Tax feedback

Insights

Tax feedback from our June INEDs Forum

What we learned from talking to you

Overview

In advance of the event, INEDS were invited to tell us what they felt were the topics of greatest importance to them and their role to allow us to create a customised event tailored specifically to their needs. Not surprisingly FATCA, the new ICAV legislation and directors expenses were highlighted as the main topics of interest in the tax workshops. Set out below are some of the interesting insights arising from the workshops which we hope will be of value to you.

 

FATCA

With Ireland’s first FATCA reporting deadline of 31 July 2015 fast approaching, it was encouraging to see a very strong awareness of FATCA amongst INEDs.

However, there still appears to be a few common misconceptions with respect to the obligation to register and file for FATCA purposes namely that there is an assumption that if an entity has no US investors it has no requirement to file FATCA returns. This is not the case.

Similarly there seems to be a lack of clarity as to the availability of possible reporting deferrals available for high value and low value accounts that were pre-existing on 30 June 2014 and how they will be applied. There also appears to be a clear reluctance in a lot of cases amongst funds to seek temporary exemptions from FATCA registration which seems to mainly arise due to the lack of clarity around the availability of certain exemptions and how they will be applied in practice, in addition to the high costs involved in analysing the potential for their application.

Responsibility for FATCA reporting (including related FATCA due diligence exercises) appears to have largely fallen on administrators even though the ultimate responsibility for reporting falls on the financial entities themselves. This was expected given the volume of information which administrators retains for other purposes (e.g. the EU Savings Directive & AML). There has been a huge investment by all administrators in their internal systems to facilitate FATCA reporting but we would expect that this investment now means that their systems will be robust enough to facilitate future global reporting obligations such as those required under the Common Reporting Standard (‘CRS’) which is just around the corner.

In the run up to the FATCA reporting deadline, the key focus should be on:

  • Identifying reportable accounts and exploring possible reporting deferrals available for high value and low value accounts that were pre-existing on 30 June 2014 
  • Ensuring the FATCA return is in line with the schema prescribed by the IRS (available on the Revenue website)
  • Ensuring that the responsible party has been identified who has the relevant access and filing rights on ROS to file the FATCA return with Irish Revenue.

FATCA is only the first step in countries’ adoption of a global reporting standard. The Common Reporting Standard (“CRS”) comes into force on 1 January 2016 with the first reporting deadline in September 2017. While there has been no guidance issued as to how CRS will be operated in Ireland, it is clear that companies are already thinking of its potential impact, in particular in light of the difficulties they faced in preparing for FATCA reporting.

ICAV

Not surprisingly there appears to be good industry awareness of the ICAV among INEDs, but a clear reluctance by existing boards to be the first to convert an existing VCC into an ICAV.

The main reasons boards are considering using ICAV’s over VCC’s are that:

  • ICAV’s have the option to ‘check-the-box’ for US tax purposes by US investors
  • ICAV’s have the ability to do financial statements at sub-fund level 
  • ICAV’s are future proofed against company law changes.

While there are clearly other beneficial features of the ICAV, these do not appear to be critical to the decision making process – e.g. the absence of a requirement for risk spreading in the ICAV over a VCC. However, as with FATCA, there still appears to be some level of misconception amongst companies with respect to the ICAV that it is tax transparent. Again this is not the case-the ICAV is tax opaque in Ireland just like the VCC. The only difference is how US investors can potentially treat the ICAV for their US tax filing purposes

Both the setup of a new ICAV and the conversion of an existing VCC to an ICAV bring about their own challenges and considerations such as whether to ‘check the box’ at the fund or sub fund level or whether to use various sub funds to separate US investors from other investors.

Thankfully there was a clear awareness that the tax treatment needed to be considered not only before launching an ICAV but more importantly when converting an existing corporate fund to an ICAV. There are certain key considerations from a tax perspective which, if ignored, could have a huge impact on any existing investors in the fund such as;

  • The possibility of non-resident investors being deemed to dispose and re-acquire their investments for tax purposes, 
  • Whether existing non-residency declarations held by investors, tax reference numbers, etc. would remain valid upon the conversion of the fund.

It is certainly encouraging to see that industry has a strong awareness of the ICAV and that the majority of new funds are being structured as ICAVS. We would expect to see an increase in existing funds converting to ICAVS in the coming months.
 

PAYE on Directors’ Remuneration and Expenses

It was not surprising, given the interaction between the industry and Revenue over the last two years, that there was universal awareness of the application of PAYE to Directors’ remuneration, with PAYE being withheld at source from fees received by INEDs.

However, not everyone was aware of the pending consultation around the tax treatment of expenses. The consultation is is was expected to commence shortly with a broad review by the Revenue Commissioners of the tax treatment of travel expenses in general, including those incurred by resident and non-resident non-executive directors. As part of this review, a public consultation is to be has since been launched inviting comments from interested parties to be made to the Department of Finance by Friday, 21 August. The consultation paper, setting out the scope of the review, is available here. Deloitte will continue to make representations in this area and we will keep our website updated for developments are contributing to this consultation process and we would encourage INEDs to continue to provide us with their input.

From discussions with INED participants, it was notable that expenses of travel and related subsistence in attending board meetings were not significant for most attendees. Of more concern to many, was the impact of recent developments on the deductibility (or tax-free reimbursement, if expenses are reimbursed to INEDs as opposed to being incurred personally) of other more relevant business expenses. While the consultation is expected to covers the general tax treatment of travel expenses, which could give rise to changes, there was comfort that there had been no recent legislative change to the tax treatment of the type of business travel and certain other expenses that were discussed.

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