Tax Briefing Issue 38 - December 1999 - Revenue...Issue 38 - December 1999 TAX BRIEFING STAMP DUTY...

IN THIS ISSUE

Budget 2000

Highlights

Special Trusts

Permanently IncapacitatedIndividuals

Compliance Campaign

C.T. ReturnsCourt Proceedings

From Budget toFinance Act

Feature Article on the FiscalLegislative Process

Patent Royalties

Income & Distributions

see inside for full listings

Issue 38 - December 1999

TAX BRIEFING

STAMP DUTY Consolidation Bill 1999

Stamp Duties ConsolidationBill 1999

Consolidation

The Stamp Duties Consolidation Bill1999 was published on 3 November1999. It is expected that the Bill willbe enacted before the end ofDecember 1999.

This is the first time that an attempthas been made to consolidate stampduty legislation. The ConsolidationBill contains all those provisionswhich were previously contained inthe Stamp Act 1891 and subsequentFinance Acts.

Preparation of ConsolidationBill

The approach adopted in preparingthe Consolidation Bill was similar tothe approach adopted for the TaxesConsolidation Act 1997. For example,the elements of public/privatepartnership which worked so well forthe 1997 Act were retained in thatdrafts of the Bill were made availableat different stages to the Law Societyof Ireland, The Institute of Taxationin Ireland and the ConsultativeCommittee of Accountancy Bodies -Ireland. In addition, the draft Bill wasexamined by two external refereeslast year.

The use of archaic language and ofthe old-fashioned device of using

“provisos” to qualify the meaning orscope of a section have also beeneliminated in the Bill.

Pre-Consolidation Measures

A substantial number ofpre-consolidation measures, designedto facilitate the more orderlyconsolidation of stamp duty law,were included in the Finance Acts,1996, 1998 and 1999. Thesemeasures consisted in the main ofthe repeal of provisions which wereno longer required.

We hope that the end productadequately reflects the views wereceived and will result in tangibleimprovements for practitionersadvising in the area of stamp duty lawand for Revenue staff who have toadminister the law.

Structure of Consolidation Bill

While the Consolidation Bill doesnot change existing stamp duty lawin any way it does put a newstructure on that law. TheConsolidation Bill is divided into 12Parts as follows:t Part 1 consists of definitions and

rules of construction. Definitionsof terms which are usedthroughout the Bill are nowcontained in this Part. (Definitionswhich only apply to a particularsection are contained at thebeginning of that section.)

t Part 2 contains the charging section(section 2) and other generalprovisions relating to the paymentand recovery of stamp duties oninstruments. The heads of chargeare still set out in alphabetical orderin Schedule 1

t Part 3 sets out how property is tobe valued for the purposes of stampduties

t Part 4 contains provisions relatingto the assessment of stamp duty andappeals against such assessments

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KEY DATESDecember

14 PAYE/PRSIP30 monthly return andpayment for month ended5 December

14 DWTReturn and payment of DWTfor month ended30 November

1-28 Corporation TaxPreliminary Tax for APsending between 1-30 June

1-31 Corporation TaxReturns for APs endingbetween 1-31 March

1-31 Corporation TaxReturns of Third PartyInformation for APs endingbetween 1-31 March

January

14 PAYE/PRSIP30 monthly return andpayment for month ended5 January

14 DWTReturn and payment of DWTfor month ended31 December

19 VATVAT 3 return and payment forperiod November/December

1-28 Corporation TaxPreliminary Tax for APsending between 1-31 July

1-31 Corporation TaxReturns for APs endingbetween 1-30 April

1-31 Corporation TaxReturns of Third PartyInformation for APs endingbetween 1-30 April

31 Income TaxReturn of Income

31 Capital Gains TaxReturn of Capital Gains

31 Income TaxReturn of Third PartyInformation

February14 PAYE/PRSI

P30 monthly return andpayment for month ended5 February

14 DWTReturn and payment of DWTfor month ended 31 January

1-28 Corporation TaxPreliminary Tax for APsending between 1-31 August

1-29 Corporation TaxReturns for APs endingbetween 1-30 May

1-29 Corporation TaxReturns of Third PartyInformation for APs endingbetween 1-30 May

CONTENTS

Stamp Duty (Consolidtion Bill 1999) 1

Budget 2000 (Highlights) 4

Capital Allowances/Resort Areas 7

Special Trusts (Permanently Incapacitated Individuals) 7

Compliance Campaign (CT Returns 1998) 9(Court Proceedings) 10

From Budget to Finance Act (The Fiscal Legislative Process) 12

Profit Sharing Schemes 17

Patent Royalties (Income & Distributions) 18

Revenue News (Update) 20

Tax Briefing is produced by: Customer Service Unit,Office of the Chief Inspector of Taxes,4th Floor,Setanta Centre,Nassau Street,Dublin 2.

Editor: Denis HolliganTelephone: 01 - 671 6777, Extn. 70802

Assistant Editor: Rosemary O’RahillyTelephone: 01 - 671 6777, Extn. 70808

Fax: 01 - 671 0960

Design: Customer Service Unit

While every effort is made to ensure that the information given in this publicationis accurate, it is not a legal document. Responsibility cannot be accepted for anyliability incurred or loss suffered as a consequence of relying on any matterpublished herein.

Tax Briefing Issue 38 - December 1999

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EDITORIAL

On behalf of the Tax Briefing teamI would like to take this opportunityto wish all our readers andcontributors a very Happy Christmasand Best Wishes for the MillenniumYear 2000.

At this time it is appropriate toextend sincere thanks to the variousTechnical Services and Policy Unitswithin Revenue who contributedarticles in 1999. These welcomesubmissions, which ranged fromtimely information to analysis, addedgreatly to the quality and scope ofeach issue.

Thanks are also due to the manypractitioners who expressed theirsupport and outlined their views onthe content of the materialspublished. These welcome

suggestions greatly assisted inensuring that the articles were keptboth topical and relevant. We lookforward to receiving this ongoingsupport and your suggestions ontopics of practical interest which youwould like included in future issues.

The foregoing contributions andsupport will ensure the continuedsuccess of Tax Briefing.

Due to changes in assignments, therole of Editor of Tax Briefing falls tome with effect from the currentissue. Our best wishes go to ourformer Editor, John Leamy, who hasbeen assigned full time to theRevenue On-Line Service (ROS)project. We take this opportunity tosay ‘Thanks’ and ‘Best Wishes’ toJohn for the future.

As the new Editor I look forward,with confidence, to working with allconcerned in continuing to provide aquality tax information publication.As we enter a new Millennium TaxBriefing will continue to play animportant role in addressing thepolicy and administrativedevelopments of our taxation system.

Finally, I would like to say a specialword of thanks to the CustomerService Unit team for theirdedication and skills in meeting thepublishing and design requirementsfor each issue.

Nollaig agus athbhliain faoi shéan isfaoi mhaise daoibh go léir.

Denis Holligan,Editor.

STAMP DUTY Continued from page 1

t Part 5 consists of a number ofsections which explain and/orsupplement Schedule 1. This Part isarranged in the same order as theheads of charge to which they referare arranged in Schedule 1

t Part 6 imposes stamp duty onsecurities the title to which istransferred electronically via theCREST system

t Part 7 contains exemptions andreliefs from the charge to stampduty on instruments

t Part 8 imposes companies capitalduty

t Part 9 imposes a number of leviesi.e. on cash (or ATM) cards, oncredit cards and charge cards, onnon-life insurance premiums andon “section 84” loans

t Part 10 sets out how payment ofstamp duties is to be enforced

t Part 11 contains those provisionspreviously contained in the StampDuties Management Act 1891

t Part 12 contains provisions relatingto the commencement of the StampDuties Consolidation Act 1999, repealsand the short title of the Act.

A Destination Table has been printedwith the Consolidation Bill to enablereaders to track the old legislationinto the new. In addition, the

statutory derivation of each section ofthe Bill is shown in the marginalongside the section in question.

When enacted the Stamp DutiesConsolidation Act 1999, will apply to:t All instruments listed in Schedule 1

(including operator-instructionsgenerated within the CRESTsystem) which are executed on orafter the date of passing of the Act

t All transactions liable to companiescapital duty which take place afterthe date of passing of the Act

andt The various levies where the

relevant statements fall to bedelivered on or after the date ofpassing of the Act.

Instruments - Wording ofCertificates

As the “old” legislative referenceswill change there will beconsequential changes to thewording of the various certificateswhich have to be inserted intorelevant instruments. A leaflet isbeing prepared setting out thewording of all the new certificates.This leaflet will be available as soonas the Bill has gone through all stagesin the Dáil and Seanad. The wordingof the new certificates should be

inserted in all instruments executedon or after the date of passing of theAct.

Guidance Notes

As soon as possible after the Bill isenacted we hope to publishGuidance Notes. The GuidanceNotes, which will be on sale in theGovernment Publications Sales Office,Molesworth Street, Dublin 2, and willalso be made available in electronicform on our website [atwww.revenue.ie], will set out in plainlanguage what each section in theStamp Duties Consolidation Act 1999 isabout. In addition, the GuidanceNotes refer, where appropriate, torelevant stamp duty forms, leafletsand statements of practice.

Stamp Duty Forms

Until such time as revised versions ofour forms quoting the relevantsections of the Stamp DutiesConsolidation Act 1999 are madeavailable existing forms may continueto be used.

Further Information

A notice will be placed in thenational newspapers to inform you ofthe date of enactment.

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BUDGET 2000 Highlights

The following is a summary of the main highlights of theBudget as announced on 1 December 1999. The detailsare subject to the normal legislative process and to theenactment of the necessary legislation in the Finance Act2000.

CAPITAL ACQUISITIONS TAX

Family Home Relief

For gifts or inheritances of the family home taken on orafter 1 December 1999, CAT will no longer applyprovided:

t It is the principal private residence of the disponerand/or the recipient

t The recipient has been living in the house for the 3years prior to the transfer

t The recipient does not have an interest in any otherhouse, and

t The recipient does not dispose of the house for 6 yearsafter the transfer.

Thresholds and Rates

For gifts and inheritances taken on or after 1 December1999:

t The class thresholds have been increased to:Class I - £300,000; Class II - £30,000;Class III - £15,000

t A single 20% rate of tax replaces the multiple ratestructure (the one quarter reduction in the rate forgifts as compared to inheritances will not apply).

Replacement of Domicile Rule byResident/Ordinarily Resident Rules

Gifts or inheritances of non-Irish situated property, takenon or after 1 December 1999, will be liable to tax whereeither the disponer or beneficiary is resident or ordinarilyresident in the State. Special provisions will apply fornon-Irish domiciled persons and for gifts or inheritancestaken under a trust or settlement existing on 1 December1999. The taxation of property situated in the State isunchanged.

PROBATE TAX

Exemption Threshold

The exemption threshold for Probate Tax has beenincreased from £11,250 to £40,000 in respect of deathsoccurring on or after 1 December 1999.

STAMP DUTY

Young Trained Farmers

The relief on transfers of land to young trained farmers,which was due to expire on 31 December 1999 has beenextended to 31 December 2002.

Leases on Dwellinghouses and Apartments

The annual rent threshold below which a lease of adwellinghouse or apartment for any indefinite term or anyterm not exceeding 35 years is exempted from stamp dutyhas been increased from £6,000 to £15,000 from1 December 1999.

INCOME TAX

Personal Allowances

In his Budget Statement on 1 December 1999 theMinister for Finance announced the extension of thestandard rating of personal allowances to cater for theintroduction of a full tax credit system from 6 April 2001.A full list of the personal allowances which will bestandard rated from 6 April 2000 is given in the Chartbelow. Standard rating means that tax relief will be givenat the standard rate of tax, 22%.

Personal Allowance

1999/20002000/2001

Amount at

StandardRate 24%

Individual’sHighestTax Rate24% or

46%

Amount atStandardRate 22%

Single Person £4,200 - £4,700

Married Person £8,400 - £9,400

Widowed Person- without dependent children- with dependent children

£4,200£4,200

£500£500

£5,700£4,700

One-Parent Family

Widowed Person £1,050 £2,650 £4,700

Other Person £1,050 £3,150 £4,700

Widowed Parent Allowance

Bereaved in 1999/20001998/991997/981996/971995/961994/95

-£5,000£4,000£3,000£2,000£1,000

£10,000£8,000£6,000£4,000£2,000

-

PAYE Allowance £1,000 - £1,000

Age Allowance

Single/Widowed - £400 £800

Married - £800 £1,600

Blind Allowance

One Spouse Blind - £1,500 £3,000

Both Spouses Blind - £3,000 £6,000

Incapacitated Child - Max. £800 Max. £1,600

Dependent Relative - Max. £110 Max. £220

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Tax Rates, Bands & Tables

The tax rates are being reduced by 2% - from 24% to 22%and from 46% to 44%.As part of a move towards individualisation of thestandard rate bands:

t The standard rate band will be widened from £14,000to £17,000 for a single or widowed person withoutdependent children

t A new standard rate band of £20,150 will beintroduced for a single or widowed person withdependent children

t The standard rate band for a married couple with oneincome will remain unchanged at £28,000

t The standard rate band for a married couple, both withincome, will be £28,000 subject to an increase of up to£6,000. The increase will be the lower of £6,000 or theamount of the income of the spouse with the lowerincome - this increase is not transferable betweenspouses.

Tax Tables, Table Allowances & Tax Bands for 2000/2001 are:

Tax Table Table AllowanceBands of

Taxable Income

A

Single/Widowed without dependent Children

Nil£17,000 @ 22%Balance @ 44%

Single/Widowed with dependent children

Nil£20,150 @ 22%Balance @ 44%

B

Single/Widowed without dependent children

£8,500 All @ 44%

Single/Widowed with dependent children

£10,075 All @ 44%

Married

R Nil

£28,000 (with increase ofmax. £6,000- see above)

@ 22%Balance @ 44%

S

£14,000 (with increase ofmax. £3,000* - see

below)All @ 44%

Marginal Relief Cases

Z Nil All @ 44%

*The increase of up to £3,000 for Table S is nottransferable between spouses.

Exemption Limits

Single/Widowed 1999/2000 2000/2001

General Limit (under 65 years of age) £4,100 £4,100

65 years of age & over £6,500 £7,500

Married

General Limit (under 65 years of age) £8,200 £8,200

65 years of age & over £13,000 £15,000

Marginal Relief will continue to apply where income doesnot greatly exceed the relevant exemption limit.

The above exemption limits are increased by £450 foreach of the first two dependent children and £650 for thethird and subsequent children.

Rent Relief for Rented Accommodation

Rent relief will be increased as follows and will beavailable at the standard rate, 22%

Rent Allowance Single Widowed Married

Under 55 Max. £750 £1,125 £1,500

Over 55 Max. £2,000 £3,000 £4,000

Mortgage Interest Relief

Home Loan Interest paid is allowable at the standard rateof 22% and is subject to the following maximumamounts:

First Time Buyer (First 5 years)Single £2,500Married/Widowed £5,000*

OthersSingle £2,000Married/Widowed £4,000*

The existing 80% and £100/£200 (single/married,respectively) restrictions have been abolished.

*Widowed Person’s limit is now the same as that of aMarried Couple.

Taxation of Unemployment Benefit

Systematic short-time workers will continue to be exemptfrom tax on Unemployment Benefit in 2000/2001.

Benefit-in-Kind - Preferential Loans

The “specified” rate for the purposes of calculating thebenefit-in-kind on preferential home loans is beingreduced from 6 April 2000. The specified rates will be:

Home Loans 4% (previously 6%)Other Loans 10% (unchanged)

(Continued on page 6)

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BUDGET HIGHLIGHTS Continued from page 5

Childcare - Capital Allowances

Accelerated Capital Allowances are available on expenditureincurred on or after 1 December 1999 on the construction,refurbishment or conversion of a creche or nursery i.e. 100%of expenditure may be written off in Year 1. This is subject toclearance by the EU.

Cars - Capital Allowances

The cost threshold for capital allowances for new cars andrunning expenses for all cars has been increased from£16,000 to £16,500. This new limit will apply toexpenditure incurred on or after 1 December 1999.

Farmyard Pollution Control

The scheme of accelerated capital allowances forexpenditure on pollution control facilities on farms isbeing extended to 5 April 2003. From 6 April 2000 theexpenditure limit is increased from £30,000 to £40,000.

Multi-Storey Car Parks

The qualifying period for expenditure incurred onqualifying multi-storey car parks situated outside thecounty boroughs of Dublin and Cork has been extendedto 31 December 2002 where 15% of the total project cost isincurred by 30 September 2000.

Withholding Taxes

The rate of withholding tax on professional services anddividend income is being reduced from 24% to 22% witheffect from 6 April 2000.

Deposit Interest Retention Tax

The standard rate of DIRT is being reduced from 24% to22% with effect from 6 April 2000.

Film Relief

The period for investing in qualifying films is extended to5 April 2005.

Investment Products

The rate of tax charged on income and gains of LifeAssurance linked investment products, unit trusts andother collective investment products is being reducedfrom 24% to 22% from 6 April 2000.

New taxation rules will apply from 1 January 2001 to suchproducts. At present the tax is calculated annually byreference to the income and gains of the product.From 1 January 2001 tax will be automatically deductedby the insurance company at maturity or exit from theinvestment. The investment return rate of charge will bethe standard rate of tax plus 3%. New funds can opt forthe new system after 1 April 2000.

SALE OF RESIDENTIAL LAND

A special 20% Income Tax/Corporation Tax rate on profitsfrom sale of residential land applies for individuals from1 December 1999 and for certain companies from 1January 2000.

CORPORATION TAX

Rates effective from 1 January 2000n 24% (previously 28%) for trading income

n 25% for non-trading income

n 12.5% for small and medium-sized enterprises wherethe trading income does not exceed £50,000 (provisionfor marginal relief where income does not exceed£75,000).

The rate for Manufacturing, IFSC and Shannoncompanies remains at 10%.

CAPITAL GAINS TAX

n 20% rate on disposals of development land, from1 December 1999

n Retirement relief threshold for sale of a business isincreased from £250,000 to £375,000 from 1 December1999

VALUE ADDED TAX

The VAT “flat rate addition” payable to unregisteredfarmers will be increased from 4% to 4.2% with effectfrom 1 March 2000. The associated VAT rate for livestocketc. will also increase to 4.2% from the same date.

EXCISE DUTIES

Cigarettes: Price increase of 50p per packet of 20

Cigars: Price increase of 67p per 25 grams (approx.)

Fine Cut Tobacco: Price increase of 56p per 25 grams (approx.)

Other Smoking Tobacco: Price increase of 46p per25 grams (approx.)

Kerosene: Price decrease of 1.38p per litre.

(All price increases/decreases are VAT inclusive)

PRSI & LEVIES

Class A(Normal rate at which contributions are made)

Income (£) Employer Employee

Up to 26,500 12% 6.5%26,501 - 36,600 12% 2%Over 36,600 - 2%

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Employees will continue to be exempt from PRSI onthe first £100 per week (The weekly exemption of£20 for employees on a modified PRSI rate alsoremains unchanged).

Employees earning less than £226 per week will beexempt from the Health Contribution of 2%.The reduced rate of employer PRSI (8.5%) applies toemployees earning up to £280 per week.

The employer contribution includes a 0.7% TrainingFund Levy.

Class S (Self-Employed)

Income (£) Rate

Up to 26,500 7%Over 26,500 2%

Exempt from PRSI on the first £1,040 of annualincomeExempt from the Health Contribution of 2% whereannual income is less than £11,750Minimum annual PRSI contribution is £215

Internet

Budget 2000 details are also available on the RevenueInternet site at http://www.revenue.ie

Capital Allowances/Resort Areas

Construction or Refurbishment of certainCommercial Premises

Section 353 Taxes Consolidation Act 1997

For the purposes of this section, tourist accommodationfacilities are required to be registered by Bord FáilteÉireann under Part III of the Tourist Traffic Act 1939, orspecified in a list published under Section 9 of the TouristTraffic Act 1957.

Persons wishing to claim capital allowances under thissection should note that they are obliged by thelegislation to maintain the registration or listing withBord Fáilte for all years. It is not sufficient that thepremises be registered or specified in a list only for theinitial year in which the capital allowance is claimed. Itshould also be noted that the requirement to maintainthe registration or listing with Bord Fáilte applieswhether relief is claimed in a year or not.

Section 353(5)(a) TCA 1997 provides for the impositionof a balancing charge in the event of a premises ceasingto be registered or specified in a list within the period of11 years after the qualifying premises is first used.

7

SPECIAL TRUSTS Permanently Incapacitated Individuals

Special trusts forpermanently incapacitatedindividuals

Introduction

Section 189A TCA 1997 (inserted bySection 12 FA 1999) provides certainexemptions from income tax for:

n The trustees of trusts which areestablished with funds raised bypublic subscriptions for thebenefit of permanently and totallyincapacitated individuals

and

n The incapacitated individuals inrespect of payments made by thetrustees of such a publicsubscription trust to or for theirbenefit.

The section is applicable for1997/1998 and subsequent years ofassessment.

This article sets out the mainfeatures of the exemption.

Conditions of Exemption

Qualifying Trust

To qualify for relief a trustestablished by deed has to satisfy thefollowing:

t The trust must be createdexclusively for the benefit of oneor more than one namedincapacitated individual (seebelow) for the duration of thelife of that individual or the livesof those individuals, as the casemay be.

t The trustees hold trust fundswhich:

n are to be applied for thebenefit of the namedincapacitated individual orindividuals,and

n in the event of the death ofthe incapacitated individual orindividuals, the undistributedpart of the trust funds are to

be applied for charitablepurposes or are to beappointed in favour of thetrustees of other charitablebodies.

t None of the trustees areconnected with the incapacitatedindividual or individuals.

Incapacitated Inividual

An incapacitated individual meansan individual who is permanentlyand totally incapacitated, by reasonof mental or physical infirmity, frombeing able to maintain himself orherself.

Trust funds

The funds in a qualifying trust canconsist of the following:

t Public subscriptions raised onbehalf of the incapacitatedindividual or individuals forwhose benefit the trust wascreated

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SPECIAL TRUSTS Continued from page 7

If a couple are assessed under theprovisions of Section 1017 TCA 1997(aggregation basis), the “sole ormain” test should be applied only tothe income of the incapacitatedspouse, and not to the aggregatedincome of both spouses indetermining if exemption is due.

The exempt income is not to betaken into account in computing totalincome for tax purposes.

Requirement to make a return

Notwithstanding the exemptionsprovided, returns of total incomemust be made. This means that theexempt income must be shown onthe returns made by the trustees andthe incapacitated individuals.

Deposit Interest Retention Tax

t All moneys and other propertyderived directly or indirectly fromsuch public subscriptions. Thiswould include secondaryinvestments (e.g. deposit interest)and secondary investment income(e.g. rental income).

Public subscriptions

Public subscriptions meansubscriptions raised following apublic appeal and either of thefollowing conditions are met:

t The total subscriptions raised are£300,000 or less

or

t The subscriptions, at any time onor after the return date for theperiod in which the exemption isfirst claimed, do not contain asubscription made by any oneperson which exceeds 30 per centof the total subscriptions raised.

There is thus no upper limit put onthe quantum of funds that can beraised by public subscription.However, if the subscriptions exceed£300,000 no single person maycontribute more than 30 per cent ofthe total amount of the subscriptions.

Income covered by theexemption

The exemption covers:n Dividends and income arising to

the trustees which otherwisewould be chargeable to tax underSchedule C or under Case III,Case IV (in circumstances wheretax has been deducted at sourceunder Section 59 TCA 1997 andunder Section 745 TCA 1997where tax has not been deductedat source) or Case V of ScheduleD, or Schedule F.

n Income arising to the incapacitatedindividual in respect of paymentsmade by the trustee, together withincome arising from theinvestment of payments made bythe trustees out of the trust fundand consisting of dividends orother income chargeable to taxunder Schedule C or Cases III, IVor V of Schedule D or Schedule F.The exemption under Case IVcovers income from which tax hasbeen deducted at source underSection 59 TCA 1997 and incomefrom which tax has not beendeduced at source under Section745 TCA 1997.

The exemption, in the case of theindividual, only applies where thepayments made by the trustees anddividends or other income referredto above are the sole or mainincome of the individual. “Sole ormain” means more than 50 per cent.

If the incapacitated individual is inreceipt of an invalidity pension orbenefit payable by the Department ofSocial, Community and FamilyAffairs, and the individual’s injury ordisability which gave rise to thepayment of the benefit/pension bythat Department is the same injuryor disability for which the publicappeal was made and the special trustestablished, then that benefit/pensionwill not be taken into account forthe purposes of determiningwhether the investment income is

the sole or main income of theindividual.

Repayment of appropriate depositinterest retention tax (DIRT) can bemade to trustees of trusts whichqualify for exemption from tax underSection 189A TCA 1997 in respect ofinterest arising from the investmentof the trust funds which is paid on orafter 6 April 1997.

The incapacitated individual who isentitled to exemption under Section189A TCA 1997 can claim a refundof deposit interest retention taxattaching to such income eventhough the relevant interest does notform part of his/her total income.

Dates applicable

The exemption applies for 1997/98and subsequent years of assessmenteven where the public subscriptionswere raised or the qualifying trustswere established by deed prior to6 April 1997.

Claims under the Section

As noted above, the trustees and theindividual are required to submitannual returns of income. When aclaim under the section is first madethe following documentation shouldbe submitted to the tax office:

t A medical certificate stating thecause, nature and extent of theinfirmity, and the nature andextent of the individual’sincapacity

t Copy of the trust deed

t A declaration from the trusteesconfirming that the conditionsregarding ‘public subscriptions’contained in Section 189A TCA1997 and which are referred toabove, are met.

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9

COMPLIANCE CAMPAIGN 2000

Corporation Tax Returns foraccounting periods ending in1998

Return due dates

The final due date for all companiesin respect of corporation tax returnsfor accounting periods ending in1998 expired on 30 September 1999.We ask for your co-operation inensuring that all companies whichyou represent that have notsubmitted their corporation taxreturn for any accounting periodending in 1998 do so now.

We would appreciate if you wouldnotify Revenue when a clientcompany of yours moves address,goes into liquidation, is dissolved,etc. This may avoid furtherunnecessary contact from Revenue.

Commencement of theCompliance Campaign

The compliance campaign in respectof corporation tax returns foraccounting periods ending in 1998will commence in January 2000 withthe issue of a letter to the secretariesof all non-compliant companiesseeking that tax return. This letter(see draft at the end of this article)differs from that which issued lastyear.

Unlike previous years, there will notbe a reminder one month later.

Tax Practitioners

As in previous years, practitionerswill, on request, be able to get a listof their non-filer client cases fromDistricts circa mid February 2000when the final lists of the non-filersare extracted. Districts have advisedthat very few practitioners soughtlists of their non-filers last year.

Targeting of non-filers

While we aim to target all non-filers,those with more than one tax returnoutstanding will be the prioritytarget.

Contact by tax officials

During the campaign in 2000,company secretaries (or othercompany officers or representatives)may e contacted by a tax official byway of telephone or personal visit andasked to submit all the company’soutstanding corporation tax returns.In some instances, the companyrepresentative may be asked to callinto the tax office to resolve issuesrelating to non-compliance.

Companies which have been:n Convicted in respect of non-filing

offencesor

n Targeted as part of previousnon-compliance campaigns

may not receive one of these‘contacts’ and are likely to be referredimmediately to prosecution stage inrespect of all current outstandingcorporation tax returns.

Criminal Prosecution

Criminal prosecution under Section1078 TCA 1997 in respect of anon-filing offences is now a regularfeature of our compliance campaigns[See separate articles in this issue onnon-filer prosecutions].

We would like to bring to theattention of practitioners that, inaddition to prosecuting a bodycorporate, Subsection (5) of Section1078 TCA 1997 allows, in certaincircumstances, for the prosecution of:

n A director, manager, secretary ofother officer of the body corporate

orn A member of the committee of

management or other controllingauthority of the body corporate

in respect of a non-filing offencecommitted by the body corporate.

Consequences of late filing andnon-filing

These are set out in detail on pages 21and 22 of Issue 34 of Tax Briefing(December 1998) and continue toapply.

Draft letter to issue to non-compliant companies inJanuary 2000

Corporation Tax Return

Accounting period ending in the year ended 31 December 1998

Dear Sir/Madam,

This letter is issued to you in your capacity as secretary to the above company.

Contactreason

My records show that your company has not submitted acorporation tax return [i.e. a completed Form CT1] for the aboveperiod.

What shouldyou do?

You should immediately either:

• Submit your company’s corporation tax return in respect of theaccounting period ending in the year to 31 December 1998,or

• Contact this Office if for any reason you consider yourcompany was not obliged to submit a corporation tax returnfor this period or if that tax return has already been submitted.

CriminalProceedings

It is Revenue policy to institute criminal proceedings againstthose who do not submit their tax returns. These proceedingsare taken in the name of the Director of Public Prosecutions andare listed for hearing in the local District Courts.

Yours faithfully,

Inspector of Taxes

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COMPLIANCE CAMPAIGN Court Proceedings

Prosecution for failure to submit Income Tax andCorporation Tax Returns

“Non-filer criminal convictions on the increase”

The number of criminal convictions for failure tosubmit tax returns is on the increase. The most recentfigures show:

YearNumber of convictionsin the District Courts

Total of finesimposed (i.e. After

any mitigationgranted by the court)

1997 311 £174,060

1998 857 £709,090

1999 to 30June

665[6 months]

£618,960[6 months]

Details of some recent convictions

Many of those convicted did not take seriously the factthat criminal prosecution may follow the failure tosubmit their tax returns. This proved costly for some.For example, in the 3 months April - June 1999, 40cases had fines totalling in excess of £1,500 imposed, 12of these cases had fines totalling in excess of £4,000imposed and in one of the cases, fines totalling £8,000were imposed. [These fines are after any mitigationgranted by the court]. More recently, jail sentenceswere imposed in a number of cases.

Brief details of some recent convictions are as follows:

Typeof

Case

Numberof

Offences

Were thetax returnssubmittedby the time

of thecourt

hearing

Legallyrepresented

in courtResult

SoleTrader

3 No

No [nor didthe defendant

appear incourt]

Sentenced to3 months

imprisonment inrespect of each

offence -sentences to runconsecutively.

SoleTrader

3 No Yes

Fined £1,000(not mitigated)in respect of

each of 2offences andsentenced to

1 month’simprisonment inrespect of thethird offence.

SoleTrader

4 No Yes

Fined £1,000(not mitigated)in respect of

each of 3offences andsentenced to

1 month’simprisonment inrespect of thefourth offence.

What’s the message?

The message we would ask practitioners to pass on totheir non-compliant clients is that:

The costs of:n The surcharge for late filing of a tax return

n The fines imposed by the court in respect of anon-filing offence

n Professional representation in courtand/or

A possible jail sentence can be avoided if their taxreturns are submitted on time.

For those practitioners who may not be aware ofnon-filer criminal prosecution procedure, a separatearticle on the subject is published below.

Criminal Proceedings

Introduction

This article which is set out in question and answerformat:

n Focuses on prosecutions initiated by the local taxInspector for failure to submit income tax andcorporation tax returns

n Is intended as an aid to those practitioners who maynot be familiar with the procedures relating tocriminal proceedings for failure to submit an incometax or corporation tax returnand

n Does not deal with persons charged with anindictable offence [which carries, on conviction,fines of up to £100,000 and/or a jail sentence of up to5 years].

Who may be prosecuted?

Persons (individuals and bodies corporate) who do notsubmit their tax returns on time may be prosecutedunder the provisions of Section 1078 TCA 1997.Particular focus is on those with more than one taxreturn outstanding.

Who prosecutes?

Non-filer prosecutions are generally taken by way ofsummary proceedings [in the District Courts] in thename of the Director of Public Prosecution [DPP] andprosecuted on behalf of the DPP by either the RevenueSolicitor [Dublin cases] or the relevant State Solicitor[non-Dublin cases].

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Are the proceedings of a tax, civil or criminalnature?

Proceedings under the provisions of Section 1078 TCA1997 are criminal in nature [i.e. they are not whatwould generally be regarded as tax or civil matters].While members of certain professional bodies mayrepresent clients in court on tax matters, it is for thecourts to decide whether or not a tax practitioner mayrepresent a client in court on criminal matters.

Are the non-filing prosecution proceedings heldin open court or ‘in camera’?

The proceedings are held in open court which may beattended by the press and the public.

Are details of convictions for failing to submit taxreturns published?

Yes. The names and addresses of those convicted arepublished in Iris Oifigiúil. In addition, reports of thenon-filer court proceedings may be carried in bothnational and local papers at the time of the conviction.

Is the failure to submit tax returns for, say, 5 yearsjust one offence?

No. If a person is being prosecuted for failure to submittax returns for 5 tax years, then he/she will be chargedwith 5 separate offences.

What are the stages leading to prosecution forfailure to submit a tax return?

Following the annual compliance campaign carried outby the Inspector of Taxes, cases are referred to theRevenue Solicitor with an instruction to institute legalproceedings in respect of failure to submit a taxreturn(s).

The Revenue Solicitor may either:n Usually for first offenders, issue what is known as a

‘pre-prosecution warning letter’. If the tax returnsare not submitted within 21 days of issue of thisletter, the prosecution procedure advances to theserving of a summons to appear in court

or

n Advance the case immediately to the summons stagewithout the issue of a ‘pre-prosecution warningletter’. For example, in cases where a person hasprevious convictions for failure to submit tax returnsand is now being prosecuted again for similaroffences in respect of later tax years.

Are there any further reminders or contact afterthe issue of the ‘pre-prosecution warning letter’by the Revenue Solicitor?

No.

My client has been served with a summons toappear in court in respect of non-filing offences.If the tax returns are submitted immediately, willthe proceedings be halted?

No. As the summons has been served, the case willhave been listed for hearing in the District Court andthe proceedings continue.

Does having the tax return submitted prior to thecourt hearing mean that the Judge will notconvict?

No. However, it has been noticed that some Judges, inconsidering mitigation of the statutory fines imposed,take into account the fact that the tax returns have beensubmitted at the time of the court hearing.

What if the tax returns have not been submittedbefore the date of court hearing?

Firstly, Section 211 Finance Act 1999 amends Section 1078TCA 1997 in that, where a person has been convicted ofa non-filing offence, an application may now be madeto the court to seek an order compelling that person tosubmit the outstanding tax returns(s).

Secondly, as outlined above, ensuring that the tax returnhas been submitted by the time of the court hearingmay be a factor taken into account by the Judge inconsidering mitigation of the statutory fine.

What is the fine if convicted of a non-filingoffence?

In cases taken by way of summary proceedings in theDistrict Court, the fine, if convicted, is £1,000 peroffence which, at the discretion of the court, may bemitigated to not less than £250 [NB - see below asregards jail sentences]

Can the Probation of Offenders Act 1907 apply,particularly for a first offence?

The ‘Probation Act’ cannot apply in non-filerprosecution cases - Section 1078(8) TCA 1997 is specificon this point.

Can the Court impose a jail sentence onconviction?

Yes. In cases taken by way of summary proceedings inthe District Court, the Judge may, on conviction,impose a prison sentence of not more than 12 monthsin addition to, or instead of, the fine.

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FROM BUDGET TO FINANCE ACT The Stages

The Fiscal Legislative Process

Introduction

This article gives an outline of thefiscal legislative process. It is notintended to be of an exhaustivenature - this would not be possible inthe space available - but it is hopedthat readers will find the material ofinterest. The material includes thebudgetary process, the preparation ofthe Finance Bill, the Oireachtasprocedures by which a “Bill”becomes an “Act” and the preparationof Statutory Instruments.

The Legislative Framework

The Finance Bill/Act gives effect tothe taxation provisions of the Budgetand the Government’s taxationprogramme for the year. The Bill/Actis not produced in isolation, andaccount must be taken of certainrules and legal conventions. Theprincipal legislation that governs thatprocess includes:

n The Constitution of Ireland(1937)

n The Standing Orders

n The Provisional Collection ofTaxes Act 1927

n The Interpretation Act 1937.

The Constitution of Ireland(1937)

The Constitution provides that a MoneyBill, that is, a Bill imposing charges on thepeople (this includes the Finance Bill),may only be initiated in the Dáil and maynot be amended by the Senate.

Articles 20, 21, 22, and 25 of theConstitution are concerned withlegislation, including a Finance Billor Act, which is classified as a“Money Bill/Act”. The relevantarticles are:

Article 20:States that a Money Bill may only beinitiated in Dáil Éireann and may notbe amended by An Seanad.

Article 21:States that if a Money Bill has notbeen returned by An Seanad to theDáil within 21 days then it shall bedeemed to have been passed by bothHouses of the Oireachtas.

Article 22:Defines what a Money Bill is andprovides that the Ceann Comhairleof Dáil Éireann has the function ofdeciding whether or not a Billconstitutes a Money Bill.

Article 25:Provides for the signing of Bills intolaw by the President.

The Standing Orders

The Standing Orders of the Dáil, and ofthe Senate, set out the various stages a Billmust go through in each House to becomean Act and the rules of procedure at each ofthose stages.

Standing Orders govern theeveryday workings of the Dáil, and ofthe Senate and cover various topicsincluding Sittings of the Dáil, and ofthe Senate, the Order Paper,Parliamentary Questions, Rules ofDebate, Committees, Bills, etc.

The Provisional Collection ofTaxes Act 1927

The Provisional Collection of TaxesAct 1927 allows Budget FinancialResolutions to become the law of the landbut for a limited period only pending theenactment of the Finance Bill.

This Act provides for the mechanismknown as “Financial Resolutions”,which are, in effect, temporarylegislation. These are passed by theGovernment on Budget night and

can, if required, be brought intoeffect immediately. They are mostcommonly used to increase theexcise duties on such products astobacco, spirits, beer, wine, motorvehicles, etc. They would also beused to introduce restrictions to taxreliefs which require to beimplemented with effect fromBudget night.

The Provisional Collection of Taxes Act1927 provides that these Resolutionscan remain in force for up to fourmonths from their introduction.This provides the Government withsufficient time in which to give thempermanent effect in the Finance Act.

The Interpretation Act 1937

The Interpretation Act 1937 governs alllegislation by the Oireachtas and is anessential reference text at the drafting stageof the Finance Bill process.

This Act, which came into effectimmediately after the coming intoforce of the 1937 Constitution,applies to all Acts of the Oireachtasincluding Finance Acts. Basically itmakes provision in relation to “theform, operation and interpretation ofActs of the Oireachtas and ofinstruments made under such Acts.”It provides guidance with regard to,amongst other matters:

n The citation of Acts of theOireachtas

n The commencement of Acts andinstruments

n Certain general rules ofconstruction of particular wordsand expressions. This is helpful onsuch matters as the meaning of theword “person”, the use of thesingular and plural in Acts, thesignificance (or lack ofsignificance!) of marginal notesetc.

n The effect of repeals andrevocations

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n The interpretation of particularexpressions and words. This is setout in the Schedule to the Act.

Pre-Budget process

The Budget Cycle

The Budget process is continuous inthat the Tax Acts remain permanentlyin force, that is until they arechanged by the Oireachtas. It is a factthat taxes are paid or accrue everyminute of the day, every day. Thepre-Budget process thus has adistinct, cyclical pattern involving:

n The monitoring of tax collectionthroughout the year and planningfor corrective action in theforthcoming Budget and henceleading to Finance Bill legislation

n The Estimates Process requiringforecasts of revenues andprojected expenditure in thefollowing year i.e. the framing ofthe Budget “arithmetic”.

Budget Day

The Minister for Finance presents toDáil Éireann his annual financialstatement which sets out the estimateof the revenue and expenditure ofthe country for the year ahead. Thisannual financial statement is betterknown as the Budget.

The word budget is derived from theOld French bougette, meaning aleather bag. By the early 18th century ithad become a common word for a despatchbox in which official papers were kept.Hence, the Minister for Finance was saidto “open his budget” when he made hisannual financial statement.

The Budget speech gives details ofthe previous year’s budget outturn,that is, it comments on the accuracyof the previous year’s Budgetestimates. It also comments on theeconomic situation of the countryand the outlook for the year aheadand gives details of the Government’seconomic policy, the generalobjectives of the Budget, theproposed public expenditure for theyear and the various changes in

taxation that the Governmentpropose to make.

Sources of proposals forlegislation

The first stage in the Finance Billprocess is the consideration andchoice of proposals for legislation.This stage of the annual Finance Billcycle generally begins in earnestsome 6 to 8 months preceding theFinance Bill. Some issues may havebeen considered earlier or have beenleft over from the previous FinanceBill. On the other hand some issuesinevitably arise for consideration latein the Finance Bill cycle and must beincorporated into the Finance Bill,after it has been published, asCommittee Stage amendments to theBill or, even later, as Report Stageamendments to the Bill.

There are many sources of proposalsfor change in tax legislation:

n Government programmes andpolicy documents

n Party political manifestos

n Pre-Budget submissions fromrepresentative bodies

n Decisions of the Courts

n Recommendations of workingparties

n Reports of Commissions andTribunals.

In addition to proposals from thesevarious sources EU directives anddecisions must be implemented.

Revenue forwards to the Departmentof Finance proposals for provisions tobe considered for inclusion in theFinance Bill. In recent years, theformal consideration of major taxproposals has extended beyondFinance and Revenue. In particular,the “Tax Strategy Group” whichmeets throughout the year includesnot only representation from theBoard of Revenue and senior officialsof the Department of Finance’sBudget and Economic Division, butalso civil servants from otherDepartments and various ministerialadvisers and programme managers.

Although the final decision on anyproposal is made by the Minister forFinance and the Government, therecommendation of the Tax StrategyGroup would begiven fullconsideration.

Financial Resolutions

Budget Financial Resolutions

In so far as proposed changes intaxation are concerned, it isimportant to note that the Budgetspeech itself has no legal standing -the proposed changes mustsubsequently be legislated for in theannual Finance Bill. However,changes in taxation mentioned in theBudget speech can be giventemporary statutory effect (pendingthe enactment of the Finance Bill) byway of Financial Resolutions.

Financial Resolutions andimposition of a charge

Under Dáil Standing Order No. 141a Financial Resolution is requiredwhenever a charge is imposed uponthe people. A charge may take theform of:

n The imposition of a new orincreased tax

or

n A reduction in, or repeal of, arelief from tax.

In the context of the Budget and theFinance Bill, Financial Resolutionsmay require to be moved either onBudget Day or just before theCommittee Stage of the Finance Bill.

If the charge to be imposed on thepeople does not give rise to an actualimposition until after the Finance Billbecomes law, then, the FinancialResolution covering the charge maybe moved in advance of theCommittee Stage of the Finance Bill.These pre-Committee StageFinancial Resolutions are necessarysolely to comply with Dáil StandingOrder No.141 and, because thecharge covered by the Resolutionwill actually be legislated for in theFinance Bill, may be worded in ageneral manner.


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FROM BUDGET TO FINANCE ACT Continued from page 13

If, however, the charge to be imposedon the people will impact at any timebefore the Finance Bill becomes law, aFinancial Resolution governing thecharge will have to be passed by DáilEireann on Budget day. SuchResolutions are given immediatestatutory authority under theProvisional Collection of Taxes Act 1927.Where this happens the wording ofthe Resolution is drafted as law andframed in specific unambiguousterms. (e.g. the 1987 Resolutionwhich provided for the withholdingtax on professional fees.)

However, this statutory authority isof a temporary nature only. A FinanceBill containing the FinancialResolutions must be passed by theDáil as having had its “SecondReading” within 84 days of BudgetDay. In addition, the Finance Billmust be enacted within 4 monthsfrom the passing of the FinancialResolutions, effectively, within 4months of Budget Day.

When are Budget day FinancialResolutions necessary?

Budget day Financial Resolutions arenecessary in relation to measureswhich impose a charge upon thepeople and which are intended tocome into operation:

n Immediately (e.g. measuresimposing increased exciseduties on beer or tobacco as onand from the day after theBudget)

or

n Before the passing of the FinanceAct.

Budget day FinancialResolutions and income taxreliefs

Normally, Financial Resolutions arerequired only where a tax is increasedor a relief is reduced e.g reduction inrate band and reduction in personalallowance. There is no requirementfor a Financial Resolution inconnection with reliefs such asincreases in income tax personal

allowances or reductions in rates ofincome tax.

A Budget day Financial Resolution isnot necessary in the case of therestriction of certain expenditurebased income tax reliefs [e.g. homeloan interest]. Entitlement to suchreliefs is determined on the basis ofthe expenditure incurred in therelevant tax year and the definitiveamount of such expenditure cannotbe finally determined until after theend of the tax year at which stage therequired legislative changes wouldhave been enacted in the Finance Act.

All Budget day Financial Resolutionsmust be formally agreed by theParliamentary Draftsman

The Minister in the Budget speechalso mentions proposals for changesto tax legislation which do notrequire Budget day FinancialResolutions. The details of thesechanges are not usually given in thespeech often because they have notyet been worked out. Theannouncements, however, do giveinterest groups the opportunity tomake representations to the Ministeron the proposals and to influencetheir development.

Drafting of Resolutions

Since Budget day FinancialResolutions become law for a periodwhen passed by the Dáil they mustbe drafted with the same care asprovisions of the Finance Bill. Thedrafting of Resolutions inconsultation with the ParliamentaryDraftsman are much the same as thedrafting procedures in relation to theFinance Bill.

The Opposition may seek to amendor simply oppose a FinancialResolution and may call for adivision or vote. The defeat of aBudget day Financial Resolutioneffectively represents a vote of noconfidence in the Government andwould normally result in theTaoiseach requesting the President to

dissolve the Dáil and the calling of ageneral election.

Financial Resolutions in advanceof Committee Stage

In addition to Financial Resolutionstaken on Budget day, other FinancialResolutions which impose a chargeor withdraw or reduce a relief aremoved just before the CommitteeStage of the Finance Bill. TheseResolutions relate to measures whichdo not need immediate statutoryeffect since, although they increasetax liability, they are not effectivelyapplied until they come into force onthe passing into law of the FinanceAct.

Drafting the Finance Bill

The requirement that Budget dayFinancial Resolutions must beincorporated into a Finance Billwithin 84 days, and passed into lawwithin 4 months, sets deadlines forthe drafting and publication of theentire Finance Bill and its passageinto law.

Most of the drafting of the FinanceBill, is, with the advent of aDecember Budget, therefore,concentrated into the months ofDecember, January and earlyFebruary.

In the case of most legislation, otherthan tax legislation, only the Headsof Bills, which outline what therequired legislation is to achieve, aresent to the Parliamentary Draftsmanand the Draftsman proceeds to draftthe legislation to meet these needs.Revenue is in a unique position inthat the Office actually suppliescompleted drafts of each section ofthe Finance Bill to the Draftsman forconsideration. This extended role forRevenue in producing the FinanceBill is necessitated by the scope,frequency and complexity of fiscallegislation and also by the timeconstraints that apply to itspreparation.

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The Parliamentary Draftsmanprepares the legislation having dueregard to the material drafted byRevenue and is ultimatelyresponsible for the form of thelegislation that appears in the FinanceBill.

Preliminary List

Since 1996 the Minister for Finance,about 4 weeks before publication ofthe Finance Bill, publishes apreliminary list of the items whichwill be included in the Bill (apart,that is, from some anti-avoidancemeasures or measures requiringfurther detailed consideration). Eachitem is accompanied by a briefexplanatory note on the proposals.The aim of the publication is tocontribute to a more informeddebate on the actual Bill once it ispublished.

Publication of the FinanceBill

First Stage - Permission tointroduce the Finance Bill

At the end of the Budget Debate inDecember, the Minister for Financewould have sought, and usuallyobtained without a vote, permissionof the Dáil to introduce the FinanceBill. This formality is referred to asthe “First Stage” of the Bill. Aroundthat time also, the Government andOpposition Whips would haveagreed a schedule for publication ofthe Bill and for the Second Stage,Committee Stage and Report StageDáil debates on the Bill.

When the Finance Bill is published itis accompanied by an ExplanatoryMemorandum. This document carriesa commentary on each section of theBill and sets out, in straight forwardlanguage, the meaning of each of theBill’s provisions.

Second Stage - Debate Stage

About a week after the publication ofthe Finance Bill the Ministerintroduces the Bill to the Dáil,outlining its contents in the “SecondStage” debate. The Minister usuallyfocuses on measures which did not

feature in the Budget, or changes tomeasures announced in the Budget.The Second Stage debate concludeswith the Dáil formally voting on amotion that the Bill be treated ashaving passed its second stage andthat its passage should proceed.

The Second Stage of the Finance Billmust be passed by the Dáil within 84days (i.e. 12 weeks) of Budget dayexcept

(i) Where the Dáil is in recess onany day between the 82nd andthe 84th day, in which case theSecond Stage must be completedwithin 5 sitting days of theresumption

or

(ii) Where the Dáil, having passed aFinancial Resolution, has beendissolved on Budget day orwithin 84 days of Budget day,

n in which case the Second Stageof the Finance Bill must bepassed within 84 days ofBudget day plus the number ofdays during which the Dáilwas dissolved,

n with a similar extension for thefour calendar month deadlinefor the passing of the Bill bythe Oireachtas.

Third Stage - Committee Stage

The third stage of consideration of aFinance Bill by the Dáil is usuallyreferred to as the Committee Stage.Before 1993 this was somewhatmisleading as the “Committee” inquestion included all Dáil Deputies.Since 1993 the Select Committee onFinancial and General Affairs hasconsidered the Bill at “CommitteeStage”.

This has involved the movement ofthe Committee Stage debate fromLeinster House to a committee roomin Kildare House nearby and also aslightly less formal and lessadversarial debate. Nevertheless this“Committee” stage continues to bethe stage at which it is most exposedto detailed examination, analysis andamendment.

Since 1993 Revenue and Departmentof Finance officials have introducedthe Bill to the Committee andanswered Deputies’ questions beforethe arrival of the Minister. It is theintention in this prelude to thedebate that the civil servants shouldexplain the content of parts of theBill of particular interest to Deputies,rather than defend the underlyingpolicies.

A more recent development involvedthe Consultative Committee ofAccountancy Bodies, Institute ofTaxation and Law Society eachaddressing the Select Committee andthen being questioned by theCommittee on a particular provision.

The Committee Stage debate should,in theory, proceed section by sectionthrough the Bill establishing the“intention of the legislature”. Inpractice, the Party Whips divide thetime agreed for the debate betweenthe parts of the Bill and the debate oneach of those parts then focusesalmost exclusively on explanation ofMinisterial amendments and rebuttalof opposition amendments.

Opposition amendments whichwould impose or increase a charge orreduce or withdraw a relief are out oforder and are not, therefore,discussed. There is no suchlimitation on Ministerialamendments. These may introducenew provisions, or reflect policychanges, agreed by Government afterthe publication of the Bill; they mayalso correct oversights of substance inthe drafting of the Bill as published;or they may simply correct printingerrors.

When the end of the agreed timeallocated to a part of the Bill isreached in the Committee Stage, allMinisterial amendments relating tothe Part are deemed to have beencarried. Precisely because somesections and amendments provokeparticular interest or controversy andare debated at length, other sectionsand amendments may not be debatedat all before the guillotine falls onpart of the Bill.


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FROM BUDGET TO FINANCE ACT Continued from page 15

This is perhaps inevitable given thesize of recent Finance Bills. Whenthe Committee Stage debateconcludes a further version of theBill is printed. This draft is headed“As amended by Select Committee”.

Fourth “Report” Stage

The Bill, as amended by theCommittee for Financial and GeneralAffairs, now reverts to LeinsterHouse and the Dáil for the ReportStage debate. The point of the ReportStage debate is that, following theCommittee’s detailed deliberations,all Deputies are given theopportunity to contribute to a debateon the Bill as amended by theCommittee.

Dáil Standing Orders restrictamendments at Report Stage toissues arising out of the CommitteeStage proceedings. A decision may bemade, too late for a Committee Stageamendment, to include a newprovision in the Bill or to amend aprovision already in the Bill. TheMinister must then give notice,before the conclusion of theCommittee Stage debate, of hisintention to introduce the requiredamendment to the Bill at ReportStage. Substantial amendments atReport Stage are risky because oncemade they cannot be revisited untilthe following year’s Finance Bill.That said, they are usually made inpreference to allowing an error oromission persist until the next Bill.

Recommittal of the Bill

As stated above an amendmentcannot be moved at Report Stageunless it arises out of the CommitteeStage proceedings and noamendment can be moved if itcreates a charge on the people. In theevent that an amendment whichbreaks those rules is needed StandingOrders provides for a mechanismwhereby this can be done. Themechanism employed is a motion forthe recommittal of the Bill.

Essentially a motion is proposed thatthe Dáil returns the Bill toCommittee Stage for the purposes ofdiscussing the proposed amendment.If the motion is successful thisreversion to Committee will occurimmediately. On disposal of thematter the Dáil will return to theReport Stage.

This procedure is not a commonoccurrence in the context of FinanceBills.

Fifth Stage

The Fifth Stage of a Finance Bill isnormally taken immediately on theconclusion of Report Stage. Amotion is put to the House “That theBill do now Pass”. What ensues doesnot normally extend beyondexpressions of thanks by the Ministerand some final remarks by theOpposition spokespersons.

Standing Orders limit amendmentsduring the Fifth Stage to “verbalamendments" only. No substantiveamendment can be made at this stageand neither can the mechanism ofrecommittal of the Bill be employedat the Fifth Stage as it can at ReportStage.

Once the Dáil debate on the FinanceBill concludes the Bill is once againreprinted. This draft is headed “Aspassed by Dáil Éireann”.

Money Bills - The Role of theSenate

The Constitution provides that everyBill initiated in and passed by theDáil must be sent to the Senate.However the Senate cannot amend aMoney Bill - it may only make“recommendations” for change. Inthe event of the Senate passing a“recommendation” in respect of aprovision of a Finance Bill, the Bill isreturned to the Dáil where therecommendation would be takenthrough the Committee and ReportStages. It would be the Dáil and notthe Senate which would amend the

Bill, that is, if the Dáil accepted therecommendation.

The processing of the Finance Billthrough the Senate is much the sameas the Second Stage, CommitteeStage, Report Stage and Fifth Stagedebates in the Dáil.

As a Money Bill, the Finance Billmust be returned to the Dáil evenwhen the Senate has passed norecommendations. On its return tothe Dáil the Ceann Comhairleinforms the House that the Senatehas accepted the Finance Bill withoutrecommendation. The Bill is thendeemed passed by both Houses ofthe Oireachtas and is ready forpresentation by the Taoiseach to thePresident for signature.

Here the Bill is printed once againand this draft is headed “As passed byboth Houses of the Oireachtas”.

Signature by the President

The final proof of the Bill, (i.e. aspassed by both Houses) will be onvellum. It is a vellum copy of the Billthat is signed by the President tobring its provisions into law.

The Constitution (Article 25)provides that as soon as any Bill ispassed by both Houses of theOireachtas the Taoiseach shallpresent it to the President forsignature. Signature in the normalcourse must take place not earlierthan the fifth day and not later thanthe seventh day on which the Bill hasbeen presented. However, theGovernment may decide to requestthe President to sign the Bill earlierthan the fifth day. In that case theymust get the prior agreement of theSenate. It is usual for the Finance Billto get early signature so that it maybecome law before the expiration ofthe four months since Budget day.This is necessary to prevent timerunning out on Resolutions passedon Budget day.


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Statutory Instruments, Ordersand Regulations

Very often primary legislationprovides for the imposition ofconditions relating to the subjectmatter. This may be by way ofsecondary legislation, that is a“Statutory Instrument”.

The term “Statutory Instrument” is ageneral term for both “Orders” and“Regulations”. In the context of fiscallegislation Orders are instrumentsthat are made exclusively by theMinister for Finance. Orders do notnormally arise as a direct result ofFinance Act provisions. Regulationsare instruments that can be made bythe Minister or by the RevenueCommissioners depending on thecontext, with the consent of theMinister, if required.

Occasionally, Ministerial consent isrequired where the Regulationswould have Exchequer implications.These Orders and Regulations canonly be made under powers set outin primary legislation. StatutoryInstruments are subsidiary toprimary legislation.

Consolidation

The Taxes Consolidation Act 1997 wasenacted into law on 30 November,1997. The Act, which is the largestsingle enactment in the history of theState comprising 1104 sections and32 Schedules, consolidates the lawrelating to income tax, corporationtax and capital gains tax.

Consolidation of legislation isconsistent with the principles of goodquality regulation - in particular, theneed to reduce the quantity andimprove the quality of legislation asformulated under the Government’sStrategic Management Initiative.One of the main benefits ofconsolidation is the reduction in thevolume of direct tax legislation byalmost one-half. Other benefits are:

t All direct tax legislation is nowavailable in a single up-to-dateAct, in a coherent, orderly andmore simplified format

t The legislation is more accessibleand user friendly to the businesscommunity, tax practitioners, taxadministrators and members ofthe Oireachtas. This is ofparticularly importance forsmaller firms of tax practitionersand smaller businesses

t As part of the consolidationprocess a significant amount ofdeadwood and obsolete materialwas eliminated from the tax codeand there has been considerablesimplification in content

t All future changes to the taxesinvolved should be capable ofbeing slotted into theConsolidated Act by amendment

t Our tax legislation is now morecoherent to foreign investors andtheir advisors

t The task of future simplificationof the tax system will befacilitated.

n Our tax legislation is now morecoherent to foreign investors andtheir advisors; and

n The task of future simplificaion ofthe tax system will be facilitated.

As annual Finance Act legislation ispassed the various provisions areincorporated into the TaxesConsolidation Act 1997.

On 3 November 1999, the StampDuties Consolidation Bill 1999, waspublished. The Committee Stage ofthe Bill was taken by a JointCommittee of the Dáil and Senate(as provided for by Dáil and SenateStanding Orders on ConsolidationBills) on 30 November, 1999. ThisBill is a further step in Revenue’sprogramme to update and moderniseour tax legislation.

Future Consolidation

In his Budget Speech on 1 December1999, the Minister for Finance,Mr. Charlie McCreevy, stated asfollows:

“In recent years, substantial consolidationof various taxes has been effected. I aim,however, to build on this significant recordand I have asked Revenue to turn theirattention to the remaining areas of tax lawnot yet consolidated, that is, CapitalAcquisitions Tax and VAT and to preparea programme of work to consolidate taxlaw in these areas.”

Profit Sharing Schemes

Approved Profit SharingScheme/TerminationPayments/SCSB

The value of any rights arising to anemployee under an Approved ProfitSharing Scheme may be regarded asemoluments for the purposes ofSchedule 3, TCA 1997 - for thepurposes of calculating StandardCapital Superanuation Benefit.


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PATENT ROYALTIES Income & Distributions

Income derived from PatentRoyalties

In response to requests frompractitioners we include this articleon patent royalties. The article dealswith income derived from patentroyalties and the treatment ofdistributions paid out of incomefrom patent royalties.

Introduction

Section 234 TCA 1997 provides thatcertain income derived from patentroyalties is exempt from tax and isnot to be taken into account for anypurposes of the Tax Acts.

Exemption

An Irish resident individual orcompany on making a claim isentitled to have any incomeaccruing from a qualifyingpatent disregarded for the purposesof the Income Tax Acts orCorporation Tax Acts, as appropriate.Applicants claiming exemption must,however, make the appropriate taxreturns.

An individual in receipt of incomefrom a qualifying patent is notentitled to have that income treatedas exempt income unless theindividual carried out, either solely orjointly with another person, theresearch, planning, processing,experimenting, testing, devising,development or other similar activityleading to the invention which is thesubject of the qualifying patent.

Revenue may, in determining theamount of income to be disregarded,make such apportionment of receiptsand expenses as may be necessary.

Persons in receipt of disregardedincome are obliged to show theamount of such income in their taxreturns.

Qualifying Patent

A qualifying patent is a patent wherethe work which gives rise to theinvention which is patented is carriedout in the State. Where difficultiesarise in establishing whether thework concerned was wholly carriedout in the State (for example, studyand research may have to be carriedout in libraries abroad into works ofreference not available here or testsmay have to be made abroad inparticular climatic or othercircumstances) a reasonabe attitudewill be adopted where Revenue aresatisfied that the spirit of the sectionis fulfilled (that is, that theexemption provided arises out ofgenuine inventions researched anddeveloped in Ireland).

Income from a qualifying patent

Income from a qualifying patent isany royalty or other sum paid inrespect of the user of the invention towhich the qualifying patent relatesand includes any sum paid for thegrant of a licence to exercise rightsunder the patent. The royalty orother sum must be paid for thepurposes of activities which:

t Are regarded as activities withinthe 10 per cent scheme ofcorporation tax, other thaninternational financial servicescarried on from the InternationalFinancial Services Centre andShannon Zone services activities(it is to be noted, that the repairor maintenance of aircraft in theShannon Zone are not excluded)or

t Would be eligible manufacturingactivities even though they arecarried on by an unincorporatedenterprise or are carried onoutside the State. However, asrespects royalties or other sumspaid after 23 April 1996, only somuch of a royalty or other sumpaid to the holder of a patent by aconnected manufacturingcompany as does not exceed an

amount which would be paidbetween persons acting at arm’slength is treated as income from aqualifying patent.

Also treated as income from aqualifying patent are royalties orother sums paid:

n For the purpose of anon-manufacturing activitieswhere the payer is not connected(“connected” here meansconnected for the purposes of theCapital Gains Tax Acts as definedin Section 10 TCA 1997) with thebeneficial recipient of the royaltyor other sum

and

n Where no arrangements existwhich have as a main purpose thesatisfying of the condition that theroyalty or other sum must bereceived from a unconnectedperson. In other words if thirdparties are brought into thepayment stream to achieveexemption of royalties, theroyalties or other sums are notexempt.

Resident of the State

Resident of the State is any personresident in the State for tax purposesand not resident elsewhere. Acompany is regarded as a resident ofthe State if it is managed andcontrolled in the State.

Distributions out of Incomefrom Patent RoyaltiesSection 141 TCA 1997

Introduction

Certain distributions made out ofincome from certain patents whichhas been disregarded for income taxor corporation tax purposes underSection 234 TCA 1997 are themselvesdisregarded for the purposes ofincome tax and corporation tax. Suchdistributions do not attract a taxcredit.

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Distributions

A distribution made partly out ofdisregarded income and partly out ofother profits is treated as if itconsisted of two distributions, onemade out of disregarded income andthe other made out of other profits.

Distributions out of disregardedincome made to a person aredisregarded for income tax purposes:

n Where the distribution is made inrespect of eligible shares

orn Where the distribution is made

out of disregarded income, beingincome derived from a qualifyingpatent where the person to whomit is paid was involved in thecarrying out of the research, etcwhich gave rise to the inventionthe subject of the patent (referredto as “relevant income”)

A distribution made partly out ofdisregarded income which is relevantincome and partly out of otherdisregarded income is treated as if itwere two separate distributions, onemade out of relevant income and theother out of the other disregardedincome.

Distributions out of disregardedincome made to a company are,where the distributions are made inrespect of eligible shares, treated asdisregarded income of the recipientcompany.

Disregarded income

Disregarded income is incomederived from:

t A qualifying patent which hasbeen disregarded for income taxpurposes under Section 234(2)TCA 1997

and

t A qualifying patent which isdisregarded for corporation taxpurposes under Section 234.

However, such income accruing to acompany on or after 28 March 1996,does not include income from aqualifying patent paid by a connectedmanufacturing or deemedmanufacturing company (such

income is referred to as “specifiedincome”).

Eligible shares

Eligible shares are shares formingpart of the ordinary share capital ofthe company which:

t Are fully paid-up

t Carry no present or futurepreferential right to dividends orto assets on the company’swinding up

t Carry no present or future rightto be redeemed

and

t Are not subject to any differenttreatment from other shares ofthe same class, in particulardifferent treatment as todividends payable, repayment,restrictions, or offers ofsubstituted or additional shares,securities or any other rights inrespect of the shares.

Other profits

Other profits includes dividends anddistributions, but excludes adistribution made to a company outof disregarded income where thatdistribution is in respect of eligibleshares.

Distributions out of SpecifiedIncome

Where a company makes adistribution out of specified income(see definition of disregarded incomeabove) which accrued to thecompany on or after 28 March 1996,the distribution is treated as adistribution out of disregardedincome to the extent that thedistribution does not exceed theaggregate expenditure on researchand development incurred by thecompany for the accounting periodin which the distribution is made.

Alternatively, where a person inreceipt of specified income shows tothe satisfaction of Revenue that thespecified income derived from aqualifying patent for an inventioninvolving radical innovation whichwas not patented primarily for taxavoidance purposes, Revenue may

determine that all distributions madeout of the specified income derivedfrom the patent are to be treated asmade out of disregarded income. Inmaking their determination Revenuemay consult appropriate experts. Aperson aggrieved by such adetermination of Revenue has a rightto appeal the determination to theAppeal Commissioners andsubsequently to the courts.

Research and developmentactivities

Research and development activitieshas the meaning set out in Section766 (deduction for certainexpenditure on research anddevelopment).

Amount of the expenditure onresearch and development

The amount of the expenditure onresearch and development isexpenditure on emoluments,materials, goods, and payments tothird parties made in relation toresearch and development activities.Research and developmentexpenditure incurred by companieswhich are members of a group mayon a joint written election be treatedas such expenditure by one memberof the group. For this purpose, inaddition to the usual requirementthat one company is a 75 per centsubsidiary of another company orthat the two companies are 75 percent subsidiaries of a third company,two companies are in a group if bothare owned to the extent of 75 percent by the same individual orindividuals.

The amount of aggregateexpenditure on research anddevelopment incurred by acompany in relation to anaccounting period is the amount ofexpenditure on research anddevelopment activities incurred inthe State by a company in anaccounting period and each of thetwo preceding accounting periods.Where 75 per cent or more of allexpenditure on research and


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PATENT ROYALTIES

(Continued from page 19)

development is incurred in the Statethen all such expenditure is to betaken into account in determiningthis aggregate.

Dividend warrants

The statements required toaccompany dividends and otherdistributions must show, whereappropriate, that distributions aremade out of disregarded income.

The amount of a supplementarydistribution must be shown on thedividend warrant.

Attribution to accountingperiods

A distribution for an accountingperiod is regarded as being made, asfar as is possible, out of thedistributable income of that period,any excess of the distribution overthat income is treated as having beenmade out of the income of the mostrecent preceding accounting periodin priority to earlier ones.

Subsections (6) and (7) of Section 145apply to distributions out ofdisregarded income. Theseprovisions provide, respectively, forthe apportionment of distributionswhere the period for which acompany makes up accounts is partlywithin and partly outside anaccounting period for corporationtax purposes, and for regarding adistribution which is not for anyspecified period as having beingmade for the accounting period inwhich it is made.

REVENUE NEWS Update

New Publications

VAT Treatment of Building andAssociated Services - Leaflet 2/99

A revised Information Leaflet onBuilding and Associated Services hasbeen published. The leaflet describeshow VAT is applied to the variousgoods and services associated with thebuilding industry. Copies areavailable from local tax offices, theRevenue Forms & Leaflets Service at 01 -878 0100 and on the Revenue website- http://www.revenue.ie.

Some queries have arisen with regardto the rate of VAT to be charged onthe supply of new houses togetherwith fittings such as carpets, curtains,kitchen appliances, etc. where a singleconsideration is charged whichincludes both the house and thefittings.

Under Section 11(3) VAT Act 1972,where a house (liable at 12.5%) issupplied together with fittings (liableat 21%) for a single consideration,then the rate of VAT applicable to theentire supply is the highest VAT ratei.e. 21%.

However where Revenue are satisfiedthat there is no attempt to avoid VATproperly due and the cost of thefittings can be clearly identified andare recorded in the books of thebuilder, then separate considerationsfor the supplies can be attributed tothe house and the fittings and VATaccounted for on the supplies at theappropriate rates i.e. 12.5% and 21%.respectively.

The consideration on which VAT isaccounted for on the fittings must beequal to or in excess of the cost of thefittings to the builder.

Value Added Tax - Change inproperty multiplier

Readers are advised that the currentmultiplier for use in the valuation ofa supply of an interest in immovablegoods is, and will continue to be,displayed on the Revenue website[www.revenue.ie]. The multiplier wasincreased to 23.47 with effect fromthe 30 June 1999. Any traders whohave used an incorrect multipliershould immediately contact the Officeof the Chief Inspector of Taxes, TechnicalServices VAT, Setanta Centre, NassauStreet, Dublin 2, explaining thecircumstances in which the incorrectmultiplier was used. Each case will beconsidered on its own merits.

RCT ArticleTax Briefing Issue 37

Clarification

The RCTDC has been simplifiedand is now a two part document.Supplies of the RCTDC are availableonly from local tax offices and arenot available from the Revenue Forms& Leaflets Service.

RCT 30 - the monthly return- blankforms are available only from theCollector General’s Office, ProductionControl, Sarsfield House, LimerickTelephone: 061 - 310310 ext 56752or 1850 203070.

Revenue’s web site<www.revenue.ie>

Revenue’s web site is currently beingredesigned and the new site will belaunched very shortly. The new sitewill contain many new features thatwill be of interest to practitioners andthese will be explained in detail inthe next issue of Tax Briefing.

In the meantime, the Internet Teamwould like to thank thosepractitioners who provided feedbackon the service we provide. Thatfeedback has been very valuable tous in our efforts to improve theRevenue web site.

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Tax Briefing Issue 38 - December 1999 - Revenue...Issue 38 - December 1999 TAX BRIEFING STAMP DUTY...

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