Tax Briefig ISSUE 11 - July 1993 Itroductio I additio to iformatio provided uder the regular headigs, this issue of Tax Briefig cotais: Prelimiary iformatio regardig the Amesty - see opposite A summary report, submitted by the Secretary of the Taxes Advisory Liaiso Committee (TALC), o the activities of that body i the period from 1 Jauary 1993 to 30 Jue 1993. It is iteded to produce similar reports periodically. A update o the curret situatio i relatio to Double Taxatio egotiatios with various coutries, which are earig completio or ogoig. This issue also cotais otes o the practice applied by Reveue i certai areas which give rise to frequet equiry: I particular Treatmet of Keyma Isurace [para 1.4] Treatmet of Isurace Proceeds i the case of Maufacturig Compaies Act (10%) C.T. (para 2.3) The Tax Amesty Scheme 1993 The Waiver of Certai Tax, Iterest ad Pealties Act, 1993, became law o 14 July 1993. The Reveue Commissioers have prepared a booklet outliig the geeral terms of the scheme ad how it will operate. A copy of this booklet is eclosed with this issue of Tax Briefig. At this stage, the immediate poits to ote are: There are i effect to amesties - the Icetive 15% Amesty the Geeral Amesty Full Declaratios must be made where appropriate by 30 November 1993, full paymet must be made by 14 Jauary 1994 ad a correct 1992/93 Retur of Icome must be lodged by 31 Jauary 1994. Self Assessmet priciples operate - it is up to a persos wishig to avail of the Amesty to take the iitiative ad to esure that they comply fully with the coditios of the elevat Amesty. Details of Helplies at the Offices of the Chief Special Collector ad of the Collector-Geeral are cotaied i the booklet. Declaratios Forms - A2 (Icome ad Chargeable gais) - A3 (Value-Added Tax) are available from either of the above offices or from ay Reveue office. Self employed PRSI liability is ot covered by the 15% Icetive Amesty. Separate arragemets are i place i the Departmet of Social Welfare i relatio to paymet of outstadig PRSI - see booklet for more detail 1 Icome Tax 1.1 1992/93 Tax Retur - Form 11 & Export Sales / Shao Relieved Distributios The phasig out of relief o export sales relieved distributios cotiues durig 1992/93. The calculatio of the amout of relieved distributios to be disregarded for 1992/93 is The lower of (i) 2/3rds of the relieved distributios received i 1992/93 ad (ii) 125% of the average of the relieved distributios received i the four years 1987/88 to 1990/91 iclusive 1
Where such distributios are received from the more tha oe compay, this calculatio must be performed separately i respect of the distributios from each compay. However, i the case of ESR/Shao distributios received from public liability compaies, 2/3rds of the relieved distributios received from all such plc s may, for coveiece, be take as the amout of relieved distributios to be disregarded from such compaies (this is i lie with last year s treatmet). 1.2 Review of No-liable Status Certai idividuals withi the Self Assessmet system has bee accepted as ot beig liable to icome tax for a umber of years. This o-liable status is subject to the idividual advisig of ay chage i circumstaces that would chage his or her o-liable status ad/or to a Reveue iitiated periodic review. The first such review is ot takig place ad Icome Tax Review forms (form ITR) have bee issued to idividuals who have bee treated as ot liable for three or more years. These sigle page forms require a basis profile of idividual s icome/busiess activities so that their tax positio ca be kept i order. 1.3 Termiatio Paymets - Office or Employmet Icrease i exemptio uder Sectio 115, ITA 1967. Sectio 8 of Fiace Act 1993 made a sigificat chage i the calculatio of exemptio uder Sectio 115, ITA 1967, ad i the calculatio of the Stadard Capital Superauatio Beefit (SCSB) i relatio to paymets to which Sectio 114, ITA 1967 applies. Sectio 115 Exemptio The basic exemptio of ú6,000 has bee icreased by ú500 for each complete year of service i the office or employmet i respect of which the paymets is made. Example 1: A idividual received a lump-sum of 9,000 o the termiatio of employmet o 30 Jue 1993 after te years ad three moths service (i.e. te yeas complete service) with the compay. Sectios 11 ad 115, ITA 1967 apply. The basic exemptio is 6,000 + ( 500 x 10) = 11,000 Accordigly, o tax is payable o the lump-sum o 9,000. Example 2: A idividual receives a lump-sum of 14,000 o the termiatio of employmet o 30 Jue 1993 after te years complete service with the compay. There was ot superauatio fud or scheme, so there is o etitlemet to ay tax-free lump-sum. It is the employee s first such lump-sum. For the purpose of the example it is assumed that the SCSB is 9,000. The exemptio uder Sectio 115 is: Basic Exemptio (as i example 1) 11,000 Add icrease for 1st claim (maximum) 4,000 Total Exemptio 15,000 Accordigly, o tax is payable o the lump sum of 14,000 Example 3: The figures are the same as i example 2, except that the employee is additioally etitled to a lump-sum of ú3,000 from a approved superauatio fud. The exemptio uder Sectio 115 is: Basic Exemptio 11,000 Add icrease (maximum) 4,000 Less superauatio fud paymet 3,000 1,000 Total Exemptio 12,000 Accordigly, oly 2,000 of the termiatio lump sum of 14,000 is chargeable to tax Stadard Capital Superauatio Beefit (SCSB) The sigificat chage is that the deomiator i the formula for calculatig the SCSB is reduced form 20 years to 15 years. Formula : SCSB = (AxB) -C 15 2
Example 1: A idividual received a lump-sum of 20,000 o termiatio of employmet o 30 Jue 1993 after fourtee complete years of service ( B i the formula). There is o etitlemet to ay pesio lump-sum ( C i the formula). The average aual emolumets for the last three years of service is 24,000 ( A i the formula). The SCSB is : (24,000 x 14) - 0 = 22,400 15 As the SCSB is greater tha the termiatio paymet, o tax is payable o the sum of 20,000. Example 2: The facts are as i example 1, except that the lump-sum pesio etitlemet is ú8,000 The SCSB is : (24,000 x 14) - 8,000-14,400 15 Accordigly the lump-sum of 20,000 is chargeable, as follows: Lump-sum 20,000 Less Basic Exemptio [ 6,000 + (500 x 14)] 13,000 7,000 Less Excess of SCSB over Basic Exemptio (14,400-13,000) 1,400 Amout chargeable to tax 5,600 1.4 Keyma Isurace employee, which may qualify uder this headig are those where - (a) the sole relatioship is that of employer ad employee (b) the employee has ot substatial proprietary iterest i the busiess, (c) the isurace is iteded to meet loss of profit resultig from the loss of the services of the employee as distict from the loss of goodwill or other capital loss, ad (d) i the case of isurace agaist death, the policy is a short term isurace providig oly for a sum to be paid i the evet of the death of the isured withi a specified umber of years. I applyig the coditios (a) to (d) above the followig guidelies are followed: Referece to Employee icludes a director A perso is regarded as havig a substatial proprietary iterest" i a compay if he or she directly or idirectly ows or is able to cotrol more tha 15% of the ordiary share capital of the compay. The policy must be for a fixed term with o surreder value ad o edowmet or other ivestmet cotet; it must ot cotai provisios whereby beefits could be paid to ay perso other tha the employer The isurace must relate to loss of profits oly ad it will be ecessary, if required, to satisfy the ispector of taxes that the cotigecy isured agaist will geuiely have a adverse effect o the employer s busiess. Premiums o policies take out to cover loas or other outstadig debts which would become repayable o the death of a employee are ot admissible deductios. The tax treatmet of what is geerally kow as keyma isurace is a topic which gives rise to regular equiry. Keyma isurace is essetially isurace take out by a employer i his/her ow favour agaist the death, sickess or ijury of a employee (the keyma) whose services are vital to the success of the employer s busiess. I geeral, short-term meas ot exceedig five years. However, i practice, a fixed term policy exceedig five years will be accepted provided that all other coditios are met ad the policy caot exted beyod the employee s likely period of service with the employer e.g. for the period of the cotract of service or to ormal retiremet age. I practice, the term keyma isurace may be used to refer to a rage of policies ot all of which give rise to admissible tax deductios/assessable receipts. The tax treatmet of premiums paid ad of sums received uder ay policy depeds o the exact terms of the policy rather tha o ay descriptio which a isurace compay may attribute to it. I geeral, premiums paid uder policies isurig agaist loss of profit cosequet upo certai cotigecies will be treated as admissible deductios for tax purposes i the periods i which terms? are payable. Equally, all sums received by a employer uder such policies will be treated as tradig receipts for the period i which received. Policies, coverig such cotigecies as sickess, accidet or death of a Ay questio as to the allowability as a busiess expese of premiums paid ad the chargeability to tax of ay beefits derived from a policy which does ot satisfy the above coditios will be determied i accordace with established priciples. While the allowability of a premium or the chargeability of a beefit are strictly separate issues, it will usually be the case that, if the premium is allowable for tax purposes, the beefit is chargeable to tax ad, if the premiums are ot allowable, the beefit is ot chargeable. However, it would ot be accepted that a beefit is ot chargeable to tax simply because a employer decided ot to a claim a tax deductio o the premium. 3
1.5 Reveue Audit Fees The Reveue Commissioers are committed uder the Charter of Rights to keepig compliace costs for taxpayers to a miimum. Where a tax retur is selected for audit, ad the ormal recurrig professioal fees i that case would be allowed as a deductio, ay additioal professioal fees icurred by the taxpayers i cosequece of the audit are allowable as a deductible expese provided that they are reasoable i the circumstaces ad do ot relate to tax plaig ad/or avoidace matters. Where, however, the audit takes o the attributes of a back-duty settlemet (e.g. where the scope of the audit is exteded back beyod two years), the existig practice, as set out hereuder, i regard tot he allowability of professioal fees will cotiue to apply. 2. Corporatio Tax 2.1 Compaies Tax Paymet Dates (Fiace Act 1993 Amedmets) The followig chages were made to compay tax paymets dates for accoutig periods edig o or after 1 May 1993. Prelimiary Tax is due 6 moths after the ed of the accoutig period (previously 7 moths) Where, uder the geeral rules for determiig the paymet date, Corporatio Tax falls to be paid after the 28th day of a moth, it is to be paid o or before the 28th day of that moth. Where ACT which is payable 6 moths after the ed of the accoutig period, is payable after the 28th day of a moth, it is to be paid o or before the 28th day of that moth. Ay part of professioal fees icurred i coectio with a back-duty settlemet may be allowed as a tax deductible to the extet that they relate to the preparatio accouts. However, ay expeses applicable to the egotiatio of a settlemet are ot allowable. Where ecessary, fees should be apportioed so as to idetify allowable ad disallowable fees. Where it appears ulikely that the fees charged i accouts exceed the aggregate of the sums which would have bee charged, had accouts bee prepared ad preseted aually, o part of the fees should be disallowed. 2.2 Tax Treatmet of Iterest Paid/Received i a Pre-tradig Period Uder Sectio 61, Icome Tax Act 1967, oly expediture which is wholly ad exclusively laid out or expeded for the purposes of a trade, is allowable as a deductio i calculatig the profits of the trade for tax purposes. It is accepted by Reveue that iterest paid i the period prior to commecemet of tradig, o sums borrowed to fud capital projects, may be set off agaist deposit iterest arisig i the same period from fuds placed o deposit prior to the commecemet of tradig. Similarly, iterest received by a compay is a pre-tradig prior from the ivestmet of the proceeds of a loa stock issue is allowed agaist the iterest payable by the compay o that issue. 2.3 Isurace Process & 10% Rate of CT The followig is a outlie of the practice adopted i relatio to isurace proceeds received by compaies qualifyig for the 10% rate of corporatio tax.: Receipts from Isurig Goods Where the isurace compesatio is for loss of stock, is calculated o the basis of the cost of the goods to the compay ad does ot cotai ay loss of profit elemet, the compesatio is treated as icome from goods ad is icluded i the computatio of profits which qualify for the 10% rate of tax. The premium payable i respect of such isurace is a allowable tax deductio. Loss of Profits Isurace Ay isurace recovery for the pure loss of profits is treated as a tradig receipt ad ot as arisig from the sale of goods. It is chargeable to corporatio tax at 40% subject to ay appropriate deductio for expeses. The premium payable is respect of such a isurace is a allowable tax deductio. 4
Loss of Tax Relief Ay isurace recover uder a policy isurig agaist loss of tax relief is ot regarded as a tradig receipt for tax purposes ad is ot therefore chargeable to corporatio tax. Ay premium payable o such a isurace is ot a allowable deductio for tax purposes. 3. Capital Taxes 3.1 Residetial Property Tax Valuatio Date 5 April 1993 The icome exemptio for 1993 (year eded 4 April 1993) is 28,100 (ot 28,000 as reported i error i Issue 10 of Tax Briefig). The market value exemptio for 1993 (5 April) is 91,000. Completed returs, together with paymet of ay tax due, should be delivered o or before 1 October 1993. Certificate of Clearace The Fiace Act 1993 provides for the itroductio of a Certificate of clearace o the sale of certai residetial property. The measure takes effect i respect of cotracts for sale o or after 1 August 1993. Thereafter, ay perso purchasig a residetial property for a cosideratio i excess of the market value threshold 91,000 i 1993) is obliged to deduct a specified amout from the cosideratio uless the vedor produces a certificate of clearace. This certificate will be issued to the vedor by the Reveue Commissioers if they are satisfied that all Residetial Property Tax due by the vedor has bee paid. I the absece of a clearace certificate the amout to be deducted by the purchaser will be 1.5% of the differece betwee the sale price ad the market value exemptio limit (as at the previous 5 April), multiplied by the umber of years that the vedor has owed the property up to a maximum of 5 years. Example X, who cotracts to sell his house for 120,000 i September 1993, havig owed it for 3 years, fails to produce a certificate of clearace o closure. The purchaser is obliged to make a deductio of 1,305 from the sale price. This is calculated as follows: ( 120,000-91,000) x 1.5% x 3 = 1,305 This amout must be paid immediately by the purchaser to the Reveue Commissioers ad will be treated as a paymet o the accout of the vedor s Residetial Property Tax liability. Practitioers are requested to advise cliets to esure that, o a ogoig basis, the best estimate of market value is used whe completig the aual Residetial Property Tax Retur. 3.2 Compaies Capital Duty A ew form will be itroduced i the Autum, which will replace the Form 26 curretly used by the Reveue Commissioers ad the Form B5 (formerly Form 45) used by the Compaies Registratio Office. The ew form will combie the two forms thus elimiatig some duplicatio. The ew form (which will be called Form B5) will be delivered to the Reveue Commissioers who, havig dealt with Capital Duty matters will deliver the form to the Compaies Registratio Office. 4. VAT Added Tax 4.1 VAT chages i Fiace Act 1993 The Fiace Act 1993, which became law o 17 Jue 1993 made a cosiderable umber of chages to VAT law. The most sigificat chages deal with: The facility uder which traders who are primarily egaged i makig zero-rated itra-commuity supplies of goods ad exports will, from 1 August 1993, be able to: - obtai supplies of goods, - accout o itra-commuity acquisitios ad - make imports. at zero-rate of VAT, Statemet of Practice VAT/1/93 cotais detailed iformatio o this facility The abolitio of the VAT registratio threshold for certai services received from abroad. Flat-rate farmers ad sea-fisherme makig itra-commuity acquisitios over the 32,000 threshold or i receipt of certai services from abroad are (uless they otherwise elect) taxable persos oly i respect of such acquisitios ad such Services. The flat-rate farmer will cotiue to be etitled to receive the flat-rate additio i respect of agricultural supplies to other taxable persos. Statemet of Practice VAT/2/93 cotais further details. Requiremets of distace sellers to issue ivoices, The issue of a credit ote cacellig a ivoice where a higher rate of VAT was icorrectly charged ad the subsequet issue of a revised ivoice. The requiremet for certai taxable persos to make a advace paymet o 1 December each year from 1 December 1993 owards. The taxable perso who must make advace paymets are those whose total VAT liability for the precedig year edig o 30 Jue exceeds 120,000. The advace paymet which must be made is a 5
amout equivalet to oe-twelfth of the perso s total VAT liability for the precedig year edig o 30 Jue. The zero-ratig of supplies of goods for the fuellig ad provisioig of vessels ad aircraft for iteratioal routes. 5. Collector-Geeral 5.1 Paymet of tax by Bak Giro The storage of records by electroic meas, A reductio i the VAT rate from 21% to 12.5% o poured cocrete ad cocrete blocks with effect from 1 July 1993. That taxatio of alcohol products held uder a duty-suspesio arragemet, primarily a boded warehouse. From 1 August 1993 where a liability to VAT has arise, VAT o the duty-iclusive price of the goods must be paid at the time of the removal of the goods from the duty-suspesio arragemet. The Fiace Act 1993 also made a umber of other techical amedmets to VAT law. 4.2 Itra-Commuity Goods Trasport A addedum to Statemet of Practice VAT/12/92, which deals with developmets i relatio to itra-commuity goods trasport services, has bee issued. 4.3 Value-Added Tax (Refud of Tax) (No. 24) Order, 1993 This Order replaces S.I. Nos. 68 of 1986 ad 262 of 1988, The ew Order retails the scheme set out i the previous Orders i relatio to certai tourig coaches whereby the VAT i excess of the reduced rate is repayable. However, the ew Order also covers the situatio where the coach operator has to register for VAT because of his itra-commuity acquisitios. 4.4 Property Trasactios - Multiplier for Valuatio of Iterest i Property The followig are the appropriate Multipliers based o the redemptio yield of the most recet Natioal Loa Issues Date of Issue Multiplier 21 May 1991 10.75 24 Jauary 1992 10.98 14 Jue 1993 13.57 [See VAT Leaflet 2 - Property Trasactios (para 36) for circumstaces i which used.] I the regio of 20 millio is beig paid each moth to the Office of the Collector-Geeral by taxpayers usig the Giro optio. Form P30, which is used for remittig PAYE/PRSI, icludes a Giro Paymet optio. May taxpayers are availig of this optio ad Reveue would like to take this opportuity to thak them. The redesiged form VAT3, which is used for remittig Value-Added Tax, also icludes a Giro paymet optio. The use beig made of this facilities very ecouragig. The Notice of Prelimiary Tax (Icome Tax) for the year 1993/94 will be i the same format as last year ad it will cotai a Giro paymet optio. The Giro optio has bee widely used i the last few years ad we hope that this year will see a further expasio of its use. Other paymet forms used i the Icome Tax collectio system also cotais a Giro optio. The facility to pay Corporatio Tax by Giro has bee available sice July, 1992. The Notice of Prelimiary Tax (Corporatio Tax 0 cotais a GIRO payslip. A major beefit for those usig the Giro system is that the official receipt from the Collectors-Geeral s Office is issued withi 7 days of the receipt of the paymet i the office. Practitioers are remided agai of the importace of usig the correct accoutig documet (e.g. P30) to accompay a paymet. Iformatio to brig a paymet to accout is ow electroically read from the iformatio tha ever that the accoutig documet be correct. Eve if the taxpayer iformatio is correct, the form issued for the specific moth must be correct. The use of the correct form will esure that the paymet is brought to accout correctly ad will save taxpayer, practitioers ad Reveue much icoveiece. 5.2 Paymet of Tax by Direct Debit ad Aual Accoutig The Office of the Collector-Geeral itroduced, i September 1992, systems for the paymet of PAYE / PRSI ad Value-Added Tax by meas of Direct Debit through the bakig system. Selected taxpayers were offered the facility ad the respose to date has bee very satisfactory. At preset a combied amout of ú6 millio is beig paid through this facility each moth. The offer of a direct debit facility is liked to a system of aual accoutig. This of course relieves 6
taxpayers/practitioers of the eed to make mothly/bi-mothly returs ad also helps i cashflow plaig. I the case of each tax all that is required is a aual retur e.g. P35 for PAYE/PRSI ad Aual Retur for Value-Added Tax. To joi the scheme, all that is required is the completio of a simple direct debit istructio. Paymets will be made o a mothly basis by meas of Direct Debit ad ay shortfall of overpaymets will be rectified at the ed of the year. This facility is ow available to all taxpayers for PAYE/PRSI ad Value-Added Tax provided certai limited criteria are met. For further iformatio cotact our HELPLINE NUMBER (01) 671 8011 7