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© M.K.Brazil

TOPICAL TAX UPDATE

May 2015

© M.K.Brazil

<> Introduction by: John Foley

(Managing Partner)

<> Topical Tax Update by Brendan Twohig (Tax Partner)

© M.K.Brazil

<> Topical Tax Update (Culture v Strategy)

<> Tax Landscape for Tax-payers

<> Sundry other Topical Issues

Current Environment

Context:

•Spring Statemento Move away from Labour Taxeso VAT? Stamp Duty? LPT? Water Charges? DIRT? Wealth & Property taxes?o Self-employed v Employee

•2014 Revenue Audit C of P / 2013 Employee C of Po Emphasis on self-monitoring <> Pressure on Advisorso Lack of Publicity

•The Companies Act 2014o 1st June 2015 – Assorted technical and practical changeso Ltd v DAC, Audit Exemptions, Directors, etc

•2014 Revenue’s Annual Reporto Interventions down 30% <> Yields up 11%o Fixed Penalties, Prosecutions, etc

2014 Interventions:

Construction 889

Retailers 729

Landlords 539

Wholesalers 469

Pubs 187

Restaurants 225

Doctors 115Accounting 106Legal Activities 84

Other 4293

Total Number of Audits 7636

Case Law :

The “O’ Flynn” Case:

•Series of Transactions

All Technically Legal

Cumulatively amounted to ‘Tax Avoidance”

The “Kittel” Case:

•Claimant legitimate•Supplier might not be•VAT paid to supplier / not paid over to Revenue

Can Business still reclaim VAT?

Use v Abuse ?

Did Know / Should have KnownV

Did not Know / Could Not have Known

Official View:

“The best small country in the world in which to do business“

Competitive tax rates Tax - supported Funding Options

Start - up Reliefs Easing Administration Burden

Assorted Business Reliefs Entrepreneur Relief

(12½% CT

40% IT)(EIIS, SURE)

(SYOBR,

New Co. Exemption)(VAT Reg. Threshold,

CRB, VAT3s, P30s etc)

(BR, RR, AR,

Re-organisations etc)(Roll-over of Gains)

Reality?:

“Culture Eats Strategy for Breakfast” (Peter Drucker)

High 'effective tax rates' Ineffective funding options

Excessive / Punitive BureaucracyIneffective Start - up Reliefs

Lack of clear vision in taxes Flawed Entrepreneur ReliefFailure

(CT - 12½% v 20% v 25% v 40%)(EIIS unattractive – circa 180 cases each year)

(Must be unemployed for 12 months /

Linked to Employer’s PRSI)

(Increase in Fixed Penalties etc / Numerous deadlines and obligations /

Revenue, DSW, NERA, etc)

(AR complexity, > 66

caps on RR, ec)(33% CGT v 10% in UK for Entrepreneurs?)

(IT- 55% v 52% - No PAYE Credit)

(SURE – rerun of failed SCR)

(Abolished Loan Interest Relief for investing in co.)(€100 fee – Client pays €123 - €45 MKB (37%)

- €78 Taxes)

(Bankrupt? 5-8 years here v 1-3 years in UK)(Loss Relief Restrictions)(Cessation Costs might not be allowable)

SMEs

&

Entrepreneurs

Initial Considerations:

•Sole-trader v Company v Partnership

•Full-time v Part-Timeo Termination Payment to fund? Keep working but…

•Numerous Considerationso Exemptions like SYOBR v New Co. o Tax v PR v Protection etco Funding needs? Plant, Staff, Stock, Cash flow etco SURE v EIIS v Bank v Grants v Own Fundso Loss Relief? Pre-trading Costs?

•Remembero Moving from Sole-trader to company? Involving Children? Spouse?o Lost exemptions? CGT? Pre-Trading Costs?

Starting a Business:

•SYOBRo Must be unemployed for 12 monthso Must be NEW businesso No income tax for 2 years – capped at Profits of €40kpa – PRSI & USC still apply

•New Start-up Companies Reliefo No CT for first 3 years – but must be ‘New’ businesso Capped at €40k CT pa v Employer’s PRSI paido PRSI capped at €5k per employee – 8 employees earnings €46,500+?!?

•Loss Relief Restrictiono FA 2014 – Caps S.381 Relief only, S.382 c/f still fineo Part-time Traders – average 520 hours pa = 10 hpw but more if seasonal trade

o S.381 capped at €31,750 – S.381Bo No Relief via S.381 if S.381C – ‘tax arrangement – non-commercial trade etc’

Starting a Business – cont….:

•SURE (Start-Up Relief for Entrepreneurs)

o Amount invested in new company can be claimed ‘backwards’o Set against Income Tax paid over previous 5 yearso Extraction v Loan repayment

•EIISo Refunds of income tax for investment in qualifying companyo 30% initially, 10% in 4 years time if….o Must hold shares for 4 years now, was 3 years

•Tax & Other Obligationso Income tax – ‘proper books and records’, registration, Form 11, etco VAT – optional v prevented v compulsory, VAT invoices etco Employees? PAYE/PRSI, Must offer PRSA etco Software v Skills v Costs

Established - Growing:

•Is Structure Appropriate?o Group? Non-disclosure? o Protecting Profits, Holding Property, Funding expansion

•Employeeso BIK Regime – Employee Share Schemeso Tax v Real Share Involvement?

•Expansiono Overseas – Branch v Sub v PE, FED etc o Services / Products – R & D Tax Credit

•Time to Think aheado Planning for RR / BR <> Involving Spouse, Kids etco Pension Planning

It actually is “ all about the Money”!

CASH

(Debtors /

Investments/

Property etc

“Wealth”)

Working Capital

Savings

Business (Rainy Day / Expansion)

Personal – Self, Family, etc

© M.K.Brazil

Reorg to facilitate Cash sharing:

• Difference between ‘Associated’ and ‘Group’

• Loans from A or B to C = Serious Problems if not Group

Fiachra Alannah Fiachra Alannah

A Ltd X

A LtdC Ltd

B Ltd C Ltd B Ltd

Reorg to Profit Share:

Larry Curley Moe

Stooges Ltd

Trade

€1m cash

Larry Curley Moe

L Ltd C Ltd M Ltd€200k €200k €200k

Holding Co

€350k

Stooges Ltd

Trade

€50k cash

S.626B used to fund expansion:

• Shane & Marie operate clothes shops in

Cork and Kilkenny via Shop Co.

o The company owns the Kilkenny shop

but rents a location in Cork

o Kilkenny location is fully performing –

but Cork has further potential

o Might sell Kilkenny and re-invest in

Cork location etc

Shane Maire

Shop Co

Cork Kilkenny

trade Trade & shop

S.626B Example cont..:

• Drop Kilkenny Business into new co?

o Opens up 626B – more money to re-invest in Cork

o Must wait 12 months before they sell

o Purchaser might not like buying shares – stamp duty motive gone?

Shane Maire

Shop Co

Cork KK Ltdtrade

KilkennyTrade & shop

Other reasons: - Protection? - Involving Child? - Involving Key employees?

Restructuring examples ….

Boann Fiachra

Trade Ltd

Investments Trade

Boann Fiachra

Parent Co

Trade Ltd

Investments Trade

Boann Fiachra

Parent Co

Investments Trade Ltd

Trade

Retirement / Succession Planning:

•Retirement Relief v Business Reliefo S.598 v S.599o RR Cap of €3m for > 55s v 90% BR regardlesso Pension – Tax v Pension v Protection

•Road-test Successiono Business v Personal v Family Considerationso Actual v Potential Wealtho Using Business to fund non-business Children

•Plan v Ideao Robust, non-final, aspirational – BUT must be in writing

Example:

• Different Stages = Different Motives

o Access for expansion etc – BUT 25% CT plus CCS etc

V

o Tax-free growth, tax-efficient extraction, etc

Ala Ben

Shop Ltd

Trade

Cash €500k

Ala Ben

Shop Ltd Pension

€500k

Trade

Ala Ben

Hold Co

Cash €500k

Trade Ltd

Trade

Restructuring examples ….

Boann Fiachra

Trade Ltd

Investments Trade

Boann Fiachra

Trade Ltd New Co

Investments Trade

Boann Fiachra

Kids Kids

Trade Ltd New Co

Investments Trade

SGECGT/CAT offsetShare Capping

Retirement ReliefBusiness ReliefPension / Terminations

Reorganisation Example:

• Barry & Pauline Married and in their 60s

• They set up Family Co > 20 years ago

o Operates Pub and Shop in the local village

o No Pensions but have accumulated Profits

• They have 2 kids

o Their son, BJ, is set to take over the Pub

o Their daughter, Aoife, is set to take over Shop

• Barry & Pauline need to be financially secure

Barry Pauline

Family Co

Pub Trade Shop Trade

€ 1m Investments € 3m

€ 3m

Reorganisation Example cont….:

• Numerous problems with existing Structure

Barry Pauline

Family Co

Pub Trade Shop Trade

€ 1m Investments € 3m

€ 3m

Barry Jnr. Aoife

Reorganisation Example cont….:

• Separate / Isolate Trades via S.615/S.587/S.80 etc

Barry Pauline

Shop Co Family Co Pub Co

Shop Trade Investments Pub Trade

€3m €3m €1m

Reorganisation Example cont….:

• Gift Shop Co to Aoifeo First put €X into Pension? – Ensure annual income < Exemption?

o Ignored in this case – but always a consideration, for protection alone

o Ex-gratia Termination Payments, OAP and Income from Investment Co already

• (1) Gifted 80% to Aoife (2) Company bought back remaining 20%o 80% valued @ €2½ m – so BR reduced gift to < CAT Threshold

o 20% remaining valued at €400k and €200k each qualified for RR

• Beware nuanceso Termination Payments followed, Advance Approval obtained, Prof. Valuation,

o Cash = Working Capital Problem (40% of value?!?!)

Reorganisation Example cont….:

• Gift Shop Co to Aoife cont…

Barry Pauline B & P Aoife

Shop Co €600k Shop Co

€200k RR x 2

Shop Trade €100k ex-gratia x 2 Shop Trade

Reorganisation Example cont….:

• Gift Pub to BJo Barry and Pauline want to remain working in Pub if needed

o Could simply gift shares to BJ – but €500k RR each still remaining

• (1) BJ formed New Co (2) B & P Sold Pub Co to New Coo S.598 RR claim on €1m sales proceeds - €500k each

o Pre – 2014 so full €750k RR available – €200k utilised on Shop Co

o Company Law aspects important

• Barry and Pauline could remain working

• BJ could separate Pub from Trade for protection purposes

Reorganisation Example cont….:

• T/F Pub to BJ cont….

BJ

Barry Pauline B & P

New Co

Pub Co €1m

Pub Co

Pub Trade

Pub trade

Reorganisation Example cont…:

• Barry & Pauline have achieved what they wished

o Aoife now owns Shop Business

o BJ now owns Pub Business

o They have €1.6m in cash / loans

• They still own Family Co – now an Investment Companyo Could Liquidate, Look at CGT/CAT Set-off,

o SGE? - split shares into 1,000 - move 1 each year to each

child/grandchild etc

• Obviously grossly over-simplified example, but…..

Reorganisation Example cont…:

Barry Pauline

Family Co

Pub

Shop

Investments

BJ

B & P Aoife

New Co.

€1.6m Family Co Shop Co

Pub Co

Shop Trade

Investments

Pub Trade

Employees

Revenue Focus on PAYE Sector:

•Revenue Interventionso 30,000 compliance checks in 2012 => €23m additional taxes

o 45,000 compliance checks in 2013 => €30+m

o 41,000 compliance checks in 2014 => €22m

•New ‘Compliance Code’ for Employeeso Issued November 2013 – see www.revenue.ie

o Guidance Notes in February 2014

•Ignorance not a Defence

•Inaction is no longer an option

Revenue Focus on PAYE Sector cont…..:

•Tax Briefing 05/12 – ‘PAYE Agents’ – Accountants now Revenue Auditors

•False Claims – €3,000 fine for ‘carelessly assisting’

•PAYE Regulations – Register of Employees for example

•Employee Expenses – New Rules coming

•Taxation of Tips – Example of technology’s influence

•Share Schemes – Over-looked by Revenue for years but….

PLCs

Multi-nationals:

•Residency Rules

•SARP (Attracting foreign Management)

•R & D Regime <> ‘Knowledge Box’ Regime

•Employerso Redundancies – no Pay Restructuring, no Statutory Redundancy Rebateo Share Schemes – Reporting obligationso PAYE Regulations – Register? Change of Addresso Complexity – Illness Benefit, LPT, USC/PRSI, Medical Cards, etco Limited ‘Staff Reward Schemes’

•VAT – Changing Place of Supply Rules

Sundry Topical Issues

Sundry Topical Tax Issues:

•Debt Restructuringo CGT Losses, New Enforcement Rules, Bank Veto, etc

•Means-tested Benefitso Common on a death – DSW Clearance, but ‘real-time’ reviews also

•Landlordso Revenue Focus, VAT on Property, etc

•Employee Expenseso New Rates coming in Julyo Contractors Project

Sundry Topical Tax Issues cont….:

•Adam is a director of a company

•Work involves installing equipment at customer’s location.

•In 2012 his company won 3 contracts with different clients in different locations

•Adam spent

– 2 months in Location 1 for Contract 1

– 6 months in Location 2 for Contract 2

– 4 months in Location 3 for the third Contract

Adam CAN NOT claim Mileage/Subsistence

Block-layer/plasterer etc===================

working at================

=======

CAN

© M.K.Brazil

SUMMARY (& Questions)

© M.K.Brazil

Summary:

• Administration Burden / Riskso Take the little things seriously

• Remember Tax does exist in a Vacuumo Practical, Commercial, Legal, Personal, etc

• BUT Tax Planning should not be postponed

o Pre-Planning always better than Post-Planning

• AVAIL OF THE AVAILABLE / AVOID THE AVOIDABLE

© M.K.Brazil

O’Connell Court, 64 O’Connell Street, Waterford.

Tel:051 840800 / Fax: 051 - 874504

E-mail: brendantwohig@mkbrazil.com

Thank you for your attention.

QUESTIONS?

© M.K.Brazil

This presentation is intended to be informative but issues are condensed in the interest of clarity and brevity which may lead to over-simplification and inaccuracies. The time restrictions should also be

considered as these may have lead to errors and omissions.

This format does not facilitate a more comprehensive examination of the issues covered. In addition, many of the comments are based on the author’s personal interpretation of the relevant events, statements and documents, and may differ from the interpretation of others and may be

inaccurate outside the context of this event.

Please note that this presentation was intended to be a general guide only and further advice should be obtained before taking, or refraining from taking, any action. Neither the speaker nor MK Brazil accept any

responsibility for any party acting or refraining from acting on the basis of the information disclosed either orally or in writing during this

presentation.

© M.K.Brazil

Chartered Tax Consultant