Tag Archive: Irish tax

1. Group Loss Relief and Delaware LLCs

   12 October 2024 5:58 am Leave a Comment

   Group Loss Relief and Delaware LLCs – Introduction

   On 3 October 2024, the Irish High Court issued an important judgment concerning the tax residency of a Delaware LLC under the US/Ireland Double Tax Treaty (DTA).

   This case involved the ability of three Irish subsidiaries of a Delaware LLC to claim group loss relief under Section 411 of the Taxes Consolidation Act 1997.

   The key question was whether the Delaware LLC was considered “liable to tax” and thus “resident” under Article 4 of the US/Ireland DTA, which would enable the subsidiaries to claim group relief.

   The High Court’s decision ultimately denied this relief.

   Background

   The appeal was brought by Susquehanna International Group Ltd and two other companies, which sought to claim group relief by arguing that their parent, a Delaware LLC, was tax resident in the US.

   The Irish Revenue disagreed, asserting that the LLC was not a company for group relief purposes and was not tax resident in the US under the DTA.

   The crux of the issue was that the LLC was a disregarded entity for US tax purposes, meaning it was not subject to tax at the entity level.

   Instead, its members, including several S Corporations and individuals, were taxed on their share of the LLC’s income.

   This complex ownership structure raised questions about whether the LLC could be considered a separate taxable entity eligible for group relief.

   The Tax Appeals Commission Decision

   Initially, the Tax Appeals Commission ruled in favour of the taxpayer, finding that the LLC was a company for the purposes of group relief and that it was resident in the US under the DTA.

   The Commissioner took a purposive interpretation of the DTA, arguing that even though the LLC was fiscally transparent, it could still be considered tax resident under Article 4.

   This was based on the LLC’s perpetual succession under Delaware law, which made it a body corporate.

   The High Court Ruling

   The Irish High Court, however, overturned the Tax Appeals Commission’s decision. The Court focused on two key issues:

   1. Tax Residency of the LLC: The High Court examined whether the LLC could be considered US tax resident under Article 4 of the US/Ireland DTA. The Court disagreed with the purposive interpretation taken by the Commissioner, instead applying a literal interpretation of the DTA. The Court found that the LLC was not liable to tax in the US at the entity level, as its income was taxed at the member level. This meant that the LLC was not considered a US resident for treaty purposes.
   2. Group Relief and Discrimination: The taxpayer also argued that the denial of group relief violated the non-discrimination clause under Article 25 of the US/Ireland DTA. However, the Court rejected this argument, ruling that the discrimination should be assessed based on its direct impact on the taxpayer, not on the ultimate shareholders of the LLC.

   Implications of the case

   This ruling underscores the importance of understanding the complexities of entity classification in international tax law.

   The Court’s decision hinged on the fiscally transparent nature of the Delaware LLC, which ultimately deprived it of treaty benefits and group relief eligibility.

   While the LLC was structured under US law as a disregarded entity, this classification proved crucial in the Irish Revenue’s denial of relief.

   For businesses with similar structures, this judgment highlights the need to carefully examine ownership arrangements and the potential tax implications.

   Companies with complex cross-border structures should ensure that their parent entities meet the residency requirements under relevant tax treaties to benefit from relief provisions like group loss relief.

   Group Loss Relief and Delaware LLCs – Conclusion

   The Irish High Court’s decision serves as a reminder of the challenges posed by hybrid entities in international tax law.

   While the Tax Appeals Commission initially supported the taxpayer’s position, the High Court’s strict interpretation of the US/Ireland DTA ultimately led to the denial of group relief.

   Businesses should take note of this ruling and review their structures to ensure compliance with tax residency rules.

   Final Thoughts

   If you have any queries about this article on Group Loss Relief and Delaware LLCs or tax matters in Ireland, then please get in touch.

   Alternatively, if you are a tax adviser in Ireland and would be interested in sharing your knowledge and becoming a tax native, then there is more information on membership here.

2. Ireland Progresses New Participation Exemption: What It Means for Foreign Investors

   6 September 2024 11:41 am Leave a Comment

   Ireland Progresses New Participation Exemption: Introduction

   A participation exemption is a key tax mechanism designed to avoid double taxation on income earned from foreign subsidiaries.

   It allows companies to receive dividends from their foreign investments without being taxed again in the home country.

   This exemption is an attractive feature for businesses with a multinational presence, as it encourages cross-border investments while eliminating the risk of double taxation.

   Ireland, already known for its business-friendly tax environment, is introducing a new participation exemption as part of its tax reforms.

   This is expected to enhance its appeal to multinational companies and investors looking for efficient tax structures within the EU.

   Ireland’s New Participation Exemption: An Overview

   Ireland’s low corporate tax rate of 12.5% has long made it a popular choice for multinationals.

   Now, with the introduction of a participation exemption, Ireland is aligning itself with other European countries that already offer similar incentives.

   The exemption allows Irish-based companies to receive dividends and capital gains from foreign subsidiaries without paying additional tax in Ireland, provided the subsidiary meets certain conditions.

   These conditions generally require the subsidiary to be based in a country with which Ireland has a tax treaty and for the Irish company to hold at least a 5% ownership stake in the subsidiary.

   This is particularly advantageous for companies looking to repatriate profits from their overseas operations, as they can now do so without incurring a tax burden in Ireland.

   How It Works: Conditions and Benefits

   The new participation exemption applies under specific conditions, as follows:

   • Qualifying Subsidiaries: The subsidiary must be located in a country that has a tax treaty with Ireland.
   • Ownership Threshold: The Irish parent company must own at least 5% of the subsidiary’s shares.
   • Nature of Income: The income must be from qualifying dividends or capital gains related to the sale of shares in the foreign subsidiary.

   This new rule makes Ireland a more attractive location for holding companies that manage international subsidiaries, further boosting its competitiveness in the global tax landscape.

   Why This Matters: Attracting Foreign Investments

   Ireland’s participation exemption is expected to attract even more foreign direct investment, particularly from multinationals looking for an efficient tax regime within the EU.

   By eliminating the risk of double taxation on foreign earnings, Ireland offers a compelling proposition for companies with global operations.

   Furthermore, this new tax policy could encourage companies to restructure their international holdings to take advantage of Ireland’s favourable tax regime.

   As many businesses seek alternatives to the UK post-Brexit, Ireland’s new participation exemption strengthens its position as a key financial hub within the EU.

   Challenges and Global Tax Trends

   While the participation exemption is a welcome addition to Ireland’s tax policies, it will need to be balanced with the global trend towards higher corporate tax transparency and compliance.

   For instance, the OECD’s Pillar 2 of the Base Erosion and Profit Shifting (BEPS) initiative introduces a global minimum tax of 15%, which could limit the effectiveness of Ireland’s low-tax regime.

   Moreover, Ireland’s tax policies have been scrutinised by the European Union in the past, especially regarding state aid and preferential treatment of multinationals.

   The participation exemption, while beneficial, will need to comply with these international regulations.

   Ireland Progresses New Participation Exemption – Conclusion

   Ireland’s introduction of a participation exemption is a strategic move that will likely increase its appeal as a destination for multinational companies.

   By offering a tax-efficient way to manage foreign earnings, Ireland positions itself as a leading hub for international investments.

   However, companies will need to ensure that they remain compliant with evolving global tax standards while taking advantage of this new opportunity.

   Final thoughts

   For more information about Ireland Progresses New Participation Exemption, or Irish tax matters more generally, then please get in touch.

3. New Mandatory Tax Filing for Loans from Close Relatives

   17 January 2024 7:42 am Leave a Comment

   Loans from Close Relatives – Introduction

   Starting January 1, 2024, there’s a significant change in the tax landscape concerning loans from close relatives in Ireland.

   A new mandatory filing obligation (“CAT”), as per section 46(4A) CATCA 2003, amended by section 80 of Finance (No. 2) Act 2023, comes into effect.

   This change isn’t limited to new loans post-2024 but also encompasses existing loans.

   Who Needs to Report?

   The obligation to file a CAT return falls on recipients of a “specified loan” from a “close relative”.

   The definition of a “close relative” includes a parent, sibling, lineal ancestor or descendant, or a civil partner of a parent, among others.

   This definition extends to loans made by or to private companies where shares are held directly or through a trust.

   Defining a Specified Loan

   Any loan, advance, or form of credit from a close relative is considered a specified loan.

   Interestingly, there’s no requirement for the loan to be documented in writing.

   When is a CAT Return Required?

   A CAT return is necessary if:

   • The loan is deemed a gift per section 40(2) CATCA 2003;
   • No interest is paid within six months after the end of the year the gift is deemed to have been taken;
   • The outstanding loan balance exceeds €335,000 on any day within the relevant period (1 January to 31 December of the preceding year).

   Aggregation and Interest Payment

   If you have multiple loans from different close relatives, you must aggregate them to see if the total exceeds €335,000.

   However, if interest is paid on a loan, it doesn’t count towards this total.

   Note that interest must be paid, not just accrued, and this must happen each year to avoid the reporting requirement.

   Filing a Return

   The first CAT return under this new rule will be due by October 31, 2025.

   This return should include the lender’s name, address, tax reference number, the outstanding loan balance, and any other information the Revenue Commissioners may require.

   Loans from Close Relatives – Conclusion

   Given that this change could lead to increased scrutiny of family loan arrangements, it’s wise to review existing loans for compliance.

   Ensure your documentation and loan terms are in order to meet these new reporting requirements.

   This new mandate underscores the need for meticulous financial planning and record-keeping, especially in family financial matters. 

   Remember, this isn’t just a one-time assessment; it’s an annual obligation that requires continuous monitoring and reporting. 

   Final thoughts

   If you have any thoughts on this article on Loans from Close Relatives, or Irish tax matters in general, then please get in touch.

4. The Secret Private Client Tax Adviser: Ireland debriefing

   28 December 2023 2:46 pm Leave a Comment

   The meeting takes place in the welcoming lobby of an undisclosed hotel just off of O’Connell St in Dublin, Ireland.

   Head Tax Native (“TN”):

   Secret Private Client Adviser in Ireland,  your mission, should you choose to accept it, is to educate us on the practical tax considerations in Ireland.

   This task requires a delicate balance of expertise and discretion.

   Be warned, should your real identity be revealed during this covert operation, you will be disavowed by Tax Natives and shunned by your fellow private client advisers.

   Do you accept?

   Secret Private Client Adviser in Ireland (Secret Adviser):

   I accept.

   Tax Natives:

   [settles into a cozy armchair in the hotel lobby] Let’s delve into the tax considerations for private clients in Ireland.

   Can you explain how an individual becomes taxable?

   Secret Adviser:

   [leans forward, tapping a pen thoughtfully] Sure. In Ireland, tax liability hinges on domicile, residence, and ordinary residence.

   For instance, if you’re in Ireland for 183 days or more in a tax year, you’re considered a resident.

   Receptionist:

   [arguing with a guest] “No, Mr Bono, we didn’t want your free album drop on Apple… and we don’t want you to do a free concert in the lobby. People are trying to relax.

   Tax Natives:

   [suppresses a chuckle, then continues] Interesting. What about individual income taxes?

   Secret Adviser:

   [sips coffee] Irish residents are taxed on worldwide income, with standard rates at 20% and higher rates up to 40%.

   There’s also the universal social charge and pay-related social insurance.

   Now, regarding capital gains…

   Tax Natives:

   [nods] Yes, how are they taxed?

   Secret Adviser:

   [adjusts glasses] Capital gains tax is 33% on personal gains above €1,270.

   But for non-domiciled residents, only gains remitted into Ireland are taxed.

   Tax Natives:

   [glancing at notes] And what about lifetime gifts?

   Secret Adviser:

   Gifts may be subject to capital acquisitions tax with various tax-free thresholds.

   For instance, you can receive €335,000 tax-free from a parent.

   Receptionist:

   [to another guest] “No, we don’t offer tours to find the end of the rainbow!”

   Tax Natives:

   [smiles, then asks] What about taxes after death?

   Secret Adviser:

   [leans back] Similar to gifts, inheritance comes under capital acquisitions tax, with the same tax-free thresholds.

   Tax Natives:

   [checking time] Lastly, any other taxes we should know about?

   Secret Adviser:

   [stands up] Well, there’s local property tax, stamp duty, and VAT on various goods and services.

   And no wealth tax in Ireland.

   Tax Natives:

   [extends hand] Thank you for these insights!

   Secret Adviser:

   [shakes hand] Happy to help. Enjoy your stay in Ireland!

   [They part ways, Tax Natives heading towards the bustling hotel exit, amused by the unique interactions of the day.]

    

   Tapping out

   If you have any queries about this top secret interview on private client tax in Ireland, or Irish tax matters in general, then please get in touch

5. Crypto tax Ireland – Buying and selling crypto

   17 May 2022 7:18 pm Leave a Comment

   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.