Tax Policy & Reps Bulletin

16 April 2019

In this bulletin, we provide an overview of developments on key tax policy and administration issues over the last six months and on the work the Institute has undertaken to progress the issues you have raised with us. This bulletin focuses on both domestic and international developments, including:

  • Engagement on measures to alleviate the impact of a “no-deal” Brexit
  • Representations and developments on the tax appeals regime
  • Finance Bill 2018 measures – clarifications for members
  • Members Event on The Balance of Powers and Taxpayers’ Rights and Obligations
  • Our Members Survey on Tax Administration issues and work to progress the issues raised
  • Engagement with Revenue on PAYE modernisation
  • Updates on Revenue’s revised structure
  • Representations on the VAT Return of Trading Details (VAT RTD)
  • Engagement on Revenue’s approach to “Letters of no audit”
  • An Institute Revenue Audits - Did You Know bulletin
  • Submission on PRSI and debt release related to development land
  • Participation in the newly formed SME and Entrepreneurship Consultation Group
  • Responses to two Department of Finance public consultations
  • Engagement with the OECD on addressing the tax challenges of digitalisation

Engagement on measures required to alleviate the impact of 'no-deal' Brexit
The Institute sought a VAT deferral mechanism to alleviate the cash-flow burden for businesses post-Brexit in our Finance Bill related submissions to the Minister for Finance over the last two years.

The Brexit Omnibus Bill introduced postponed accounting for VAT for all importers registered for VAT in Ireland. The measure is intended to alleviate the cash-flow impact on businesses as a result of the UK’s status as a third country and the resulting requirement for businesses to pay VAT at the point of import, rather than at the time they file their bi-monthly VAT returns. The scheme will apply to all traders for a period.

Following the publication of the Brexit Omnibus Bill, the Institute made a submission to Revenue at TALC on necessary additional measures required to maintain the status quo in the event of a 'no-deal' Brexit. Revenue has said the Brexit Omnibus Bill was intended to deal with the most immediate issues in the event of a no-deal Brexit and that further measures would be included in Finance Bill 2019.

Representations and developments on the tax appeals regime
The Review of the Workload and Operations of the Tax Appeals Commission (the “Review”) was published on Budget Day, 9 October, and made recommendations in five key areas of governance, additional resources, dealing with existing backlogs, process improvements and proposed amendments to the legislation. The Institute has long campaigned for additional resources for the Tax Appeals Commission (TAC) to address the backlog in the tax appeals system. We welcomed the confirmation by the Minister for Finance and Public Expenditure and Reform Paschal Donohoe T.D. that he fully supported the recommendations in the Review and that he would be providing additional staffing and funding to the TAC.

At the Institute’s Annual Dinner in February, Minister Donohoe announced that the TAC's staff complement will double this year, in line with the recommendations of the Review and that the Cabinet have discussed and approved upcoming legislation to provide for the role of Chairperson of the TAC.

Following the publication of the proposed Finance Bill 2018 amendments to the tax appeals procedures, the Institute wrote to the Minister regarding the importance of transparency to an independent body such as the TAC. We emphasised that any amendment to the powers of the TAC should be considered in the round and only after appropriate consultation has taken place with all relevant stakeholders. We have urged the Minister that any amendments to the appeal procedures should only take place, following consultation with all stakeholders and a full review of Part 40A TCA 1997.

Finance Bill 2018 measures – clarifications for members
The Institute issued a Special TaxFax on Budget Day and again on the publication of Finance Bill 2018. We continued to update members on developments as the Bill progressed through the Dáil and Seanad. At meetings of Main TALC and the Direct/Capital Taxes sub-committee, the Institute raised and obtained clarification on a number of measures in the Finance Bill (as initiated) including:

  • Technical and administrative aspects on the SCI and EII provisions
  • The KEEP amendments
  • The changes to Section 291A effective from 11 October 2017
  • The legislative amendments in relation to tax appeals
  • The commencement date on the changes to income averaging
  • The practical application of the €70,000 aggregate cap on certain reliefs for farmers

At the TALC BEPS implementation sub-committee, the Institute sought clarification on aspects of the exit tax provisions and Controlled Foreign Company rules.
Following the publication of Finance Bill 2018, the Institute wrote to the Minister for Finance, Public Expenditure and Reform, Paschal Donohoe T.D. about enhancing key tax policy measures for the indigenous sector. We welcomed the positive amendments to the EII and the KEEP in the Finance Bill but highlighted current limitations in the legislation, which impact their attractiveness to business.

We also reiterated the importance of enhancing the Revised Entrepreneur Relief to improve Ireland’s competitiveness compared with the UK and sought the inclusion of a bona fide test in section 135 TCA 1997, to provide certainty for business.

Finance Act 2018 extended the timeframe to notify Revenue of a SARP employee’s arrival in Ireland, from 30 days to 90 days. The Institute sought this legislative amendment in our Pre-Finance Bill 2018 submission to Minister Donohoe last May.

Members Event on The Balance of Powers and Taxpayers' Rights and Obligations

On 8 April, the Institute held a complimentary event for members on The Balance of Powers and Taxpayers' Rights and Obligations. At the event, over a hundred members heard from the US National Taxpayer Advocate, Nina Olson, and the UK Adjudicator, Helen Megarry, who shared their experiences of promoting taxpayers’ rights and obligations in their respective countries.

Ms Olson and Ms Megarry were joined by Institute President, Marie Bradley and panellists, Brian Boyle, Revenue Commissioners; Ian Young, CFE Tax Advisers Europe/ICAEW and Liam Grimes, Fellow Chartered Tax Adviser, who discussed what we can learn from effective oversight models that exist internationally and how we can enhance the awareness of taxpayers’ rights and their obligations in Ireland.

Members Survey on Tax Administration issues and work on MyEnquiries
In December, we conducted a detailed Members Survey on Tax Administration issues. Hundreds of members completed the survey and shared their views on a range of Revenue services and on Revenue’s Complaints and Review process.

The Institute met with senior Revenue officials to discuss the survey feedback and ways to progress the issues members raised.

Members provided us with detailed feedback on their experiences of MyEnquiries in the survey. A TALC sub-group has been formed to discuss the user experiences of the service. The first meeting of this sub-group took place in March, where the Institute outlined members’ feedback on response time, categorising queries and difficulties in identifying who is handling a query. MyEnquiries is a key topic on our representations agenda over the year ahead and we will keep members updated on developments.

Members will be aware that Revenue’s Customer Service Standard for responding to queries submitted via MyEnquiries is 20 working days (25 working days at peak times). We recommend that members with urgent queries that are outstanding in excess of this standard period contact Revenue’s ‘exceptional contacts’, if necessary. Details of the ‘exceptional contacts’ are included on the Revenue website.

Engagement with Revenue on PAYE modernisation

In October, the Institute released a guide for Irish business on preparing for PAYE modernisation, in conjunction with the Small Firms Association and the Institute of Directors. The guide contained information and tips for employers on preparing for the new reporting requirements.

Over the last six months, the Institute has continued to keep members updated on the regime. We have included clarifications and information in TaxFax and the Irish Tax Review. The Institute also continues to engage regularly with Revenue on PAYE modernisation, as the new regime becomes established.

The second phase of PAYE modernisation is currently under development. This will permit employees to view details of their pay and tax information online. We expect this facility to be available from May and we will update members on this development in due course.

At TALC Audit, we have engaged with Revenue on updates to the “self-correction” provision for PAYE in the Code of Practice for Revenue Audits and other Compliance Interventions. We also continue to emphasise the importance of Revenue adopting a supportive approach to businesses that are trying their best to comply with the reporting requirements.

Updates on Revenue’s revised structure
In November, Revenue revised its organisational structure to move from a single Large Cases Division and four geographically based Regions to a new structure, based on a nationally segmented taxpayer base. We updated members on this development and on answers to key questions on the new structure in TaxFax. We are currently reorganising the Institute’s Branch Network and branch activity to match Revenue’s new structure.

Representations on the VAT Return of Trading Details (VAT RTD)
Members have raised with us the need for additional Revenue guidance on completing the VAT Return of Trading Details (VAT RTD). We have highlighted to Revenue some of the most common areas of uncertainty, suggestions for enhancing the guidance and the challenges for small businesses in understanding what information should be supplied on the form. We met with Revenue in March to discuss the issues raised and we will be providing further input on this area over the months ahead.

Engagement on Revenue’s approach to “Letters of no audit”
The Institute has met with Revenue twice over the last six months as part of a TALC sub-group examining procedures for providing clearance to solicitors who have secondary liability for CAT and CGT in non-resident cases and clearance for personal representatives administering estates.

We have outlined members’ concerns and possible practical solutions. We will update members on Revenue’s revised procedures once they are in place.

An Institute Revenue Audits - Did You Know bulletin
The Institute is developing a series of Did You Know? bulletins for members on some practical tax administration issues. The first bulletin, which issued on 28 February, focused on common questions relating to Revenue Audits and aspect queries, including:

  • The length of time Revenue can retain the taxpayer’s records
  • Dealing with requests to supply information within short timeframes

Obtaining confirmation from Revenue that all their queries have been addressed and the intervention is closed.

Submission on PRSI charge on debt release related to development land
Last October, the Institute wrote to the Minister for Employment Affairs and Social Protection, Regina Doherty T.D., about the PRSI charge that can arise on the release of a debt, when the debt relates to borrowings used for the purchase or development of land. We sought an amendment to social welfare legislation or regulation to ensure that income to which section 87B TCA 1997 applies is not regarded as reckonable income for the purposes of the Social Welfare Consolidation Act 2005.

We highlighted the different treatment of this deemed income for tax and for PRSI purposes (arising from the differing treatment of unused trading losses carried forward). We also outlined how the current position continues to cause significant hardship to those affected, who incur a substantial PRSI liability, without the corresponding income to discharge the liability.

Participation in the newly formed SME and Entrepreneurship Consultation Group
The Institute has been asked to participate in the new SME and Entrepreneurship (SMEe) Consultation Group, which held its inaugural meeting on 27 March. The SMEe Consultation Group is chaired by the Minister of State for Trade, Employment, Business and EU Digital Single Market and Data Protection, Mr Pat Breen, T.D. and is intended to provide a platform for structured engagement between Government, agencies, representative bodies and small business. The establishment of the Group follows on from two OECD Study Missions that took place in June and November 2018, to review SME and entrepreneurship policies and issues in Ireland, which the Institute participated in on both occasions.

Responses to two Department of Finance public consultations
It has been a busy period on the international tax front with the Institute engaging with Revenue via TALC on draft guidance in respect of the controlled foreign company and exit tax provisions introduced in Finance Act 2018.

We have also responded to two Department of Finance consultations in January and at the beginning of April on:

  • The implementation of hybrid mismatch and interest limitation rules under ATAD
  • Ireland’s transfer pricing rules

We worked closely with our Policy and Technical Committee and members in practice and industry to develop our recommendations. We have emphasised in our submissions the importance of consultation on draft legislation well in advance of the measures commencing and the need for clear Revenue guidance.

1. Hybrid mismatch and interest limitation rules
In our submission to the Department of Finance in response to the public consultation on the implementation of hybrid mismatch and interest limitation rules contained in the EU Anti-Tax Avoidance Directives (ATAD and ATAD2), we made detailed recommendations including the following:

  • If the Government moves to introduce ATAD interest limitation rules before 2024, this should be confirmed without delay, together with a clear announcement given on grandfathering of existing loan arrangements. Any early adoption of the interest restriction measures under ATAD should take place no earlier than 2021.
  • Our existing domestic legislation should be fundamentally reformed, in parallel with the implementation of the new ATAD compliant interest limitation rules in the tax code.
  • Ireland should not go beyond the framework for hybrid mismatch rules in ATAD and ATAD2. Any changes to Irish tax legislation should be limited to payments that are actual hybrid payments and not for mismatches arising because of another country’s tax system or from transfer pricing adjustments.
  • For the purposes of anti-hybrid rules, Irish legislation should treat as “included” income payments that are taxed in another jurisdiction, even if these payments are not taxed upon the same entity, as the entity that is considered the taxable entity from an Irish perspective.

Associated enterprises could be defined by reference to section 7, Companies Act 2014, which refers to control of the composition of the board of the directors and dominant influence and would be in line with the policy objective of ATAD2.

2. Ireland’s transfer pricing rules
The Institute responded to the Department of Finance Public Consultation on Ireland’s Transfer Pricing Rules on 2 April. Our response outlined 25 recommendations on the proposals contained in the consultation paper, including:

  • The Institute fully supports the adoption of the 2017 OECD Guidelines into Irish law. However, the Guidelines should apply to accounting periods commencing on or after 1 July 2020, to allow Irish businesses some time to assess the impact of the updated guidelines on their operations and for the Revenue to publish clear and comprehensive guidance on how they will administer the transfer pricing rules under the new framework.
  • If the grandfathering provisions are removed from 1 January 2020, clear guidance must be provided by Revenue regarding the repricing of existing grandfathered transactions and recognition given for limitations on data availability in pricing pre-1 July 2010 grandfathered arrangements.
  • The Institute strongly supports the continued exemption for SMEs from the Irish transfer pricing regime.
  • Regarding the proposed extension of transfer pricing rules to non-trading income, policymakers could consider excluding domestic non-trading transactions from the scope of transfer pricing rules, in order to minimise the potential impact of the differing corporation tax rates applying in domestic situations.
  • If transfer pricing rules are extended to capital transactions, policymakers should consider introducing a hierarchy within the tax code or aligning the existing legislation that applies market value to capital transactions with transfer pricing principles, to alleviate the significant documentation burden for taxpayers.
  • Ireland should adopt the OECD set of common criteria in Annex I and II of the 2017 Guidelines for Master and Local Files, as the standard for content for transfer pricing documentation. The filing of Master and Local Files should be upon written request by Revenue, rather than imposed as a mandatory filing requirement.

We also highlighted the need for a well-resourced Competent Authority to deal with the probable increase in international disputes and Mutual Agreement Procedures that are likely to occur following the adoption of the OECD 2017 Guidelines into Irish law.

Engagement with the OECD on addressing the tax challenges of digitalisation
In February, the OECD launched a public consultation document which included proposals to reform the international tax framework and address the tax challenges of digitalisation through revised profit allocation and nexus rules and also measures to address profit shifting risks to countries with no or very low effective tax rates.

The Institute, in responding to the consultation in March, noted our strong support for a reform of the international tax system that is sustainable in the long-term and we encouraged the Inclusive Framework to achieve an early consensus on the way forward regarding the revision of profit allocation rules under Pillar 1.

However, we highlighted that it is critical that whatever consensus is reached on changing the international tax framework, it should continue to be aligned as closely as possible with the core principle underpinning the BEPS project, that profits are taxed where the underlying substantial activity takes place and value is created. We also stressed the importance of retaining, insofar as possible, the arm’s length principle that has been developed by the OECD over decades and which is comprehensively applied and understood by both businesses and competent authorities.

Regarding Pillar 2, we recommended that adopting a longer-term perspective would be more appropriate to fully understand any remaining BEPS concerns, given the extent of the BEPS measures which are still being implemented by members of the Inclusive Framework and the EU, in addition to the ongoing work on preferential tax regimes and the operation of the EU list of non-cooperative tax jurisdictions (‘The EU Blacklist’). In light of these circumstances, the requirement for a global minimum tax rate proposed under Pillar 2 is not yet evident in our view.

The matter will be discussed at a meeting of the BEPS Inclusive Framework in May with a view to a progress report being presented by the OECD’s Task Force on the Digital Economy to the G20 Finance Ministers in June and a solution being delivered in 2020.