrower could take on without the guarantee. Hence the fact that a bank would lend to trader cannot be used as a comparable uncontrolled price (CUP). Further information is required to carry out a full transfer pricing review. If Bestco Ireland Holdings Ltd is not a trading company, s247 would have to be considered. If the conditions of s247 were satisfied (i.e. material interest, common director, funds used to acquire shares in a trading company) relief should be available for the interest as a charge. Withholding Taxes Withholding tax is required to be deducted at 20% by Bestco Ireland Holdings Ltd on the payment of the interest to Bestco Cyprus. However, under s246(3)(h) as the interest is paid by an Irish company to a company with which Ireland has a tax treaty and Cyprus imposed tax on the interest, no withholding tax is required to be deducted from the interest payment. The EU Interest and Royalties Directive would also apply to exempt the interest from withholding tax.

20 Other The interest expense in BestCo Holdings Ireland Limited can be group relieved to BestCo Ireland Limited. As purchaser, BestCo Ireland Limited will need to pay stamp duty at 2% (commercial property) on the purchase price. There will be no rental deductions in BestCo Ireland Limited as they own the property and there are no capital allowances on retail property costs (assuming no fixtures). Hence there will be no tax deduction for the capital cost of the property. VAT on the purchase will depend on whether the property is a new or an old property for VAT purposes. If the property is a new property VAT should be applied to the purchase. Option 2 Rents Ireland Best Co Ireland Ltd should be entitled to a tax deduction at 12.5% for the rents on the basis that it is using the property for its trade and the rental expenditure is incurred wholly and exclusively for the purposes of the trade. Best Co Ireland Ltd will be required to withhold tax at 20% from the gross rents it pays to Bestco Cyprus Ltd and pay the 20% over to the Revenue. Bestco Cyprus as a non resident company will be subject to income tax in Ireland at 20% on the rents (less any rental expenses allowable under s97) and will be entitled to a credit for the withholding tax deducted by Best Co Ireland Ltd. Interest on the loan to acquire the property will be an allowable deduction. Irish transfer pricing rules will not apply to this transaction as it is not a trading transaction. Rents Cyprus The net rental income will also be taxable in Cyprus under their local rules at 10% with double tax relief for the Irish tax paid. Withholding tax on the interest paid to the US will also be under local rules and therefore outside the scope of this question. Other BestCo Cyprus Ltd will need to pay Irish stamp duty on 2% of the purchase price of the property. VAT on the purchase will depend on whether the property is new or old for VAT purposes. I If the property is new VAT should be charged on the purchase. If VAT is charged on the purchase, BestCo Cyprus Ltd will have to charge VAT on the rents to ensure that it is entitled to reclaim the VAT on the purchase. In accordance with section 29(3) BestCo Cyrpus Ltd will be subject to Irish capital gains tax on a future sale of the property.

21 Solution 7 (Note the following is one way of answering the question, given the question is broad, any other relevant examples will be given credit) Each contracting state is bound by the terms of a tax treaty under international law. A treaty therefore does take priority over Irish domestic law and this can be seen in a number of areas of Irish tax. Examples are as follows: Withholding tax on dividends, royalties and interest for companies The Irish Taxes Consolidation Act deals with the application of withholding tax from dividends (Part 6 Chapter 8A) interest (e.g. s246) and royalty payments (e.g. Part 8 Chapter 1). In the absence of qualifying for any of the relieving provisions in the domestic legislation income tax at 20% must be withheld at the 20% rate. However, most treaties reduce this rate. For example, the OECD Model Treaty reduces the withholding tax rate on interest to 10% and on royalties to 0%. Permanent establishment (PE) rules Section 25 TCA 1997 taxes foreign companies who carry on a trade in the State through a branch or agency in Ireland. The term branch or agency is defined in s4(1) as any factorship, agency, receivership, branch or management. This definition is difficult to apply, particularly given that little judicial or administrative guidance exists as to the meaning of branch or agency. All of our tax treaties restrict this broad scope of tax to a situation where the trade is carried on through a permanent establishment and the treaty will override Irish domestic law. The OECD Model Treaty generally exclude certain activities even though carried on through a fixed place of business which might otherwise constitute a permanent establishment under Irish domestic law. These include the following: 1. The use of facilities for the purpose of storage display or delivery of goods 2. The maintenance of a stock of goods solely for the purpose of storage, display or delivery 3. The maintenance of a stock of goods solely for the purpose of processing by another enterprise 4. The maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise or of collecting information, for example market research 5. The maintenance of a fixed place of business solely for the purpose of carrying on any other activity of a preparatory or auxiliary character 6. The maintenance of a fixed place of business solely for any combination of activities above, provided that the overall activity is still of a preparatory or auxiliary character. Residence Section 23A TCA 1997 determines a company s tax residence under domestic legislation i.e. if a company is incorporated in Ireland it will be regarded as resident in the UK. However, another country may have a rule whereby a company is resident where its effective management and control is located. The OECD Model Treaty states that such a company will be resident for the purposes of the treaty where its effective management is located. Hence such a company would not be resident in Ireland for treaty purposes. S23A(4) states that such a company would then not be resident in Ireland for tax purposes.

22 Short term business visitors Persons who are not resident in the Ireland (whether or not ordinarily resident) are chargeable to tax on earnings from employment duties performed in Ireland as long as they are not merely incidental to an employment performed abroad. Most tax treaties concluded by Ireland include an exemption from Irish tax under the dependent personal services article for non residents providing the following three conditions apply: 1. The employee is present for less than 183 days 2. Remuneration is paid by or on behalf of a non Irish resident employer 3. The remuneration is not borne by the employer through any Irish base Relieving provisions where treaty not ratified 1. For the purposes of dividend withholding tax (s172a) the definition of relevant territory has been extended to include countries in respect of which a tax treaty has been signed but not yet ratified. Therefore, these countries will qualify for the relieving DWT provisions in respect of dividends paid to residents of treaty countries. 2. Preferential tax treatment applies on the payment dividends by foreign treaty countries out of trading profits. The 12.5% tax rate applies to the dividends rather than 25%. This preferential treatment also applies to dividend payments made by companies resident in a country which has signed a tax treaty with Ireland but the treaty has not yet been ratified. 3. s626b provides for an exemption from CGT for the sale by an Irish resident company of shares in a company resident in a relevant territory. For this purpose, relevant territory includes a country with which Ireland has signed a tax treaty but the treaty has not yet been ratified. 4. S246 provides for relieving provisions in respect of interest withholding tax for payments to countries resident in a relevant territory. For this purpose, relevant territory includes a country with which Ireland has signed a tax treaty but the treaty has not yet been ratified.