EDUCATING SUPPORTING REPRESENTING Construction of the Legislation CHARTERED TAX CONSULTANT STAGE 2...

EDUCATING

SUPPORTING

REPRESENTING

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Construction of the Legislation

CHARTERED TAX CONSULTANT STAGE 2 MODULE 1

Brian Keegan

6 & 7 Jan 2012

Introduction

• History of Irish Tax Policy

• Main sources for change

• Legislative Process• International

Dimension• Revenue Structure

Irish Tax

Legislation

Case Law EU Law Double TaxAgreements

Tax Policy

• Political History• 1920s – 1950s Economic Policy• 1958 Policy Paper• Free Trade Challenge

Tax Policy

• Corporate Tax• Income Tax• Value Added Tax• Capital Taxes

Corporate Tax Policy

• Inward Investment low tax regime since 1950s

• 1980 EU pressure

• Financial Services• 2003 to date

• 0% for internationally traded goods

• 10% CT for manufacturing

• IFCS established• 12.5% for all trading• Reduced complex

anti avoidance measures

Income Tax Policy

• Top Tax Rates > 50% until 1992• 1990s to recently – lower taxes on labour

and capital• Tax Shelters gradually eliminated• Recent economic crisis• Marginal Rates – Tax, PRSI and USC

– 52% for incomes > €32,800– 55% for self employed > €100,000

Value Added Tax Policy

• Introduced 1972 replacing retail and wholesale taxes

• EU Directives apply• Minimum impact for policy objectives• Rates 0%; 9%*;13.5% and 21%• (23% from January 2012) *May 2011 Jobs Initiative

** Budget 2012

Capital Taxes Policy

• CGTA 1975• CATCA 2003• SDCA 1999

• RIPs• Wealth Tax 1975-1978• RPT 1983 – 1997• Probate Tax to 2000

Capital Taxes

Capital Gains

CapitalAcquisitions

Stamp Duties

Capital Taxes

• CGT Rate halved in Dec 1997 to 20%• Removal of Rollover Relief and Indexation• Property Boom – CGT and SD significant• SD seen as tool to implement policy

Property Reliefs

• Recent policy to remove property-based tax schemes

• High Earner’s Restriction introduced• Widening of tax base

Origins of Tax Code

• Is history of tax legislation vital for CTC?• YES• Understanding why it exists in current

form• Access to older material• Was a provision amended? When?• Back Duty Investigations

Origins of the Tax Code

• The beginning in UK

• Reached Ireland

• Irish State 1922• Irish tax law

• William Pitt 1799• Gladstone’s

Income Tax Act 1853

• Income Tax Act 1918

• Shares same DNA as UK

First Consolidation

• Major consolidation• Effective 6th April

1967• Income Tax Act 1967

IncomeTax Act1967

Income Tax Act1918

Irish Finance

Acts1923 –1966

Taxes Consolidation Act 1997

• TCA 1997 replaced ITA 1967• Prior to 1997 unofficial consolidations

published• Helpful in identifying origins of pre 1997

law• Note references to surtax – pre 1974

TCA 1997 Consolidation of :

• Corporation Tax Act 1976• Income Tax Act 1967• Capital Gains Tax Act 1975• Finance Acts• Enacted 30th November 1997 • Effective 6th April 1997

Legislation not Consolidated

• Provisional Collection of Taxes Act 1927• Waiver of Certain Tax, Interest and

Penalties Act 1993

Legislative TimelineYear Development

1970 RCT Introduced

1980 Manufacturing Relief replaces Export Sales Relief (ESR)

1986 Section 86 FA 1986 – GAAR anti avoidance rule

1986 DIRT introduced

1988 Self Assessment introduced

1997 CGT rate halved from 40% to 20% wef 3rd Dec 1997

1998 CT Rates 12.5% for trading and 25% non-trading replaces Manufacturing Relief

1999 Place of incorporation test for corporate residence introduced

1999 Euro introduced – restatement of sums from IR£

1999 DWT introduced replacing imputation system. ACT abolished

1999 Radical pension overhaul – ARFs introduction

2000 Individualisation of tax bands; Tax Credits introduced

2001 Tax Year changed to 31st December from 5th April

2001 TRS introduced for medical insurance and mortgage interest

2001 CT Losses value based; CT Loss Ring fencing; move to different CT Rates for trading and non-trading activities

2002 CGT Indexation Relief abolished from 1st January 2003

2004 Introduction of CGT participation exemption for companies

2005 Companies to compute trading profits in accordance with Accounting Standards

2007 Introduction of High Earner Restrictions for Income Tax

2010 Disclosure of tax avoidance schemes to Revenue Sec 817 TCA 1997

2011 FA 2011 introduces USC – significant broadening of tax baseMerger of Income Levy and Health Contribution

Genises of Tax Code - Why?

• Irish Finance Acts “borrow” UK language• Anti avoidance measures• Wide range of interpretative sources

opened• UK Case Law and HM Interpretation

useful for Irish tax law

Why is History Important?

• Rational behind provision revealed• Access to non–statutory material• Insight into purpose of provision• Dáil Debates

Understanding History

• Anti avoidance perspective• “..an abuse of the provisions having

regard to the purpose for which it was provided”

• Need to access commentary under pre consolidated form

• References still made to Sec 23 properties, Sec 84 Loans etc

Understanding History

• Places legislative provision in context eg Development Land provisions Part 22 TCA 1997 are pre CGT

• Electronic Search tools hugely helpful• Back Duty Investigations

– Tax geared penalties for certain taxes eg PAYE

The Irish Constitution 1937

• Article 15.4.1

• “The Oireachtas shall not enact any law which is in any respect repugnant to this Constitution ..”

• Presumption of constitutionality difficult to displace

Constitution – Case Law

• Madigan v AG• Unsuccessful

challenge to RPT• Property rights

attacked• Article 40.3

• Contrast with Brennan v AG

• Irish and US constitutional guarantees similar

• Tax Laws in category of their own

• Latitude to be allowed to legislature

• Land Rating found unconstitutional

• Murphy v AG• Taxation of married

couples unconstitutional

• Michael Daly v Revenue

• Change to current year basis of assessment

• Presumption of constitutionality rebutted

• PSWT Case• No credit for PSWT

for one year• Provision found

unconstitutional

• Paul Browne and others v Revenue

• Kennedy v Hearne

• James G Orange V Revenue

• BIK on private use of cars held not to breach Articles 40.3, 40.3.2 or 40.1

• PAYE estimates not in breach of Constitution

• Serving of notice of attachment case lost

Constitution and Tax LawTax legislation has rarely been found to be in breach of the Irish Constitution

The Tax Code

2010 Revenue Commissioners Report

Duties and Taxes/Levies

2010 Net Receipts

VAT €10,103m

Customs €229m

Excise Duties (inc VRT)

€4,835m

2010 Revenue Annual ReportDuty, Taxes and Levies 2010 ReceiptsIncome Tax PAYE €7,777m

Income Tax Self Employed €815m

Income Tax Professional Services €564m

Income Tax DIRT €446m

Income Tax DWT €218m

Income Levy €1,446m

Income Tax Total €11,266

2010 Revenue Annual Report

Duty, Taxes and Levies 2010 Receipts

Corporation Taxes €3,944m

Stamp Duty €962m

CAT €237m

CGT €345m

Total Capital Taxes €1,544m

2010 Revenue Annual Report

Duty, Taxes and Levies 2010 Receipts

VAT Customs Excise €15,167m

Income Taxes/Levies €11,266m

Capital TaxesCorporation Tax

€1,544m €3,944m

TOTAL €31,921m

Direct Taxes

• Sec 1(2)TCA 1997• “the Capital Gains

Tax Acts”• “ the Corporation Tax

Acts”• “the Income Tax Acts”• “the Tax Acts” (ITAs &

TCA 1997

IncomeTax

Corporation Tax

CapitalGainsTax

Withholding Taxes TCA 1997• RCT Relevant Contracts Tax• PSWT Professional Services Withholding

• DWT Dividend Withholding Tax• PAYE Pay As You Earn• CGT Capital Gains Tax• DIRT Deposit Interest Retention Tax

Capital Taxes

• Stamp Duty• SDCA 1999

• Capital Acquisitions Tax• CATCA 2003

Value Added Tax

• Indirect Taxes• VATA 1972• Value-Added Tax Consolidation Act 2010• EU Directives and Regulations• ECJ

Finance Acts

• Each Finance Act amends tax legislation

• Finance Acts introduce new taxes– USC: FA 2011

– Income Levy: FA (No2) 2008–VRT: FA 1992

Consolidated Texts

• Published texts are unofficial• Can contain printing errors• Definitive statement is the TCA 1997 plus

Finance Acts published by Government Publications

• Refer to official source when in doubt

Other Charges• USC – part of tax code• PRSI• Health Contribution

• Plastic Bag Tax

Department of the Environment

• NPPR (charge of €200 on “second” homes)

• Part 18D TCA 1997• Social Welfare Acts• Health Acts

• Regulations under Waste Management Acts 1996-2007

• Local Government Charges Act 2009

Non FAs can amend Tax Legislation

• Health Insurance (MP) Act 2009

• National Pension reserve Fund Act 2009

• National Asset Management Agency Act 2009

• Stamp duty on medical insurance policies

• Amended tax code

• Impact on FA 2010

Tax Legislation – other legislation

• Urban Renewal 1998 • Town Renewal Act

• Criminal Justice Acts

• Property Incentive Schemes

• Powers granted to Revenue

Structure of TCA 199763 Parts Nos 1- 49

Additional Parts numbered A, B,C etc

Part 22 A Shipping Tonnage TaxPart 18A Income LevyPart 18B Parking LevyPart 18D USC

50 Schedules Nos 1 - 32

Schedules are part of the legislation

No legislative distinction

Chapters Each Part divided into Chapters

Structure of CATCA 2003

12 Parts Nos 1- 12

Part 2 Gift Tax

Part 3 Inheritance Tax

Other Parts Definitions, Property Valuations, Exemptions, Administration, Reliefs, Companies

Structure of SDCA 199912 Parts Nos 1- 12

Part 3 Valuation

Part 7 Exemptions and Reliefs

Part 8 Companies Capital Duty now abolished

Other Parts Definitions, adjudication, CREST, Levies on ATM and Credit Cards, Enforcement, Penalties and Interest

Statements of Practice• Interpretations of Law• Difficult to sustain a legal challenge• SP IT3/07 Payroll deductions for non-

Irish employments• SP IT1/07 International aspects of

Share Options• SP- Gen/1/94 Revenue Powers

exercised outside Revenue offices

Customer Service Charter

• Replaced Taxpayer Charter of Rights• Charter of Rights withdrawn after

Supreme Court case of Terence Keogh v CAB and Others (2004) IESC 32

• Taxpayer availed of this rights to extend period to make appeal

• Argued Revenue had not provided full information under Charter

Non Statutory Statements

• Supreme Court Judgment in Keogh Case• “contain no more than praiseworthy

statements of an aspirational nature..to give the latter ..assurance that complaints.. will be seriously entertained”

• Customer Service Charter not likely to be enforceable in a court of law

Finance Act Process

• You must know the FA process - WHY?• FA is the key legislative development

each year• FA implements Government policy in

Budget• Usually one FA but:

– 2 in 2008– 3 in 2011

Finance Act Process

• Knowledge of FA process:• Accounting Standards – legislation at

balance sheet date• Effective date(s) for legislation• Timetable important for submissions• Advising clients on draft legislation-

changes and discussions on provisions

Finance Act Process

• Constitution• Article 21- Money Bill initiated in Dáil• Money Bill cannot be amended in Seanad• Money Bill deemed passed if not returned

by Seanad to Dáil within 21 days

Finance Act Process

• Constitution• Article 22 definition of a Money Bill• “A Bill which contains only provisions

dealing with…imposition, repeal, remission or regulation of taxation; …”

• Article 22 does not include local authority taxes

Provisional Collection of Taxes Act 1927

• Allows Financial Resolutions to become law

• FRs become law on Budget night until enactment of Finance Bill

• FRs have statutory effect under Sec 2 PCTA where Dáil resolves new taxes/changes to taxes/public interest

Financial Resolutions

• Increase Excise Duties from Budget night• Anti avoidance measures• Restrict tax reliefs• Can be put forward immediately prior to

Committee Stage of Finance Bill

• Temporary enactments – when do they end?

• Within 84 days if not incorporated into Bill• If Finance Bill rejected in Dáil• Another similar Act comes into force• Within 4 months of passing/taking effect

Budget to Finance Act

• Budget measures must be implemented by a Finance Act within 4 months

Pre Budget ProcessCyclical Process

Culmination of “Estimates Process”

Budget = Annual Financial Statement by Minister for Finance

Pre Budget submissions considered by Department of Finance eg CAI

Tax Strategy Group – minutes published

Revenue discussions with Dept of Finance

Budget Day

• Budget Speech• Budget documents• Financial Resolutions

• Budget night debates on FRs

• No legal standing• Important• Temporary statutory

effect• Oireachtas website

EU/IMF Programme

• Programme of Financial Support for Ireland• Agreed 2010• Conditional upon commitments on economic,

financial and taxation policy• Implementation by Irish CB and Government• Budget must operate within these constraints• National Recovery Plan 2011-2014

EU/IMF Programme

• “Troika” of EU, IMF and ECB must agree deviations

• Release of first instalment of funds was contingent on Budget 2011

• Quarterly reviews• Impact of control of Government over

Budgetary process

EU/IMF Programme

• European Semester approved by EU• Coordination of budgetary and economic

policies• Stability and Growth Pact • Europe 2020 strategy• First European semester was January 2011

European Semester

• Six month cycle• Annual Growth Survey published by

Commission in January• Strategic advice on policies• Member States discuss budgetary strategies• Stability and Convergence Programmes• National Reform Programme drawn up• Submitted to EU in April• Country specific guidance issued by July

Budget Day Documents

Financial Statement Minster’s Budget Speech

Summary of Budget Measures Taxation and Expenditure

Annexes Tables showing effects of tax changes

Estimates of Receipts and Expenditure Covering the coming year

Financial Resolutions Temporary legislative effect

Estimates/Summary Public Capital Programme

For the coming year

Read relevant parts carefully www.budget.gov.ie/Budgets

Budget Day

• Financial Resolutions are specific

• FR not needed for relieving measures

• FRs needed for increases with retrospective effect

• DIRT Rate changes

• Increases in SRB or credits

• To introduce measures from date prior to Finance Act

• Drafted with Parliamentary draftsman• FRs debated and voted upon• Government defeated on FR?• Likely Dáil dissolution• General election called

Finance Bill

• Drafting of Finance Bill• Each Section drafted by Revenue Policy

and Legislation divisions• Forwarded to Parliamentary draftsman• Process facilitates direct discussions with

tax practitioners

Finance Bill StagesFirst Stage Conclusion of Budget

Debate. Publication schedule agreed

Publication of Bill Finance Bill as initiated plus Explanatory Memorandum

Second Stage Minister to Dáil followed by debate. Formal vote within 84 days of Budget

Committee StageAmendments introduced

11 Select Committee members. Debates on Oireachtas website. Bill as amended published

Finance Bill StagesReport StageDáil debate.

Substantial amendments/Recommittal possible

Fifth StageMotion to Dáil to pass Bill.

Bill as passed by Dáil Éireann published. Errors amended.

Bill moves to Seanad Recommendations only. Bill as passed by Dáil rarely changes

Return of Bill to Dáil Bill deemed passed by both Houses

President Signed within 4 months B Day

Finance Act – Effective Dates

• Commencement Provisions

• “Except where expressly provided”

• Individual Sections• Can be retrospective• Capital Allowances• Pensions for GPs

• Towards end of Act

• Most common 1st Jan• Stand alone

commencement dates

• FA 2009 wef 8/5/2009• RAC/GMS SOP 11/10

Pre 7/9/10 policies

Commencement Orders• Finance Act Provisions may be subject to

Ministerial Commencement Order• Statutory Instrument needed• Used where FA provision needs EU

approval• Be careful to check if a CO applies• Parking Levy/S Duty/ R&D/Property

Reliefs• Check Iris Oifigiúil

Regulations

• Finance Acts may provide that matters dealt with by Regulations

• Regulations made by Minister or Revenue• RCT/PAYE/MIRAS – see TCA 1997• New RCT Regulations – FA 2011• Regulations are Statutory Instruments –

powers from Finance Acts

European Influence

• Why is a knowledge of EU issues important?

• EU has significant influence on Irish tax policy – Indirect Taxes in particular

• Community Rules on State Aid• Role of European Court of Justice (ECJ)• EC Treaty overrules Irish Tax law

European Influence

• Lisbon Treaty 1st December 2009• Amended Maastricht Treaty (TEU) and

Treaty of Rome (EC Treaty)• Treaty on the Functioning of the EU (TFEU)• Relevant articles have changed in

numbering• All tax legislation must be compatible with

EU – Topics Covered

• Four Fundamental Freedoms• Tax Provisions• General and Final Provisions• EU Directives• Direct Taxation• State Aid

EU Four Freedoms

• Freedom Movement of Workers• Freedom of Establishment• Freedom to Provide Services• Free Movement of Capital and Payments

TFEU Main Provisions

• Article 18• “Within the scope of application of the

Treaties, and without prejudice to any special provisions contained therein, any discrimination on grounds of nationality shall be prohibited”

• Article 21• “Every citizen of the Union shall have the

right to move and reside freely within the territory of the Member States, subject to the limitations and conditions laid down in the Treaties and by measures adopted to give them effect”

Four FreedomsArticle 45 Free movement for workers

No discrimination for nationality

Articles 49 and 54 Prohibition on restricting Freedom of Establishment

Branches/subsRight of self employmentSetting up/managing undertakings

Article 56 Freedom to provide services

No restrictions on providing service in another EU State

Article 63 Free Movement of Capital

Free movement of capital and payments

Free Movement of Persons

• Schumacker Case• Germany had taxing rights under DTA• Individual was a Belgian national• Full German personal allowances not

given• Denial of full personal allowances in both

countries• Discrimination arose

Freedom of Establishment• Commission v France C270/83• Leading ECJ tax judgement• French branches of non resident

insurance companies• Treatment of dividends – no French tax

imputed on dividends from branches• Where underlying CT system the same

for both residents and non residents • Dividend credit system for both must be

the same

Freedom to Provide Services

• Case C234/01 – Dutch drummer playing on German radio station

• Held same rules for Dutch person as for German person when allowing deductions from income

• Few cases on this Freedom

Free Movement of Capital

• Numerous Cases• Case C265/04 Bouanich• CGT v Income tax on buyback of shares

by Swedish company for French shareholder

• Non resident can be treated more favourably than resident but not vice versa

Tax Provisions of TFEU• Article 110 Internal taxes on other

Member States products not to exceed domestic rates

• Article 111 Repayment of taxes on exports to EU not to exceed internal taxes imposed

• Article 112 No remissions for exports or charges on imports except for indirect taxes

Tax Provisions of TFEU

• Article 113• Harmonisation of excise duties and

indirect taxation• Avoiding distortion of competition• Functioning of internal market

European Court of Justice

• Direct taxation measures of Member States must conform with terms of EC Treaty

• How is this implemented?• Judicial authority of EU is the ECJ• Uniform Interpretation of Community Law

European Court of Justice

• ECJ Spotlight not on Irish tax to date• ECJ decisions are reflected in Irish tax

code• List of ECJ direct tax judgments• Tax Practitioners should be aware of

EU Direct Taxes Recurring Themes

• Sources of Income treated differently in TCA 1997

• Sec 267M

• Sec 747B

• Sec 21B

• Tax rate on int from EU accounts = DIRT accounts

• Tax rate for EU/EEA offshore funds = rate for similar Irish funds

• 12.5% CT on qualifying EU divs from trading profits

EU Direct Taxes Recurring Themes

• Location of Assets Sec 89 CATCA 2003

• Favoured Nations Issues Sec 73 TCA 1997

• Agricultural Relief applies to land in EU

• UK Income was excluded from remittance basis. Sec 73 was repealed wef 1/1/2008

EC Treaty Freedoms

• EEA* extends Treaty Freedoms to• Norway/Iceland/Liechtenstein (exc

Switzerland)

• EEA = EU +Norway/Iceland/Liechtenstein• References to EEA in Tax Legislation

excludes Liechtenstein• EEA = European Economic Area

EU Directive Overview

• EU Directives on Tax need unanimity• Few Direct Taxes EU Directives• Derogations important- exceptions

negotiated by Member States• Examples 0% VAT Rate for certain States• Transported into Irish law or direct effect• Consult Directive wording to interpret

EU Tax Directives

• Parent-Subsidiary Directive• Merger Directive• Interest and Royalties Directive• EC Savings Directive• Capital Duties Directive• VAT Directives

Mergers Directive

• Council Directive No 90/434/EEC • Part 21 TCA 1997 – transfer of assets• Sec 637 TCA 1997 to allow for “merger”• Legislation pre dates Mergers under Co

Law• Sec 308A TCA 97 introduced by FA 2010• No BC on transfer of trade assets during

merger

Parent Subsidiary Directive

• Council Directive No 90/435/EEC• Sec 831 TCA 1997 (& 831A for Swiss)• Elimination of double tax on divs paid to

parent by subs• Lesser impact in Ireland• DWT exemption • Unilateral relief Sch 24 para 9A

Interest and Royalties Directive

• Council Directive 2003/49 EC • Part 8 Chapter 6 TCA 1997 (S 267L

Swiss)• No withholding taxes on interest &

royalties to associated EU companies• Existing exemptions in Irish tax law• Payments from EU group companies

covered

Savings Directive

• Council Directive2003/48/EC• Chapter 3A Part 38 TCA 1997• Targets tax evasion on cross border

savings• Withholding taxes or Exchange of Info• Sec 898H TCA 1997 – Exchange of Info• Sec 898P extends to 3rd countries

Directives on Mutual Assistance• EC (Mutual Assistance if the field of direct

taxation…) Regs 2005• EC (Mutual Assistance for the recovery of

claims relating to certain levies….) Regs 2002

EU Directives - VAT

• EU Directives an integral part of VAT• National law of EU States must be

consistent with EU VAT Directives• Dir 2006/112/EC - “Recast Directive”• Replaced Sixth VAT Directive• Underpins VAT Code

State Aid – EU Rules

• Article 107 TFEU – impacts on Irish tax code

• State Aid that distorts/threatens to distort competition is illegal

• Some State Aid allowed including:• Social Aid; Natural Disasters; Economic

Aid to disadvantaged areas; Culture and Heritage conservation

TFEU Code for Business Tax

• December 1997• Non Binding Code• Guidelines to apply

EC Treaty State Aid Rules to direct business tax

• Art 107 applies to tax exemptions and reductions

• Aid granted by State of State Agencies

• Competition and trade in EU affected

• Measure must be specific or selective

EU Code for Business Tax

• General Measures

• Tax measures open to everyone operating within EU State

• Not regarded as State Aid

• Technical tax measures

• Setting Rates• Loss carryovers• Anti Avoidance Rules• General economic

policy eg R&D, training, employment, the environment

State Aid and Entire Sectors

• Measure targeting all sectors is State Aid• Where the sectors are subject to

international competition• Manufacturing Relief constituted State Aid• Originally a derogation for an entire

section from normal CT Rate

Article 108 State Aid

• Notification to Commission by Member State

• Commission approval required• Recovery of State Aid if found illegal• Legitimate expectation exceptions

Ireland and State Aid Rules

• State Aid Rules taken very seriously• Provision enacted subject to

Commencement Order• Consultation with EU Commission• State Aid approval not same as

compliance with EC Treaty Freedoms

• Long history of State Aid approvals• See EC website for recent decisions• Some measures need amendment to get

EU approval• Sec 626B TCA 1997 – CGT exemption

could not be restricted to larger gains• Perceived as incentive to multinationals

• Example of Irish Tax provision and State Aid

• Sec 486C TCA 1997• Start Up Exemption for companies was

subject to SI 516 2009• See Tax Briefing 06/2010• Note cumulative State Aid rules apply

BES and State Aid• BES and Seed Capital Scheme• Approved by EU subject to conditions• EC (Income Tax Relief for Investment in

Corporate Trades…) Regs 2007• “Non- assisted areas” for medium sized

enterprises• De Minimus Rules apply for 3 years• EIIS scheme replaces BES – EC approval

recently obtained

12.5% Corporation Tax Rate

• 1998 Ireland got EU approval• Manufacturing Relief phased out as it was

a State Aid• 12.5% CT Rate for trading companies• Transitional provisions until 2010

State Aid ApprovalsIFSC and Shannon Regimes

Double Rent Deductions CHDA

Manufacturing Relief Tonnage Tax

Rural and Urban ReliefsMid Shannon Corridor

Hotel Capital AllowancesQualifying Hospitals

Film Reliefs Foreign Branch Profits and Dividends

Living over the Shop Scheme

BES and SCSEIIS

Case Law Introduction

• Why is Case Law important for tax?• Findings of Court = element of tax law• Irish Court decision becomes part of law• Until overruled by another decision or• Reversed by a change in law

UK Case Law

• UK and Irish tax law similar• UK Court findings are relevant• UK decisions not binding in Ireland • UK Case law = persuasive authority• Anti Avoidance – note different approach

Court Decisions

• Principles applied by Court to facts of case

• Not the precise wording of judgment• Judgments contain helpful commentary• Read both majority findings and

dissenting judgments

Case Law Life CycleAppeal CommissionersDetermination is final and conclusiveRight of T/P for rehearing in Circuit CourtCase Stated for High Court by either side

Appeal against assessment Sec 933 TCA 1997 30 days time limitTax Return must be filedBurden of proof on taxpayer

Circuit CourtDecision of Judge final and conclusiveRight of Appeal by t/p or Inspector

T/P can request rehearing within 10 days of AC decision

Case Law Life CycleHigh CourtJudgment reverses, affirms or amends earlier decisionAppeal to Supreme Court

AC or CC Judge prepares Case StatedT/P or Inspector submits Case Stated to High Court

Supreme Court Decision final and conclusiveRight to EC Courts of Justice?

Irish Case Law Reporting

• Irish Tax Reports – High Court and Supreme Court decisions

• Courts Service Online• BAILII.org• LexisNexis• www.appealcommissioners.ie

UK Case Law Reporting

• Simons Tax Cases – Lexis Nexis• Report of Tax Cases • Board of Inland Revenue• BAILII.org• Summaries on www.hmrc.gov.uk/

Interpretation of Statute

• General Principles of construction apply to tax law

• Statute taken as a whole• Account taken of legal and other facts• Skilled, professional advice

Rev Comms v Doorley 1993 ITR 539

• Taxing Act to be read as it stands upon its own language

• Duty of Court to examine text• Is tax imposed expressly, in clear and

unambiguous terms?• Tax only applies where it is within the

“letter of the statute”

Mc Grath v McDermott (III ITR 683 (1988))

• Finlay J – function of the Courts• Ascertaining true meaning of statute• Doubt or ambiguity – consider purpose

and intention of law• Not a function of Courts to add/delete to

achieve objectives• Rare cases – words may be implied

Form Over Substance

• Doctrine of “Form over Substance”• Tax Avoidance Cases• Tax imposed by legal nature and not

economic effects of transaction• Transactions or actions not re categorized• Analyses legal rights and obligations

Fiscal Nullity

• Doctrine of “Fiscal Nullity”• Tax Avoidance Cases• Focus on economic substance and not

legal form of transaction• End result is taxed and intermediate steps

ignored

UK Courts

• UK Cases have persuasive authority• Important to know system and access

cases• Magistrates Court/County Court/High

Court• Court of Appeal• The House of Lords• Supreme Court

UK Appeal Process

• Assessment appealed to First Tier Tribunal (Tax) (for older cases = Special Commissioners)

• Right of Appeal to Upper Tribunal (Finance and Tax)

• Superior Court of Record with UK-wide jurisdiction with High Court judges

Anti Avoidance & Case LawDuke of Westminster (UK)

Taxpayers have a right to organise affairs efficiently

Ramsay v IRC (UK) Doctrine of Fiscal Nullity applied

Furniss v Dawson (UK) Principle of Fiscal Nullity further extended

McGrath v McDermott (Irish)

Doctrine of Form over Substance followed by Irish Judiciary

O’Flynn Construction Ltd (Irish)

Sec 811 TCA 1997. ESR Case

Duke of Westminster Case

• Every man entitled to order affairs efficiently

• Tax attaching under Acts can be less as a result of this

• Cannot be compelled to pay increased tax• Doctrine of Form over Substance applied

Ramsay v IRC

• Tax exempt gain on sale of loan with deductible loss on sale of shares

• Held that doctrine of fiscal nullity applied• Revenue not bound to consider each step• Composite transaction viewed as a whole• Pre-arranged artificial steps served no

commercial purpose

Furniss v Dawson

• Series of transactions with commercial effect

• Held steps undertaken for non-commercial purpose

• Capital Gains Tax deferment

McGrath v McDermott

• Famous significant Irish Tax Case• Revenue adopted “new approach” of tax

avoidance• Reliance on connected party rules for

share transactions to produce CGT Loss• Revenue refused loss on grounds that no

economic loss arose

McGrath v McDermott

• Revenue asked Court to introduce rule rendering losses inoperative unless “real”

• Finlay J refused to follow Ramsay Case• Ruled that function of Court is to ascertain

true meaning of statutory provision• Doctrine of Form over Substance applied• Constitutional Separation of Powers

Other Case Law

• Case Law Precedents • Reference to cases in other modules• Topics include: Definitions of Trades;

Allowable Deductions; Employee Matters; Capital Allowances; VAT; Stamp Duty

Case Law Employees• Employed v Self

Employed• Social Security Case

Law• Market Investigations

v Minister of Social Security (1969)

• Henry Denny & Sons v Minister for Social Welfare

• Contract of Service v Contract for Services

• Who provides equipment?

• Opportunity to profit• Right to direct and

control• Degree of financial

Company Residence

• De Beers Consolidated Mines v Howe

Central Management and Control• Bullock v Unit Construction & Egyptian

Delta Land & Investment Co Ltd v Todd

Central Management and Control located where highest level of business located – where Board Meetings held

Revenue Rulings

• SOPs and Revenue Guidance Notes are not law

• Likely judicial review proceedings if challenging Revenue on failure to adopt procedure/position

• Tax Briefings, eBriefs• Freedom of Information Act• Source of past rulings and Revenue

concessions

Anti Avoidance• Commissioner Michael O’Grady• Legal tax planning v tax evasion• “..like the elephant, we’ll know

unacceptable tax planning when we see it”• Divergence with UK – Irish Constitution• UK: Substance over Form is a judge made

legal principle• Ireland: Plain meaning of the law• GAAR introduced in Sec 811

Anti Avoidance Legislation

• Chief Justice in McGrath Case• Role of Revenue to tackle Tax Avoidance

Schemes• General Anti Avoidance introduced in FA

1989• Now Section 811 TCA 1997• O’Flynn Construction case Supreme

Court 2006

Section 811 TCA 1997

• Revenue can re categorize certain transactions not arranged primarily for purposes other than tax

• O’Flynn Construction Case – alleged misuse of ESR – See Tax Point Dec 2010

• Sec 811 open to challenge• Sec 811A – “Protective Notice to Revenue

Mandatory Disclosure

• Section 817D TCA 1997 et seq• Create an obligation on promoters,

marketers and taxpayers to report tax planning to Revenue.

• Includes general schemes and specific types of schemes.

• Specific schemes are–use of losses for individuals & corporates, –employment arrangements involving to

reduce or defer employer/employee liability

–devices which convert income into capital or income into gifts.

General schemes caught have the following features:• confidentiality. • a “premium fee”• standardisation

• Reports to give details of the scheme and client listings

• Where legal professional privilege is claimed, or where the agent is located overseas, reporting onus is on taxpayer.

• Penalties apply for failure to comply with.• Protective notification under Sec 811A

Double Tax Agreements

• Introduction• Relevant Territory• Irish Legislation• Treaty Process

DTA Introduction

• Mechanism to avoid double tax on income or gains in overseas jurisdiction

• Sec 826 TCA 1997 – Force of law when inserted into Part 1 Schedule 24A

• Treaty ratified when inserted into Schedule 24A

DTA MechanismsWithholding Taxes Reduced or Eliminated

Income and Gains Territorial Scope

Reduced by reference to P/Es

Double Tax on Certain Income/Gains

Exemptions or Credits given

Avoidance of dual Residence Tie Breaker Clauses

Disputes between Tax Authorities

Procedures for Resolution of disputes

Rights of non nationals or non residents

Non discrimination provisions

DTA overrides Irish Law• No PAYE on temporary assignees where

Treaty exemption applies • Place of incorporation test not applicable

where DTA provides for residence outside of Ireland

• Pre CGT Treaties – Section 24 Para 9FB TCA 1997 gives unilateral credit for CGT

• Pre 1976 Treaties – prevented interest as distribution under Sec 130(2)(d)(iv) TCA 97

Treaty Evolution

• OECD Model Treaty – Research Source• Changes -OECD Model not retrospective• DTAs renegotiated over time• France and Germany Treaties to be

renegotiated• Protocols =Codicil to original Treaty eg

Portugal

DTA – Relevant Territory• References in Irish tax law to “Relevant

Territory” to extend certain benefits• Definition not uniform throughout

legislation• Member State of EU• Territory with which Government has

entered into a DTA• DTA = “Sec 826 DTAs

Excluded from Relevant Territory• Sec 826(1A) TCA 1997 – Air Transport

Undertakings with USSR (Ukraine)

• Isle of Man – Exchange of Information Agreement is not a standard DTA for Sec 826(1)

DTAs SummaryFull Double Tax Agreements

64 Signed56 in effectOctober 2011

Information Exchange Agreements

Example Isle of Man

Air Transport Agreements

Ukraine (USSR)

CAT Agreements USA and UK

DTAs Signed – October 2011Australia Austria Belgium Bahrain

Belarus Bulgaria Canada Chile

China Croatia Cyprus Czech Republic

Denmark Estonia Finland France

Georgia Germany Greece Hungary

Iceland

DTAs Signed as at 1/1/2009India Italy Israel Japan

South Korea

Latvia Lithuania Luxembourg

Malaysia Macedonia Malta Mexico

Moldova Netherlands New Zealand

Norway

Pakistan Poland Portugal Romania

Russia Serbia Singapore Slovak Rep

DTAs Signed as at 1/1/2009

Slovenia South Africa Spain

Sweden Switzerland Turkey

UAE UK USA

Vietnam Zambia

DTAs effective from 1/1/2012

Albania Signed 16/10/2009

Hong Kong Signed 22/6/2010

Treaties Signed – not in force

Armenia 14/7/2010

Bosnia & Herzegovina 3/11/2009

Germany (new) 30/3/2011

Kuwait 23/11/2010

Montenegro 7/10/2010

Morocco 22/6/2010

Saudi Arabia 19/10/2010

Treaty Process

• Introductions• Agreement

reached• Draft Order• Signed and put

into Sch 24A• Ratification and

Entry into Force• Example Chile

• Negotiations – Tax Authorities

• Translations and Signing

• Debated by Select Committee of Dáil

• Effective for Irish tax purposes

Structure of Revenue• Administration of

Taxes• Government Order

1923• General Secretary

Rank• Chairman is

Accounting Officer• Under control of

Minister for Finance

ChairmanJosephineFeehily

CommissionerMichael O’Grady

CommissionerLiam Irwin

Revenue Commissioners

• Mission Statement

“To serve the community by fairly and efficiently collecting taxes and duties and implementing Custom controls”

• Taxation policy not Revenue’s role• Dept of Finance responsible for tax policy• See Revenue Annual Report

Role of RevenueAssessment, Collection and Management of taxes and duties

Customs regime administration; Control of Imports and Exports; Collection of duties and Levies for EU

Co-Operation with other State Agencies – cross departmental fight against crime

Agency work for other Departments

PRSI collection for Department of Social Protection

Provision of Policy Advice on tax issues

Revenue Structure

• The Collector General

• Appointed by Revenue Commissioners

• Collector General’s Office

• Gerrard Harrahill• Collect and Levy Tax• Tax Refunds• Debt Management• Tax Relief at Source• International Claims

Revenue Structure

• Inspector of Taxes• Four Regional Tax

Districts

• Regional Districts

• Company Directors

• Border Midlands West; Dublin; East and South East

• Local business and individuals

• District of company

Revenue Structure

• Large Cases District

• Set up under Inspector of Taxes

• LCD contains an anti avoidance unit

• LCD

• Large Business and High Net Worth individuals

• Specialising in Direct Taxes

Revenue Structure

• Investigations and Prosecutions Division

• Tax Evasion Cases and Prosecution

• Special Tax Investigations

• Recent investigation• Offshore assets• SPIPs• BNRAs

Revenue Structure

• Legislation Services Divisions

• Four Divisions

• Functions

• Policy, Legislation and Interpretation of taxes

• Provision of policy advice to Dept of Finance and Government

Associated Bodies

• The Appeal Commissioners

ACs appointed by Min for Finance

AC operate independently of Revenue• Criminal Assets Bureau – CAB

Revenue/Department of Social Protection & Gárda Síochana

Criminal activities including drug dealers

Round Up Slides Summary

• Irish Tax Policy• The Tax Code• Finance Act Process• The European Influence• Case Law Influence• Double Tax Agreements• Structure of Revenue Commissioners

Irish Tax Policy

• Low Corporation Tax• High Income Tax Rates – recent changes• VAT Rates 0%; 9%; 13.5% and 21%• Capital Taxes History – property taxes• Changes ahead?

The Tax Code

• History and development• Legislative deadline• Reasons for understanding Tax Code• Role of Irish Constitution• Tax Legislation and structure of Acts

The Tax Code

• TCA 1997 – IT, CT and CGT• SDCA 1999 - Stamp Duty• CATCA 2003 – Capital Acquisitions Act• VAT – EU Directives and 2010

Consolidation• Revenue Guidance and SOPs

Finance Act Process

• Reasons to understand process• Effective date of legislation• Balance Sheet date legislation• Legislative timetable

Finance Act Process

• Articles 21,22, 25 of Constitution• Finance Bill is a Money Bill• Provisional Collection of Taxes Act 1927• Financial Resolutions

Finance Act Process

• Pre Budget Submissions• Budget Day• When are Financial Resolutions needed?

Finance Act Process

• Finance Bill Stages• When can amendments be made?• What is the role of the Seanad?• What is the deadline for passing the

Budget into law?• Effective dates for tax changes

Finance Act Process

• Finance Bill Stages• When can amendments be made?• What is the role of the Seanad?• What is the deadline for passing the

Budget into law?• Effective dates for tax changes• Regulations and Commencement

Orders?

EU/IMF Programme

• NRP 2011-2014• Deviations agreed with Troika• Quarterly reviews• New EU semester• Budgetary and economic policies • Stability and Growth Pact

EU Influence

• EU influence on Irish tax policy• Name four fundamental Freedoms• What is the ECJ• Recurring themes of ECJ in Irish

legislation• EU Directives• State Aid rules and impact on Irish taxes

Case Law/Anti Avoidance

• Influence on Irish tax law• Appeal and Hearing Process• Interpretation of Tax Law/Statutes• Form over Substance and Fiscal Nullity

Doctrines• Main cases?• Anti Avoidance – Sec 811 TCA 1997• Mandatory Reporting

Double Tax Agreements

• Mechanisms for avoiding double taxation• Sec 826 TCA 1997• Sch 24A TCA 1997• Meaning of “relevant territory”• Four types of DTAs• Treaty Process

Structure of Revenue

• Chairman plus 2 other Commissioners• Names of current Board ?• Role of Revenue Commissioners• Who is responsible for making tax policy?

Structure of Revenue

• Collector General (Name current one)• Inspector of Taxes• LCD• Investigation and Prosecutions • Appeal Commissioners• CAB

Learning Outcome

• Irish Tax Policy, History and Purpose• Structure of Taxes Acts, origins and pre-

consolidation framework• Sources of tax law, case law EU and ECJ• Structure of Revenue Commissioners

EDUCATING SUPPORTING REPRESENTING Construction of the Legislation CHARTERED TAX CONSULTANT STAGE 2...

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