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Thursday, 18th April 2024
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Tax Monitor

Watching the small things
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The budget on December 6th is eagerly awaited. The debate as to its contents centres on how to meet political pledges while restraining inflation. There are other technical issues that hopefully will engage the Minister's attention, even if they don't figure largely in his speech.
Group relief
In the context of trading losses, group relief involves the ability of the companies in a group to surrender amongst each other the trading losses they incur for offset against profits made by other companies in the group. In the context of capital gains tax it involves the ability of group members to transfer assets amongst each other without triggering capital gains tax. There is no ability under group relief to surrender capital losses amongst group members.

Our present rules in the case of group relief for capital gains tax (with which I won’t bore the reader) are plainly in contravention of EU law as set out in the European Court of Justice (ECJ) case of ICI v Colmer. We do not permit the relief to be made available to Irish branches of EU resident companies. The UK has bitten this bullet. Ireland will have to sooner or later or it will end up in court. So why not sooner?

The UK went even further than the ECJ required. They have permitted the parent company of a group to be resident anywhere in the world, and have extended group relief to the UK branches of companies no matter where they are resident. This makes sense. It makes even more sense for Ireland, which has built its economy on attracting inward investment. A branch is as fully liable to Irish tax on its profits as is a resident company. So why discriminate against it when it comes to reliefs?

Charging uncollectable tax
There is no point having a charge to tax on persons having no connection to Ireland, where we have no withholding mechanism to ensure collection of the tax. We have that crazy situation with certain interest income. The only result is that those drafting legal documentation and prospectuses for the growing Irish financial service community have to solemnly note the liability to Irish tax which a non resident recipient of Irish interest may have.

In defining the exemptions from the withholding tax on interest, we have effectively defined our ability to collect tax on that interest. So why not abolish the formal charge of tax on the interest that we have effectively exempted?

Capital allowances
Capital allowances on industrial buildings are currently limited to such buildings in Ireland (26 counties!). This restriction applies even where the income being earned by the foreign industrial building is fully taxable in Ireland.

For example, an Irish resident company that has a factory in Belfast is not entitled to Irish capital allowances in relation to the construction costs of the Belfast factory. It would be entitled in respect of a factory in Dundalk. This type of restriction hasn’t a hope of standing up to an EU challenge and an EU challenge cannot be long in coming. So why not gracefully give in now and bring our tax regime into conformity with EU law?

Irish only
Several important business reliefs, including business property relief from gift and inheritance tax, share roll-over relief, and interest relief for investment in companies, have aspects to them that can confine the relief to Irish resident or registered companies, or companies carrying on business principally in Ireland. These restrictions on critical reliefs blatantly contravene European rules on freedom of establishment, freedom of movement of capital, and discrimination against nationals of other EU member states. Why have tax rules that are obviously illegal?

Cross border workers
A Northern Ireland resident worker who pays PAYE in the Republic but whose spouse has no Irish source income, is taxed in the Republic as if a single person, even though married! This ridiculous state of affairs was upheld by a High Court judgment some years ago.

The treatment is not only unfair, dubiously constitutional under the Articles dealing with the protection of marriage, but also very doubtful in terms of EU law. The ECJ has under its belt a long string of cases concerning discrimination against married cross border workers Why add the Irish scalp to the belt?

Offshore funds
Broadly speaking the effective tax charge on an onshore fund is 3 per cent over the standard income tax rate. The charge on an offshore fund is 40 per cent. Offshore funds can include funds in an EU jurisdiction such as Luxembourg. One only has to state the facts to see that the treatment is illegal under EU law. Why wait for the court case?

Withholding taxes
The rate of withholding tax applied to sub-contractors (35 per cent) has not changed for years, while the top rate of personal income tax, and the standard corporation tax rate have progressively fallen. The rate is now so far in excess of the rate needed to ensure collection of any likely tax payable by a sub-contractor as to be an unfair attack on the rights of property in terms of the Irish constitution. And apart from being unfair in legal terms, it is quite simply unfair.
Professional service withholding tax is a withholding tax operated by the state and semi-state bodies on those providing certain services to them. There is no rational basis for selecting the service providers who are subject to the tax, as opposed to those who are not, nor is there any logical reason for having the tax applied by the state only, but not by private recipients of the services. It amounts to no more than blatant discrimination against one sector which does not have the voting power to do anything about it. Of course, in the courts the voting power doesn’t count. But why wait until we get to court?

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