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A review of some important representational issues raised and resolved at the Taxation Administration Liaison Committee.

One of the functions of the ICAI Tax Department is to support the work of the ICAI representatives on the Taxation Administration Liaison Committee (TALC), which is the liaison body between practitioner bodies and the Irish Revenue. The ICAI’s membership of TALC is via the umbrella accountancy body CCAB-I, the Consultative Committee of Accountancy Bodies – Ireland. Loans to Participators and Preliminary CT TCA97 s438 imposes on a close company a charge to income tax at the standard rate on the grossed-up equivalent of a loan or advance made by the company to a participator or associate of a participator. Income tax so deducted forms part of the company’s corporation tax liability and must be included on the company’s corporation tax return.

A practical problem existed where the loan had been repaid after the year end but before the due date for the corporation tax return – based on the legislation, the tax on the loan had to be paid as part of the preliminary corporation tax, with a refund of the tax sought when the return had been submitted. This anomaly caused administrative problems.

While there seemed to be an unofficial practice linking the tax on the loan to the old preliminary tax rules where preliminary tax was paid six months after the year end (i.e. where the loan was repaid within six months of the end of the accounting period), the new rules of payment of preliminary tax within one month before the year end raised some issues. Following detailed discussion and sharing of practical concerns on this CCAB-I driven issue at TALC

Technical, Revenue issued eBrief No. 56/2007 advising that, subject to general anti-avoidance, a company does not have to take account of the loans to participators provisions in relation to the charge to income tax where the participator or associate of the participator repays the loan by the due date for filing of the company’s corporation tax return.

PRSI & High Income Restrictions

Finance Act 2006 introduced restrictions on the use of tax reliefs by certain high income individuals. The restriction provides that ‘specified reliefs’ which a high income individual can use to reduce his or her tax bill are limited to 50% of the individual’s ‘adjusted income’.

Following another CCAB-I driven query at TALC Technical on whether the restriction applied to the calculation of PRSI and levies, Revenue issued eBrief No. 57/2007. This eBrief confirms that the restrictions on high income individuals do not apply in the calculation of PRSI and levies. The reason for non-application to PRSI and levies is that the restrictions on high income individuals affect the taxable income for tax purposes and not the income figure on which PRSI and levies is based.

Penalties after death?

Revenue issued eBrief No. 15/2008 to clarify the position in relation to penalties incurred by a person who has died. In summary, if a settlement has been agreed prior to death then Revenue can recover the penalty from the personal representatives; if a settlement has not been agreed prior to death, Revenue cannot recover any penalties from the personal representatives. This position will apply from 18 March 2008.

In a Dáil question on 3 October 2007, the Minister for Finance had referred to TCA97 s1060 and said that the European Convention on Human Rights was being kept under review. Presumably, the clarification has arisen from this review.

The UK Revenue clarified their position in mid-September 2007, which is similar to the Irish position. However, it would appear from the UK notification that their clarification may be backdated in certain circumstances. The UK notification confirmed that their previous position had been in contravention of the European Convention on Human Rights. No similar reference is made in the Irish clarification. CCAB-I had formally raised the UK notification with Revenue through TALC Audit and requested their views.

The key points in the eBrief are:

-Where a settlement that includes a penalty element has been agreed between Revenue and a deceased taxpayer prior to his/her death and that penalty remains unpaid or not fully paid as at the date of death, Revenue will continue to proceed against the personal representatives of the deceased for the recovery of that unpaid penalty. There is no change to existing Revenue practice in these particular circumstances. -However, where the taxpayer dies before a settlement has been agreed with Revenue, Revenue will not seek recovery of any penalty element from the deceased’s personal representatives and will discontinue proceedings for recovery of such penalty if they have been initiated. -Cases falling under the first bullet point will continue to be published where the publication criteria in Section 1086 TCA 1997 are met. -Cases falling under the second bullet point will not be published under section 1086: because there is no tax-geared penalty as part of an agreed settlement and no courtimposed penalty. -Where a case is ongoing and has not been finalised at the date of the e-Brief, Revenue have confirmed that they will follow the procedures set out in the e-Brief. -In addition, it was confirmed that settled cases will not be reopened. Given that this differs from the UK position, discussions have taken place on the correctness of this position.

Revenue Statement of Practice (SOP)

As an all-island body, ICAI has been campaigning for the introduction of various measures whereby crossborder business can be carried out in a seamless fashion without being hampered by overly complex tax administration.

In September 2007, Revenue published a Statement of Practice on the operation of PAYE on non-Irish employments exercised in the State. ICAI, under the auspices of TALC, participated in discussions towards the introduction of a key new development which relates to the non-operation of PAYE where the temporary assignee is present in the State for not more than 183 days. This has effect from 1 January 2007 and is subject to conditions.

The context of the SOP is the changes to the PAYE regime in Finance Act 2006. eBrief No. 9/2006 allowed some measure of relief from the operation of PAYE where the duties of the employment were performed in the State for not more than 60 working days. This new SOP permits the relief to extend to working periods of up to 183 days, provided that the employer meets a number of administrative conditions.

eBriefs dealing with this issue are: 43/2005; 9/2006; 16/2006; 28/2006 and 48/2007. A copy of the SOP is available from the Revenue website.

Pensions from Abroad and Form 11

The Form 11 for 2006 was changed to remove the box for inserting credit for tax withheld abroad for foreign pensions. While most Irish tax treaties treat pensions as either taxed in the country of residence only or the country of source only, some treaties, e.g. with Canada, provide for taxing in both countries. ICAI, under the umbrella body CCAB-I, had brought this to the attention of Revenue through TALC Simplification. Revenue explained that in order to ensure that the Form 11 2006 was processed correctly, it was necessary to advise them of the issue by telephone or in writing.

Self-Catering Accommodation

One of the conditions of the relief for self catering apartments and cottages under the Qualifying Resort Area relief is that they be inspected and approved by Fáilte Ireland. It is our understanding that, with effect from Summer 2007, Fáilte Ireland are phasing out their involvement in inspections and approvals in relation to self catering accommodation; and based on a letter from Fáilte Ireland to one of our members, “compliance with requirements of tax allowance schemes shall ultimately be a matter for the Revenue Commissioners who may require ongoing evidence that a holiday home is actively marketed by an entity which satisfies Fáilte Ireland requirements for active promotion”.

In Tax Briefing 68 of April 2008, Revenue have advised that they are prepared to accept that the listing requirement in the tax legislation in respect of self catering accommodation is satisfied provided the following three conditions continue to be met:

-The premises must be used primarily for letting to, and occupation by, tourists and must not be used for any other purpose in the period 1 April to 31 October in each year. -The premises must not be let to, or occupied by, any person for more than two consecutive months at any one time or for more than six months in any year. -A register of lessees/tenants must be maintained that must contain the following information in relation to each lessee/tenant: - name, permanent address and nationality; - date of arrival and date of departure.

Representations that have been resolved at TALC are included in ICAI Tax, the ICAI Tax Department electronic newsletter, which is sent out every Monday to ICAI members who either work in tax or have expressed an interest in tax.

While the ICAI Tax Department cannot make representations in respect of specific client queries, if you have general issues that you would like us to bring to the attention of Revenue through the TALC process, please forward the details to me at mary.obrien@icai.ie.

Mary O’Brien, ACA, is Senior Manager at the Taxation Department of the Institute of Chartered Accountants in Ireland.