tax planning seminar delivered to mercia on 14 may 2012
DESCRIPTION
A Commercial Approach to Taxation Issues and Asset ProtectionTRANSCRIPT
![Page 1: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/1.jpg)
A COMMERCIAL APPROACH TO TAXATION ISSUES & ASSET PROTECTION
Derek AndrewsAITI Chartered Tax Advisor & Principal of
Andrews Tax Consulting
![Page 2: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/2.jpg)
`Pop Quiz’
![Page 3: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/3.jpg)
Pop Quiz #1
• Client bought a factory in 2006• Let on long-term lease to a printing
company that has ceased trading• Negotiations have taken place to
surrender the lease for a fee of €300k
IS THE SURRENDER PAYMENT LIABLE TO INCOME TAX OR CGT?
![Page 4: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/4.jpg)
Pop Quiz #2
• Father transfers two properties to his children (one each) at different times in the same tax year
• First disposal (JAN) triggers a gain of €500k
• Second disposal (JUN) triggers a capital loss of €400k
WHAT AMOUNT IS LIABLE TO CGT?
![Page 5: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/5.jpg)
Pop Quiz #3
• Husband and wife jointly own a warehouse• Used by husband in business (20 years)• Husband dies• Wife takes over running of the business• Two years later transfers warehouse and
business to children
WHAT RELIEFS WILL BE AVAILBLE ON TRANSFER?
![Page 6: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/6.jpg)
Pop Quiz #4
• John obtained a divorce from his first wife in 2004
• Since 2007 he is living with his new partner• They bought a home together but have no
children• His Will states that his assets are to pass to
the children from his first marriage
DOES JOHN’S PARTNER HAVE ANY LEGAL ENTITLEMENT IN THE EVENT OF HIS DEATH?
![Page 7: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/7.jpg)
Pop Quiz #5
• Paul is 52• He owes €6m on various property
investments (CMV c€1m)• He is the only child of wealthy parents
WHAT STEPS CAN BE TAKEN TO AVOID FUTURE INHERITANCE BEING SEIZED BY HIS LENDER?
![Page 8: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/8.jpg)
Tip #1 – Commercial Asset Protection
![Page 9: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/9.jpg)
Asset Protection
• Companies with cash
• Concerned about ring-fencing reserves from trade risk and liquidity risk
• Don’t wish to cash extract because of high rates of income tax
![Page 10: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/10.jpg)
Asset Protection
• Companies also concerned about keeping private details of accumulated reserves and current profits.
• From competitors, employees, landlords, other family members, journalists,
• & others.
![Page 11: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/11.jpg)
Asset Protection
• Key to solving problem is to separate ‘cash’ from the ongoing trade.
• Possibilities include:-
– Hive out trade to Newco (no audit)– Insert Holdco (management charge – problematic)– Insert Holdco (divi cash up – how to avoid
surcharge?)– Isle of Man/Jersey ‘blocker’ structure
![Page 12: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/12.jpg)
Asset Protection
• Cost effective solution:-
![Page 13: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/13.jpg)
Asset Protection
Step 1 - Establish Group
• Setup HoldCo – alter M&A to provide for acquisition of target (stamp duty requirement)
• Effect share swap – relief from CGT under section 586 TCA 1997
• Submit statutory declaration for SD relief under section 80 SDCA 1999
• Entitlement to Revenue concession from tax under section 130 TCA 1997
![Page 14: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/14.jpg)
Asset Protection
Step 2 - Pay Dividend
• Note payment of dividend not liable to corporation tax in HoldCo
• But will be liable to close company surcharge (section 440 TCA 1997)
• With planning dividend can be “taken out” of scope of surcharge
![Page 15: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/15.jpg)
Asset Protection
Variant
• Use UnLtd HoldCo
• No requirement to file annual accounts
• Distribution by TradeCo not disclosed on abridged accounts filed with CRO
![Page 16: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/16.jpg)
Asset Protection
Result
• No disclosure of accumulated reserves
• Separation of cash from liquidity, trade and other risks
• No tax leakage
• Cheap – beware ‘statutory audit’
![Page 17: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/17.jpg)
Tip #2 – Use of Holdco to avoid Tax
![Page 18: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/18.jpg)
Use of HoldCo to avoid CGT
• Holding companies are often avoided in Irish businesses
• They are seen as un-necessary, expensive and a compliance burden
• In fact, holding companies are extremely useful for tax purposes especially in a business sale
![Page 19: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/19.jpg)
Hold Co
Shareholder
Trade Co
Use of HoldCo to avoid CGT
![Page 20: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/20.jpg)
Use of HoldCo to avoid CGT
![Page 21: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/21.jpg)
Tip #3 – Cash Extraction
![Page 22: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/22.jpg)
Cash Extraction
Remuneration – beware “excess” amounts
Dividends – not efficient as no CT deduction
Employer Pension Contributions
Loans – incorporation of professional firms
Purchase of Shares
Rent of Property
Sale of Property to Company
![Page 23: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/23.jpg)
Employment of spouse and children
Mileage and subsistence payments
Liquidation
Termination Payments
Cash Extraction
![Page 24: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/24.jpg)
Tax Planning:-
Transfer of undertaking and liquidation
Cash Extraction
![Page 25: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/25.jpg)
Cash
Irish Trade Co
Irish Trade
Shareholder
UK Sub
UK Trade
Cash Extraction
![Page 26: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/26.jpg)
Irish Trade CoNew Irish Co
Shareholder
UK Sub
UK Trade
Irish Trade
Cash
Cash Extraction
![Page 27: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/27.jpg)
Irish Trade CoNew Irish Co
Shareholder
UK Sub
UK Trade
Irish Trade
Cash
Cash Extraction
![Page 28: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/28.jpg)
Irish Trade CoNew Irish Co
Shareholder
UK Sub
UK Trade
Irish Trade
Cash
Cash Extraction
![Page 29: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/29.jpg)
Tax Planning:-
Section 817
Liquidation => income tax event unless for bona fide reasons and not to avoid tax
Revenue view that this structure triggers income tax.
Cash Extraction
![Page 30: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/30.jpg)
Tax Planning:-
Section 817
How to defeat provisions?…an example
Cash Extraction
![Page 31: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/31.jpg)
Tax Planning:-
Redemption of Shares
Cash Extraction
![Page 32: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/32.jpg)
New Hold Co
Shareholder
Irish Trade Co
Cash Extraction
![Page 33: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/33.jpg)
Tip #4 – Personal Asset Protection
![Page 34: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/34.jpg)
Asset Protection
Conern for 60s and 70s generation
• Individuals between approx 40 and 55• Entitled to future inheritance from parents• Insolvent or bankrupt• If inheritance or gift taken will go to satisfy creditors• Solutions?
![Page 35: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/35.jpg)
Asset Protection
Conern for 60s and 70s generation
• Exclude from entitlement (beware s.117 SA 1965)• Skip a generation – ie to kids (parent as guardian)• Disclaim• Warehouse entitlement in Trust/other beneficiaries• Deed of family arrangement• Use Secret/Discretionary Trust (beware s.117 SA 1965)• Life interest in assets
![Page 36: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/36.jpg)
Asset Protection
Conern for 60s and 70s generation
• Spend thrift clause in Will/Trust• Condition in Will Trust
Other issues
• Protecting assets from co-habitants (discretionary entitlement after 5 years or 2 years with children)
![Page 37: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/37.jpg)
Tip #5 - Director’s Loans
![Page 38: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/38.jpg)
Benefit-in-kind / directors loans• Many shareholders/directors
in SME have legacy director’s loans
• Limit on director’s loans of 10% of ‘relevant assets’ to avoid reporting to ODCE
• Also tax implications – withholding tax (20%) and BIK
![Page 39: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/39.jpg)
Benefit-in-kind / directors loans
Possible Solution
Convert director’s loan from debtor to intangible asset
![Page 40: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/40.jpg)
Benefit-in-kind / directors loansExample - Facts
• Mary own’s 100% of ABC Limited and has taken a director’s loan of €100,000 to invest in an associated but unconnected second business - DEF Limited.
• At the year end 30 June 2011 the amount borrowed exceeds 100% of relevant assets in the company and she does not have capaity to repay the loan.
![Page 41: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/41.jpg)
Benefit-in-kind / directors loansExample – Solution
• Amend M&A of DEF Limited to create new class of preference share.
• Share will entitle bearer to assets on winding up and dividends - but carries no voting rights.
• Have DEF Limited issue shares in itself to ABC Limited
![Page 42: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/42.jpg)
Benefit-in-kind / directors loansExample – Result
• Director’s loan no longer shown on face of B/S.
• Company no longer in breach of 10% rule – ODCE happy.
• BIK & close company tax issues resolved.
![Page 43: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/43.jpg)
Benefit-in-kind / directors loansTax Issues – For Company - Section 438 TCA 1997
• Where a “close company”• otherwise than in the ordinary course of a business
makes any loan• to an individual who is a participator (or an associate
of a participator)• the company deemed to have paid … an annual
payment• Annual payment = Amount Paid / 80% x 20%
![Page 44: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/44.jpg)
Benefit-in-kind / directors loansTax Issues – For Company – Section 438 1997
• Can a company cease to be a ‘close company’?
• For the purposes of the Corporation Tax Acts, “close company” means a company under the control of 5 or fewer participators, or of participators who are directors,
• but does not include inter alia a company not resident in the State (Section 430(1))
![Page 45: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/45.jpg)
Tip #6 – Professional Close Company Surcharge
![Page 46: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/46.jpg)
Professional Close Co SurchargeSection 441 TCA 1997 provides…
• Where for an accounting period of a “service company” the aggregate of–
• the distributable estate and investment income, and• 50 per cent of the distributable trading income, • exceeds the distributions of the company for the
accounting period, • there shall be charged on the company an additional
“surcharge” of 15 per cent of the excess.
![Page 47: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/47.jpg)
Professional Close Co SurchargeWhat is a “service company”?
• Section 441(1) defines a “service company” as
• a close company whose business consists of or includes the carrying on of a profession or the provision of professional services,
• or a company a close company whose business consists of or includes the provision of services or facilities of whatever nature to such a company.
![Page 48: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/48.jpg)
Professional Close Co SurchargeWhat is NOT a “service company”?
• Where the principal part of a company’s income which is chargeable to corporation tax
• is not derived from carrying on a profession, providing professional services,
• or having or exercising an office or employment, or providing services or facilities.
![Page 49: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/49.jpg)
Professional Close Co SurchargeIncorporation of Accountancy Firms
• Provided >50% of income is not derived from ‘professional activities’
• Not liable to close company surcharge.
• Examples of non-professional activities include book-keeping, preparation of VAT returns and payroll.
![Page 50: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/50.jpg)
Tip #7 – Use of Discretionary Trust to pass on family home
![Page 51: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/51.jpg)
CAT Planning
• Parents wish to transfer family home to child for him/her to reside in after death
• Child living elsewhere & does not with to live with parents
• Inheritance of property may give rise to inheritance tax.
![Page 52: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/52.jpg)
CAT Planning
• Section 86 CATCA 2003
• Applies to gift/inheritance of dwelling house
• Beneficiary must occupy property for 3yrs before date of gift/inheritance
• Cannot have an interest in any other property
• Must retain property for 6 years
![Page 53: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/53.jpg)
CAT Planning
Planning Point:
• On death have family home pass into a discretionary trust
• Instruct – by letter of wishes – trustee (probably executor of Will) to hold asset until intended beneficiary has occupied property for 3 years
• Then make appointment => crystalise inheritance.
![Page 54: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/54.jpg)
CAT Planning
• Note date of inheritance is determined by section 30 CATCA 2003
• Valuation date can be deferred if asset passes into a discretionary trust
• This is where property is held on trust to accumulate capital and/or income for the benefit of a person
• Trustees (executor) has power to make appointment.
![Page 55: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/55.jpg)
CAT Planning
• On inheritance value of property is IGNORED for CAT purpose (ie is not taxable and does not erode CAT threshold)
• Net saving of 25% (based on current rates)
• Beware discretionary trust tax charges (5% in total)– Initial levy 6% (but reduced to 3% where asset held for
<5years)– Annual levy 1%
![Page 56: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/56.jpg)
Tip #8 – Tax Trap on Life-time gift of family home
![Page 57: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/57.jpg)
CAT ‘Tax Trap’
• Many individuals transferring family home to children to safeguard the asset from banks and other creditors
• Steps to effect transfer are straight-forward
• Usually a right of occupancy is provided for in Deed of Conveyance in favour of parents
• Protect parents from children dealing in asset or changing locks!
![Page 58: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/58.jpg)
CAT ‘Tax Trap’
Let’s examine the steps from a tax perspective
• Disposal of home by parents => CGT but PPR relief
• Gift received by children => CAT at 25%
• Right of residence must be valued to quantify gift taken
![Page 59: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/59.jpg)
CAT ‘Tax Trap’
Example -
• John transfers his family home to his two children Susan and Mary (who each have a full threshold of c€330k)
• Unencumbered value of property is €1.2m
• Value of benefit is €600k each less value of right of residence. Unless ROR >€270k children will have CAT bill.
![Page 60: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/60.jpg)
CAT ‘Tax Trap’
Example – Common mistake
• Mistake often made by lawyers and accountants is to provide for a mere ‘right of residence’ in Deed.
• A mere right of residence is valued by Revenue at 10% of market value of the property.
• In the example, this would value the right at €120k resulting in a taxable benefit (after CAT Threshold) of €150k each.
![Page 61: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/61.jpg)
CAT ‘Tax Trap’
Example - Solution
• Ensure Deed provides for an “Exclusive” right of residence.
• An exclusive right of residence is by concession treated as a life-interest in property.
• In this case if the children are in their 20s and the parents are in their 50’s the right of residence would be valued at c€540k resulting in a tax saving of €75k.
![Page 62: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/62.jpg)
Tip #9 – Accessing 12.5% rate of corporation tax
![Page 63: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/63.jpg)
12.5% rate of corporation tax
• Multi-national companies operating in Ireland to access 12.5% rate of corporation tax.
• Often locate IP here but do not establish ‘foot-print’.
• Use accountants office as registered office any may one staff member but not qualified to manage IP.
![Page 64: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/64.jpg)
12.5% rate of corporation tax
Taxation of IP activities in Ireland :-
– 12.5% if Trade– 25% if foreign trade, or– 25% if passive
• In 2009 and 2010 Revenue published a number of opinions on the classification of activities as trading.
• Greater focus on IP activities from 2011.
![Page 65: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/65.jpg)
12.5% rate of corporation tax
Revenue opinions on trading:-
• Central to decisions is the requirement for ‘substance’ in Ireland
• In assessing substance Revenue look for:-– Irish based employees with appropriate skill-sets– Individuals with responsibility for monitoring of affairs and
execution of legal documents– If main activity outsourced – process managed by suitably
qualified directors based in Ireland.
![Page 66: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/66.jpg)
12.5% rate of corporation tax
Facts that resulted in unfavourable rulings include:-
• No suitably qualified employees in Ireland• Other companies in group primarily responsible for
target, evaluation and negotiation of contracts• No main players in business resident in Ireland• Key decisions being taken elsewhere (ie outside
Ireland)
![Page 67: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/67.jpg)
12.5% rate of corporation tax
Maximising the case for trading:-
• It is critical that employees are engaged in Ireland with appropriate skill-sets having regard to the business
• The business should have an office, phone line, network, etc.
• Contemporaneous records of the role of the Irish company in decision making
• Properly constituted and active Board• Evidence of activities being managed out of Ireland
![Page 68: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/68.jpg)
12.5% rate of corporation tax
Should an opinion be sought:-
• YES
• Revenue will be wary of companies operating in Ireland that have not sought an opinion.
![Page 69: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/69.jpg)
Where have our profits gone?
![Page 70: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/70.jpg)
Tip #10 – Tax-efficient capitalisation of company Balance Sheet
![Page 71: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/71.jpg)
Tax-efficient capitalisation
• Irish companies generally poorly capitalised relative to European standards.
• With the down-grading of Irish debt, companies have to pay in advance or on delivery for imports.
• Greater scrutiny of balance sheets and demand to re-capitalise (without triggering tax)
![Page 72: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/72.jpg)
Tax-efficient capitalisation
• In order to recapitalise a company retained profits must be convered into equity
• Without tax planning this process can trigger significant tax at shareholder level
• This tax exposure can be managed by the allotment of bonus shares to existing shareholders
![Page 73: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/73.jpg)
Tax-efficient capitalisation
• Properly structured – and provided a number of conditions are met
• The allotment of bonus shares will not be taxable in the hands of shareholders as a scrip-dividend
• When implementing a bonus share structure to recapitalise a company beware Irish anti-avoidance rules
![Page 74: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/74.jpg)
Tax-efficient capitalisation
• Section 130 (matters to be treated as a distribution)
• Section 436 (expenses for participators)
• Section 816 (taxation of shares issued in place of cash dividends)
• If in doubt, seek a ruling from Revenue
![Page 75: Tax planning seminar delivered to Mercia on 14 May 2012](https://reader033.vdocuments.mx/reader033/viewer/2022061222/54c120304a795959278b458a/html5/thumbnails/75.jpg)
For your tax needs contact
Derek AndrewsAndrews Tax Consulting
12 Merrion Square
Dublin 2
P : 01 6316075