Ireland: Matheson U.S. Offices Update, May 2013

Welcome to our U.S. Offices Update. In this edition we look at:

  • the implementation of the Finance Act 2013;
  • progress of the Financial Transactions Tax;
  • two important recent VAT decisions handed down by the ECJ;
  • tax proposals during the currency of Ireland's EU Presidency;
  • latest developments in EU data protection laws;
  • recent developments on work permits for overseas employees in the ICT sector; and
  • implementation of Alternative Investment Fund Managers Directive. 

We are also pleased to announce that Matheson was recently named Irish Tax Firm of the Year 2013 by the International Tax Review. Such accolades would not be possible without the contributions of our clients and professional colleagues. We are grateful for the opportunity to have worked with so many of you in the past and we look forward to further collaborations in the near future.

Please do not hesitate to contact us if you would like to discuss any of the issues we address here.

John Ryan, Head of U.S. Offices

Finance Act 2013

The Irish Finance Act 2013 was passed into law on 27 March 2013. The Act implements the proposals contained in the 2013 budget and outlined in the subsequent Finance Bill, as discussed in our last update. The Act also introduces and implements some additional measures. As previously reported, the Finance Act introduced legislation for real estate investment trusts (REITs), enhanced the IP amortisation regime and improved the regime for allocating R&D tax credits to certain employees.

Previously, we discussed the ECJ ruling in the FII Group Litigation case (C-35/11). In that case, the Court held that UK rules which differentiated between nationally-sourced and foreign-sourced dividends were contrary to EU law. Prior to the recent Finance Act amendments, Ireland's dividend rules were similar to the UK rules giving rise to the FII Group case. As a reaction to the ECJ decision, the Finance Act introduces an increased foreign tax credit relief when the credit calculated under Ireland's existing rules is less than the amount of credit that would be computed by reference to the nominal rate of tax in the source country. The total credit under the new regime cannot exceed the Irish corporation tax attributable to the dividend, and there are limitations on pooling and carry forward by reference to the additional credit. The amendment applies to all dividends paid on or after 1 January 2013.

The Finance Act also reduced the period in which capital allowances claimed on specified intellectual property will be clawed back in the event of a disposal of the relevant intellectual property. The Finance Act reduces the clawback period from ten years to five years. The Finance Act also allows for accelerated capital allowances over seven years for the construction or refurbishment of buildings or structures used in connection with the maintenance, repair or overhaul of commercial aircraft.

Financial Transactions Tax Update

In our last update, we outlined how the European Commission had authorised 11 Member States to introduce a Financial Transactions tax (FTT) through the enhanced cooperation mechanism.  In April 2013, the UK (which like Ireland is not one of the 11 member states) launched legal proceedings challenging the validity of the measure.  Like Ireland, the UK has consistently opposed the FTT, and in particular has concerns about the extraterritorial reach of the tax.  The concern is based upon the "deemed establishment" rule contained in the proposal, which would subject a transaction to the FTT once shares, bonds or exchange-traded derivatives are issued from a person in one of the 11 participating Member States, regardless of where the transaction takes place.  Commenting on the legal proceedings, an EU spokesperson has stated that the FTT proposal is legally sound and in adherence with EU treaties.

It also appears that the 11 participating Member States may be divided over what form the tax should take, with several of the participating countries expressing concerns about the FTT in an internal Commission document, which was leaked to the media.  In the internal document, participating Member States asked the European Commission to clarify uncertainty over how the FTT is collected and explain how the Commission will ensure the successful implementation of the FTT by non-EU countries, and requested further evidence to support its assumptions on the expected impact of the FTT on financial markets.

For further commentary please click here.

VAT - Update on ECJ cases

In our previous update, we analysed two Advocate General opinions of the ECJ in the context of Irish legislative provisions which (i) allow an exemption from VAT for fund management services and (ii) permit holding companies to form part of a VAT group.  Both cases have recently been ruled upon by the ECJ, with favourable outcomes for tax payers in each case.

In the GfBk case (Case C-275/11) the ECJ clarified that the exemption from VAT for investment management services provided to investment funds should extend to services which are purely advisory and to the provision of related information services.  In another recent ECJ decision, European Commission v Ireland case (Case C 85/11), the ECJ confirmed that the Irish Revenue Commissioners' practice of allowing holding companies to become members of a VAT group and benefit from the ability to recover VAT incurred by the group as a whole is permissible.  As expected, the ECJ decisions follow the previously released opinions of the Advocate General in both cases.

For more information on either case, please read our VAT grouping or VAT Management Feesarticles.

Five EU Member States to pilot multilateral tax information exchange

Five EU Member States have agreed to pilot a multilateral tax information exchange facility, under which the countries will automatically exchange financial information with a view to catching and deterring tax evaders.  The five Member States piloting this new arrangement are France, Germany, Italy, Spain and the UK.  In a joint letter to the EU Commission, the Finance Ministers of the five Members States expressed their hope that other EU Member States will join the programme so that:

"...Europe can take a lead in promoting a global system of automatic information exchange, removing the hiding places for those who would seek to evade paying their taxes".

The initiative has been welcomed by the EU Commission, which has stated that the  automatic exchange of information relating to income and capital payments must be the objective of the EU and the objective of future agreements with third countries.

EU Sets out Tax Agenda during term of Ireland's Presidency

As part of its six-month Presidency of the EU, Ireland and the Commission have, in a joint-letter dated 24 April 2013, identified seven key areas where action should be taken by the EU in that period.  These action items include, amongst other things, agreement on the revised savings tax directive proposal, reaching agreement on a new Anti-VAT Fraud proposal and prioritising agreement of guidance on intra-EU hybrid entity mismatches.  The Presidency and the Commission, in a letter dated 24 April, requested that all Member States agree to the seven key actions "without delay", with the hope that they will be adopted by all Member States before the end of June.  These actions were due to be discussed at the ECOFIN meeting of 14 May.

Treaty Update – Ireland/Ukraine Double Tax Treaty

The Ireland / Ukraine Double Tax Treaty was signed on 19 April 2013.  This brings the total number of Double Tax Treaties that Ireland has signed to 69, of which 64 are in full effect. 

A full list of Double Tax Treaties that Ireland has entered into is available here.

Data Protection

The European Union's draft data protection regulations (the "DP Regs") contain new and controversial extra-territorial provisions which, if enacted, would extend the DP Regs' reach to some companies based outside the European Union.  Lobbyists in the US are currently seeking to limit the territorial extent of the DP Regs.  However, the EU's Justice Commissioner Viviane Reding has hit back at lobbyists and any attempts to dilute the proposed DP Regs.  The debate illustrates the divergence in policy between Europe and the United States in the context of privacy rights and their role in the data-driven online economy.

For further reading please click here.

Employment Permits

The Irish Government has recently announced that it plans to revamp the employment permits process in a bid to attract overseas workers to fill skills gaps, particularly in the Information Communications and Technology (ICT) sector. An additional 700 employment permits will be provided to the Irish ICT sector in 2013. Planned broader reforms of the employment system will reduce permit processing times and reduce the administrative burden on employers.

For more information please click here.

AIFMD

With less than three months until the deadline for implementation of the Alternative Investment Fund Managers Directive ("AIFMD") on 22 July 2013, we would like to remind you of our dedicated AIFMD webpage.  Matheson's Asset Management and Investment Funds group has produced a series of fact sheets on the key issues arising from the AIFMD which may be downloaded at the Matheson AIFMD Page.  The issues examined include the rules applicable to US managers and funds, the marketing passport, private placement, remuneration, delegation, depositary requirements and valuation. 

If you would like to receive hard copies of these papers, please contact the Asset Management and Investment Funds Group.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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