Revenue Unveil New Film Tax Relief

January 14, 2015

Revenue have today announced guidelines for the new Corporation Tax relief scheme for film production.

This replaces the old, and highly successful, Income Tax relief that was previously available to individuals. The Minister for Finance announced the abolition of that particular relief in a recent Budget.

Corporation Tax relief for films

The aim of the new scheme is to direct the benefits of the tax relief towards the producer of a qualifying film rather than towards its investors.

The new scheme grants corporation tax relief at a rate of 32% of the lowest of:-

  1. eligible expenditure (as defined below)
  2. up to 80% of the cost of production
  3. €50,000,000.

A minimum production spend of €250,000 applies. At least half of that amount must be spent on eligible expenditure, which is defined as:

the employment of eligible individuals or on goods, services or facilities within the State on the production of a qualifying film.”

It is possible for applicants to receive up to 90% of the relief in advance of completion of the film.

The new scheme guidelines are online here.


Corporation Tax Exemption for StartUps – Updated

February 27, 2014

Did you know that your new company can be exempt from Corporation Tax for up to three years?

Back in 2010, the Government introduced a Corporation Tax exemption for new start-up companies.  This allowed companies to earn annual profits of up to €320,000 per year for 3 years, with no liability to Corporation Tax.

The relief has since been capped at the amount of employers’ PRSI paid by the company in a given year.

This applies subject to a maximum of €5,000 per employee and an overall limit of €40,000.

On the other hand, companies who fail to use up their exemption in their first three years are now allowed to carry forward unused relief to future years.

The Corporation Tax exemption for Start-ups

In calculating the capped amount, credit is given for any employers’ PRSI exempted by the Employer Job (PRSI) Incentive Scheme.

This means that the exemption is now only worthwhile to companies who employ staff (excluding directors) within the first 3 years of operation.

However, it can still be useful even if your company doesn’t make profits until year 4, or later.

If you have a new or recent startup company, it is well worth doing the sums to see if you can benefit by hiring a new staff member.

The relief currently applies only to companies that start trading before the end of 2014, so if you’re planning a startup, don’t delay.

As always, professional advice is recommended before making any major decisions.

My previous blog post explains how the exemption initially worked. See also the Revenue 2011 Tax Briefing and 2013 Tax Briefing updates, each with worked examples.


Is Your Company’s R&D Tax Credit Claim In Order?

August 12, 2013

Revenue are examining claims for Research & Development (R&D) Tax Credit, as audits reveal that some companies have overclaimed tax credits and refunds.

This is according to a Revenue statement quoted in Carl O’Brien’s article in today’s Irish Times.

Revenue probe R&D Research & Development Tax Credit Claims

The R&D Tax Credit Scheme allows companies a 25% tax credit for the cost of carrying out qualifying R&D activities.

This is in addition to the normal 12.5% writeoff against income for Corporation Tax purposes, and means that companies can recoup 37.5% of such costs against their tax liabilities.

For example a company spends €100,000 (eg wage costs) on a qualifying R&D activity.

They claim this expenditure as a deduction in their accounts and Corporation Tax return. This yields a 12.5% tax saving, worth €12,500.

They can also claim a further 25% credit if the cost relates to a “qualifying R&D activity”. This yields a further 25% tax saving, worth €25,000.

The total tax saving is €37,000, on spending of €100,000.

It is easy to see that the scheme can be very lucrative. Over 1,200 companies have availed of it to date, and in 2010 they claimed approx. €224 million in tax reliefs. However it is not a free lunch and there are detailed terms and conditions.

Revenue are now concerned that some firms have breached these terms by overclaiming R&D credits, and they are now beefing up their audit programme in response.

The Irish Times claim that audits of 32 companies have uncovered 26 cases where a total of €6 million was overclaimed. However the majority of cases are said to have involved “accounting errors” and in only one case was a tax credits claim ruled fully out of order.

If you own or work in an R&D claimant company, the lessons are clear:

  • You must ensure that each claim refers to a properly qualifying research and development activity.
  • Where a cost refers only partly to an R&D activity (eg staff hired to carry on R&D and other work) it is important to correctly apportion the R&D and other elements. If anything, it pays to be conservative in apportioning R&D and non-R&D costs.
  • All R&D spending must be clearly documented as such and you must keep detailed records of all R&D activity.
  • Don’t forget that the scheme only covers incremental expenditure over the total of such spending in the 2003 base year, and is also subject to further limits based on historic Corporation Tax payments and payroll costs.
  • Remember that grant-aided expenditure is wholly excluded from the R&D credit scheme.

For more, see:

  • The Revenue Commissioners Guidelines for the Research & Development Tax Credit.
  • The Revenue.ie webpage for the R&D Credit.
  • Today’s Irish Times article.

If you have any queries or concerns on the R&D Tax Credit, you should seek quality professional advice.


OECD Director Threatens Irish Corporation Tax Reliefs

June 19, 2013

The head of tax at the OECD has today told Ireland that it must charge Corporation Tax at the full 12.5% rate, if we wish to retain our current Corporation Tax regime

The comments by Pascal Saint-Amans, a former French Ministry of Finance official, were made at a conference in Dublin and reported by RTE News.

Ireland must charge full corporation tax rate - OECD - RTE- 19-6-13

It’s worth bearing in mind that any move to enforce an effective Corporation Tax rate of 12.5% here would mean the abolition of

  • Capital Allowances
  • Research & Development Tax Credits
  • Group Relief

These reliefs are very important to both indigenous firms and multinationals based here, particularly in productive sectors that require large capital investment.

It would be a disaster for these firms if our government was to acquiesce in their removal.

Oddly enough, as a Frenchman, M. Saint Amans will be acutely aware that:

Maybe he should clean up his own backyard first.

 


Revenue, Techies & The Bart Simpson Paradox

January 31, 2013

Tech contractors are this week anxiously reviewing their contract and tax arrangements following last Friday’s news of a looming Revenue crackdown on the sector.

They and their advisors will be grappling with a range of complex issues, some of which contradict each other.

Revenue & Tech Contractors

An interesting contradiction lies at the heart of a major issue flagged by Revenue last week, as follows:

“For the moment, our concern is that in many cases too small a proportion of the gross contract payment is reported as liable to tax in the hands of the contractor. Into the future, this will continue to be the subject of frequent checking, and will be a factor in risk-based selection for audit.”

Essentially Revenue are stating here that, if your contracting business has significant overheads, they will suspect you of evading tax.

This seems to directly contradict Revenue’s own Code of Practice for Determining Employment or Self-Employment, which lists the various factors that indicate whether a worker is an employee or a contractor running their own business.

Among the criteria that suggest that they are self-employed, are that the worker:

  • “Provides the materials for the job.
  • Provides equipment and machinery necessary for the job, other than the small tools of the trade or equipment which in an overall context would not be an indicator of a person in business on their own account.
  • Has a fixed place of business where materials, equipment etc. can be stored.
  • Provides his or her own insurance cover e.g. public liability cover, etc.”

Now, if a contractor provides all these component functions in the course of their contract work, these will all cost money, ie overhead costs. These costs represent the difference between the contractor’s gross turnover and their net profits.

For a contractor who provides their own materials, equipment and insurance, and runs their own business premises, these overhead costs may be significant. Yet Revenue’s letter now tells contractors that if their companies have such large overheads,  they will be treated as suspected tax dodgers!

It looks like Revenue are presenting contractors with a classic Catch-22: Unless you incur overheads, you’re not a contractor at all. And if you incur overheads, you’re a suspected tax dodger.

As Bart Simpson once said:

Life is a paradox, You’re damned if ya’ do, and you’re damned if ya’ don’t.

bart-simpson-08


Contractor Companies Face Revenue Probe

January 25, 2013

Revenue are now reviewing the tax affairs of limited companies and directors who provide contracted services to a larger company or group.

They have this week written to the Irish Tax Institute, confirming that that their review has already commenced in the South West region (counties Cork, Limerick, Kerry and Clare) and is “likely” in due course to extend to other parts of the country.

Revenue

Revenue state that they have already found “a significant understatement of tax liability” in many cases, which they attribute to “deficiencies in accounting for input costs and expenses”.

They are now inviting contractors to make voluntary disclosures of their tax underpayments, including interest, and the following penalties as set out for “deliberate default” in the Code of Practice for Revenue Audit:

  • unprompted disclosure (i.e. where no audit or investigation notice has issued) –  penalty of 10% of the tax underpayment.
  • prompted disclosure (made after receipt of a audit notice) – 50% penalty;
  • failure to make a complete disclosure,  75% – 100% penalty.

In the coming weeks, contractors, and their tax advisors, will need to carefully review the implications of this news.

The Institute of Tax website includes a pdf copy of the Revenue letter while you can also find a full transcript here.


Revenue’s Letter on Contractor Companies -In Full

January 25, 2013

The following is a full transcript of Revenue’s letter to the Irish Tax Institute confirming that they are “reviewing the tax affairs of companies and their directors” in the South West Region.

The Irish Tax Institute have separately published a pdf copy of the letter here.

Revenue

“Mr Mark Barrett Chairperson
South West Representatives
Irish Tax Institute                                                     22 January 2013

Dear Mark

I am writing in response to queries from yourself and other tax practitioners about the current project in the South West Region concerning various contractors. I would be grateful if you would inform the relevant ITI members of the contents of this letter, which sets out our position as clearly as I can. If I have overlooked any issues, please let me know.

Revenue in the South West Region (Cork, Limerick, Kerry and Clare) are currently reviewing the tax affairs of companies and their directors, where the main source of income is a contract or contracts “for service” with a larger company or companies (directly or through intermediaries), the company in question does not appear to have a substantial business separate from these contracts, and in most cases the director(s) are the only employees of the company and pay tax through PAYE. To date, we have established that in many cases there are deficiencies in accounting for input costs and expenses, with the result that there has been a significant understatement of tax liability to the benefit of the director(s). As a result of these findings, this area will continue to be a significant focus of Regional inquiries through 2013, and it is likely that similar explorations will be initiated in other Regions.

Because of the nature of the underdeclaration, we take the view that the provisions of the Code of Practice for Revenue Audit require us to regard the underdeclaration as stemming from deliberate behaviour. This has the consequence that an unprompted disclosure (i.e. where no notice of audit or investigation has been received) attracts a penalty of 10%; a prompted disclosure made after receipt of a notice of audit is penalised at 50%; and failure to make a disclosure, or to make a complete disclosure, moves the penalty to between 75% and 100% of the tax underpayment. Of course, all underpayments also attract interest from the date of default.

A full disclosure, whether prompted or unprompted, avoids publication. If however the disclosure is incomplete, is not accompanied by full payment, or otherwise fails to meet the requirements described in the Code of Practice for Revenue Audit, then all benefits of disclosure are lost.

In order to facilitate and encourage disclosure, and to ensure a consistent approach to all cases, we have decided not to carry out in-depth checking of disclosures where the disclosure matches existing Revenue information and the general profile for the industry sector concerned. We have also decided that the penalty rates set out in the preceding paragraph will apply subject to exceptional circumstances. Where exceptional circumstances are claimed, a special case will need to be formally made to the Revenue caseworker, who will make a recommendation for decision at Assistant Secretary level.

The definition of “qualifying disclosure” is contained in Section 2.7 of the Code of Practice for Revenue Audit. Naturally, we will take a reasonable approach to the level of detail required, but all significant matters must be included, and payment or an acceptable proposal for payment is also required. If we accept a disclosure and the accompanying payment, we will also accept that the taxes and periods covered are those relevant, and will not look at earlier periods. If however, there are firm reasons to believe that the disclosure is significantly deficient, we retain the right to audit any and all relevant years and taxes.

In the normal course, where an audit is required, it will cover the four complete years preceding the date of issue of the notice of audit. Extension to other years will, as in all audits, depend on the circumstances of the case, but will be unusual. Likewise, there is a possibility of prosecution where audit shows a blatant breach of legal provisions but this will, we hope, be rare.

Changing taxpayer behaviour is a very important consideration in all compliance initiatives, and this is no exception. At the moment, we are not expressing an opinion on whether the arrangements we encounter are valid, that is, whether the company directors should more properly be regarded as direct employees of the entity awarding the contract. This question is being reviewed and may be adressed in the future. For the moment, our concern is that in many cases too small a proportion of the gross contract payment is reported as liable to tax in the hands of the contractor. Into the future, this will continue to be the subject of frequent checking, and will be a factor in risk-based selection for audit.

I hope the foregoing makes our position clear, and I look forward to the co-operation of your members in assuring correct and tax-compliant behaviour in this large and growing area.

Yours Sincerely

Anthony Buckley

Assistant Secretary South West Region”