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  • Tag Archive: Ireland

    1. Irish Domino’s Case – The thin end of the pizza slice?

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      Irish Domino’s case – The introductory base

      You have probably never been sad enough to contemplate whether your pizza delivery man or woman was an employee or not as you waited for your stuffed crust.

      But this is exactly the question posed to the Irish Supreme Court recently in the Revenue Commissioners v Karshan Midlands t/a Domino’s Pizza on 20 October 2023.

      This landmark ruling has important implications for employers in Ireland.

      The setting the scene crust

      The dispute initiated when Karshan (Midlands) Limited, operating as ‘Domino’s Pizza’ (“Karshan”), contended that their delivery drivers operated as self-employed contractors, managing their tax affairs.

      The drivers signed an “umbrella contract,” recognizing themselves as independent contractors. However, the Irish Revenue Commissioners (“Revenue”) argued that these individuals should be classified as employees, subject to PAYE and relevant employment taxes.

      The matter was initially taken to the Tax Appeals Commission (TAC), which supported Revenue’s stance.

      Karshan appealed this decision to the High Court, which continued to endorse the TAC’s decision. Yet, the Court of Appeal reversed this in June 2022, classifying the drivers as independent contractors.

      The Revenue appealed this to the Supreme Court.

      A topping of legal analysis 

      Throughout the case’s progression, the concept of “mutuality of obligation” emerged prominently in defining an employee versus an independent contractor.

      However, the Supreme Court rejected the notion that this concept is a prerequisite for establishing an employment contract, emphasising the need to assess the specific circumstances of each case.

      The Supreme Court outlined five crucial steps to determine employment status:

      1. Contractual Exchange for Work: The contract between Karshan and drivers, involving remuneration for services, indicated an employment relationship during periods of work.
      2. Personal Service Provision: Essential to an employment contract, the Court acknowledged limited substitution rights but emphasized that unconditional substitution contradicts personal service obligations.
      3. Employer Control: Control over how, when, and where work is performed remains pivotal. Karshan’s control over drivers’ attire, branding, and task directions indicated an employee relationship.
      4. Factual Matrix and Working Arrangements: Examining drivers’ business autonomy revealed their limited ability to operate independently, as they worked solely from Karshan’s premises and lacked economic risk-taking.
      5. Legislative Considerations: While the Taxes Consolidation Act 1997 guided the tax assessment, the Court clarified that it does not mandate continuity of service.

      Here, Justice Murray found that the Tax Appeal Commissioner was entitled to conclude that the drivers were employees for the purposes of income tax.

      The anchovies of employer risk

      The Supreme Court’s comprehensive five-step approach provides clarity for organizations engaging workers as independent contractors.

      This ruling underscores the risk of employers being liable for employment taxes despite contractual wording.

      This verdict will likely influence determinations of employment status under various legislations, potentially affecting statutory leave, dismissal, and redundancy entitlements.

      Irish Domino’s case – The concluding dessert

      What should organisations look at doing in the light of this decision?

      • Organisations engaging independent contractors should analyze and consider the outlined five steps.
      • Existing contractual arrangements must be reviewed in light of this ruling.
      • Revenue’s guidance on disclosure regimes encourages organisations to comply with tax regulations and address misclassification issues.

      This decision reverberates beyond taxation, serving as a benchmark in employment status determinations, urging employers to reassess worker engagements and employment classifications.

       

      If you have any queries about the Irish Domino’s Case, or Irish tax matters in general, then please get in touch.

    2. Ireland Finance Bill 2023: An Overview

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      Ireland Finance Bill 2023 – Introduction

       

      The Finance Bill for 2023, published on 19 October, brings forth significant changes and updates in the Irish financial landscape. 

       

      This bill primarily focuses on implementing the Pillar 2 regime, setting a minimum effective tax rate of 15% into Irish law, among other noteworthy provisions.

       

      Here’s a summary of some of the key changes and their implications.

       

      Transposition of the EU Minimum Effective Tax Directive

       

      As expected, the Finance Bill transposes the EU Directive on ensuring a global minimum level of taxation, often referred to as the “Pillar 2 Directive.” 

       

      This directive sets a minimum effective tax rate of 15% into Irish law.

       

      This change will have a significant impact on large multinationals with a global turnover exceeding €750 million and wholly domestic groups within the EU. 

       

      It involves the introduction of “GloBE” rules, consisting of an income inclusion rule (IIR) and an Under Taxed Payment Rule (UTPR).

       

      The IIR takes effect for fiscal years starting after 31 December 2023, and the UTPR will broadly apply for fiscal years starting after 31 December 2024.

       

      Safe Harbours

       

      The Finance Bill introduces transitional and indefinite safe harbors to alleviate the compliance burden. 

       

      The qualified domestic minimum top-up tax (QDMTT) is one such provision, which aims to allow Ireland to apply a domestic top-up tax for Irish constituent entities. 

       

      This will potentially reduce the tax calculation and payment obligations for in-scope groups.

       

      Ireland has also adopted other safe harbors following the OECD’s guidance.

       

      Additional Withholding Tax Measures

       

      To prevent double non-taxation of income, the bill introduces measures denying withholding tax exemptions in certain situations. 

       

      These measures primarily apply to payments of interest, royalties, and distributions to associated entities in jurisdictions that are not EU Member States and appear on the EU list of non-cooperative or zero-tax jurisdictions.

       

      Interest Deduction for Qualifying Finance Companies

       

      New rules are introduced for interest deductibility for “qualifying financing companies” with specific criteria. 

       

      These rules generally apply when such companies own 75% or more of the ordinary share capital of a “qualifying subsidiary” and borrow money to on-lend to the subsidiary.

       

      R&D Tax Credit

       

      The R&D tax credit is enhanced by increasing the rate from 25% to 30% of qualifying expenditure for accounting periods beginning on or after 1 January 2024. 

       

      This change aims to maintain the credit’s net value for companies under the new Pillar 2 regime while providing a real increase in the credit for SMEs.

       

      A pre-notification requirement and other information requirements for R&D claims are introduced as well.

       

      Digital Gaming Credit

       

      Adjustments are made to the operation of the digital gaming credit to align with the new Pillar 2 definition of a non-refundable tax credit. 

       

      These changes affect the manner and timeline for credit payments.

       

      Changes to Accountable Person for Share Options Taxation

       

      From 1 January 2024, the mechanism for taxing gains from share options shifts from self-assessment by employees to being the responsibility of employers through the Pay As You Earn (PAYE) system.

       

      Angel Investor Relief

       

      The bill introduces capital gains tax relief for angel investors in innovative SME start-ups. 

       

      Detailed wording for this relief is expected to be included later.

       

      Improvements to the Employment Investment Incentive Scheme

       

      The EIIS is amended to standardize the minimum holding period for relief at four years. 

       

      The limit on the amount that an investor can claim for such investments is increased from €250,000 to €500,000 per year of assessment within four years.

       

      Stamp Duty

       

      An exemption from Irish Stamp Duty for American depository receipts (ADRs) is extended to include transactions in DTC of US-listed shares. 

       

      This exemption streamlines the process and eliminates the need for Revenue clearance, making it more efficient.

       

      Tax Administration – Joint Audits

       

      The Finance Bill transposes EU Directive DAC 7, allowing for cross-border audits with other EU Member States. 

       

      It also clarifies Revenue’s authority to make inquiries under the Mandatory Disclosure Regime.

       

      Ireland Finance Bill 2023 – Conclusion

       

      The Finance Bill 2023 introduces numerous significant changes in Irish tax and financial regulations. 

       

      Businesses should carefully assess and adapt to these changes to ensure compliance and minimize tax implications effectively. 

       

      As always, consulting with financial experts is crucial to navigating these complex tax reforms.

       

      If you have any queries about Ireland Finance Bill 2023, or Irish tax matters in general, then please do get in touch.

    3. Digital Games Tax credit announced

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      Introduction

      Ireland’s Minister for Finance recently formally launched the Digital Games Tax Credit.

      The measure was originally provided for in Finance Act 2021 subject to commencement order and, importantly, EU State Aid approval.

      The European Commission has now provided that approval and  a commencement order has now been passed.

      It is expected that qualifying certificate holders are able to avail themselves of the relief from 1 January 2023.

      Digital Games Tax Credit What is it?

      The credit takes the form of a refundable corporation tax credit in respect of qualifying expenditure on:

      • the design,
      • production; and
      • testing of a digital game

      The Digital Games Credit is available to digital gaming development companies that are

      • resident in Ireland, or
      • resident in the EEA and have a branch or agency in Ireland

      The rate of the credit is 32% of eligible expenditure. This is capped at a limit of €25m per project. A minimum project spend of €100,000 also applies.

      Qualification

      There are a number of requirements that must be satisfied in order to qualify for the credit, including:

      • Nature of the game;
      • Qualifying expenditure;
      • Certification;
      • Certification types and claim period;

      Nature of game

      The game must be one which integrates digital technology, can be published on an electronic medium, is interactive/built on an interactive software and incorporates as least three of the following elements:

      • text;
      • sound;
      • still images; and
      • animated images

      The digital game should not be produced solely / mainly as part of a promotional campaign or be used as advertising for a specific product.

      Further, the game must not be produced solely or mainly as a game of skill or chance for a prize comprising money or money’s worth.

      Qualifying expenditure

      There is a requirement for expenditure to be incurred directly by the digital games development company on the design, production and testing of a digital game.

      The categories of expenditure that may qualify for relief include:

      • employee related costs;
      • capital costs of assets used for the development of the game;
      • costs of renting or leasing equipment;
      • costs of consumable items, software, copyright and other intellectual property rights; and
      • sub-contractor payments subject to a €2m limit.

      Certification

      A company must obtain certification from the Minister for Tourism, Culture, Arts, Gaeltacht, Sport and Media.

      When deciding whether it will grant such a certificate then the Minister will have regard to a matrix of cultural requirements. A points system is applied in assessing the merits of the application.

      Under the rules, there is a provision for the issuing of:

      • an interim certificate (issued to companies still in the process of game development); or
      • final certificate (issued to companies that have completed development of the game).

      Making a claim for the Digital Games Credit

      Where a company has been issued with an interim certificate then the credit can be claimed within twelve months following the end of the accounting period in which the expenditure was incurred.

      Alternatively, where a company has been issued with a final certificate, the company may make a final claim after deducting any amounts that have already been received under an interim certificate.

      Process for claiming relief

      The Digital Games Credit is first offset against any corporation tax liability company for the relevant accounting period.

      However, where there is no corporation tax liability or if the credit takes the company into a loss-making position, then the Company may make a claim for a cash refund.

      If you have any queries about the Digital Games Credit or Irish tax matters more generally, then please do not hesitate to get in touch.

      The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article

    4. Crypto tax Ireland – Buying and selling crypto

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      Introduction – crypto tax Ireland

      Like most jurisdictions around the world, there are no specific tax rules that apply to the buying and selling crypto assets in Ireland.

      Therefore, like those other jurisdictions, the tax position on the sale of crypto assets will be subject to general Irish tax law principles. 

      In addition, the Irish Revenue has also issued guidance in some particular areas.

      This article will mainly discuss cryptocurrencies – such as bitcoin, Ethereum and Dogecoin. The position for non-fungible tokens (“NFTS”) and other digital assets might differ.

      Buying cryptocurrency

      As one might surmise, the purchase of cryptocurrency is unlikely to give rise to any direct tax implications. For instance, there is no stamp duty on crypto assets (as there might be on the purchase of shares, for instance). Further, it is unlikely there will be any VAT implications where we are looking at an investor or trader buying and selling crypto-assets.

      However, the purchase of the cryptocurrency will be relevant for determining the base cost of the crypto when the investor decides to sell the assets.

      Sale of crypto-assets by individuals

      General

      The Irish tax position will depend on the Irish residence position of our crypto-investor. Specifically, whether they are:

      • Resident for tax purposes in Ireland; or
      • They are not resident for tax purposes in Ireland

      Irish resident individuals selling cryptocurrency

      If an Irish resident individual sells such an asset at a gain then it will usually be subject to capital gains tax. This is currently 33%. 

      Where the disposal results in a loss, then this capital loss can generally be:

      • Used in the current year against other gains; or
      • Carried forward to future years

      The position is slightly different if the person is carrying on a ‘trade’ of dealing in crypto. Here, any profit on the sale of crypto would be subject to income tax. Marginal income tax rates of up to 55% – where one includes social charges – might therefore be payable. 

      It is worth noting that a trading classification is only likely in exceptional cases with the trading needing to be carried out in a deliberate and commercial fashion.

      Non-resident individual

      A non-Irish resident individual (who is also non-ordinarily resident) is liable to Irish CGT on gains arising in Ireland from the disposal of Irish ‘specified’ assets only (e.g. land and buildings in Ireland). As such, crypto gains should not be taxable.

      Sale of crypto-assets by Companies

      An Irish resident company that disposes of crypto at a gain will be subject to capital gains tax at 33%.  Similarly, losses will also be treated in the same way as set out above for individuals.

      Where such a company conducts a ‘trade’ of dealing in crypto, then it’s profits will generally be subject to corporation tax at 12.5%. 

      Again, the threshold at which activities might be considered a trade is a high one. However, it is generally thought that a company might satisfy this more easily than an individual.

      Mining cryptocurrencies

      General

      The Irish Revenue has not provided any guidance on the position when it comes to the mining of cryptocurrencies. 

      If they follow the UK tax authorities position on the same activity, then the treatment will depend on whether:

      • The person is conducting a trade of mining crypto; or
      • The person’s activities fall short of a trade

      Trade

      Here, the person will be taxable on the trading profits generated from the mining activities.  

      A company will pay tax at 12.5% but an individual will be subject to tax at their marginal rates.

      No trade

      Where the activities fall short of a trade, then the income received by the person will be treated as ‘miscellaneous’ income. 

      Miscellaneous income tends to qualify for fewer reliefs than trading income.

      A company will pay tax at 12.5% but an individual will be subject to tax at their marginal rates.

      If you have any queries about this article, crypto tax in Ireland or the matters discussed more generally, then please do not hesitate to get in touch.

      The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article

      For further resource on crypto assets please see www.cryptotaxdegens.com.