Ireland: Private Client Tax Ireland

1. NON-TAX ISSUES

1.1 Domestic law

1.1.1 Briefly describe your legal system and its origins

The legal system of the Republic of Ireland is a common law system. In order to ensure consistency, a legal principle developed whereby courts were generally required to follow earlier relevant decisions. This doctrine of precedent established the methodology by which relevant legal principles are extracted from earlier decisions.

By the 17th century, the common law of England was imported into Ireland when it replaced the Irish system of laws known as the Brehon laws. Given the origin of the Irish legal system and the traditional links between the two jurisdictions, it is not surprising to find UK decisions are the most frequently cited foreign decisions.

1.1.2 What is the scope of your succession law?

Statute law including the Administration of Estates Act 1959 and primarily, the Succession Act 1965 govern succession law, together with rules of procedure enshrined in the rules of the Superior Courts. Freedom of testation applies but is subject to two principal exceptions relating to spouses and children.

Spouses

Where a person dies wholly or partially testate, the surviving spouse shall be entitled to:

One-half of the estate where there are no children.
One-third of the estate where there are children (section 111 Succession Act 1965).
The legal right taken by the spouse in these circumstances is known as the “legal right share”.

Children

Children do not have a formal right to an entitlement to the estate. At best, their right could be described as a “right to apply”. Upon an application to a court, the court has the authority to make proper provision for that child where it believes that the testator has failed in his or her moral duty to make such proper provision for that child in accordance with his means (section 117 Succession Act 1965). Lawfully adopted children and children born outside of marriage are entitled to make an application.

Civil partners

Under the Civil Partners and Certain Rights and Obligations of Cohabitants Act 2010 (CROC Act), civil partners have rights almost identical to those of spouses, with one important exception. The legal right share of a surviving spouse cannot be decreased by a successful section 117 application by a child of the deceased. There is no such protection of the legal right share of a surviving civil partner. A referendum on the subject of full marriage equality is planned for 2015.

There are no other statutory provisions under which disappointed heirs can seek relief save those in favour of the deceased’s spouse and children outlined above and general part performance and estoppel principles.

1.1.3 When are individuals and their property subject to succession rules?

See 1.1.2 above.

1.2 Private international law

1.2.1 What is the jurisdiction of local courts in international disputes?

Ireland applies the Brussels Regime which consists of the Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters (Brussels Convention), Council Regulation (EC) No 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (Brussels I) and the 1988 Lugano Convention and the 2007 Lugano Convention (Lugano Convention). The Brussels Convention determines which member states’ courts have jurisdiction and how the judgments of a court of one member state acting under the Convention must be recognised and enforced in another member state. The Brussels Convention also formed the basis of the Lugano Convention which extended the rules on jurisdiction and enforcement of judgments to the European Free Trade Association countries. For all member states except Denmark, the Brussels Convention was replaced from 1 March 2002 by Brussels I. Brussels I is directly applicable and forms part of the body of EU law. Also applicable is Council Regulation (EC) No 2201/2003 of 27 November 2003 concerning jurisdiction and the recognition and enforcement of judgments in matrimonial matters and the matters of parental responsibility. Matrimonial matters include divorce, annulment and legal separation but do not include, for example, the property consequences of marriage and the grounds for divorce.

The basic rule of the Brussels regime is that a defendant must be sued in the courts of his domicile. However when attempting to determine which court will have jurisdiction to hear a particular matter, the first step should always be to determine the type of dispute at hand as there are some exceptions to the basic rule. For example disputes as to rights in rem on immoveable property, the jurisdiction to hear the dispute is conferred on the member state in which the property is situated.

It is possible that the courts of more than one member state may have jurisdiction over a matter. In such situations it is generally the court in which proceedings were commenced first which takes priority.

In respect of the recognition and enforcement of foreign judgments, in order to be enforceable a judgment must meet certain criteria. Firstly, it must be for a definite monetary sum. Secondly, the foreign judgment must be final and conclusive. Finally, the judgment must have been given by a court of competent jurisdiction.

A recast Brussels I regulation became effective from January 2015. The recast regulation now also applies to jurisdiction in respect of non-EU residents. It abolishes formalities for the recognition of judgments and simplifies the procedure for a court chosen by the parties to commence proceedings (even if proceedings have started in another member state already).

For disputes falling outside of the scope of the Brussels and Lugano regimes, the common law rules apply. The procedural rules in respect of service outside of the state and the appropriate forum to hear disputes are set out in the Irish Rules of the Superior Courts and are laid down in case law. Irish courts will apply the doctrine of forum non conveniens whereby they may refuse jurisdiction to hear a dispute where they are of the opinion that there is a more appropriate forum.

1.2.2 What approach do local courts take to conflict of laws?

Regulation (EC) No 593/2008 on the law applicable to contractual obligations (Rome I Regulation) and Regulation (EC) No 864/2007 on the law applicable to non-contractual obligations (Rome II Regulation) determine the correct law to be applied to cross-border disputes arising between parties from different EU member states. These Regulations replaced the Convention on the Law Applicable to Contractual Obligations 1980 (Rome Convention). The Rome I Regulation deals with the proper law to be applied to contractual disputes and provides that typically, the law to be applied in relation to breaches of contract should be the law of the country with which the contract is most closely connected. The Rome II Regulation deals with non-contractual disputes such as torts and delicts (civil wrongs). It provides broadly that the law to be applied is that of the member state in which the wrong was committed or the injury sustained. There are however a series of exceptions to the general rules.

The Irish Common Law rules will apply where one or more of the parties to the dispute are not within the scope of the Rome regime. The Irish courts apply the doctrine of renvoi whereby disputes can be referred back to courts in the jurisdiction where the proper law of the dispute should be applied. These rules are notoriously complex.

Where there are foreign elements to a will or succession matter, and a conflict of law arises, the connecting factor used by the Irish courts is the domicile of the deceased and the lex domicili (law of the domicile) is applied. However in respect of immovable property it is the lex situs (law of the place where the property is situated) which is applied.

Ireland did not exercise its right to opt in to the Regulation 650/2012 on jurisdiction, applicable law, recognition and enforcement of decisions and acceptance and enforcement of authentic instruments in matters of succession and on the creation of a European Certificate of Succession (Succession Regulation) pursuant to Title V under Protocol 21 of the Treaty on the Functioning of the European Union. The regulation may still have relevance however for Irish clients where they die habitually resident in a participating member state or if a valid professio juris (election for the law of the individual’s nationality to be applied to his estate in will) in favour of a participating member state has been made. In such cases there may be a conflict of laws with regard to the law of the domicile of the individual and the law of the state in which he was habitually resident.

Another practical concern is the fact that there is no distinction between member states and participating member states in the final text of the Succession Regulation and so there exists some ambiguity in respect of the position of Ireland, the UK and Denmark.

2. TAXATION

2.1 What are the criteria for liability to main taxes?

The tax treatment of an individual in Ireland will depend on whether they are Irish resident, ordinarily resident or domiciled. There is no statutory definition of domicile. Domicile is a legal concept and can be broadly defined as a person’s natural home. Every individual is born with a domicile of origin. It is possible for a person to lose their domicile of origin and acquire a domicile of choice. Likewise it is possible for an individual to lose their domicile of choice and revive their domicile of origin. Domicile is an important concept under Irish law as it is relevant not only for tax purposes but also for determining the rules of succession.

There is a statutory definition of tax residence in Ireland (noted below). Where an individual is resident and domiciled in Ireland, they will be taxable on their worldwide income, regardless of its source. If a person is resident or ordinarily resident but not domiciled, then liability to income tax and capital gains is limited to Irish source income and Irish gains and other income and gains to the extent they are remitted to Ireland.

The residence test

A person will be regarded as Irish resident if they are:

Present in the state for a period of 183 days or more in the tax year (which is a calendar year).
Present in the state for a period of 280 days or more in the current and previous tax year, subject to the provision that where a person is present here for 30 days or less, he will not be regarded as resident for that tax year.
If a person is present during any part of the day, he or she is considered resident for that full day for the purpose of the residency rules.

The final issue is that of ordinary residence. Under section 820 of the Taxes Consolidation Act 1997, an individual becomes ordinarily resident in Ireland for a tax year after he has been resident in the state for three consecutive tax years. The individual continues to be treated as ordinarily resident for the subsequent tax years.

The legislation further provides that an individual who has become ordinarily resident in Ireland for a tax year shall not cease to be so ordinarily resident until after an individual has had three consecutive years in which he was not resident in the state.

Notwithstanding that an individual may not be resident for a particular tax year, ordinary residence is sufficient to bring an Irish domiciled individual within the Irish charge to capital gains tax on worldwide disposals. A person who is ordinarily resident and domiciled but non-resident is liable to income tax on their worldwide income, with the exception of (i) income from a trade or profession, no part of which is exercised in the state; or (ii) an office or employment all the duties of which are exercised outside the state.

Such a person is liable in respect of all other income (investment income) in excess of EUR3,810 and capital gains.

2.2 What are the relevant main taxes in your jurisdiction?

The following taxes apply:
• Income tax.
• Corporation tax.
• Capital acquisitions tax (CAT) (gift/inheritance tax).
• Capital gains tax (CGT).
• Stamp duty.
• Local property tax (LPT).
• VAT.

2.3 Enforcement/collection of taxes

2.3.1 What are the basic procedures for collection and enforcement?

The Irish tax system is largely based on self-assessment, with income tax, corporation tax, CGT, CAT, stamp duty, LPT and VAT all being collected in this manner.

For the self-assessment system to work, there are deterrents to non-compliance. The Collector General’s Office of the Revenue Commissioners has responsibility for collecting the taxes due and for pursuing tax payers when they fail to comply with their tax obligations.

Revenue powers

The main methods used by the Revenue Commissioners to encourage the timely payment of taxes are:

Interest and penalties – Interest may be charged at 0.0219% per day (or part of a day) on the late payment of income tax, corporation tax, CGT, CAT and stamp duty and 8% per annum for the late payment of LPT. In addition, penalties or surcharges may apply for incorrect or late payments.
Issuing demands – The Revenue Commissioners may issue various types of demands for payment of outstanding tax liabilities.
Audits and investigations – The Revenue Commissioners may audit at random the calculation of tax liabilities and interest. Where the Revenue Commissioners have strong concerns of serious tax offences having occurred, an investigation into a taxpayer’s affairs may be ordered.
Right to information – The Revenue Commissioners may seek books, documents and other information from taxpayers or third parties in respect of a liability and where necessary may apply to the High Court for an order directing compliance.
Power to enter premises – agents for the Revenue Commissioners may enter a business premises at any reasonable time in order to inspect records relevant to establishing or verifying any tax liability.
Other measures – The Revenue Commissioners may also encourage compliance by taking such measures as withholding repayments of tax due to the taxpayer or not issuing a tax clearance certificate.

Enforcement

The most frequently used enforcement measures are:

Recovery action by the Sheriff – A Sheriff may seize certain assets from the taxpayer in respect of outstanding liabilities.
Notice of attachment – The Revenue Commissioners may recover a tax debt by issuing a Notice of Attachment to an amount owed to the defaulting taxpayer by a third party debtor.
Referral of the case to Revenue Solicitor – Tax debts may be referred to Revenue appointed lawyers for the purposes of pursuing collection through the court process. The Revenue Commissioners may then seek to recover the tax debt by way of enforcement of a judgment in their favour by forced sale of an asset that is the subject of a judgment mortgage, by way of an instalment order granted by the court followed by committal to prison in the event of non-payment, or by way of a bankruptcy petition (or a petition to wind up a company in the case of a debtor company).
Criminal proceedings – Irish tax law provides for both civil penalties and criminal sanctions for the failure to make a return, the making of a false return, facilitating the making of a false return, or claiming tax credits, allowances or reliefs which are not due.

Instalment arrangements

If justifiable in the circumstances of the individual taxpayer or business, the Revenue Commissioners may, as a concession, permit a taxpayer to pay their tax debt, including interest, by way of a phased payment arrangement.

2.3.2 To what extent is non-compliance an issue?

Tax compliance rates have improved markedly over the years due to significant deterrents and a robust enforcement framework. In 2014, compliance interventions including audits yielded EUR610 million including interest and penalties. A total of 1,199 tax defaulters’ names were published and there were 25 successful prosecutions for serious tax evasion and fraud offences. The compliance rate for large cases (EUR500,000+ annual tax liability) was 99%; the compliance rate for medium cases (EUR75,000 – EUR500,000 annual tax liability) was 97%; and the compliance rate for small cases (all other cases) was 83%. The compliance rate for local property tax of 95% was much higher than expected considering the level of resistance upon its introduction.

2.3.3 Describe circumstances in which default can lead to imprisonment

Once a court judgment has been obtained, the Revenue Commissioners can apply to have the court examine the taxpayer’s means and make an instalment order for payment of the tax debt based on the taxpayer’s ability to pay. If a taxpayer fails to honour an instalment order, the Revenue Commissioners can apply to the court for a committal order. Furthermore if convicted of certain tax evasion offences, a significant jail term could ensue.

2.3.4 Any recent law on extradition for tax offences?

Extradition between EU member states is governed by the European Arrest Warrant Framework Decision. This was implemented in Ireland by the European Arrest Warrant Act 2003. Extradition to other countries from Ireland is governed by the Extradition Act 1965, as amended. In addition, Ireland is party to several multilateral treaties on extradition, the most notable of which are the 1957 European Convention on Extradition and extradition treaties with the US and Australia.

Section 13 of the Extradition Act 1965 follows the well-established principle of international law that one state will not enforce directly or indirectly the revenue laws of a foreign country. Prior to amendment by the Extradition (European Union Convention) Act 2001, section 13 provided that extradition would not be granted for revenue offences. This exception was diluted by a 2001 Act and section 13 now provides that extradition will not be granted for revenue offences unless the relevant extradition provisions otherwise provide.

This amendment gives effect to Article 6 of the European Union Convention on Extradition of 1996 which makes revenue offences extraditable between EU member states. This allows for extradition for revenue offences to be included in any future agreements that may be negotiated.

More changes were brought about by the European Arrest Warrant Act 2003. The Act is silent on the issue of whether there is an exception from extradition for revenue offences. It may therefore be assumed that there is no statutory revenue offence exception to extradition between EU member states.

2.3.5 Have there been any recent changes of behaviour by tax authorities?

The Revenue Commissioners are currently undergoing a consultation process on their 2015-2017 statement of strategy. The focus in the last number of years has been the issue of the cash-based “black economy” and the seizure of cigarettes, fuel and other items which have not been cleared through customs. There has also been a renewed focus on the collection of vehicle registration tax. There will be an emphasis on the efficient collection and processing of the impending water charges.

On the international level, the Revenue Commissioners are engaging with the Organisation for Economic Co-operation and Development Base Erosion and Profit Shifting project in order to come up with a framework to prevent the reduction of tax by multi-national corporations through jurisdictional arbitrage.

2.3.6 Are there any voluntary disclosure or amnesty programmes?

There is currently no formal amnesty procedure in Ireland. The Revenue Commissioners’ Code of Practice for Revenue Audit and other Compliance Interventions does, however, allow for prompted and unprompted disclosures which may have the effect of mitigating penalties that would otherwise apply.

In recent years, the Revenue Commissioners have announced a series of voluntary disclosure initiatives which allow taxpayers to come forward and make a disclosure as to previously undisclosed tax liabilities. The disclosure must state the amounts of all liabilities to tax, interest and penalties with regard to all relevant tax heads and must be accompanied by payment of the total liability. The benefit to the taxpayer of making such a disclosure is that it entitles the taxpayer to significant mitigation of penalties. Furthermore, cases are not published where a qualifying disclosure is accepted.

3. EXEMPTIONS AND/OR EXIT TAXES FOR NEW IMMIGRANTS AND EMIGRANTS

3.1 Which taxes are relevant in your jurisdiction?

As outlined above under question 2.1, the liability of a person to taxation in Ireland will depend on whether they are Irish resident or domiciled. The majority of new immigrants will be non-domiciled and thus may avail of the remittance basis of taxation.

Remittance basis of taxation

Since the introduction of the Finance Act 2010, the remittance basis of taxation is only available for one class of tax resident individuals (individuals who are resident but not domiciled in Ireland in any given tax year). These individuals are liable to income tax and CGT on Irish source income and on foreign income and capital gains to the extent that such foreign income and gains are actually remitted to the state (as opposed to on an arising basis).

It is also worthwhile in this context to review the anti-avoidance provisions that may apply to Irish resident individuals in respect of offshore structures in the form of companies or trusts.

Anti-avoidance provisions

Section 806 TCA 1997 contains anti-avoidance legislation in relation to the transfers of assets abroad and specifically imposes a tax charge on Irish resident or ordinarily resident and domiciled persons who have “power to enjoy” income arising to persons resident or domiciled out of the state.

Section 807A TCA 1997 was introduced to bolster section 806. It operates where income becomes payable to a person who is resident or domiciled out of the state as a result of the transfer of assets abroad either alone or in conjunction with associated operations and subsequently an individual who is resident or ordinarily resident and domiciled in the state (not liable under section 806 TCA 1997) receives a benefit provided out of the assets which
are available for that purpose by virtue of the transfer or any associated operations.

CGT anti-avoidance provisions for trusts and corporates

Section 590 TCA 1997 operates to apportion gains within a non-resident close company to Irish resident or ordinarily resident and domiciled individuals who are participators in the company (in other words, the shareholders in the company).

Section 579 TCA 1997 applies to attribute gains in an offshore trust to an Irish resident or ordinarily resident. Section 579A TCA 1997 attributes gains arising to offshore trustees to capital distributions made to resident or ordinarily resident beneficiaries, but the Irish position is that it only applies to such resident persons if domiciled in Ireland at the relevant time. CGT is currently taxed at 33%

The Irish position is favourable as compared to the UK and it is possible for Irish resident/non domiciled beneficiaries of an offshore trust to receive a distribution in Ireland tax free.

Where an Irish domiciled individual is no longer resident but still ordinarily resident, they may avail of the remittance basis in relation to income, but the individual would still be liable to CGT on worldwide gains until they lose both their Irish residence and their Irish ordinary residence.

4. USE OF ASSET HOLDING VEHICLES

4.1 Which vehicles are available in your jurisdiction and how are they
treated by the courts?

Trusts

Trusts are commonly used to protect wealth and assets for beneficiaries and can be used for legitimate tax planning. The most common type of trusts in Ireland are either fixed or discretionary trusts. Under a fixed trust, the purpose is defined and the beneficiaries are known. Alternatively, a discretionary trust holds specific property on behalf of a class or group of beneficiaries, each of whom have no defined right to any specific share until such share has been allocated by the trustees.

Partnerships

In Ireland, the two main types of partnership used to hold assets are general partnerships and limited partnerships. A general partnership features two or more partners in which each partner is liable for any debts taken on by the partnership. A limited partnership consists of two or more persons, with at least one general partner and one limited partner. While a general partner in a limited partnership has unlimited personal liability, a limited partner’s liability is limited to the amount of his/her investment.

Companies

Company law in Ireland will undergo an overhaul in 2015 due to the implementation of the Companies Act 2014. Generally, there are two types of companies in Ireland, a private company and a public company. However, the majority of companies registered in Ireland are private companies and, of those, most are small with only one or two members. A private company can be limited or unlimited. A company is regarded as a separate legal entity and is separate and distinct from the shareholders.

Limited company: In a limited liability company, the shareholder’s liability (should the company fail) is limited to the amount, if any, remaining unpaid on the shares held by them. The personal assets of directors/shareholders cannot be used to pay off company debts. The Companies Act 2014 introduces a new form of private limited company known as a designated activity company (DAC). The DAC will have a bespoke set of internal constitutional rules while the model limited company will have a standard uniform constitution.

Unlimited company: In an unlimited company, there is no limit on the liability of the members. In other words, the shareholders accept personal and unlimited liability for all the debts of the company. The Companies Act 2014 introduces some changes to Irish unlimited companies such as requiring that they be designated with the words “Unlimited Company” or the letters “UC” after their name and that the rules in respect of distributions may be disapplied.

Foundations

Foundations are not recognised by Irish law. If a foundation was established outside of Ireland, the relevant law of the civil law jurisdiction where the foundation was established would need to be examined.

Irish courts

In relation to the above vehicles, the Irish courts will apply well-known common law principles in relation to these vehicles when dealing with vehicles within the jurisdiction. If the applicable law is that of a third jurisdiction, the Irish courts will procure expert foreign opinions either by affidavit or oral evidence to appraise the position.

5. PHILANTHROPIC AND CHARITABLE OPTIONS

5.1 Is there a compulsory registration system for charities?

Regulation is pursuant to the Charities Act 2009, which was passed into law in February 2009 and became effective by ministerial order on 16 October 2014. For the first time, a single, independent body regulates the charities sector in Ireland. The Charities Regulatory Authority (the Authority) carries out administrative functions.

A conclusive and up-to-date register of charitable bodies (the Register) is maintained by the Authority. All charities carrying out activities in the state are required to be included on the Register, which is available to the public. It is the first time that there is a compulsory registration and regulatory system for charities in the state. This is independent of the separate registration requirements on charities seeking to be afforded charitable relief status from the Revenue Commissioners.

5.2 Are there any tax reliefs available?

Irish tax legislation provides exemptions for charitable bodies in respect of certain taxes in certain circumstances.

Charitable status will only be granted where the objects and powers of the charitable body provide that its income may only be applied for purposes that are legally charitable. Broadly, in order to qualify as charitable, a two tier test must be satisfied. Firstly, the objects of the charitable body must be one or more of the following:
• The relief of poverty.
• The advancement of education.
• The advancement of religion.
• Other works of charitable nature beneficial to the community.

Secondly, in conjunction with satisfying the above, the charitable body must possess sufficient public benefit (it must benefit the community as a whole or an appreciable section of the community) and its purpose must be exclusively charitable.

The taxes from which charities may receive certain exemption in certain circumstances include income tax, corporation tax, CGT, deposit interest retention tax, gift and inheritance tax, stamp duty and dividend withholding tax.

There are also certain tax reliefs available for corporate donors to charitable bodies, such as relief from CGT on the disposal of an asset to a charitable body in certain circumstances and corporation tax relief.

In order for a charity to avail of tax relief on donations, the donation must, be made to an eligible charity, being a charitable body which was granted tax exempt status for a period of at least two years. The minimum donation upon which tax relief may be obtained is EUR250 to any one charitable body in the year of assessment. The relief accrues to the charity and is effected by the claiming of 31% of donations made as an added benefit to the charity. This replaces the old system whereby charitable donations acted as a deduction against the income tax/CGT of the donor.

5.3 Are there any particular distribution requirements and can domestic charities apply funds outside your jurisdiction?

In order to obtain charitable tax status, the Office of the Revenue Commissioners will seek to ensure that the income, assets or profits of a charitable body are applied solely in furtherance of its charitable purposes and that no portion is paid or distributed to the members of the charitable body, either directly or indirectly, by way of dividend, bonus or otherwise.

The Office of the Revenue Commissioners will also seek to ensure that no fees and/or salaries (other than out-of-pocket expenses) are paid to trustees or directors of the charitable body for services rendered in that capacity. Finally, in the event that the charitable body is wound up, the surplus assets must be transferred to a charitable body having similar objects to itself, or failing that, to some other charitable body.

There is no restriction on Irish charitable bodies which have been granted charitable tax status applying funds outside of Ireland, provided that those funds are being applied solely towards the promotion of the charitable objects (as defined by Irish law) of the body.

6. REGULATORY ENVIRONMENT

6.1 What is the financial environment like for funds and other