Chartered
Tax
Consultant
Stage 3 Module 10
Withholding Taxes
Fiona Dunlevy –
Chartered Accountants House
www.charteredaccountants.ie
EDUCATING
SUPPORTING
REPRESENTING
Withholding Taxes
• Learning Objectives
• Withholding Taxes on
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Distributions
Interest
Royalties
Rent
• Risks and Requirements
• Managing withholding taxes
• Reliefs and Exemptions – minimise cash flow
and compliance costs
Overview
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Withholding taxes = Collection Mechanism
Tax not collected from beneficiary
Tax collected from other person
3 Categories
1. Payments to non residents
2. Fiduciary Withholding Taxes
3. Enforcement Withholding Taxes
(1) Payments to Non Residents
• Avoids non payment of tax in cross border
situations
• Financial and HR investment for cross border
collection mechanisms avoided
 Withholding taxes more efficient
(2) Fiduciary Withholding Taxes
• PAYE, VAT and DIRT
• Collection and payment obligations devolved to
businesses
• Administration and collection burden falls on
business community
• Likely to reduce tax fraud
(3) Enforcement Withholding Taxes
• Withholding tax on payments to certain
businesses
• PSWT
– Professional Services Withholding Tax
– State and State owned companies
• RCT
– Relevant Contracts Tax
– Construction, Forestry and Meat Processing
– Principal Contractor
Withholding Taxes
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Levied on Gross Income
Rents – not on net Case V
Gross/net distinction
Major tax risk if not operated
Exemptions available
Matter of procedures
No tax cost and no risk to accountable person if
operated correctly
Dividend Withholding Tax
• Common internationally
– OECD Model Treaty – source country 5%/15% on
dividends
– High dividend withholding tax for non residents
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Extensive DWT exemptions for non residents
Exception to international norm
Introduced in 1989
Exemptions for non residents to encourage
inward investment
Company Distributions
• DWT applies to distributions – actual and deemed
• Distributions S.130 TCA 1997 - includes much
more than dividends
• Returns from resident companies – taxable as
income in hands of shareholders
• Liable to DWT unless exemption applies
• Date of payment determines:
– date of DWT payment and filing
– timing of tax liability for recipient
Shares
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Ordinary Shares
Preference Shares
Rights Issue
Bonus Issue
Scrip Dividends
Shares
Type
Description
Tax Treatment
Ordinary
Shares
•Entitlement to dividends
as declared
•Return of assets on
liquidation after creditors
and preference
shareholders
•Right to fixed dividend –
may accumulate
•Return of amount
subscribed on liquidation
Dividends paid out
of income and
capital taxable as
income
Preference
Shares
Dividends taxable
as income
Shares
Rights Issues
Bonus Issue
Scrip Dividends
•Allotment of new shares
in proportion to
shareholding
•Right to subscribe at
discount
•Reorganisation of share
capital
•Additional shares issued
•No consideration
•Capitalisation of company’s
reserves
•Election for shares in lieu of
dividends
•CGT event
•Enhancement
Expenditure
•Sale of rights
•Tax neutral
•Cost for CGT per
share adjusted
•Sec 816 TCA 97
•Sch D Case IV on
dividend foregone
Example 1
Kwick Plc, an Irish registered and tax resident
company, announces a rights issue where every
shareholder is given an opportunity to subscribe
for one new share for every five held, at a price
of €15.
Where the rights are not exercised, the right may
be sold by the shareholder and the proceeds
liable to CGT.
Example 2
Kwick Plc, had a very profitable year and wishes
to issue bonus shares to its shareholders. Each
shareholder will be allotted one bonus share for
every four shares held.
The receipt of bonus shares is not liable to
income tax or CGT.
Example 3
John Murphy holds 5,000 shares in Goldhills plc
which is an Irish tax resident quoted company.
He has the option of being paid a dividend of 15
cent per share or a scrip dividend of one new
share for each 50 shares held.
John elects to receive the scrip dividend and is
allotted 100 new shares. His income is taxable
under Schedule D Case IV is €750.
What is a distribution?
• Section 130 TCA 1997
• Section 135 TCA 1997 (Distributions: supplemental)
Sec 130 Distributions
Section 130(1)TCA1997
Sec 436 TCA 1997
Close company expense
payments
Sec 437 TCA 1997
Close company interest
Sec 816 TCA 1997
Shares paid in lieu of
dividends
Sec 130(2) TCA 1997
A Any dividend paid by the company
B Distributions out of company assets in respect of shares –
not capital
C Redemption of bonus securities not connected to new
consideration
D Certain interest paid by the company
E Transfer of assets to shareholders - consideration < value
Liabilities of s/holder assumed by co > assets contributed
F Bonus issue following repayment of share capital
Repayment of share capital following a bonus issue
G Qualifying payment to ESOT member linked to an APSS
Distributions – S.130(2)(a) TCA 97
• S.130(2)(a) TCA 1997 - Dividends
• S.4(5) TCA 1997 – dividends shall be treated as
paid on the date when they become due and
payable
• Murphy v The Borden Co Ltd
– Interim dividend paid when credited to intercompany
account
• Final dividend: Due and payable when declared
• Interim dividend: Actual payment
• DWT : Due and payable date for rate, payment
and declarations
Example
The directors of Sunday Limited declared an
interim dividend on 5 December 2010 but it was
not actually paid until 3rd March 2011.
For tax purposes the dividend is not
regarded as paid until 3rd March 2011 with the
follow-on payment and filing dates for DWT.
Distributions – S.130(2)(b) TCA 97
• S.130(2)(b) TCA 1997 – Other distributions out
of assets of the company in respect of shares
• Return of capital > par value and premium paid
• Buyback of shares
• Repayment of redemptions of share capital
• Reduction of capital
• Exclusions
– S.175 and 176 TCA 1997: share buybacks liable to CGT
• Distribution = redemption less subscription
Example
Apple Limited has 10,000 ordinary shares and
2,000 A ordinary shares in issue, originally
subscribed at a premium of €6 per share in
1990. It redeems the 2,000 A ordinary shares on
1 Jan 2011 at €10 per share.
The difference between the redemption
amount of €10 and the original subscription
price of €6 per share is a distribution.
Distributions – S.130(2)(c) TCA 97
• S.130(2)(c) TCA 1997 – Redemption of bonus
shares or debentures
• Issued out of revenue reserves = distribution
• Share or debentures issued out of new
consideration excluded
• “new consideration” defined in S.135 TCA 1997
Example
Bell Limited has 10,000 ordinary shares in issue
and has substantial revenue reserves. On 1st
January 2010 it issues a bonus debenture of
€1,000 carrying interest at 5% and repayable on
1st January 2015.
When the debentures are redeemed on 1st
Jan 2015, Bell Ltd is treated as making a
distribution of €1,000 per share and the
shareholders are taxable on this distribution.
Distributions – S.130(2)(d)TCA 97
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S.130(2) (d) TCA 1997 – Interest reclassified
Anti avoidance provision
Interest treated as a distribution
No tax deduction for interest payment
Exclusions for certain interest
Very important to understand when this section
applies and when the exclusions are met
Interest as a distribution
Bonus securities issued on or after 27th November 1975
Unquoted securities convertible into shares
Unquoted securities with rights to receive shares/securities
Securities where interest dependent on result of company or >
reasonable
•Tax Briefing 43 – exclusions for “ratchet loans”
•Exclusions for S.110 companies
Shares held by 75% non resident company –S.130(2)(d)(iv)
Exemptions available
Securities connected to shares
Loan note and attached warrant
Exclusions from deemed distributions
• S.452 TCA 1997
• Trading company may make election
• Interest will not be treated as distribution if
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Paid to 75% non resident parent – S.130(2)(d)(iv)
Paid to recipient in treaty country or is annual interest
Paid in ordinary course of company’s trade
Otherwise allowable as a Case I deduction
• S.845 TCA – exemption for banks
– S.130(2)(d)(iv) interest – elect with CT Return
– Bona fide banking business and interest otherwise
deductible
– Not> reasonable commercial rate of return
Exemptions
• S.130(2B) TCA 1997
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S.130(2)(d)(iv) interest
Interest paid to foreign parent in EU country
Article 49 TREU – freedom of establishment
Applies to interest deductible as a charge on income
Examples
Interest of €100,000
By
to
Irish Trading
company
Irish Holding
company
Irish Bank
French
Parent
Italian
Parent
Taiwanese
Parent
Bermudan
Parent
Irish Trading
Company
Treatment
S.452 election – tax deduction
Interest not a distribution
S.130(2B) – deductible as a
charge - not a distribution
S.845A election – deductible
Interest not a distribution
S.452 election if annual interest
12.5% CT v 20% withholding 
no election
Not annual interest  distribution
Distributions – S.130(2)(e) TCA 97
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S.131 TCA 1997 – Bonus Issues
Bonus issue following repayment of share capital
Repayment of share capital following bonus issue
Later event treated as a distribution
Capped at value of capital repayment made
Anti avoidance provision
Prevents receipt of retained profits being taxed
as capital
• Exception for non close company – bonus issue
of non redeemable shares
• >10 years after capital repayment
Distributions – S.130(2)(f) TCA 97
• S.130(2)(f) TCA 1997 – ESOT Beneficiaries
• Payments made out of dividends received by
ESOT
• Deductions allowed for interest and trust
expenses
• Distributions by ESOT to members treated as
dividends
• Dividends taxable in hands of ESOT members
Distributions – S.130(3) TCA 97
• S.130(3) TCA 1997 –T/f of assets to s/holders
• Treated as distribution if value of assets >
contribution by shareholder
• Amount of undervalue = distribution
• Liabilities assumed by shareholder are distributions
• Sec 130(3) & (4) TCA 1997 exclusion
• Transfers between resident companies where on is a
subsidiary of the other
• Applies also where both subsidiaries have parent in
EU or DTA country
• Sec 130(5) TCA exclusion – non cash transfers
between tax resident companies
Close Company
• S.130(1) TCA 1997 – deemed distributions
• S.436 – expenses for participators and
associates
• S.437 – excess interest paid to directors and
associates
• Living accommodation; entertainment expenses
• Other benefits and facilities
• No deduction for CT
• Taxable as distribution
Close Company
• Exclusions for deemed distributions:
• BIK under S.118 TCA 1997
• Pension or similar benefit for spouse, children or
dependents on death or retirement
• Close company and participator are companies
– Both resident in Ireland
– 51% subsidiaries
– Transfers of assets and liabilities only
• S.236 – art object on public display
• Anti avoidance – S.436(6) TCA 1997
Close Company
• Where a company transfers assets or liabilities to its
members, or under the close company provisions (i.e.
expenses for participators), the amount by which the
market value of the amount or benefit of the transfer
exceeds the amount or value of any new consideration
given is treated as a distribution or the expense paid on
behalf of the participator is a deemed distribution.
Consequences:
– Income tax under Schedule F – S20(1) TCA 97
– Non deductible for corporation tax purposes - S.76(5)
TCA 97
– DWT (may need to re-gross under S172B(3) TCA 97
Taxation of Distributions
Individuals •Schedule F – S.20 TCA 1997
•Liable at marginal tax rate and PRSI/Levies
•Shares in lieu– S.816(2) TCA 97
Companies •Divs paid by Irish resident company to an Irish
resident company – tax exempt
•S.129 CTA 1976
•S.156(1) TCA 1997 – FII
•Anti Avoidance – Sch D Case IV
•S.129A TCA 1997 – div out of foreign profits
•Distributions paid on or after 3rd April 2010
•Off shore companies migrating to Ireland
•S.138 TCA 1997 – div paid on certain preference
shares – Sch F
Franked Investment Income
• FII = distributable estate and investment
– Close companies – 20% surcharge
– Not distributed within 18 months of AP
• Sec 434(3A) TCA election
– No reduction in distributable income of payor
– Payor may have surcharge
– Avoids multiple surcharges
Capital Distributions
• Includes distribution on winding up
• Not a distribution for S.130 TCA 1997
• Interim or final payment by liquidator to
shareholders
• Liable to CGT in hands of shareholders
• Company buyback under S.175 & 176 TCA 1997
• Capital distribution – liable to CGT
Dividend Withholding Tax
• DWT applies to resident companies making
distributions to shareholders
• 1999 – move from imputation to classical system
• Introduction of 12.5% CT rate
• Company pays CT on profits
• Shareholder pays income tax on dividend
• “Double tax” on shareholder
• DWT @ standard rate
• All or part of tax due is collected through DWT
DWT
• Ss. 172A-172M TCA 1997
• DWT Rate = standard rate of tax
• “Relevant distribution”
– S.130 TCA distributions
– S.436 and 437 expense and interest payments
– S.816 scrip dividends of quoted and unquoted
companies – reduce value by 20% for DIRT
• Excluded relevant distributions to
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An Irish resident company where payor is 51% sub
Government Ministers (in that capacity)
National Pension Reserve – as specified
NAMA and companies owned by NAMA plus 75% subs
DWT
• Stapled-stock arrangements
• Shareholders in two different countries
• Facility to source dividend from country of
residence
• DWT not operated where dividend is sourced
from non resident country
• S.172L TCA 1997
• Revenue filing – details of Irish recipient and
paying company within 14 days
DWT Statements
• S.172I TCA 1997
• Statement to be issued showing
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Company name and address
Recipient name and address
Date of distribution
Amount of distribution and DWT
• Dividend warrant can contain details plus
– Amount of dividend or interest
– Period for which dividend made
– Disclose amounts from capital
DWT Exemptions
• Irish Resident shareholders
• S.172C TCA 1997 excluded person
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Irish resident companies
ESOTs
Pension Schemes
CIUs
Charities
Sporting bodies
Incapacitated individuals and trusts – if exempt from IT
Managers of ARFs, AMRFs and SSIAs
• Composite Resident Form V3
• Retain for 6 years
DWT Exemptions
• Foreign shareholders
• “Qualifying non resident persons”
• Companies in EU or DTA country –not under
control of Irish resident persons
• Non resident companies ultimately controlled by
persons resident in EU or DTA country
• Non resident companies traded on stock
exchange of EU/DTA country/approved by
Minister
• Other non resident persons – not Irish resident or
ordinarily resident, resident in EU/DTA country
Non Resident Companies
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Non-Resident Form V2B
Made by non resident company
Valid in year made plus 5 years
S.172D(3)(b)(ii) TCA 97 – show territory or
residence
• S.172D(3)(b)(iii) TCA 97 –Stock Exchange
address
Parent Subsidiary Directive
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No 90/435/EEC
No withholding tax
S.831 and 831A TCA 1997
Excludes dividends on winding up – not liable to
DWT
• Divs to 5% EU parent – Directive applies
• Swiss parent – 25% shareholding required
• Majority of voting rights cannot be controlled by
residents of non relevant territory unless BF test
met
Non Resident Exemptions Others
• Form Non-Resident V2A – foreign individuals
• Form Non-Resident V2C- others
• Signed by non resident person and foreign tax
authority of residence (unlike companies)
• Discretionary Trusts – certified by Revenue
• Valid until 31st December five years following
issue
Filing of DWT Declarations
• 14th of month following month in which
distribution paid
• Interest on late payment – S.172K(6) TCA 97
• Details to be filed where no DWT payable
• Electronic filing
DWT Refunds
• Excluded persons and qualifying non residents
• Appropriate declaration not in place at time of
payment
• DWT Section in Revenue
• Include Composite Resident Form V3 or NonResident Form V2A, V2B or V2C
• Declarations from foreign Revenue authority
• Claims by shareholders in DTA country where no
refund under domestic law
Recap
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What is a distribution?
What are the consequences?
How is tax levied?
What are the DWT implications?
What are the documentation requirements?
Patents and Royalties
• S.237 TCA 97 – withholding tax on annual
payments made as a charge
• S.238 TCA 97 – withholding tax on annual
payments made out of income not in charge to
Income Tax
– Includes income liable to CT
• Yearly interested excluded under both sections
• Withholding tax applies to annual payments
made inside and outside Ireland
• Annual payment – “pure income profit”
• Earl Howe v IRC -
Patents and Royalties
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Annual payment – “pure income profit”
Earl Howe v IRC – recipient does not incur costs
Made for period that may exceed one year
Payments under Deed of Covenant
Royalties
– If made for intellectual property – licensor has costs
not annual payment
– Some royalties may be annual payments – book royalties
to estate of author
• S.237 & 238 TCA apply to patent royalties
• Withholding applies to Irish and foreign patent
royalties
Exemptions
1. Payments by Irish company to EU/Treaty
resident company
2. Payments covered by SP CT 01/10
3. Interest and Royalties Directive
4. Where recipient eligible for Treaty benefits
• 1-3 apply to Irish companies making payments to
non resident companies
• 4 applies to individuals and companies paying
and receiving patents and annual payments
Exemptions
S.242A TCA 97
•Irish company or Irish branch of foreign company
•Pays royalty in ordinary course of business
•To company resident in EU/DTA with similar tax on
royalties
SP-CT/01/10
•Royalty paid on foreign paten to foreign company
•No branch in Ireland
•Revenue grant exemption on the foreign source income
Interest and Royalty
Directive
•Ss. 276G-276K TCA 1997
•Exemption on royalties and interest
•Both companies resident in different EU States
•Recipient beneficial owner
•Associated companies – 25% relationship
Treaty Benefits
•Recipient entitled to benefit of Treaty Article
•Residence of taxpayer
•Exemption where domestic law not available
•Form IC6
Administration
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Withholding tax rate 20%
Part of Preliminary Tax for individuals
“Relevant payment” for companies – preliminary tax
Includes income tax on annual payment to
participator
• Form R185 – used for credit/repayment
• S.950(1)(c) TCA 1997 – payor is chargeable person
• Self assessment provisions apply – Part 41 TCA 97
Annual Interest
• S.246(2) TCA 1997
• Withholding tax on yearly interest
– Paid by companies
– Paid by other persons to non residents
• Applies to interest only – not discounts
Annual v Short Interest
• CIR v Duncan Hay
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Series of short loans treated as a single loan
Yearly interest arises on loans:
Which do not run for less than a year
Have permanence and are investment in nature
Not repayable on demand
Have a “tract of future time”
• Mink & Others v IOT
– Loan not repayable on demand not important factor
– Commercial loans where covenants breached
• Revenue practice – credit card interest is yearly
Exemptions - Residents
S.246(3)
•Interest paid to a bank in the State
S.410(4)
•Interest paid to Irish company by 51% group member
S.739B
•Interest paid in the State to investment undertaking
S.246(3)(cc)
•Interest paid in the State to Sec 110 company securitisation
S.246(3)(f)
•Interest paid gross to Credit Unions
S.246(5)(a)
•Interest paid by a company to another company
which lends as part of its trade – Revenue notification
S.246(3)(g)
•Interest which is a distribution under Sec 437 TCA
97
S.246(3)(ea)&(eb) •Interest paid to NAMA and 75% subs
Exemptions – Non Residents
S.267I
•EU Interest and Royalties Directive
•Interest paid by associated company
S.246(3)(d)
•Revenue authorisation to pay interest gross
•DTA
•Commercial paper and certificates of deposits
•Wholesale debt instruments
S.246A
S.64
•Interest paid on quoted Eurobonds
S.246(3)(c)
•CIU paying interest to non resident
S.246(3)(CCC •Sec 110 company paying interest to EU or DTA country
)
resident
S.246(3)(h)
•Paid by Irish company to DTA/EU resident country which
applies tax on interest
•Exempt under DTA – ratified or signed
Exemptions
• Exemptions to residents and non residents
– S.130 TCA 97: interest that is a distribution
– S.246(3)(b)TCA 97: interest paid by bank in ordinary
course of business
– S.246(3)(e) TCA 97: interest on Sec 36 securities
– S.246(3)(h) TCA 97: wide exemption
– Interest payable by Irish company in course of trade or
business
– Applies where lender is not Irish based
– No advance clearance needed
– Not applicable to interest paid in connection with trade or
business carried on in Ireland
– Filing requirement for payor – with CT Return
Rents
• S.1041(1) TCA 1997
• S.238 TCA 1997 withholding tax applies to Case
V income paid to non residents
• Usual place of abode outside the State
• S.1041(2) TCA 1997 – deduction for rental
expenses
• Tax withheld allowed as credit/refund
• Exemption where rent paid to agent
• Collection agent liable – register for tax
• Onus to collect on tenant – Form R185
Trustees
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Payment made by trustees
Made out of taxed income
Form R185 issued to beneficiary
Beneficiary taxed at personal rates – credit for
tax deducted
• Where beneficiary receives income directly – no
Form R185
DTAs and Withholding Tax
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Royalties
Article 12
Interest
Article 11
Rent
Article 6
Treaty has precedence over national law
Treaty may provide exemption if none under
national law
Royalty to Cyprus resident company
Exempt under Article 11.1 DTA if paid by
individual
Revenue approval to pay gross
Form IC6 – certified by foreign tax authorities
EU Directives
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No 2003/49/EC
Sections 267G-267K TCA 1997
Common system of tax to interest and royalties
On interest and royalties paid between associated
companies
• Direct 25% shareholdings – voting rights
• Swiss tax resident companies included
• No relief where:
– No bona fide commercial reason for payment
– Interest on debt is >50 years
– Royalties exceed arm’s length amount
Savings Directive
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No 2003/48/EC
Limits withholding tax
Exchange of information between EU States
Interest earned by individuals
– Option of withholding or exchange information
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Applies to all EU countries
Individuals opening bank accounts – PPSN
S.898F-898G TCA 1997
Isle of Man and Channel Islands – withholding tax
Rate – 20% to July 2011 and now 35%
Fiduciary Withholding Taxes
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PAYE and VAT
Reg 4 PAYE Regulations
Employer liable to deduct tax from employee
S.984 TCA 1997 – PAYE applies to emoluments
Income assessable under Sch E
PAYE Exclusion Orders
PRSI and Levies included
PAYE
• S.983 TCA 1997
• Employer paying emoluments to employee
• Employer
– Any person paying emoluments
• Emoluments
– Anything assessable to tax under Schedule E
• Employee
– Any person in receipt of emoluments
• Hearne v O’Cionna – employer has broad
meaning
PAYE
• S.985C TCA 1997
• Intermediary paying emoluments
• Employer liable to PAYE – unless deducted by
intermediary
• Sec 997A TCA
• Proprietary directors (15%) – no credit for PAYE
if not paid to CG
PAYE
• Difficulties for employers
– Directors’ Fees – non residents
– PAYE always applies to Irish office
– PRSI Class A and Class S distinction for proprietary
directors
– PAYE exclusion order needed where payment of
emoluments made to non resident employees
• Audit controls and monitoring procedures
VAT
• S.5(1) VATCA 2010
• “Accountable person” – taxable person who
engages in the supply of taxable goods or
services within the State
• Taxable person is a person carrying on a business
in the EU or elsewhere
• Person making taxable supplies in the State is
accountable for VAT
VAT
• Accountable person is not the person buying the
goods or services
• Purchaser bears the cost of VAT
• Exceptions to supplier being the accountable
person
– Some property transactions
– Some international services
• Register for VAT where thresholds exceeded
• Non commercial bodies
• Exempt and partially exempt input credits
Interest on PAYE & VAT
• PAYE/PRSI
– S.991 TCA 1997
– Daily interest 0.0274%
• VAT
– S.114 VATCA 2010
– Daily interest 0.0274%
• Interest on IT, CT and CGT is 0.0219%
• Higher rate for fiduciary taxes since 1st July 2009
• 2010 Revenue Audit Code – “deliberate
behaviour” category for failure to operate
fiduciary taxes
Financial Institutions
• DIRT
• Gross Roll Up Funds withholding tax
• Sch C and D encashment tax
DIRT
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Deposit Interest Retention Tax
Current rate is 25%
S.256(1) TCA 1997
“Relevant deposit taker”
– Holder of license under Section 9 Central Bank Act
1971 or similar EU license
– Building Society
– Trustee Savings Bank
– Credit Union
– Specified Intermediary in relation to specified deposit
– Post Office Saving Bank
DIRT
• DIRT applies to interest arising on relevant
deposits
• Held by relevant deposit takers
• Excluded deposits
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Relevant deposit takers
NTMA
National Pensions Reserve Fund Commission
National Development Finance Agency
NAMA
PRSA provider deposits
Deposits in branches outside Ireland
Listed deposits ranking as a debt on security
Exempt Deposits
• S.263 TCA 97 – non residents declaration
• Tax Exempt Charities
• S.263A TCA 97 – Over 65s exempt from Income
Tax
• Companies
• Pension Schemes
• All of the above must have relevant
documentation in place
• Default position is for DIRT to be deducted
Administration of DIRT
• S.258 TCA 1997
• Deposit taker to make return and pay within 15
days of end of year of assessment
• Payment on account within 15 days of 5th
October
• Individual’s Income Tax liability satisfied
• PRSI and Health Contribution may apply
• Exempt from Income Levy
S.819B TCA 1997
• Banks, investment fund and life assurance
companies
• Returns to Revenue on annual basis
• Whether DIRT deducted or not
• Where interest >€635 paid in a tax year
• Name, address, DOB, registered office, tax
reference number and interest paid
• SI No 136 of 2008
• SI No 254 of 2009
Exit Tax on Gross Roll Up Funds
• Single premium investment in life company
• Income, gains and losses accumulated in fund
• Similar products from regulated investment
undertakings
• Unit Trusts, UCITS, investment companies and
partnerships
• “Gross Roll Up” exit tax
• 8 year anniversary charge
Life Assurance Products
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Income/gain not taxable to CT on life company
Accumulated for benefit of policy holders
Exit tax @28% on growth
Personal Portfolio Life Policies – “wrappers”
liable @ 48% - Sec 730BA TCA 1997
Life Assurance Products
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Chapter 5, Part 26 TCA 1997
Sec 730C TCA 1997- “chargeable event” (CE)
B = Value payable under policy at CE
T = tax payable at 8 year anniversary
P = Premiums paid on life policy not allowed
against previous gains
• Premiums taken into previous gains =
– Surrenders: lesser of B and (PxB)/V
– Assignments: lesser of A and (PxA)/V
• V = value of policy immediately before CE
• A = Value of part of rights assigned
Life Assurance Products
CE
TCA 97
GAIN
TCA
Maturity
730C(1)(a)(i)
B+T-P
730D(3)(a)
730D(1A)(a)&(b)
Assignment
730C(1)(a)(ii)
V+T-P
730D(3)(b)
730D(1A)(a)&(b)
Part Surrender
730C(1)(a)(iii)
B-((P-T)xB)
V
730D(3)(c)
730D(1A)(a)&(c)
Partial Assignment
730C(1)(a)(ii)
A-((P-T)xA)
V
730D(3)(d)
730D(1A)(a)&(c)
8 Year from
inception
730C(1)(a)(iv)
V-P
730D(3)(da)
Subsequent 8
years ending
730C(1)(a)(v)
V-P
730D(3)(da)
Life Assurance Products
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Sec 730F(1A) TCA 1997
Reduce tax payable by tax on prior event
No additional tax for investor
No CGT or IT relief on loss
Life company deducts tax on proceeds
Assets of fund reduced where no encashment
Returns to Revenue
– Policies encashed 1st Jan – 30th June due 30th July
– Policies encashed 1st July – 31st Dec due 30th Jan
Exemptions
TCA 1997
Policy Holder
730D(2)(b)(i)
Another Life Company
730D(2)(b)(ii)
Investment Undertaking
730D(2)(b)(iii)
Charities
730D(2)(b)(iv)
PRSA Provider
730D(2)(b)(v)
Credit Union
730D(2)(b)(vi)
Court Service
730D(2)(b)(vii)
NAMA
Companies – exemption if non resident
Individuals – exemption if not resident and not ord resident
Relevant declarations to be filed by policy holder for all exemptions
Regulated Investment Undertakings
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Chapter 1A, Part 27 TCA 1997
Similar exit tax regime for CIUs
25% tax on annual payments
28% tax on other payments
Exemptions for
– Units switched between sub funds of umbrella fund
– Units switched between different classes in the fund
– Units held in clearing system recognised by Revenue
Encashment Tax Sch C & D
• Sch C: chargeable on profits from public revenue
• Sch D: chargeable on dividends from foreign
corporates
• Operated by banks in receipt of public revenue
and foreign dividends – rate 20% of dividend
• S.17(3) TCA 97 – exemption for clearing cheques
• Public revenue includes Irish and foreign
governments and public authorities
• Exclusions where security owned by non
residents or issued under Minister for Finance
Enforcement Withholding Tax
• PSWT -Professional Services Withholding Tax
• RCT - Relevant Contracts Tax
PSWT
• Part 18 Chapter 1 TCA 1997
• S.521 TCA 1997 – accountable persons
• Sch 13 TCA 1997 includes
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All Government departments
HSE
An Garda Síochána
DPP
RTE
Authorised insurers to medical practitioners, eg VHI,
Aviva, Quinn
Services for PSWT
• S.520(1) TCA 1997
– Medical, dental, pharmaceutical, optical, aural or
veterinary
– Architectural, engineering, quantity/other surveying
and related services
– Accountancy, auditing, finance
– Services of financial, economic, marketing advertising
and other consultants
– Solicitor or barrister and other legal services
– Geological services
– Training provided on behalf of FÁS
Payment not within PSWT
• Payments subject to PAYE
• Payments liable to RCT
• A payment made to reimburse a relevant
payment by one accountable person to another
• Payment to exempt charities
• Certain payments by foreign based
branch/agency of Irish resident company
Computation of PSWT
• PSWT applies to gross payment plus expenses
• Exclude:
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VAT
Stamp duties
Land Registry Fees
Deeds of registration fees
Companies Office fees
Court fees
Administration
• Payor issues F45 to service provider
• F45 shows gross payment, net payment and
PSWT
• F45s needed for claiming credit and refunds
• Claim credit in period in which PSWT deducted
• IT – claim deduction in year income is taxable
• CT – claim in AP in which income is taxable
• Daly v Revenue – law amended to current year
• Include PSWT in Preliminary Tax computation
Interim Refunds
• Interim refunds – S.527 TCA 1997
– Profit for immediately preceding period is finalised
– Tax payable for preceding period paid in full
– Form F45s submitted
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PSWT refund = PSWT – prior year liability
S.527(3) – VAT and PAYE up to date
PAYE/VAT arrears deducted from refund
IT19 Revenue statement for hardship cases
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Once off unusual receipt
Once off deduction or permanent reduction in income
Delay due to illness etc in finalising liabilities
PSWT + IT liability is higher than income @41%
New Business
• S.527(4) TCA 1997
• No liability in previous year
• Interim refund formula:
20% x (E x A x C)
B P
A = Est payments for PSWT in period
B = Est income for the period
C = Est no of months in refund period
E = Est total amount of wholly and exc expenditure
in period
P = Est no of months in accounting period
Example
• Commenced 2nd January 2010
• Interim refund claim in June 2010
• Estimated Income & Expenditure 2010
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Local Authority Fees
Other Fees
Total
Costs
€500,000 A
€250,000
€750,000 B
€600,000 E
• Interim Refund
– 20% x (600 x 500 x 6(C)) = €40,000
750 12(P)
Non Residents
• Professional Services provided to accountable
persons by non resident companies or
individuals
• Claim for refund of PSWT to International Claims
Branch
• No taxable presence in Ireland
• Certification from foreign tax authority of
residence
• Cert valid for 5 years
• Questionnaire issued by Claims Branch
Relevant Contracts Tax
• S.530 to 532 TCA 1997
• Significant source of tax risk
• RCT applies to payments
– By principal contractor
– To sub contractor
– For construction, forestry or meat processing
operations
– Rate of 35% where no C” and Relevant payments card
• PC issues RCT Deduction Card
• Monthly payments
• Annual Return – C35
Principal Contractor
• S.531(1) TCA 1997
• A person in the construction, forestry and meat
processing industry who takes on a sub
contractor and
• Who carries on a specified business or is listed
a specified person for RCT purposes
Specified Business
•Erection of buildings
•Land development
•Manufacture, treatment or extraction of materials for
construction operations
•Meat processing operations in approved establishment –EU
Regs 1996
•Forestry operations
•Processing of wood in sawmills from thinned or felled trees
•Supply of thinned or felled trees for processing
•Principal contractor is connected to a company carrying on
above operations
Specified Person
•Local authority or public utility society
•Certain housing authorities
•Government Minister
•Board established under statue
•Board or body established under Royal Charter and funded by
Oireachtas funds
•Person carrying on gas, water, electricity, hydraulic power, dock,
canal or railway undertaking
Exclusions
• Term “principal contractor” excludes:
• S.531(2) – where buildings will be used by his
employees
• Person who is connected with a PC is excluded
where
– That person is not engaged in business of land
development or construction
– Groups of companies
– Individual or company connected with PC retains
subcontractor to work on his private residence or
business premises
Construction Operations
•Construction, alteration, repair, extension, demolition or dismantling of buildings
or structures
•Construction, alteration, repair, extension or demolition
•Walls, road works, power lines, telecommunication apparatus, aircraft runways
•Docks and harbours, railways, inland waterways, pipelines, reservoirs, water mains,
wells, sewers, industrial plant and installations for land drainage
•Installation in buildings of heating, lighting, air conditioning, sound proofing, ventilation,
power supply, drainage, sanitation, water supply, burglar and fire protection
•Installation in building of telecommunication systems
•External cleaning of buildings, internal cleaning where part of construction work
•Operations integral or preparatory to all above e.g. site clearance, excavation,
scaffolding erection, landscaping, provision of roadways and access
•Integral and preparatory works for extraction of minerals, oil, natural gas and exploration
for natural resources
•Haulage for hire of materials, machinery or plant for use in above
Meat Processing
• List of operations is very broad and includes
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Slaughter of animals and fowl
Processing or preservation of carcasses
Loading and unloading of carcasses
Haulage and/or rendering of carcasses
Cleaning down of establishments where meat
processing carried on
– Grading, sexing and transport of day old chicks
– Haulage for hire of animals and fowl for meat
processing operations
Forestry Operations
• Planting, thinning, lopping or felling of trees in
woods, forests or other plantations
• Maintenance of woods, forests or other
plantations and preparation of lands for planting
• Haulage or removal of thinned, lopped or felled
trees
• Processing of wood from thinned, lopped or
felled trees in sawmills
• Haulage for hire of materials, machinery or plant
for use in above operations
Sub Contractor
• Employee or subcontractor?
• Code of Practice for determining Employment
Status or Self Employment Status
• Henry Denny Case
• “Facts and realities of the situation on the
ground”
• Covered in Module 3
Administration of RCT
• Registration as PC on Form TR1 or TR2/P33
• Form RCT 1
– Principal contractor and sub contractor
– Details of each party and contract
• PC deliver Form RCT 1 to Revenue if
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First contract with subcontractor
PPSN of subcontractor not shown
Subcontractor not registered for CT/IT
Subcontractor not VAT registered or number not
provided
– Subcontractor employing others but no PAYE reg no
– Subcontractor using sub but not registered as PC
Administration of RCT
• Principal not required to submit RCT1 to
Revenue is obliged to keep it for 6 years
• Same RCT 1 will cover rolling contract with
same contractor
• Exclusion from RCT1 where sales in previous 3
years > €6.34m
• Apply on Form RCTI-E
• Exemption certificate valid for 3 years
RCT deduction
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SC with no C2 = uncertified contractor
RCT operated on full payment
SC applies for C2
Form RTCDC given by PC on payment
Payment recorded by PC on Form RCT 48
PC applies on Form RCT 46 for Relevant
Payments Card when SC has a C2
• Issue of RCT 47 authorises gross payment
• Form RCT 30 filed monthly – within 14 days
• Annual Return on RCT 35 due 14th February
Failure to Comply with RCT
• PC liable if he fails to deduct the 35% RCT
• Interest on penalties for non deduction or RCT
incorrectly operated
• Daily interest 0.0274%
• Deemed due in first month of year Sec 531(3B)
• Exception where RCT paid within 1 month of
Revenue demand
Failure to Comply
• S.531(14) TCA penalties for non compliance
– Fine of €5,000 for improper use or obtaining C2;
improper use of RCT 47
– Fine of €5,000 –failure to supply RCTDC to SC; failure
to keep documents or notify Revenue re changes in
control of company possessing C2
• Major risk area for Principal Contractors
• Large settlements with Revenue
• Quarterly defaulters list
Clearance Procedures
• Withholding Tax
• CGT
• Government Contracts
CGT Withholding Tax
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S.980 TCA 1997
Withholding tax where consideration> €500,000
Withholding tax 15%
Assets (“Specified Assets)
a) Land in the State
b) Minerals in the State or any rights or other assets in
relation to mining or searching for minerals
c) Exploration or exploitation rights located in Ireland
d) Goodwill of trade carried on in Ireland
e) Shares of a company deriving greater part of value
from (a),(b) or (c)
CGT withholding
• Exclusion where:
– Vendor produces CG50A at closing
– Sale of new dwelling house and vendor produces C2
– Disposal by Sch 15 TCA 97 Body – State bodies not
liable to CGT
• Vendor applies on Form CG50
• Clearance granted where either:
– Vendor is Irish resident
– No CGT payable
– CGT paid
• Withholding tax due within 7 days
• Vendor given Form CG50B
CGT Clearance
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Non resident vendors
CGT must be paid
Revenue may accept undertaking from solicitor
CGT to be paid out of sale proceeds
Share Purchase Agreements
• Simultaneous signing and closing of contracts
• CG 50 clearance needed if > greater part of
value of shares derived from land, buildings or
exploration rights in Ireland
• Revenue will accept unsigned contracts for
CG50 purposes
• Revenue request final copies to be submitted on
completion
Liability of Agent
• Liability to deduct CGT falls on person handling
the funds
• Normally the solicitor for property sales
• S.980(4)(a)(i) TCA 1997
“person by or through whom any payment is
made shall deduct …15 per cent..”
• Risk for solicitor
Inter Group Transfers
• CG50As required when assets transferred within a
group
• No exemptions for group members
• Applies to property and shares >50% from land or
buildings etc in Ireland
• Transfer of shares deriving >50% value from
goodwill of trade carried on in Ireland not subject to
CGT withholding
• Sale of goodwill within CG50 procedures
• Care needed with European or international sale
with trade in Ireland
Government Contracts & Licenses
• S.1095 TCA 1997- general scheme for tax
clearance
• Right of appeal where TC refused
• S.1094 TCA 1997 – licence tax clearance
• Public sector contracts
– >€10,000 VAT inclusive annually
– Provision of goods and services
– Valid C2 or TCC
• Grant payments > €10,000 by State bodies
Government Contracts & Licenses
• Licenses and other schemes
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Liquor licence
Bookmakers licence
Mortgage or credit intermediaries authorisation
Taxi and hackney licences
Private security services
Charities applying for State funding
• See Revenue Guidelines for Tax Clearance
Government Contracts & Licenses
• Online application for residents
• Non residents apply to:
– Own tax district if PE in State
– CGS of no tax registration or PE
– Dublin City Centre District if tax registration and no PRE
Standards in Public Office Act 2001
• Tax Clearance certificate needed by:
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Members of the Oireachtas
Senior public officials
Candidates for judicial appointments
Senior appointment in local authority, health board and
public body controlled by Government Minister
Accounting for Withholding Tax
• Withholding taxes are on gross income
• Key accounting issue:
• Present as deductions from payments or
Present items as a charge to taxation?
Accounting for Tax
Investment Income
•Dividends
•Rental
•Royalty income
Withholding Taxes from
payments made
•Entity obliged by law to
deduct
•Liabilities and Expense
•Withholding taxes
deducted
•Recognise as income
tax expense
•Recognise income on
gross basis
•Account for deductions
on same basis as indirect
taxes
Accounting for Distributions
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Irish GAAP and IFRS
Accounting classification of instruments
Equity instruments
Debt instruments
Compound instruments – part equity/part debt
Obligation on company to deliver cash or
another financial asset to holder
• Identical with IAS 32 Financial instruments
• Adopted into GAAT as FRS 25
Accounting for Distributions
• Financial liability classification – contractual
obligation to transfer cash or financial asset to
holder
• Obligation to repay principal, interest or
dividends
• Equity instrument – residual interest in assets of
entity after deducting liabilities
Accounting for Distributions
• Equity Instruments – dividends and distributions
made shown as deductions from distributable
reserves
• Debt Instruments – dividends and distributions
made shown directly in profit or loss account
• Liability for dividends and distributions recognised
when legal obligation to pay arises
• Memo and Arts for discretionary dividends
• Ireland – final dividends ratified at AGM
interim dividends declared by directors
Accounting for Distributions
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Dividends on shares classified as distributions
Presented as a finance cost
Not recognised directly in equity
Effective interest method
DWT recognised directly in equity as part of
distribution to shareholders
Preference Shares
• Instruments evaluated – equity or finance liability
• Classified as financial liabilities where payments
to holders in cash is unavoidable
• Preference shares redeemable at option of
holder – check dividend rights
• If dividends are discretionary  equity
• If dividends are not discretionary  financial
liability
• Contingent dividend rights – classify as liability
Bonus and Scrip Issues
• Irish GAAP and IFRS – no adjustment to total
equity for simple split or bonus issue
• May be impact on EPS
• Transfer of reserves being capitalised with no
change in total equity
• Scrip Issue – record liability at time right to
receive dividend
• Reduce when shareholder elects to receive
dividend
• Liability settled when shares issued and credit to
equity recognised as sale proceeds
Round Up
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Dividend Withholding Tax
Characteristics of share types and transactions
Treatment of FII
Section 130 distributions and exclusions
Deemed distributions
DWT –exemptions for residents and non
residents
• Administration
Round Up
• Withholding tax on Patent Royalties and Annual
Payments
• Pure income profit
• Exemptions – residents and non residents
• Annual interest and Short Interest
• Administration
Round Up
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Withholding Tax on Rent
Exemptions – appointment of agent
Trustee obligations
DTAs and withholding tax
EU Directive on Interest and Royalties
Fiduciary Withholding – PAYE and VAT
Financial Institutions and Withholding Taxes
DIRT
Exit Tax – gross roll up funds
Round Up
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Encashment Tax – Sch C and D
Enforcement withholding taxes
PSWT
RCT
CGT Clearance procedures
Tax Clearance Certs
Government Contracts and Licences
Accounting for Withholding Taxes