Tax

The Temporary Wage Subsidy Scheme is ever evolving in the face of uncertainty, writes Maud Clear.The Temporary Wage Subsidy Scheme (TWSS) was introduced on 26 March 2020. Looking back 20 weeks on, in a world turned upside down by COVID-19, it is fair to say that the Scheme has evolved since its inception. With many businesses facing an uncertain road to recovery, the July Jobs Stimulus package was the next eagerly awaited phase in this evolutionary process.Revenue offered its services to the Department of Finance to pay out the subsidy through real-time reporting tools – an extraordinary move from an institution whose function is to collect tax.While the initial assessment in establishing eligibility was a significant exercise for many employers, Revenue provided consistency and support in their operation of the Scheme.That is until a programme of compliance checks was announced on 23 June for all employers availing of the Scheme. This was an unforeseen turn in the Scheme’s evolution, particularly when Revenue issued guidance on 20 April indicating: “We may in the future, based on risk criteria, review eligibility”.Such a broad stroke approach and the requirement for a response within five days have many employers questioning what is yet to come in the operation of the Scheme.Chartered Accountants Ireland, under the auspices of the CCAB-I, sought an extension to this response time. In response, Revenue may now allow for an extension of the five days where an employer contacts them to explain their difficulty in returning a response within the required timeframe.The announcement of an extension to the TWSS until the end of August came with a warning from the Minister for Finance that “this support cannot last forever”. As the challenges facing employers in re-opening continue to mount, assurance has since been provided by the Minister that the Scheme will not come to “an abrupt end”.  Most employers need the support of the TWSS to get back on their feet. Clarity on how they will get it, and for how long, will be a determining factor in their recovery. It is hoped that the ‘July Jobs’ stimulus package will provide that certainty.Maud Clear is Tax Manager at Chartered Accountants Ireland.

The prospect of an EU-wide digital tax raised its head again in June following developments at the OECD. Peter Vale and Kim Doyle consider if we are now closer to implementation of an EU digital tax across all member states, and the impact on Ireland’s offering.The EU agreed last year to park its digital tax proposals to allow global consensus to be reached through the OECD digital tax discussions.Both the EU and OECD proposals aim to allocate a portion of profits based on the location of consumers, reflecting the increasing value that businesses place on consumer data.In June, the US withdrew from the OECD’s digital tax discussions. This has increased the likelihood that the EU will push ahead with its own proposals.In the short-term, the impasse at OECD level is also likely to see other countries push ahead with unilateral digital tax proposals. Indeed, many EU countries have either implemented or proposed their own digital tax proposals.An EU digital taxThe EU’s original digital tax proposals envisaged a simple 3% turnover-based tax as an interim measure, subject to reaching agreement on a means of allocating profits based on digital activity. Given the complexities involved in arriving at such a means, the risk is that any interim ‘quick fix’, such as a flat turnover-based tax, could potentially become permanent.While countries are free to introduce their own digital tax measures, as several have done, implementation of an EU-wide digital tax regime would require unanimity across all EU member states. The need for unanimity could make it challenging to implement as certain countries, including Ireland, are not in favour of the existing EU digital tax proposals.However, the EU is looking to replace unanimity over tax decisions with a form of “qualified majority voting”. While such a change will itself require unanimity, political factors may lead to the removal of the requirement for unanimity in the future. This could potentially pave the way for easier implementation of EU-wide tax changes.Although the removal of the requirement for unanimity on significant EU tax decisions is some years away, countries are often reluctant to use a veto to block EU tax proposals. Hence the real possibility of an EU-wide digital tax in the short- to medium-term.COVID-19 will also drive countries to seek out additional tax revenues to fund spending, with digital tax from large multinationals likely seen as an easy target.What does it mean for Ireland?In recent years, many multinational companies (MNCs) with substantial operations in Ireland have moved their valuable intellectual property (IP) here. Over time, this would be expected to increase corporation tax revenues in Ireland.A simple 3% tax on the ‘digital’ revenues of large MNCs would increase the effective tax rate of these companies and thus dilute the benefit of our 12.5% corporate tax rate. This would impact low-margin businesses most and from a tax perspective, would make it less attractive to operate from Ireland.While the movement of IP to Ireland should see an increase in our corporate tax revenues, an EU-wide digital tax could see a pull the other way; it may cause some groups to reconsider their Irish presence.However, even if our tax regime becomes relatively less attractive, our 12.5% corporate tax rate may still make Ireland the most compelling location in Europe in which to do business and help us retain key employers.Digital tax optionsThe EU acknowledges that a 3% turnover-based tax is a blunt instrument and that more refined taxation of digital activity is the end goal. The OECD considered other options, which would involve looking at the level of activity in the selling country in determining an appropriate allocation between the selling country and the market jurisdiction. However, it is acknowledged that this is a difficult exercise – one that potentially involves a rewriting of transfer pricing principles – hence the EU proposal to start with a straightforward 3% turnover-based tax.Ideally, there would be agreement at EU level on a more sophisticated and accurate means of profit allocation rather than simply jumping into a turnover-based tax regime. While this might take some time to develop, it could be part of negotiations at EU level given that unanimity is required to implement any digital tax proposals (although countries would remain free to continue to develop their own digital tax regimes, which is far from an ideal scenario). A longer-term solution that reflects the value-added activities taking place in the selling jurisdiction, not merely market jurisdiction factors, would be better for Ireland. It would also encourage more knowledge-based businesses to locate here.Wider impactIf the price of any negotiation on digital tax proposals is that unanimity over tax decisions is removed, there is a longer-term vista of other EU proposals being pushed through. This would include the dreaded Common Consolidated Corporate Tax Base (CCCTB), which would again look to rewrite the rules in terms of the allocation of a group’s profits. Such moves would be bad for a small, open economy such as Ireland with significant profits diverted to larger market jurisdictions diluting the benefit of our 12.5% corporate tax rate.Once again, we are at a critical juncture in terms of global tax rule changes. Developments to date have generally been positive for Ireland. However, it would be dangerous to think that this will continue to be the case. In practice, our options are limited in terms of influencing the direction of changes to the tax landscape. In any future scenario, however, the location of high value-add activities should continue to play a key role in the allocation of a group’s profits. One thing that is not good for Ireland is uncertainty. Groups cannot make robust plans in an uncertain environment. The sooner there is clarity on digital tax changes, the better for Ireland.Ongoing robust corporate tax receipts evidence the generally positive impact that global tax changes have had in Ireland to date, with a movement away from tax havens to jurisdictions with substance. If Ireland can maintain a regime that both encourages and rewards innovation, we will be in the best possible place to emerge relatively unscathed from the latest round of changes.Kim Doyle FCA is Tax Director, Head of Knowledge Centre at Grant Thornton.Peter Vale FCA is Tax Partner, Head of International Tax at Grant Thornton.

Peter Vale considers the items that could become long-term features of Ireland’s tax regime under the new government. In the April issue of Accountancy Ireland, I wrote about the expected impact of COVID-19 on Exchequer receipts for 2020 and beyond. We have now seen the evidence with both VAT and excise down roughly 50% on similar months last year. While some of the drop in VAT receipts might be down to timing with companies deferring payments, a large chunk is an unquestionably permanent loss in VAT revenue due to lower spending. The income tax figures for May are also expected to show a significant drop, due to vastly lower numbers in employment. The Department’s view is that corporation tax figures will hold up better. I hope this forecast is right, but I fear that the hit to corporate profits will be higher than anticipated, with refunds for prior years and losses carried forward likely to feature. What is next? So, what does this mean for future taxes? Will the relatively healthy state of our public finances entering the crisis make for a less painful exit? The Minister for Finance, Paschal Donohoe T.D., has stated that he will not raise taxes this year as doing so would stifle the ability of the economy to recover. This makes sense, assuming we can afford to do it. You also cannot simply raise taxes and expect to collect more tax revenue; you reach a tipping point, after which further hikes result in less tax collected. And many of our taxes are already high. Tax reliefs Of course, ruling out impending tax increases does not mean that there will not be a focus on tax reliefs. While many tax reliefs have been abolished over the last decade or so, certain targeted reliefs remain available to taxpayers. It is unlikely that tax reliefs incentivising environmentally friendly behaviour will be targeted. Furthermore, the research and development (R&D) tax credit is also unlikely to be affected as it encourages more sustainable jobs. Reliefs that allow business assets to be passed (typically) to the next generation are more likely to be in scope. Generous reliefs exist for both the disponer and the recipient. These reliefs escaped the guillotine in the past as they continued to make economic sense; a large tax bill was avoided on a potentially illiquid event, allowing the business to be driven forward by the next generation. Capital taxes Capital taxes are likely to be targeted by the Minister, perhaps initially by way of curtailment of reliefs and in the medium-term via an increase in rates. That said, capital tax rates are already high with our 33% rate one of the highest in the EU. In contrast, the UK capital gains tax rate is 20%. We know that when the capital gains tax rate was halved from 40% to 20% some years back, the tax-take doubled. An increase in capital gains tax rates could see the opposite effect, with fewer transactions and potentially more tax planning resulting in a lower tax yield. Broadening the tax base One thing the Minister may look at in the future is broadening the income tax base. It is questionable as to whether this would be regarded as an increase in taxes, but it would generate more tax revenue. Broadening the tax base would mean more people paying tax, albeit many would pay very little. Adjusting the current exemption limits and credits would facilitate this. Broadening the tax base was a recommendation of the Commission of Taxation over a decade ago, but we have not seen it followed by governments since. While the notion of everybody contributing something may resonate more in the current environment, it may still prove politically unpalatable. Property tax In the medium-term, depending on the state of the public finances, other tax-raising measures may be considered. The options aren’t exactly limitless. Our VAT rate is already comparatively high, as are our income taxes. Our corporation tax rate is low but effectively untouchable. One tax rate that is low in a European context is property tax, in particular for residential property. Many economists see property taxes as the least distortive, so an increase in property taxes might be the ‘least bad’ way to raise taxes. Tackling property taxes would be a brave move for a new government, but potentially something that could be done in year one or year two of a new term. Conclusion In summary, tax increases later this year are unlikely – although we may see certain reliefs targetedand the ‘old reliables’ such as cigarettes and alcohol are unlikely to escape. In the medium-term, COVID-19 will mean that tax-raising measures are likely to feature. In my view, a broadening of the tax base and an increase in property taxes are the most likely outcomes. Both of the above could be long-term features of our tax regime, although much will depend on future government priorities.   Peter Vale FCA is Tax Partner at Grant Thornton.

Geraldine Browne provides food for thought as employers prepare to report end-of-year expenses and benefits. At the time of writing, I am adjusting to working from home and seeking the best working station in the house (I lost). Much of my time is spent assisting clients with queries on the UK Government interventions introduced to help businesses survive in this challenging time. The most common questions relate to furloughed workers as companies struggle to maintain productivity. It is difficult to choose a topic for this article amid the human tragedy unfolding before us on a global scale. As this article will publish in June, employers will be gathering the necessary information to complete Forms P11D and share scheme reporting for the year ended 5 April 2020. For this reason, I will focus on P11D reporting and consider the changes employers face in benefit-in-kind (BIK) reporting in light of the coronavirus emergency. The due date for P11D reporting is 6 July 2020 for BIK provided for the year ended 5 April 2020. While this may have been delayed in line with other announcements from HMRC, the preparation process will nevertheless be the same. What do I need to file? If the employer paid any benefits and/or non-exempt expenses, or if they payrolled any BIKs, a P11D (B) form must be filed. The employer must include the total benefits liable to Class 1A, even if some of the benefits have been taxed through payroll. Employers are also required to give employees a letter informing them of the benefits that were payrolled and the amount of the benefit. What do you need to include on the P11D form? Taxable benefits typically include private medical and dental insurance, company cars, and gym membership, for example. HMRC has published a useful guide for P11D completion, which is a good starting point. Company cars and vans Employers are required to disclose the company car BIK for the full tax year where it is made available for the entire period. The question has been asked as to whether an employer can reduce the BIK value since employees have been asked to remain indoors and business travel in a company car ceased temporarily from March 2020. If an employee is furloughed and the vehicle remains at the employee’s home, the car is seen as being available under the current rules. At the time of writing, HMRC has not yet issued formal guidance on this matter. There have been suggestions that HMRC may accept that company cars will not be deemed available for BIK tax purposes where they are ‘virtually’ handed back by returning keys and fobs. It is worth reminding ourselves of the rules regarding the cessation of the car benefit. The benefit may cease, but remember: The car must be unavailable for at least 30 days to pause or cease a company car benefit; and HMRC will accept that the car is unavailable to the employee if it is broken down and has not been repaired or if the employee does not have the keys. If you have not already considered the company car policy, it is worth seeking advice in this area. Taxable expenses when working from home If employers provide a mobile phone without restriction on private use, limited to one employee, this is non-taxable. If the employee already pays for broadband, no additional expenses can be claimed. If broadband was not previously available in the employee’s home, the broadband fee paid for by the employer may be provided tax-free although in this case, private use must be restricted. Laptops, tablets, computers, and office supplies will not result in a taxable benefit if mainly used for business. If the employee purchases a desk and chair and seeks reimbursement from the employer, this will be viewed as taxable, and you may wish to include this in a Pay-as-you-earn Settlement Agreement (PSA). Some employers may provide employees with an allowance for additional expenses incurred in connection with working from home. This was increased to £6 per week from 6 April 2020 and can either be paid to the employee or reimbursed to them. Businesses and the economy are facing unprecedented financial pressure. It is worth reviewing your current benefits and expenses to identify ways in which you can reduce the cost to your business and reduce the taxable benefit to the employee. With many employees now furloughed and under severe financial pressure, any assistance an employer can provide to increase net pay will be welcome.   Geraldine Browne is Tax Director at BDO Northern Ireland.

David Duffy discusses recent Irish and EU VAT developments. Irish VAT updates VAT payment deferrals  In response to the economic impact of COVID-19, Revenue announced that interest would not apply to late payments by SMEs of their January/February 2020, March/April 2020 and May/June 2020 VAT liabilities. SMEs in this context are defined as businesses with a turnover of less than €3 million and which are not dealt with by either Revenue’s Large Cases Division or Medium Enterprises Division. Businesses that do not meet the definition of an SME but are experiencing VAT payment difficulties are advised to contact Revenue and these issues will be dealt with on a case-by-case basis. Revenue also advised that all taxpayers should continue to file VAT returns within the normal deadlines. Where key personnel are unavailable to prepare the VAT returns due to COVID-19, businesses should file on a ‘best estimates’ basis and any subsequent amendments can be completed on a self-correction basis without penalty.  Furthermore, on 2 May 2020, a scheme was announced to allow businesses that have availed of VAT and PAYE deferrals during the COVID-19 crisis to defer or “warehouse” the payment of those outstanding liabilities for a period of 12 months without accruing any interest. A lower than normal interest rate on late payment of tax (3% per annum instead of 10% per annum) will then apply until the warehoused tax liability has been repaid. Further details of this scheme are available on the Revenue website and legislation will be enacted in due course. Temporary relief from VAT and duty on PPE On 8 April 2020, Revenue announced that the 0% rate of Irish VAT and customs duties would apply to Irish imports (from outside the EU) of personal protective equipment (PPE) and other goods used to combat COVID-19. This relief applies to imports in the period from 30 January 2020 to 31 July 2020. Revenue also confirmed in eBrief 63/20, issued on 17 April, that the 0% rate of Irish VAT concessionally applies to domestic and intra-EU acquisitions of similar goods in the period from 9 April 2020 to 31 July 2020. These reliefs are subject to certain conditions, which are summarised below. For imports from outside the EU, the goods must be imported by, or on behalf of, State organisations, disaster relief agencies, or other organisations (including private operators) approved by Revenue. The goods must be intended for free-of-charge distribution or be made available free-of-charge to those affected by, at risk from, or involved in combating COVID-19. Furthermore, the importer must have both an EORI number and be pre-authorised by Revenue for the relief. In addition, import declarations must include the relevant customs codes in the appropriate SAD boxes. Where VAT and customs duties have already been paid but the relevant conditions for relief are met, a refund of such amounts can be claimed. Application forms to avail of the relief and to seek a refund of VAT or customs duty previously paid are available on Revenue’s website. For domestic supplies and intra-EU acquisitions, the 0% VAT rate temporarily applies to PPE, thermometers, ventilators, hand sanitiser and oxygen supplied to the HSE, hospitals, nursing homes and other healthcare facilities for use in the delivery of COVID-19-related healthcare services to patients. The sale of these products in other circumstances will continue to attract the VAT rate that would typically apply. VAT grouping In eBrief 053/20, Revenue issued guidance in respect of VAT groups. The guidance primarily outlines the requirements and implications of VAT grouping and includes examples, which show how the rules apply in certain circumstances. Businesses that are considering forming or breaking a VAT group should review the guidelines to ensure that the appropriate procedures are followed. The guidance includes a section on the territorial scope of Irish VAT groups and confirms that, where an entity that is established or has a fixed establishment in Ireland joins an Irish VAT group, it is the entire entity, including any overseas branches, that is considered to join the Irish VAT group. Consequently, charges from a foreign establishment of an Irish VAT group member to other members of that Irish VAT group are disregarded for Irish VAT purposes. This has been the Revenue position for some time, but it is helpful to have it reconfirmed – particularly for the financial services and insurance sectors. ROS enhancements In eBrief 58/20, Revenue announced several VAT-related enhancements to Revenue’s Online Service (ROS). Taxpayers now have the option to add a second VAT agent. To add the second VAT agent, taxpayers will need to complete an Agent Link form in the usual manner. Also, the Revenue Record (Registration Details) on ROS now indicates the VAT basis of accounting (i.e. the cash receipts or invoice basis) adopted by a given taxpayer. EU VAT updates VAT treatment of staff secondments The Court of Justice of the EU (CJEU) concluded in the San Domenico Vetraria (SDV) case (C-94/19) that the secondment of staff by a parent company to its subsidiary in return for a payment equal to the parent company’s cost (but excluding any profit margin) is a supply of services within the scope of VAT. The case highlights that VAT can arise on cross-charges for staff time and this should be carefully considered, particularly in cases where there may be no or partial VAT recovery in the recipient entity. In analysing the case, the CJEU re-stated that VAT arises on a supply of goods or services effected for consideration within the territory of an EU member state by a taxable person. A supply effected for consideration requires a legal relationship between the supplier and recipient, and reciprocal performance, meaning that the payment received by the provider of the service is in return for the service supplied to the recipient. In the present case, the CJEU was satisfied that there was a legal relationship between the parent and subsidiary and that there was a payment in return for the service provided. Consequently, where the Italian court, which had referred the case to the CJEU, established based on the facts that the amounts invoiced by the parent company were a condition for the secondment and that the subsidiary paid those amounts only in return for the secondment, VAT would apply to the secondment. The CJEU confirmed that the fact that the payment did not include a profit margin did not impact the VAT analysis, as it has been previously held that a supply for VAT purposes can take place where services are supplied at or below cost.   David Duffy FCA, AITI Chartered Tax Advisor, is an Indirect Tax Partner at KPMG.

Kim Doyle considers the best course of action for businesses that are strained financially as a result of the impact of COVID-19. COVID-19, a term that was not part of most members’ vocabulary a mere two months ago, is now the unwanted commandeer of conversations. Self-isolation, social distancing, WFH (working from home) and CC (conference call) have become part of our basic business language. But we must not forget to keep talking about the old reliable, tax. Continue to talk to Revenue, as early as possible, if you are now experiencing timely tax payment difficulties. This is one of their key messages. The other is to get tax returns in on time. At the time of writing, Revenue’s message to businesses strained financially as a result of the impact of COVID-19 is that they will work to resolve tax payment difficulties. Viable businesses that experience cash flow difficulties have long been encouraged by Revenue to engage with them as early as possible. Often, entering a phased payment arrangement is the appropriate practical step to deal with outstanding tax payments. In fact, at the end of 2019, over 6,300 business had such arrangements in place covering €73 million in tax debt, according to Revenue. Revenue will only agree to a phased payment arrangement provided the relevant tax returns are filed with them, the tax due is fully calculated, the business is viable and there is early and honest engagement. Applications for such an arrangement can be made via the Revenue Online Service (ROS). Supporting documents will be required; the volume of documentation depends on the level of outstanding tax payments. A down-payment must be made, which can range from 25-40% of the total tax payment, which may include interest. Agents can apply on behalf of their clients via ROS. Applications are typically responded to within two weeks; in many cases, arrangements are up and running in a matter of days. Responding to the difficulties arising from the impacts of COVID-19, Revenue has implemented specific measures for small- and medium-sized enterprises (SMEs) experiencing trading difficulties. Perhaps the most important being that interest will not be applied to late tax payments of VAT for the January/February period (due by 23 March) or employer PAYE liabilities for the months of February and March. Any future similar suspension will be considered at the relevant time, Revenue say. For other businesses experiencing temporary cash flow or trading difficulties, the advice from Revenue is to contact the Collector-General’s office directly or the appropriate Revenue division. Revenue has also suspended all debt enforcement activity, for now. Current tax clearance status is expected to remain in place for all businesses over the coming months.  And in an effort to ease the burden on households, Revenue also announced the deferral of certain local tax payments (annual Debit Instruction/Single Debit Authority) to 21 May from 21 March. As of now, there is no statement from Revenue on dealing with other taxes such as corporation tax. In this unprecedented turbulent environment, protecting the tax receipts must be one of the priorities for Government. It is hoped that any dip in tax receipts will be confined to 2020. However, as long as we continue to talk about COVID-19 and suffer the impacts, we must also continue to talk to Revenue. Kim Doyle FCA, AITI-CTA, is Tax Manager at Chartered Accountants Ireland.