Deloitte template

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Challenging Times for Financial Services.
11 December 2008
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Speakers
Conor Hynes Partner, Financial Services Tax
Richard McDaid Director, VAT
Eimear Thornton Director, Global Employer
Services
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Conor HynesFinance Bill 2009
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The Bad
Applicable to accounting period ending on or
after 14 October 2008
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The Good
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The Good
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RD Activities

• Does your company engage in
• If so, you could be entitled to a Research and
  Development Tax Credit

The development of in-house proprietary software
solutions
The development of sophisticated financial
modelling and valuation techniques
The mathematical modelling for the development of
new financial products, financial engineering,
spread betting or life industry products
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Research and Development

• RD regime is based on incremental expenditure
  above a base year.
• Base year is to remain at 2003 for all future
  periods.
• Excess RD tax credits can be used to reduce the
  corporation tax of the previous period.
• Also possible to make a claim to have any
  remaining excess paid to the company by Revenue
  over a 3 year period.
• Full RD tax credit of 25 can be claimed on a
  qualifying building in the year expenditure
  incurred (previously spread out over 4 years.)
• Minimum of 35 of the building is used for
  conducting RD activities for 4 Years

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Research and Development

• Time Limit
• RD tax credit claim must be made with 12 months
  of the accounting period end in which expenditure
  is incurred.
• Claims for RD credits for accounting periods up
  to 31 December 2007 must be made before 31
  December 2008.

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Industry agenda
Participation exemption for dividends
Simplification of dividend withholding tax
documentation for non residents
Exemption from withholding tax on interest for
treasury companies
Interest deduction for debt treated as Tier 1
capital
Carry forward of excess foreign tax credits in
respect of tax credit pooling for foreign
branches
Allow operating leases on short-life assets to be
taxed on accounting profits
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Main Opportunity

Research and Development tax credit
make your claim before 31 December 2008
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Richard McDaidValue Added Tax
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Value Added Tax Finance Bill 2009

• VAT rate increase
• 21 ½ since 1 December 2008
• Issues
• Increase in VAT cost (5 extra VAT per 1k cost)
• Middle of November/December 2008 VAT period
• Increase in reverse charge VAT
• Impact on existing contracts, leases
• IT systems update

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Value Added Tax Finance Bill 2009

• Penalty Provisions
• Three Categories of Default

Significant changes to existing code of
practice
Tax geared penalties on statutory basis
Fixed penalties Increase to 4,000 per offence
Deliberate behaviour
Other careless behaviour
Careless behaviour with significant
consequences - 15 test

• Subsequent qualifying disclosures see reduction
  in mitigation

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Value Added Tax Finance Bill 2009

• Further revisions to Code Of Audit?
• Position of inter-group failures
  (interest/penalties?)
• Self-correction adjustment threshold - 5k
• Innocent error

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Value Added Tax current issues

• VAT Grouping
• FA 2008 specifically allows passive entities to
  group
• But.....
• EU infringement proceedings could lead to
  exclusion of
• Passive holding companies
• Unrelated captive insurance companies (?) VAT
  on fees?
• Head Office?Branch
• Revenues more relaxed approach
• Wary of EC challenge not implementing FCE Bank
  PLC
• Reluctance to take first step
• Deliberate avoidance
• Nothing in writing Dont Ask/Dont Tell

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Value Added Tax current issues

• Foreign secondees
• Inter-group secondments of senior executives
• PAYE PRSI liabilities discharged
• No VAT reverse charge
• New property rules bedding down
• Technical adjustments in Finance Bill 2009
• VAT adjustments on lease assignments
  surrenders
• Passing on of capital goods scheme log book
• New leases exempt with option to tax _at_ 21 ½
• Tax treatment of lessee compensation

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Value Added Tax current issues

• Revenue focus on fourth schedule services
• Reminder of VAT registration obligations
• Reverse charge obligations
• Approach to VAT recovery - funds
• Traditional practice - location of assets
• Location of investors/shareholders/unitholders
• VAT refunds withheld
• Corporate services - funds
• Not traditional administration but...
• Availability of exemption

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Value Added Tax - current UK issues

• UK fund management change 1 October 2008
• Widened fund management exemption
• Can catch management of Irish domiciled
  sub-funds (of recognised umbrella scheme)
  marketed to UK investors
• Risk

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Value Added Tax EU review

• Revision ongoing but slowly
• Draft directive regulations adopted November
  2007
• Directive outlines principal exemptions
  exceptions
• Regulations confirm detail of exemptions
  exceptions
• French Presidency pursuing directive by year
  end (?)
• Six meetings of Tax Working Party under
  Frenchnext 22 December
• Regulations left to Czech Swedish 2009
  Presidencies

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Value Added Tax - EU review banking

• Banking and financial products and terms still
  being revised, e.g.
• Transactions relating to the granting of credit
  and guaranteeing of debts (29/9)
• Granting of credit, guaranteeing of debts and
  dealing in debt guarantees (17/10)
• (provides for transfer of insurance or debt
  guarantee portfolios)
• Account operation means the administration of
  accounts, under the contractual conditions
  applicable (29/08)
• Account operation means the administration of
  accounts, for the holders of those accounts,
  under the contractual conditions applicable (29/9
  and 17/10)
• (to confirm that the account has to be
  administered on behalf of the customer)

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Value Added Tax - EU review banking

• Financial derivatives contracts in which
  parties are committed, on a firm or optional
  basis
• To the price of financial instruments (as
  defined)
• To the rate of currencies
• To the price of goods or services listed on a
  market, or
• More generally to the value of rates or indices
  of any kind
• Strict definition could lead to exclusions from
  exemption
• Credit default swaps
• where swap linked to bankruptcy of a corporate
  entity (not share price)
• Insurance Derivatives
• exposure to exceptional events
  hurricanes/earthquakes
• Lobbying to remove definition let market decide

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Value Added Tax EU review insurance

• Existing directive exempts
• insurance and reinsurance transactions,...
• Four re-drafts since May 2008
• Latest draft directive exempts
• insurance and reinsurance

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Value Added Tax EU review insurance

• Intermediary Services
• Existing directive exempts
• ... related services performed by insurance
  brokers and insurance agents
• Current draft directive exempts
• services relating to insurance transactions
  rendered by a third party (of a distinct act of
  negotiation concerning the insurance
  transactions), whose purpose is to do what (all
  that) is necessary in order for the parties to
  enter or continue with a contract which affects
  their legal or financial situation with regard to
  those services

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Value Added Tax EU review - funds

• Existing directive
• The management of special investment funds as
  defined by Member States
• Current draft directive
• management of regulated investment funds,
  where established in the Community
• Regulated investment fund
• investment undertakings subject to rules
  designed to facilitate investment by the public
  or to protect investors
• Definition of funds from UCITS directive EC/ECJ
  may exclude non-UCITS from exemption

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Value Added Tax-EU review - funds

• Three categories of funds eligible for exemption
• EU harmonised funds - UCITS
• Pension Funds (IORP Directive)
• Non-harmonised funds regulated at national level
  - Real Estate Funds
• Revenue aware that regulatory requirement
  results in
• Inequality of treatment
• Impact on competitiveness

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Value Added Tax - EU review - funds

• Management/administration companies to
• Irish Other EU qualifying funds
• Services VAT exempt (EU-wide definition of
  funds)
• No deduction
• No look through to (Irish) funds assets
• Irish Other EU non-qualifying funds, non-EU
  funds
• Services VATable / zero-rated
• Full VAT recoveries
• Shift VAT cost to
• Irish domiciled clients
• Other EU non-qualifying clients (local reverse
  charge)

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Value Added Tax- EU review option to tax

• Member states may allow a right of option to
  tax in respect of
• Insurance
• Financial transactions
• Fund management
• Late French suggestion
• In the absence of the option to tax member
  states may seek to tax the total profit margin
  (?????)

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Eimear ThorntonPersonal Tax
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Income Levy

• Applies to
• Gross income before pension contributions
• tax exempt income such as patent income, certain
  artists income

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Income Levy contd

• Annual income up to 18,304 exempt
• From 1 January 2009 under PAYE system Employer
  responsible for collection of levy on income
  liable to PAYE (salaries, bonus,
  benefits-in-kind).
• No levy if 2008 Bonus paid pre 31 December 2008
• 3 levy not applicable to amounts paid from 1
  January 2009 to passing Finance Act income levy
  only applicable at 1 / 2 rate.
• Transfer income between spouses to maximise 1 /
  2 bands

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Income Levy termination issues

• Income levy follows tax treatment
• Applies to taxable element of termination
  payments
• Not payable on tax free pension lump sum
• Minimise impact of Income Levy
• Ensure that any payment can qualify for
  reliefs/exemptions
• Risk of salary sacrifice

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Company car BIK

• New rules apply only to new cars provided for
  first time on/after 1 January 2009
• Increased BIK of 35/40 related to higher C02
  emission cars
• No change to old rules for existing cars
  (available at 31 December 2008)
• Business mileage bands changed to kilometres
  (more favourable than the old mileage bands)

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Executive cars BIK calculation
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Higher level executive cars CO2 grades

• Tax Savings
• Change car before 31 December 2008 to qualify
  under existing rules.
• Review current car policies.

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Car parking levy

• Annual flat levy of 200 where employee
  entitled to the use of a parking space for
  car/van in major Urban centres Cork, Dublin,
  Galway, Limerick and Waterford
• Employer obligation to collect 200 under PAYE
  system deduct from net pay
• Issues
• Multiple employments/directorships
• Costs of compensating payment/reimbursement of
  levy not deductible for employer
• Tax Savings
• Reduced to 100 if shared parking arrangements
  ratio can be reduced to 21
• Available but occasional/infrequent use should be
  reconsidered

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Share based remuneration

• Statutory provisions for existing practice in
  relation to restricted (clogged) shares and
  forfeitable shares
• New Employer reporting obligations
• Opportunities for share based remuneration in
  current circumstances

• Approved Share Schemes
• Approved Share Option
• Approved Save As You Earn (SAYE)
• Approved Profit Share (APPS)

• Low market values
• Accelerate 2008 award of shares to 2008 or
  pre-passing of Finance Act 2009
• Unapproved Share based schemes

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Salary sacrifice

• New legislation introduced by Finance Act 2008
  extended definition in Finance Bill 2009 to
  Sacrifice arrangement
• May have implications for flex benefit
  plans/bonus plans/any changes to remuneration
  PAYE/PRSI
• Revenue expected to apply provisions on a broad
  basis
• Review existing/proposed remuneration package

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Pensions

• Income Ceiling for tax deductible employee
  contributions reduced from 275,238 to 150,000
  from 2009
• Effectively halves the maximum allowable tax
  relief for high earners
• Indexation of annual earnings and overall pension
  cap only at discretion of Minister from 2009
• Standard Fund Threshold 5,418,085 not indexed
  for 2009
• Will impact on foreign assignees to Ireland

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Pensions comparison 2008 2009
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Pensions

• Tax Savings
• Employee should avail of 2008 higher limit
  (275,238)
• Immediate tax saving for employee of Income Tax
  (41), Health Levy (2.5)
• Immediate saving of 10.75 for Employer PRSI
• Pension contribution for 2008 can be paid up to
  31 October 2009
• Wider pension debate
• Identified different approaches for possible
  restructuring of pension plans/employment
  structures to minimise risk/identify potential
  cost savings
• Review position of foreign assignees

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Tax residency rules mobile employees/cross
border issues

• Temporary Business Travellers/assignments in/out
  of Ireland
• Physical presence test based on days in Ireland
  determine Irish tax residence
• Cinderella test - a day counted if in Ireland at
  midnight (purpose not relevant)
• From 1 January 2009 any part of a day spent in
  Ireland will count for residence test

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Tax residence rules contd

• Result

• Result

• Easier to become Irish tax resident
• Harder to end Irish tax resident status
• Could accelerate individual becoming ordinarily
  resident/delay loss of ordinary residence

• Double Tax Treaty network Tracking of movements
  of business travellers.
• Need to review position of inbounds/outbounds to
  identify any potential additional income tax
  liabilities in Ireland.
• PAYE obligations need to be considered

• Tax Savings

• Tax Savings

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UK assignees

• From 1 January 2008, for qualifying individuals
  UK employment taxable only in relation to duties
  exercised in Ireland
• Remittance basis extended to gains on UK assets
  for non-domiciliaries from 20 November 2008
• Position regarding UK gains in period 1 January
  2008 to 19 November 2008?

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New relief for unremitted earnings for expatriates

• Non-domiciled and resident in Ireland
• Resident of non EEA State which has a DTA
• Employed by foreign employer/associated company
  in that non EEA State which has a DTA
• Exercised greater part of employment in that
  country
• Assignment to Ireland for at least three years
• Paid from abroad

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New relief for unremitted earnings for expatriates

• Tax on Irish duties based on higher of
• Actual amount attributable to Irish duties which
  is remitted in that year
• OR
• 100,000 plus 50 of balance attributable to
  Irish duties
• Claim refund of PAYE after year end
• Remittances of such income in later years
  triggers original tax liability from date of
  payment
• Clawback of tax refund from employee if spends
  less than three years

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New relief for unremitted earnings for expatriates

• 100 duties in Ireland
• Gross remuneration 200k
• Tax payable on higher of (a) or (b)
• Actual Remittances in 2009
• PAYE for 2009 70,700 Additional remittances of
  earnings 20,000Total 90,700
• or
• 100,000 plus 50 (200,000 - 100,000) equals
  150,000
• Tax is computed on 150,000
• Refund due on 50,000 at 41 (200,000
  (originally taxed) - 150,000 (new amount))
• Possible impact on VAT

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Mobile Employees/Cross Border

• Tax saving ideas for expatriates

• Structure assignments to maximise tax exempt
  subsistence payments
• Structure assignments to avail of new unremitted
  earnings relief for non-domiciled assignees and
  maximise tax savings for non-Irish duties
• Use EU rules to ensure no liability to Irish
  PRSI, and qualify for total exemption from income
  levy
• Review foreign pension plans
• Use Double Tax Treaty network to ensure no
  liability to Irish PAYE/income levy for
  short-term business travellers

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R D
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Speakers
Deirdre Power Partner, Financial Services Tax
Tel [phone] Email depower_at_deloitte.ie
Conor Hynes Partner, Financial Services Tax Tel
353 1 417 2205 Email chynes_at_deloitte.ie
Eimear Thornton Director, Global Employer
Services Tel [phone] Email
ethornton_at_deloitte.ie
Richard McDaid Director, VAT Tel [phone]
2409 Email rmcdaid_at_deloitte.ie
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Copies of this presentation are available at

• www.deloittefinancebill.ie

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