Complex Tax Issues Conor Kennedy Law Library. Property as a means to evaluate and impose taxation....
-
Upload
julian-reed -
Category
Documents
-
view
213 -
download
1
Transcript of Complex Tax Issues Conor Kennedy Law Library. Property as a means to evaluate and impose taxation....
Complex Tax Issues
Conor KennedyLaw Library
Property as a means to evaluate and impose taxation.
Window type taxLand taxes, custom and excise duties, stamp
duties, probate and other death dutiesCreates & transfer personal wealth Property investmentUse of trusts
Governments grip on property :Income TaxCorporation TaxValue Added TaxStamp DutyCapital Gains Tax Capital Acquisitions Tax
Commercial viabilityMcGrath CaseS.811 TCA ‘97 to address certain tax
avoidanceConstitutionality
Ownership of assets in a corporate or personal capacity
Common practice for companies to acquire properties
Cost of obtaining funds through salary was unusual
Income Tax rates were in excess of 60%
Lowering of the personal tax ratesS.23 type reliefsHuge appreciation in the value of property Exasperated by double charge to Capital
Gains Tax
Commercial viabilityTax as a factor in structuring investmentsLevel and rate of stamp dutyVATCapital Gains TaxInheritance tax issuesUse of trusts
Double charge to Capital Gains TaxSurcharge on undistributed company profitsDirector’s fees limited to 7.5% - 12.5%Make the investment less marketableNo stamp duty relief Annual costs of servicing a company
Capital allowances on industrial buildingsIncome and wealth enjoyed by individuals
Lower rate of Stamp DutyPersonal guaranteesFor reasons of confidentialityTo protect the property against litigation
Holding CompaniesCGT Exemption
Shares held in EU or treaty countriesMust hold at least 5%Interest held for at least 12 monthsGreater value not derived from land in State
Credit for foreign taxes on dividendsEntitlement to “pool” credits
Company ReorganisationsThree party Swap
Transfer trade to NewcoConsideration = Shares in NewcoSame identity of ownershipSubsequent disposal
Current Structure
Existing Trade.
Husband50%
Wife50%
Commercial PropertyTradeInvestments
New Structure
New Company
Husband50%
Wife50%
Commercial PropertyTrade
Existing Company
Husband50%
Wife50%
Investments
Tax issuesStamp & Capital Duty (S.80 SDCA 1999) Share reorganisation (S.587 TCA 1997) Corporation Tax Relief (S.615 TCA 1997)Income Distribution (S.130 TCA 1997)Tax Neutral
Availability of capital allowancesProperty must be relatively self financingTax breaks shoring up the potential
shortfall
A trade carried on in either a mill factory or similar premises
A dock undertakingThe growing of fruit, vegetables or other
produce in the course of a tradeThe trade of hotel keepingIntensive production of cattle and other
livestockOperation or management of an airport, where
the structure is an airport
Operation or management of a registered nursing home
Operation or management of a convalescent home for the purpose of medical and nursing care
Operation or management of a qualifying hospital
Qualifying sports injury clinicsQualifying mental health centres
Tax incentive areasLeased industrial buildingsClawback of allowances
Expenditure incurred in qualifying periodConstruction, conversion or refurbishment Qualifying areas100 per cent of qualifying expenditure
excluding site costRelief against all rental incomeClawback of relief
Minimising Tax CostsCapital Allowances
Plant & MachineryDefinitionFunctional testSetting in which trade carried on
Minimising Tax CostsS.311 TCA 1997Apportion expenditure on commercial
propertyExtract value from plant & machineryFormula
Plant x Purchase Price – Land Building Cost
Qualifying Type Assets Gas, electrical, cold water and sewage systems. Heating, ventilation and air conditioning systems. Storage systems, display equipment, counters and
cold rooms. Furniture and sanitary ware. Escalators and lifts. Sound insulation. Telecommunications and surveillance systems. Alarms and sprinkler systems. Moveable partition walls. Displays, signs and advertising hoardings. Consultants fees. Carpeting. Blinds and canopys.
Two aspects of the legislationLand dealers and individuals who
purchase land for speculative profits20% rateAny work which does not constitute
constructionConstruction of houses will be liable to
Income Tax at the marginal rate
Dealings with RevenueKinsella v The Revenue CommissionersLegitimate ExpectationsGlencar Exploration
RepresentationIdentifiable person actually affectedExpected to abide
Keogh v Criminal Assets Bureau
Revenue’s Annual Report 2006Tax Receipts €45.5 billion14 tax schemes challengedSpecial Investigations now at €2.28 billionRevenue audits - €691.8 million4,127 comprehensive audits176,064 assurance checks601 tax defaulters published7 convictions for serious tax evasion
Revenue Audit FindingsLarge Cases Division
Residency of CompaniesFilm investmentsProperty based investmentsProperty owned companiesLiquidationsS.806 & EU Treaty
General Audit IssuesPubsIrish Independent article
Compliance issues in 50% of Dublin pubsNew methodology
Unfounded AllegationsLicence agreements
Finance Act 2007S.4(5) VATA 1972S.10(3) VATA 1972
Licence AgreementsExample
Build cost €275 per sq ft Apartment 1,000 sq ft Cost €275,000 Sale Price €475,000 Land Price €175,000 VAT liability €20,815 per apartment Unforeseen cost to the landowner
Internal ReviewWhat is it?Jurisdiction
“Revenue’s handling of his or her tax or customs affairs or decisions made by a Revenue official …”
Publication DiscriminationProportionalityAppeal CommissionersHuman Rights issues
Revenue’s Lifestyle Profile 2001 2002 2003 2004 2005
€ € € € € € € € € €
Income per tax return 100,000 125,000 156,250 195,313 244,141
Total Income 100,000 125,000 156,250 195,313 244,141
Outgoings (est) 40,000 45,000 50,000 55,000 60,000
Income Tax Due 34,000 74,000 42,500 87,500 53,125 103,125 66,406 121,406 83,008 143,008
Estimated Balance 26,000 37,500 53,125 73,906 101,133
€ € € € €
Estimated opening cash 0 26,000 63,500 116,625 190,531
Estimated cash surplus for year
26,000 37,500 53,125 73,906 101,133
Estimated closing balance 26,000 63,500 116,625 190,531 291,664
Revenue’s Asset Reconciliation €
Estimated Funds 2005 291,664
Estimated Return @ say 3% 8,750
Where is it?
Risk AnalysisLate filingScreening
RiskEvaluationAnalysisProfiling
Enormous databaseCrestVRTRental Stamp dutyCGT
Risk AnalysisScreening 3 - 4 times a yearIn-depth profileBehavioural profilingSubstitution effectRCT issues
Double dip (treble)EU Savings Directive – 1st tranche of
informationAll tax head audit
Seek adjournment
Public Accounts CommitteeComptroller & Auditor General Report
Extending Tax Information ExchangesMutual Assistance
Information exchanged Automatic Spontaneous
Capital gains risksCorrelation with stamp duty informationSubstitution effectStamp duty clawbackMiscellaneous
Constituents of a BusinessDefinition ?Trade or Business
American LeafKoreanNoddy Subsidiary RightsCadbury Ireland
RelevanceS.600 TCA 1997S.97 CATA 2003VATReconstructions
TradeBadges12.5% CT RateSubstitution Effect
Finance Act 2007CGT – Sale of business assets/ shares in
family trading companiesBES ImprovementsVAT – Waiver of exemptionOffshore fundsRevenue Powers
Professional NegligenceDuty of careBreach of dutyPlaintiff suffered lossDamage caused by that breach
Professional NegligenceCompetency of the practitionerHurlingham Estates v Wilde & PartnersLetters of engagement
Sample Letter 1 – Tax AdvisorSample Letter 2 – AccountantSample Letter 3 – SolicitorInformation omitted
Agent MistakeRowland v HM Revenue & Customs
Reasonable ExcuseRelied on agentVicarious liability
Employer main beneficiary Better position
Implement safer practices Absorb losses
Offers better protection to claimant
Revenue Penalties The ‘Code of Practice for Revenue Auditors’ 9.1 provides that:
A tax return prepared and delivered on behalf of a taxpayer by some other person acting on his or her behalf is treated in all respects as if it had been made by the taxpayer. The taxpayer’s statutory responsibility to complete and file a correct return cannot be devolved to his or her agent.
9.5 provides
… the taxpayer cannot devolve the responsibility of making the correct return to an agent. If all relevant matters have not been brought to the attention of the agent, the taxpayer has not taken due care.
Finance Act 2005S.142 amends S.1078 TCA 1997Revenue Offences – 3rd party implications
“knowingly concerned in the fraudulent evasion of tax”
“ … is reckless as to whether or not the person is concerned in facilitating the fraudulent evasion of tax ….”
Revenue’s Annual Report 2007Tax Receipts €47.2 billionTax schemes challengedSpecial Investigations now at €2.414 billionRevenue audits - €736 million3,900 comprehensive audits237,000 assurance checks14 convictions for serious tax evasion
•New VAT on Property Regime• Property leases exempt from tax• Option to tax• New Buildings• Old Buildings• Capital Goods Scheme
•More Tax Avoidance Schemes challenged•New Commission of Taxation•Refinement of profiling