This country-specific Q&A provides an overview to tax laws and regulations that may occur in Ireland.
It will cover witholding tax, transfer pricing, the OECD model, GAAR, tax disputes and an overview of the jurisdictional regulatory authorities.
This Q&A is part of the global guide to Tax. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/tax
How often is tax law amended and what are the processes for such amendments?
The predominant way in which tax law is amended in Ireland is by the annual publication of the budget statement and related legislation which is published in October each year and passed into law by the end of the calendar year having been scrutinised by the Irish Oireachtas (Parliament). Measures announced in the budget can become effective at different stages:
- from midnight on the date the changes are announced as part of the budget statement;
- from the date the related legislation comes into effect often 1 January of the following year; or
- upon the future passing of a Ministerial commencement order.
Typically, the period between changes being announced as part of the budget statement and legislation being enacted allows for discussions on draft legislation and policy issues between the legislature and industry. Where major changes are announced (excluding anti-avoidance measures) there is usually lengthy consultation with interested stake holder bodies. Any legislation is subject to the full rigours of parliamentary scrutiny.
Tax practice can also be amended at any stage during the year by the Irish Revenue Commissioners issuing or updating published practice. Depending on the circumstances, this may be done unilaterally by the Irish Revenue or after consultation with industry.
What are the principal procedural obligations of a taxpayer, that is, the maintenance of records over what period and how regularly must it file a return or accounts?
The requirement to retain records and file returns varies by tax head; as a general rule however documents must be retained for a period of 6 years.
A taxpayer must file an annual corporation tax return within 9 months of the relevant financial period. Other returns are filed more frequently e.g. payroll taxes, VAT etc. which can be filed monthly or bi-monthly. Withholding tax returns are usually filed in the month following the relevant payment. For example a monthly filing is required for payroll taxes as well as an annual filing.
Records must be maintained for a period of at least five years following the end of the relevant financial period or payment (although sometimes a six year retention period is required). This broadly equates to the period of time in which the Revenue have the ability to audit under normal circumstances.
Who are the key regulatory authorities? How easy is it to deal with them and how long does it take to resolve standard issues?
The Irish Revenue Commissioners is the body charged with the collection and administration of all taxes, duties and levies etc. Generally Irish Revenue take a firm but helpful approach and are commercial in their dealings with taxpayers. Their objective is the overall care and management of the tax system including the collection of the appropriate amount of tax based on the law in force.
Standard issues can be resolved reasonably quickly, i.e. within a couple of weeks by discussion with the relevant tax officer. Large taxpayers are administered in a specialist division (Large Cases Division). Where the issue involves a matter of policy or a particularly difficult technical point, a specialist division (Revenue Technical Services) would usually be consulted. Revenue technical services co-ordinate policy and technical positions of the Irish Revenue which are then implemented by the relevant case officers. A reference to revenue technical services can lengthen the process for resolving particular issues. The length of time required to resolve these depends upon the state of development of the policy or the particular technical question.
Are tax disputes capable of adjudication by a court, tribunal or body independent of the tax authority, and how long should a taxpayer expect such proceedings to take?
Ireland has an independent statutory body, the Tax Appeals Commission (“TAC”), established for the purpose of hearing and determining disputes between taxpayers and the Irish Revenue Commissioners. Appeals from the TAC are taken to the High Court on a point of law but not on a factual matters so it is important to ensure that the correct factual matters are proven at the TAC level. Further appeals from the High Court may be taken to the Court of Appeal and ultimately to the Supreme Court and, should a point of EU law arise, any court or tribunal in Ireland has the authority to make a reference to the Court of Justice of the European Union for clarification of the relevant EU issue.
The first hearing of a tax dispute is held in the TAC. This is the successor body to the previous Appeals Commission. It has recently commenced operations so it is difficult to be definitive about timelines. All notices of assessment (the initial document in any appeals process issued by the Irish Revenue Commissioners) in respect of which a taxpayer files a notice of appeal are currently dealt with by the TAC. Appeals that were in being prior to the TAC coming into operation are subject to a process under which there is a mandatory consultation between Irish Revenue and the relevant taxpayer to determine where they could be settled.
Approximately 10% of those appeals have been settled and the remainder have been moved to the TAC. This has created a backlog and it is proposed to appoint temporary commissioners to clear this backlog. Accordingly, it is unclear how long it will take to have appeals heard at this level of tribunal.
Are there set dates for payment of tax, provisionally or in arrears, and what happens with amounts of tax in dispute with the regulatory authority?
Ireland operates a self-assessment tax system and has set dates for payment of taxes. For income tax, payments of tax and the filing of tax returns must be completed by 31 October each year and can be done online. For capital gains tax (CGT), tax is due on 15 December each year for disposals of assets between 1 January and 30 November that year, and by 31 January in the following year for disposals between 1 December and 31 December the previous year.
Corporation tax is usually paid on a preliminary basis with a balancing figure payable when the final return is filed. The precise dates for payments of tax depend upon whether the company is a small company or not. A “small company” , which is a company whose corporation tax liability in the preceding accounting period does not exceed €200,000 must, in the penultimate month of its accounting period, must pay preliminary tax of the lower of 90% of its current year final tax liability or 100% of its corporation tax liability for the preceding accounting period. “Non-small companies” must pay preliminary tax in two installments; the first installment is payable in the sixth month of the accounting period or 45% of the current accounting period. The second installment is payable in the eleventh month of the accounting period and must bring the total amount paid to 90% of the corporation tax liability for the current period. Any remaining corporation tax must be paid within 9 months of the end of the accounting period.
In the event of a dispute over a tax liability, there is generally no requirement to pay tax in order to take an appeal although if tax is not paid interest and penalties can accrue while the appeal is being litigated should the taxpayer ultimately be unsuccessful. Taxpayers may pay the disputed tax in order to mitigate interest and penalties. An exception to this is stamp duty which must be paid before an appeal is taken.
Is taxpayer data recognised as highly confidential and adequately safeguarded against disclosure to third parties, including other parts of the Government?
Yes, taxpayer confidentiality is enshrined in Irish tax law and taxpayer information can only be disclosed in limited circumstances such as criminal proceedings or legal proceedings relating to tax administration. The Irish Revenue Commissioners is also required to disclose certain information as required under tax treaties and mutual assistance provisions of EU law.
Is it a signatory (or does it propose to become a signatory) to the Common Reporting Standard? And/or does it maintain (or intend to maintain) a public Register of beneficial ownership?
Ireland was an early adopter of the Common Reporting Standard.
Ireland is currently considering the implementation of a public register of beneficial ownership of shares in Irish incorporated companies. Irish companies are currently required to record the beneficial ownership of their shares, but this is not a public document.
Are there any plans for the implementation of the OECD BEPs recommendations and if so, which ones?
Ireland has actively engaged with the OECD BEPS project and supports the OECD in carrying out the BEPS project. Ireland has undertaken public consultation on the proposals as part of its ongoing assessment of the country’s corporate tax policy. Ireland has broadly welcomed the final BEPS reports, in particular on the alignment of substance with taxation and the importance of the arm’s-length principle. Ireland will implement all mandatory BEPS provisions. In addition, Ireland will implement the EU anti-tax avoidance directive which contains some non-mandatory BEPS actions.
Is there a GAAR and, if so, how is it applied?
Ireland has operated a statutory GAAR since the late 1980s. It is a fully OECD compliant provision. It is deployed by the Irish Revenue Commissioners in cases of tax avoidance (although specific anti-avoidance provisions are often used by the Revenue Commissioners in preference to or in relation to the GAAR). The Revenue do not invoke the GAAR provisions lightly to engineer settlements of tax disputes, preferring to reserve their powers to invoke them for more extreme and obvious cases of tax avoidance.
A number of cases have been taken through the Courts in relation to the scope and interpretation of the GAAR. When the GAAR was first introduced, it required that the Irish Revenue form an opinion that the transaction was a tax avoidance transaction. In recent years this position has been altered and each taxpayer must now self-assess the application of the GAAR to any transaction. If a taxpayer is in doubt about the application of the GAAR to any transaction, it is possible to file a notice with the Irish Revenue identifying the transaction and requesting them to take a view on it. Should the Irish Revenue conclude that the transaction is a tax avoidance transaction to which the GAAR applies, the fact that a taxpayer has filed such a notice will reduce the penalties applicable for non-payment of tax.
Does the tax system broadly follow the recognised OECD Model?
Does it have taxation of; a) business profits, b) employment income and pensions, c) VAT (or other indirect tax), d) savings income and royalties, e) income from land, f) capital gains, g) stamp and/or capital duties.
If so, what are the current rates and are they flat or graduated?
The Irish tax system generally follows the OECD Model which is based around a full taxation of income and gains providing for deductions only in the cases of actual payments in most cases.
(a) Ireland has two rates for taxing business profits; trading profits are taxed at 12.5% and passive income is taxed at 25%. Capital gains of companies are taxed at 33%. Surcharges can arise for closely held companies (companies held by five or fewer connected parties) on passive income that is not distributed to the shareholders.
(b) Tax rates can depend on an individual’s income and personal status. Ireland has two headline rates of income tax - 20% and 40%. The higher rate applies to income over €33,800. In addition to this, universal social charge is payable at rates of between 0.5% and 8% (rising to 11% for self –employed individuals with income over €100,000 in a year) as well as pay related social insurance which is at 4% for a majority of workers. In addition, employers pay employer PRSI at the rate of 10.75%.
(c) Ireland’s standard rate of VAT is 23%. Ireland also operates reduced rates of VAT at 13.5% and 9% for certain supplies.
(d) Deposit income retention tax (known as DIRT) applies at the rate of 41% to interest on deposits. DIRT is deducted at source by the deposit taker.
(e) For individuals, income for Irish land is taxed at the income tax rates outlined in paragraph (b) above. For companies, tax is levied at 25% on rental income.
(f) The current rate of capital gains tax is 33%.
(g) No capital duty is payable by Irish incorporated or established companies. Stamp duty arises at 1% on transfers of shares in Irish companies. Stamp duty on transfers of property arises at 2%, other than in respect of transfers of residential property where the first €1m is taxed at 1%.
Is the charge to business tax levied on, broadly, the revenue profits of a business as computed according to the principles of commercial accountancy?
For trading (active) income the profits are broadly computed in accordance with the principal of commercial accountancy. Passive income is usually taxed on a receipts or arising basis. Capital gains are charged on a disposal of capital assets. VAT is charged on the supply of goods or services.
Are different vehicles for carrying on business, such as companies, partnerships, trusts, etc, recognised as taxable entities?
Yes, Ireland recognises other taxable entities, such as partnerships, charities, trusts and branches of foreign companies. Irish company law has a range of corporate entities for business purposes, including private limited and unlimited companies, designated activity companies, public limited companies and companies limited by guarantee. Ireland has a common law system of trusts including bare trusts and discretionary trusts. Both general and limited partnership structures exist in Ireland. In addition, investment funds can take the form of variable capital companies, investment limited partnerships and unit trusts. The tax treatment of entity will vary depending on its corporate form (i.e. whether it is taxable in its own right or is viewed as a pass-through).
Is liability to business taxation based upon a concepts of fiscal residence or registration?
Ireland changed its corporate tax rules with effect from 1 January 2015. All companies incorporated after that date are tax resident in Ireland, and therefore subject to tax in Ireland on their worldwide income, unless they are deemed to be tax resident in another country under the terms of a double tax treaty between Ireland and that other country. In addition, any company (wherever incorporated) is treated as Irish resident if its central management and control is exercised in Ireland.
Are there any special taxation regimes, such as enterprise zones or favourable tax regimes for financial services or co-ordination centres, etc?
Ireland's tax code provides for a number of favourable tax regimes for different investments. For example, Ireland operates a regime which provides for accelerated capital allowances for investment in energy efficient equipment.
Ireland offers a tax neutral securitisation (finance company) through what is known as the "Section 110" regime. This broadly allows securitisation of all financial assets, plant and machinery with minimal tax leakage.
Are there any particular tax regimes applicable to intellectual property, such as patent box?
Yes Ireland offers a number of incentives for intellectual property owning / holding structures. In particular:
- qualifying expenditure on research and development can benefit from a 25% tax credit;
- the Knowledge Development Box (which is in conformity with BEPS and EU law) provides for a reduced tax rate of 6.25% on profits derived from patented inventions and copyrighted software; and
- extensive tax relief is available for capital expenditure on certain specified intangible assets.
Is fiscal consolidation employed or a recognition of groups of corporates for tax purposes and are there any jurisdictional limitations on what can constitute a group for tax purposes? Is a group contribution system employed or how can losses be relieved across group companies otherwise?
Ireland does not employ a fiscal consolidation regime. Instead, there are rules permitting the surrender of losses between companies that are grouped or are members of consortiums. In addition, transfers of assets can occur at their capital gains tax basis between members of a capital gains tax group. Groups can be traced through any corporate entity resident in the EU or an EEA country with which Ireland has entered into a double tax treaty.
Ireland also recognises groups of companies for the purposes of VAT and stamp duty.
Is there a CFC or Thin Cap regime?
Ireland does not have any CFC or Thin Capitalisation rules.
Is there a transfer pricing regime and is it possible to obtain an advance pricing agreement?
Yes Ireland operates a transfer pricing regime and it is possible (although unusual) to obtain an APA with the Irish Revenue. The Irish Revenue has published guidelines which apply to APAs with effect from 1 July 2016. Ireland's approach to APAs is to ensure these are entered into in accordance with OECD principles and will not therefore require the adoption of a new approach in light of recent decisions.
Are there any withholding taxes?
Yes Ireland operates withholding taxes on a variety of categories of payments. In particular, Ireland operates withholding taxes on interest, dividends, patent royalties and relevant contracts withholdings (i.e. construction contracts).
Ireland usually operates an exemption system for such payments to a recipient who is resident for tax purposes in an EU Member State or a country with which Ireland has a double tax treaty. It is unlikely that the system will be challenged under EU law as it is not sector specific but part of a general regime.
Are there any recognised environmental taxes payable by businesses?
A number of environmental taxes have existed for many years and further taxes have been introduced over the last number of years. These include carbon taxes, taxes on motor and heating fuel, vehicle registration tax, landfill levy and plastic bag tax.
Is dividend income received from resident and/or non-resident companies exempt from tax? If not how is it taxed?
Dividends received by an Irish company from another Irish company are exempt from Irish tax.
Foreign dividends received by Irish companies are taxed at 25%, however they can be taxed at the lower 12.5% rate where the dividends are paid out of the trading profits of a company which is resident for tax purposes in an EU Member State or a country with which Ireland has a double tax treaty. Full credit is given for underlying tax on the profits out of which the dividend was paid and also for any withholding taxes. Where dividends do not carry sufficient tax credit, and they are paid by an EU resident company out of EU taxed profits, “additional credit” can be claimed eliminating Irish tax on the dividend in compliance with the CJEU decision in the FII case.