The corporate tax world faces significant change in 2016 and beyond. This could represent an opportunity for nimble economies such as Ireland, writes Peter Vale. Did you know that the European Union (EU) is putting together an anti-Base Erosion and Profit Shifting (BEPS) Directive? If you didn’t, you might think that the EU is against the Organisation for Economic Co-operation and Development’s (OECD) BEPS project. It’s not. There is a lot going on in the international tax space as far as Ireland is concerned. Here are some of the current live issues and what they might mean for Ireland:   Finalisation of BEPS action plans in October 2015 – lots of work still to do in 2016 and 2017. Can we hold the line that Ireland is “BEPS-proof” and that the BEPS focus on substance will play into our hands? Still awaiting Apple’s tax case determination from the EU. When will we get it and what impact will it have? EU Common Consolidated Corporate Tax Base (CCCTB) proposals. Significantly more serious for Ireland if they ever become a reality – will they? EU anti-BEPS Directive – the EU’s attempt to fast-track some of the OECD’s BEPS proposals. Will this make Ireland and the EU less competitive? US tax developments – what is the likelihood of significant changes in US tax law that would impact Ireland? How will our recently-enacted Knowledge Development Box stand up against its competitors? While CCCTB and some of the proposed US tax changes have been around in some shape or form for a number of years, it is in the last three years that we have seen the most significant developments in the international tax landscape. Driving forces behind these developments include political momentum and governments responding to public disquiet at the tax practices of large multinationals. We now see actions, not just rhetoric, resulting in the OECD’s BEPS project. The BEPS project The BEPS project, led by the OCED, has as its objective the creation of a new set of global tax rules to combat perceived tax avoidance. A key BEPS objective is to align taxable profits with real economic activity. The OECD published its final BEPS report in October 2015. While there are aspects of BEPS that require more work in 2016 and 2017, the final proposed landscape is becoming clearer. Substance will drive the location of taxable profits and the exchange of information between tax authorities will improve significantly. The ability to avoid tax in such a climate will be more difficult. What’s less clear is whether the new landscape will be the result of the BEPS project or the culmination of unilateral changes taken by governments around the world under the backdrop of a new BEPS mindset. It would be more efficient if the changes were kept under the one roof, which is the objective of the BEPS project. Anything less will simply create more anomalies, more loopholes and more uncertainty. The OECD is very aware of this risk and is keen to maintain the current BEPS momentum so that countries continue to have faith in the ability of BEPS to deliver. The OECD has already achieved certain results through the BEPS project. Country-by-Country Reporting (CbCR) has already been adopted by many countries, including Ireland. Unquestionably, some of the changes introduced by Ireland in recent years are the result of BEPS including the abolition of the so-called ‘Double Irish’ structure. Ireland has been involved in all stages of the BEPS process. With its focus on substance, there is a genuine belief that BEPS can further increase Ireland’s attractiveness for foreign direct investment. A bad Apple? At the time of writing, we are awaiting the EU’s decision in the Apple case. This case was brought against Ireland by the EU as a result of an alleged breach of state aid rules. It is not unreasonable to conclude that there is a political element to the Apple case. It is very possible that the EU will find against Ireland and that we will be obliged to fight the case through the European courts. A prolonged legal case will cast a spotlight on Ireland, however, and could impact our reputation overseas. Given that our reputation is now very strong, such attention would be unwelcome – particularly as companies increasingly consider the reputation of a jurisdiction when assessing investment decisions. CCCTB proposals The EU’s CCCTB proposals extend far beyond BEPS. If implemented, they would see the allocation of taxable profits driven by factors such as the location of customers, employees and assets. CCCTB would likely see profits diverted away from small economies such as Ireland and significantly dilute the benefit of our 12.5% tax rate. The good news is that several countries remain against the CCCTB proposals and at this point, the likelihood of CCCTB implementation is low to remote. In the view of many people, the BEPS proposals should be allowed develop before any effort is made to push through CCCTB. Anti-BEPS Directive The EU is also pushing ahead with plans for a directive to implement certain BEPS recommendations this year. Such a directive would require unanimous adoption across the EU by virtue of the veto option that all countries have over corporate tax matters. If implemented, it could potentially add additional costs to EU countries and impact on EU competitiveness. This directive, the Apple case and CCCTB are examples of the EU flexing its muscles in a battle that has seen it sidelined by the success of the OECD’s BEPS project. US developments The US tends to be vocal about other tax regimes while failing to tackle flaws within its own corporate tax system, which has the highest tax rates in the developed world. Notwithstanding some changes to the inversion rules, there is little evidence to suggest any significant change in its stance. This should be positive for Ireland. The Knowledge Development Box The recently-introduced Knowledge Development Box (KDB) offers a 6.25% tax rate to companies that carry out R&D activities in Ireland. While the KDB has its drawbacks, particularly as it doesn’t work well for groups that outsource much of their R&D to group companies outside Ireland, it does add to Ireland’s attractiveness as a place to house profitable R&D activities. The KDB also enhances our reputation with both the EU and OECD as it is fully compliant with the ‘modified nexus’ approach. While this means that it doesn’t work as well as some other competing regimes, it has the benefit of making us more attractive to groups that are keen to be associated with regimes with strong reputations. There is recent evidence to suggest that groups are looking to “cleanse” their structures and move away from offshore traditional havens to onshore locations such as Ireland. Conclusion We are living in a time of great change in the corporate tax world. In my view, the opportunities for Ireland outweigh the dangers and the focus on real substance can be a positive for further international investment here. Undoubtedly, others will seek to replicate elements of our successful tax regime but if we remain nimble, we can stay ahead of the game. Peter Vale is Tax Partner at Grant Thornton.

From April onwards, several substantial changes will be introduced in the area of employment taxes. Employers should also be aware of areas that are not changing and remain under-explored, write Peter Burnside and Helen Norris. From 6 April 2016, business expenses reimbursed to employees will no longer be reportable and dispensations will be abolished. The responsibility will be on the employer to implement a system that ensures the expenses incurred by employees are allowable business expenses and qualify for exempt status. In effect, the employer will need to self-assess. There are many grey areas within the scope of Pay as You Earn (PAYE) and expenses, which might cause issues for small employers who do not have access to the required expertise. It has been suggested that the changes will reduce the administrative burden on both employers and employees. However, the comfort arising from the protection of holding a dispensation will be lost. The new legislation makes the validation of all employee expense claims a statutory requirement for all employers, and it will be vital that employers ensure only confirmed business expenses are reimbursed as exempt from tax and national insurance contributions (NIC). Set scale rates Previous dispensations covered genuine business expenses but provided the employer correctly and completely disclosed all relevant facts to HMRC, they had legitimate expectation of protection against HMRC consequently changing its view. This safeguard has effectively been abolished, leaving the employer more exposed in the event of a visit from HMRC’s employer compliance team. If an employer wishes to pay a set scale rate, two options are available. If they require a bespoke rate of payment, they will need to obtain approval from HMRC. They can, however, pay the new rates set by HMRC without the need for formal approval provided this is in relation to meals purchased by the employee in the course of qualifying travel. It will also be necessary for employers to have a system in place to check that employees have incurred expenditure prior to making a scale rate reimbursement. Where a bespoke rate had been agreed after 5 April 2011, it can continue until the fifth anniversary of the original agreement. Temporary workplaces While the reimbursement of expenses in respect of ordinary commuting is always going to be fully taxable, special consideration should be given when dealing with reimbursement of expenses to employees who are attending a temporary workplace. The Income Tax (Earning and Pensions) Act (ITEPA) considers a workplace to be temporary provided its duration at the outset is intended to be no more than 24 months and the secondment is part of the duties of continuing employment. If attendance at a temporary workplace exceeds 24 months, the relief may still apply provided it accounts for less than 40% of the employee’s working time. Payrolling benefits-in-kind It is currently possible to payroll benefits-in-kind, but they must still be reported on Form P11D. If you payroll benefits and expenses on or after 6 April 2016, you must complete HMRC’s online registration for ‘Payrolling Benefits-in-Kind’ (PBIK). This will remove the requirement to report using Form P11D. The only excluded benefits are living accommodation, interest-free and low-interest loans, vouchers and credit cards. The tax due in respect of benefits and expenses is collected by adding a notional value to the employee’s taxable pay based on the cash equivalent of the benefit. The cash equivalent should be calculated using the normal method used when preparing Form P11D, and should then be divided by the total number of payments to be made. The tax due should be calculated as normal using the issued tax code. Once you have registered under PBIK, HMRC will automatically identify employees who have the selected benefits or expenses included within their tax code, remove these restrictions and issue an amended code. It should be noted that if benefits and expenses are payrolled, it will still be necessary to complete and submit a Form P11D(b) annually by 6 July including any payrolled amounts. If you plan to payroll benefits and expenses for the 2016/17 tax year, you must register by 5 April 2016. PAYE settlement agreements Staff entertainment benefits form an annual tax exemption in respect of annual functions, which are open to all staff provided the cost per head does not exceed £150 inclusive of VAT. This is an exemption as opposed to an allowance, so any event in excess of the £150 exemption will be fully taxable upon the employees in attendance as a benefit-in-kind. It may be considered that awarding employees with a tax liability in respect of their Christmas party negates any goodwill and, as such, PAYE settlement agreements (PSAs) are widely used to allow employers to foot this bill. Employers must renew their PSA each year by 6 July following the end of the tax year. If they are approved by HMRC before the commencement of the new tax year, however, there is much greater scope for inclusion. Expatriate employees European Union (EU) citizens have the right to live and work in any country within the EU. Under European Community rules, the policy ensures that employees remain a part of a single social security system and do not lose their rights when moving between member states. The general rule is that you pay social security contributions in the country in which you work, even if you are resident in another member state. This is an area of particular interest for cross-border workers who reside in one member state but work in another, and also for those whose duties are split between two or more EU countries. The latter is becoming increasingly common in the current climate. For these individuals whose duties are split, or who are temporarily posted to work in another member state (generally limited from the outset to a maximum of 24 months), it may be possible to apply for an A1 Certificate of Coverage from their local revenue authority so that they pay their social security fully in their home country. This would mean that all social security contributions could remain in the employee’s home country and none would be due in the other member state. An A1 Certificate is generally issued for a maximum period of two years and the length of potential coverage will vary depending upon the countries involved, but can be extended for a period of up to five years. It is not possible to simply opt to pay your social security in your home country while working in another member state. To make an application for an A1 Certificate, it is necessary to carry out a substantial part of your activities in that country. ‘Substantial’ is generally considered in this context to be 25% and consideration should be given to working time and/or remuneration, although other relevant criteria should also be considered. Indeed, the complexities of each individual scenario should be considered to ensure the optimum outcome for both employees and employers. Scottish Rate of Income Tax The Scottish Rate of Income Tax will be introduced from 6 April 2016, with Scottish taxpayers ultimately paying a proportion of their income tax to the Scottish government. The rate will remain the same as the rest of the UK for 2016/17. HMRC is currently corresponding with taxpayers who live in Scotland to ensure that the address held is correct. From 6 April 2016, taxpayers living in Scotland will be issued with a tax code beginning with the letter ‘S’. While employers will need to implement these tax codes, no changes will be required to the normal methods of payroll reporting or paying HMRC. Overall, the new rules aim to promote simplification but the reality will be more bureaucracy for employers. Furthermore, the self-policing of expenses could lead to more scope for errors. Peter Burnside is Managing Partner at BDO Northern Ireland. Helen Norris is a member of the Tax Management team at BDO Northern Ireland.

David Duffy highlights the latest VAT cases and discusses recent VAT developments. Irish Revenue update Transfer of business relief: Revenue eBrief 113/15 provides a further update to the Revenue Information Leaflet on Transfer of Business (TOB) relief. This updates the previous version of the leaflet dated July 2014. The July 2014 version had indicated a broadening of Revenue’s view on scenarios in which TOB relief applies to the sale of properties that are let or were previously let. The latest version of the leaflet gives further practical examples of scenarios where TOB relief applies to property transactions and comments further on the entitlement to recover VAT on costs in connection with TOB. Finance Act 2015 updates: the December 2015 edition of VAT Matters outlined the principal VAT measures contained in Finance Bill 2015, as initially published. Finance Act 2015 was passed into law in late December 2015 and there were no substantive changes from a VAT perspective to the initial publication. Revenue eBrief 121/15 provides Revenue’s guidance notes on the VAT measures in the Act. In addition, Revenue eBrief 120/15 provides a link to a consolidated version of the VAT Consolidation Act 2010 (taking account of Finance Act 2015 changes). VAT reverse charge in the energy sector: Revenue eBrief 123/15 provides further guidance on the introduction of the VAT reverse-charge mechanism to supplies of gas and electricity to “taxable dealers” as well as supplies of gas and electricity certificates to business customers. These measures came into effect on 1 January 2016. A “taxable dealer” is an entity whose main business is the onward supply of gas or electricity, and whose own consumption of the gas or electricity is negligible in comparison to these onward supplies. The guidance gives examples of who would be regarded as “taxable dealers” in Ireland. Supplies of electricity and gas by Irish suppliers to Irish companies or persons who are not taxable dealers do not fall within the reverse-charge mechanism. The guidance also gives examples of the types of changes in the wholesale gas and electricity sector, which fall inside and outside the scope of the reverse-charge mechanism. EU VAT updates Management of property investment funds: in the Fiscale Eenheid X case (C-595/13), the Court of Justice of the European Union (CJEU) ruled on the VAT treatment of management services provided to regulated property funds. By way of background, the management of certain specified types of funds is exempt from VAT. This case considered whether, and to what extent, the management of funds that hold property assets qualifies for this exemption. The CJEU confirmed that, subject to meeting certain conditions, a regulated property fund can be a special investment fund and VAT exemption can apply to certain services provided to a regulated property fund. The judgment held that VAT exemption applies to activities related to the management of, and investment of capital raised by, the fund but not to the actual management of the property assets of the fund. The case largely supports the position in Ireland that most property holding funds such as Qualifying Investment Funds (QIFs) and Irish Collective Asset-management Vehicles (ICAVs) are treated as special investment funds under Irish law. However, the judgment highlights that the services provided to such funds must be carefully analysed to determine if they can be considered VAT-exempt. No-show airline tickets: the joined Air France KLM and Brit Air cases [C-250/14 and C-289/14] considered whether the airlines were liable to account for VAT where the passenger buys a non–refundable ticket, but does not avail of the flight. The Court ruled that the fare paid by the customer was in consideration for making the air transport service available and was not a non-VATable compensation retained by the airline. The airline was therefore obliged to account for VAT. In addition, the VAT was due when payment was received by the airline from the customer. The judgment does not have a direct impact on air travel services taking place in Ireland or on international routes, as these services are generally VAT-exempt under Irish law. However, the principles established by the judgment may have relevance to other scenarios. The case will need to be considered in light of previous CJEU case law, which held that forfeited deposits in respect of booking a hotel room was a form of compensation that fell outside the scope of VAT and was not in consideration for taxable supplies.   David Duffy ACA, AITI Chartered Tax Advisor, is VAT Director at KPMG.

When evaluating board performance, taking the time to examine dynamics and how the board actually operates can reap valuable rewards, writes Dr Mary Halton. Governance failures in the private, public and not-for-profit sectors have placed boards front and centre in the corporate governance debate, engaging the energies of policy-makers, practitioners and other stakeholders alike. Issues of board composition and structure, while important, don’t fully explain what drives effectiveness, and there is growing recognition that board dynamics and process are central elements of the equation. Good directors want to serve on boards that work well, and they offer significant knowledge, skills and experience that can underpin constructive challenge and contribute to business success. It seems at odds, therefore, to suggest that boards as a whole sometimes fail to add value, or are less effective than they might be, especially in light of the abilities of individual directors. Yet many directors note that this can be the case, citing occasions where they have been frustrated by proceedings and unable to be effective in their role. Underperforming boards can be difficult to spot from the outside because things often look fine on paper. Even for those inside the boardroom, it is not always easy to articulate what is wrong without sounding a little offside – not a team player, as such. But there are usually warning flags that all is not well; indications that the board is struggling to add full value despite the best efforts of directors around the table. Some of the factors critical to board effectiveness, and common signs of an underperforming board, are explored below. Information transfer Preparing well is essential for board effectiveness. But, for non-executive directors in particular, the volume of paperwork can be difficult to manage – particularly in light of the part-time nature of their role. This creates a significant reliance on management to tee-up the important issues and ensure that the information needed for informed decision-making comes to the board. Directors don’t need to know everything, but they do need the key information on a timely basis and in a succinct, user-friendly format. This seems like a straight-forward ask, but it is surprising how often it can be problematic. So, if directors find themselves combing through significant amounts of detail to find the information they need, it’s time to re-visit the board pack and perhaps other aspects of information flow in and around the boardroom. It may be as simple as defining more clearly the information needs of the board, which differ considerably from those of management. Bridging the information gap is not easy, but doing it well pays long-term dividends. Agenda and process Time is limited and agendas are packed, so making sure that the board appropriately addresses all items is difficult – even at the best of times. Warning lights should flash, however, when proceedings are heavily weighted towards presentations from management with little time for substantive discussion. This often happens with the best intent, as management looks to address the problem of information asymmetry and provide non-executive directors with the information they need. However, it can be used as a tool to limit input to decision-making, a practice sometimes encountered on boards where the culture is closed or defensive. Whatever the intent, the impact can be to constrain the value added by the board and impair its overall effectiveness. Careful agenda planning and process management are therefore central elements of a well-functioning board. Papers are read in advance by directors who want to actively contribute, and the meeting itself can then focus on open and constructive discussion, which in turn promotes good strategic decision-making. Role clarity If a phrase like ‘that’s a matter for management’ or something similar is a common part of your board’s lexicon, there’s probably something wrong. Well-run boards ensure clarity around the roles of those at the table and, as noted above, prioritise the healthy debate of pertinent issues. When directors continually find themselves reminded that this or that is not a matter for their attention, it suggests that either they don’t have a clear understanding of their role and are overstepping their remit, or management does not want or value the input of the board. Either way, phrases like this suggest a need to re-assess how the board operates if it is to provide meaningful input on strategically important issues. Collegiality The collective decision-making nature of a board helps to shape board norms, the unwritten rules of behaviour in the boardroom. In particular, directors aim to operate on a collegial basis, working toward an agreed approach and then collectively supporting the decision made. This approach is helpful on an effective board, where agreement is arrived at after thoughtful and open debate. But on less well-functioning boards, norms become somewhat distorted and substantive questioning can be frowned upon. Without the healthy debate needed for good decision-making, the board is vulnerable to groupthink – a problem widely associated with governance failures in Ireland’s banking crisis, for example. So if a board doesn’t welcome new thinking, or actively consider a variety of perspectives on strategically important issues, it’s probably time to re-evaluate the quality of its decision-making. Supportiveness In fulfilling their role, good non-executive directors look to contribute in a way that is supportive and provides objective oversight without undermining management’s authority. Yet, the inherent imbalance in the executive/non-executive relationship can give rise to difficulties at times, particularly as interactions are episodic and often take place within the formal atmosphere of the boardroom. Emotional intelligence and well-honed interpersonal skills are needed. When these are lacking, the dynamic in the boardroom can suffer. For example, challenge may be presented in a way that undermines rather than supports. Or, the opposite happens and interactions become so nuanced and couched in overly supportive language that the real meaning is lost and issues are missed. A temperature check, in particular an objective look at the level of trust around the table, can prompt helpful changes that encourage the board to really tap into what members have to offer. Leading board effectiveness The effective operation of the board, from information flow to boardroom norms, ultimately comes down to the skill of the chair and the openness of the CEO. Each has an essential role to play and a balanced relationship between them is crucial. Problems arise, however, when the chair is too passive and follows management’s lead without encouraging independent judgement and constructive debate. Equally, a chair that is too dominant also signals trouble, perhaps overstepping the role and undermining management’s authority in the day-to-day running of the organisation. And no matter how skilled the chair is, the board cannot function effectively if the CEO – and the management team by extension – does not value input from the wider board. So, when evaluating board performance, taking the time to delve deeper, to move past a checklist exercise and examine dynamics and how the board actually operates can reap valuable rewards in building long-term board effectiveness. Dr Mary Halton is leads governance and ethics initiatives at Chartered Accountants Ireland.

David Fox ACA, Group Financial Controller at Rothco, talks to Accountancy Ireland about his emigration experience and the challenges he faced when considering a move home. Q. You started in your new role in Rothco in October 2015 having spent almost four years working in Australia. Did you find that your overseas experience is something that’s valued by Irish employers? A. Irish employers are now recognising the value in international work experience. It’s viewed as an indication that you are likely to be open-minded and adaptable to change in the future. They also recognise that there are opportunities to get exposure to areas that might not be possible here in Ireland. For example, one of the projects I worked on in Australia was the vendor due diligence for the $5 billion privatisation of the main commercial port in Sydney. Working on a project of similar scale in Ireland at this time would have been a lot more difficult. Q. Was the move home an easy decision? A. It certainly wasn’t an easy decision. I was very happy in my role at NSW Ports and felt I was getting great experience with plenty of opportunities to progress. I had a strong community of friends, many of whom I met through work, and people have a good work life balance in Australia. There’s also the monetary side of things to take into account. Even with the movement in exchange rates over the past while, my take-home pay in Ireland is 20% less than it was in Australia. When you add Ireland’s recent rent increases to the equation, the cost of living is no longer much cheaper than that of Australia. The main draw for me coming back was family. It’s a long way from home and it is expensive to make the trip back, which means the frequency declines. I got married in Dublin last September and that was a big factor in my decision to move back when I did. Q. Did it take much time and effort to prepare for the move home? A. It’s surprising how much ‘stuff’ you accumulate over a four-year period. My final two months in Australia were spent packing up my belongings to get ready for the three-month transit by sea. I ended up selling off anything that was too big to ship, only to find myself buying the exact same things in Ireland four months later. Sleeping on a blow-up mattress, doing my washing in a launderette and eating dinner on garden furniture certainly wasn’t how I imagined my Australian adventure would end. That said, the biggest challenge of all was getting a chance to catch up with the many friends I had made there for one last time. Q. And how did you find the job search process when you returned? A. In hindsight, I underestimated the time it would take to find the right job. I moved back in June and the summer is a slow period for hiring. There are plenty of great opportunities out there, but it’s important to hold out for the right one. Q. Was there an element of culture shock when your move home was complete? A. I settled into my new role at Rothco very quickly. Although it’s a completely different industry, having moved from ports to a creative agency, the experience I gained during my time abroad has been invaluable in getting started in my new role. Settling back into the Irish culture was also easy. There’s a positive sentiment around the place compared to when I left four years ago. Having been away, it’s fun rediscovering the place again and it’s great to see companies hiring and thriving. Q. Having completed your move home, have you any final words of advice for Chartered Accountants embarking on a similar journey? A. The jobs market is buoyant here at the moment so if anyone is considering moving back, now is as good a time as any. Although there are plenty of jobs on offer, it takes time to find the right one. It certainly took me longer than I anticipated and even though you may want some time to re-acclimatise, it’s a good idea to meet up with a few recruitment agencies and reconnect with your network here as soon as you land. A friend of mine went through the full interview process from Sydney via Skype, so that’s an option too. See the February edition of Accountancy Ireland for more articles in our 'Emigrant Opportunities' series.

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