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VAT deductions might seem simple but there is a lot that can go wrong. Conor Walsh explains possible issues and how businesses can correct them. VAT law only grants one fundamental right on people who are VAT registered: the entitlement to input deduction. In contrast, as VAT is a self-assessment tax, legislation, regulations and case-law impose extensive obligations on taxpayers, including the responsibility to correctly account for, collect and pay over VAT to taxation authorities. With an ever-changing tax landscape, increasing complexity of transactions on a global scale, technological advances and legislative changes coupled with staff turnover within businesses, it should come as no surprise that taxpayers sometimes make mistakes. Regardless of the nature and extent of an error, timing is absolutely key when it comes to correcting it.  What goes wrong? Failure to register for Irish VAT when obliged to do so: a business may exceed the Irish VAT registration threshold contained in law, say in relation to domestic supplies here in Ireland, the Intra-Community Acquisition of goods into Ireland or making distance sales from another EU Member State to Irish consumers causing issues down the road. Incorrect VAT rates are applied: a taxpayer should ensure that they are charging the appropriate VAT rate(s) on their supplies. As VAT is a transactional tax, the business needs to consider the appropriate rate for each and every transaction. Given that businesses normally make repeated supplies of identical goods or services, it is crucial that the correct VAT rate is applied to each transaction. Failure to account for VAT on the reverse charge basis: taxpayers acquiring taxable goods or services in Ireland from abroad within the EU generally must ensure that VAT is being accounted for on the reverse charge basis (this is where a business ‘self-accounts’ for the VAT due). This obligation is particularly important where the business receiving the supply has limited or no VAT recovery entitlement, as an absolute VAT cost then arises.    Incorrectly recovering VAT on non-deductible expenditure: where there are some important exceptions, VAT is typically not recoverable on expenditure incurred on food, drink, accommodation, entertainment, petrol and certain other motor related costs.  Failure to make an adjustment for unpaid purchases: legislation introduced in recent years provides that where a taxpayer deducts VAT in a return but has not paid the supplier for the goods or services within six months of the end of that VAT accounting period, then the amount of VAT originally claimed as a deduction should be adjusted. The adjustment equals the proportion of VAT which relates to any unpaid supplier invoices, or part thereof. A re-adjustment can be made to reclaim the VAT incurred once the supplier is paid. Property transactions: It is well-recognised that VAT on immovable property is an inherently complex area of Irish VAT law. Given that such transactions are often high in value, it is imperative to ensure the correct VAT treatment is applied. Failure to charge VAT (where correctly applicable) or incorrectly charging VAT (where it is not applicable) can lead to significant issues for the parties involved.  It’s also important to keep in mind that there can be significant hidden VAT liabilities that may unexpectedly arise under capital goods scheme adjustments which claw back VAT deduction claimed by previous owners on inflated property values before the property crash. Mergers, acquisitions and company reorganisations: similar to VAT on property transactions, these types of transactions frequently gives rise to VAT issues. Depending on the fact pattern of the transaction(s) involved, transfer of business relief (i.e. Ireland’s version of transfer of a going concern (TOGC) relief which applies in many other European jurisdictions) may be applicable. While the EU and Irish law underpinning this relief – which automatically applies once the necessary conditions are satisfied – spans no more than a few lines, it is an area which has given rise to countless disputes and a body of case-law across Europe. One could certainly be forgiven for holding the view that this ‘simplification’ measure is not so simple. Correcting the error There is a fundamental difference between an error and a difference in technical interpretation held by a taxpayer and Revenue. The right of appeal is available to Irish taxpayers against Revenue determinations in the area of VAT. Regardless of the nature and extent of an error, timing is absolutely key when it comes to making a correction. There are obvious advantages associated with taking prompt action, normally in the form of mitigating interest and penalties. That being said, there is a clear advantage to taxpayers who regularly review their tax affairs. Taxpayers who discover historic VAT errors generally regularise their position with Revenue by way of self-correction or by making a qualifying disclosure. Self-correction without penalty As documented in the Revenue Code of Practice for Revenue Audit and other Compliance Interventions, Revenue permit taxpayers to self-correct for errors by including an adjustment in a subsequent VAT return. The adjustment is typically the quantum of under-declared VAT. While there are a number of conditions attached to self-correction without penalty, taxpayers can generally avail of it provided the net underpayment of VAT for the period being corrected is less than €6,000. Self-correction must take place before the due date for filing the taxpayer’s income tax or corporation tax return (as appropriate) for the chargeable period (normally a one-year period) within which the relevant VAT accounting period ends. Once this time limit has lapsed, taxpayers will normally be required to make a qualifying disclosure in order to correct an error. It happens… It is likely that most businesses will discover a historic VAT error at some point in their life cycle, although the significance of the error will vary considerably between taxpayers. Timely action, full disclosure and co-operation with Revenue is always advisable when regularising tax affairs. Conor Walsh ACA is a Tax Manager in Deloitte.

Apr 23, 2018
News

It’s one of the most efficient ways to accelerate progress towards gender balance in leadership, yet many organisations are reluctant to offer women-only development and training opportunities. Women-only development is controversial for a number of reasons; many argue that it is not representative of the actual workplace, it perpetuates the belief that women are somehow ‘lacking’ and undermines the argument that men and women are equal.  However, it is important not to confuse ‘equal’ with ‘same’. While women are equally capable, their leadership journey is very different to that of men. The workplace was designed around a society where men went out to work and women stayed home. While our society has moved on, organisational structure and culture remain relatively unchanged. Men have the advantage when it comes to understanding many of the behavioural norms and unwritten rules in organisations. By contrast, the concept of women in leadership is relatively recent and there is a shortage of strong female role models in those positions. Those women who do succeed are held to a different standard than their male counterparts – the ‘double-bind’. The reality is that the leadership journey is experienced differently by women. Therefore, it follows that their developmental needs will also differ. Women-only development allows women to explore their leadership identity, discuss issues unique to them such, as barriers to advancement and provides access to female role models. It allows women to build skills in areas where they often feel uncomfortable and at a disadvantage, such as self- promotion. Where to find women-only development programmes So, what women-only developmental opportunities exist for emerging leaders in Ireland? Established in 1983, Network Ireland is a progressive, dynamic organisation supporting the professional and personal development of women. Its members include women from very diverse backgrounds; entrepreneurs, professionals and leaders in indigenous and multinational organisations, non-profits, charities, arts and the public sector. Network Ireland also offers members an invaluable opportunity to avail of free mentoring from other women on issues such as leadership, mediation, finance, PR, social media and marketing. There is also the recently launched IMI programme, Taking the Lead. This programme is designed to give women executives an opportunity to come together and share their leadership experiences in a learning environment that has direct relevance and personal impact. It will run in both Dublin and Cork this spring and covers topics such as purpose, empowerment and personal brand whilst also addressing inhibitors. Lastly, in Ireland, and Run by the DCU Ryan Academy for Entrepreneurs and supported by Enterprise Ireland, Dublin City University’s Female High Fliers accelerator programme attracts on average 130 high calibre female entrepreneurs every year who are looking to develop leadership skills, fast track their business and ultimately achieve scale. In the UK, the Leadership Foundation for Higher Education offers the Aurora women-only leadership development programme with the intention of addressing the issue of under representation of women in leadership positions in higher education. Over the past four years 3477 women from over 139 institutions across the UK and Ireland have participated. As organisations recognise the advantages of women only-development, further initiatives will emerge. However, it is essential to ensure that it is offered as a range of training and development opportunities. Dawn Leane is Principal Consultant at LeaneLeaders.

Apr 23, 2018
News

Ireland has long enjoyed a distinctive role in aviation innovation that belies its size. From pioneering duty-free shopping in the 1950s to blazing a trail in low fares in the 1990s, Ireland has been to the forefront of improving the customer experience in air travel. Less well known is our position as the birthplace of aviation finance, beginning with the launch of Guinness Peat Aviation (GPA) in the 1970s.  Today, the country is firmly established as a major global hub in aircraft leasing, with a significant number of major global players based here. Nine of the world’s top 10 lessors are headquartered in Ireland, while in excess of 30 global aircraft leasing companies operate from here. A staggering 50%+ of the world’s leased aircraft are owned and managed from Ireland.  Significant growth in the aviation industry has been a feature of the last decade, increasing the demand for the services of these Irish-based companies. Major investment from the Middle East and the demand for specific financing structures to support airlines in new and emerging markets have helped fuel this growth. Against that, the global financial crisis over the last decade has certainly had its impact on a sector that has always been particularly sensitive to political and economic turbulence, not to mention fluctuating oil prices. On balance, however, the general prospects for global aviation remain overwhelmingly positive. While some of the aftershocks of the last decade are still being felt, the picture in the coming decade is one of significant and sustained investment in aviation across the globe. This spans from new, more environmentally friendly airplanes, to the next generation of airports and terminals. That said, there is little room for complacency in this fast evolving but often volatile industry.  Safety-centred, protocol-heavy experience We all know from our personal experience of flying, that it is a safety-centred, protocol-heavy experience. At a certain level of turbulence, for example, specific controls will automatically kick in, such as seat-belt signs coming on. Should the problem become more serious, the captain may make an intervention to calm passenger nerves. ‘Proactive’, ‘anticipatory’ and ‘responsive’ could be used to describe a flight experience and effective strategies for aircraft leasing companies that want to maintain a strong, competitive advantage in the market. This means ensuring risks, whether at macro- or micro-level, are constantly clarified, identified managed and, ultimately, mitigated where possible.  Risks and challenges In a sector where stakeholders and investors expect ‘best in class’ when assessing how organisations are managed, this extends to the robustness and durability of governance structures. These are reflected through clearly defined policies and procedures, distinct roles and responsibilities, and strong  and practical risk management frameworks. These structures will be central to managing uncertainties, emergencies and transformations. Of course, particular risks and challenges are always evolving in tandem with developments within this composite industry. Here are a few that would currently be rated as of high priority:  GDPR  Attraction and retention of talent and expertise; Contract management and lease revenue recovery; Access to capital and the cost of debt; Financial model governance; Internal and external fraud risk;  Cybercrime or malicious attacks;  Insider trading risks or reputational impact; Strategic initiatives and change or project management expertise; Regulation compliance (KYC/AML, etc.); Over-supply, market demand and the impact on margins; and Geopolitical uncertainties, economic growth and terrorism. These issues are often complex and, in some cases, outside an organisation’s control. What they underline however is the absolute importance of having a robust governance model that is supported by a strong ethos of risk management. There is a huge peace of mind to be gained from having such structures in place, not to mention the additional resilience against adverse events that they may bring. Staying awake Like the airlines they serve, aircraft leasing companies must continue to develop their governance frameworks, to mitigate risk and ensure problems do not escalate into crises. If we continue the analogy of flight, not paying attention to your governance structures could be like dozing-off during the safety demonstration. David Devereux is the Senior Manager in Risk and Advisory Services at BDO.

Apr 22, 2018
News

Better design of taxes on personal savings and wealth is needed to support inclusive growth, says OECD. The taxation of personal savings and wealth varies widely, offering governments significant scope for tax reforms that simultaneously improve both the efficiency and fairness of their tax systems, according to two new OECD reports. The reports – Taxation of Household Savings and The Role and Design of Net Wealth Taxes – recognise that taxes are among the most effective tools governments have for reducing inequalities and bringing about more inclusive growth. "While countries do not necessarily need to tax savings more, there is a lot of room to improve the way countries tax savings," said Pascal Saint-Amans, director of the OECD Centre for Tax Policy and Administration. "There is also a very strong case to be made for addressing income and wealth inequality through the tax system, notably by ensuring effective taxation of capital. Governments have an opportunity to increase both the efficiency and fairness of their tax systems, and these reports outline concrete measures to help achieve this." Taxation of Household Savings provides a detailed review of the way savings are taxed in the 35 OECD countries and five key partner countries (Argentina, Bulgaria, Colombia, Lithuania and South Africa). It finds large differences within countries in the tax treatment of a range of assets such as bank accounts, bonds, shares, private pensions and housing, and points out that tax rules – rather than pre-tax rates of return – are likely driving some savings decisions. Analysis of asset-holding patterns across income and wealth levels shows that differences in tax treatment of certain types of savings often favour wealthier taxpayers over poorer taxpayers. For example, poorer taxpayers tend to hold a larger share of their wealth in relatively high-taxed bank accounts than wealthier taxpayers, who tend to hold a greater share of their wealth in investment funds, pension funds and shares, which are often taxed at lower rates. Faced with these outcomes, the report outlines a range of opportunities for greater tax neutrality across different types of savings to foster more inclusive growth. At the same time, it recognises the case for preferential tax treatment to encourage retirement savings in light of population ageing and increasing pressure on social security systems. The report also finds that opportunities may exist for some countries to increase progressivity in their taxation of savings as a result of the recent move towards the automatic exchange of financial account information between tax administrations. This ground-breaking change in the international tax environment is likely to make it harder in years to come for taxpayers to evade tax by hiding income and wealth offshore – presenting a particular opportunity for countries that previously moved away from progressive taxation of capital income to reintroduce a degree of tax progressivity. The Role and Design of Net Wealth Taxes examines the use of net wealth taxes – both currently and historically – across the OECD. It assesses the case for and against the use of net wealth taxes to raise revenue and reduce inequality, but does not call for their introduction. The report suggests that there is little need for net wealth taxes in countries with broad-based personal capital income taxes, including capital gains taxes, and well-designed inheritance and gift taxes. It finds there may be scope for such taxes in countries where the taxation of capital income is low or where inheritance taxes are not levied. Source: OECD.

Apr 20, 2018
News

The European Securities and Markets Authority (ESMA) has published an extract from its confidential database of enforcement decisions on financial statements. The extract includes a selection of 10 decisions taken by national enforcers in the period from August 2016 to July 2017. ESMA is publishing extracts from its confidential database of enforcement decisions on financial statements with the aim of providing issuers and users of financial statements with relevant information on the appropriate application of the International Financial Reporting Standards (IFRS). European enforcers monitor and review IFRS financial statements and consider whether they comply with IFRS and other applicable reporting requirements, including relevant national law. Publication of enforcement decisions informs market participants about which accounting treatments European national enforcers may consider as complying with IFRS; that is, whether the treatments are considered as being within the accepted range of those permitted by IFRS. Such publication, together with the rationale behind these decisions, will contribute to a consistent application of IFRS in the EEA. ESMA will continue publishing further extracts from the database on a regular basis, with the next extract expected to be published in the second half of 2018.   Source: European Securities and Markets Authority.

Apr 20, 2018
News

The Financial Reporting Council (FRC) has called on asset managers, pension funds, sell-side analysts, ratings agencies, proxy advisors and sovereign wealth funds to be representatives of the investor community for a new Investor Advisory Group (IAG). The IAG will provide a regular forum for the FRC to engage with representatives from across the investment chain on various issues including the FRC's strategy and plan, and new policies and standards on governance, stewardship, reporting and audit matters. It will also help the FRC to better understand the investment community’s views of FRC effectiveness. The FRC will use the IAG as a formal way of understanding key areas of concern and emerging risks from the perspective of investors. The deadline for nominations for membership of the group is 18 May 2018. More information can be found here. Source: Financial Reporting Council.  

Apr 20, 2018