At a recent networking event in the Dublin Chamber of Commerce, you met Peter Matthews and John Wilkes, two successful UK resident entrepreneurs based in London. They have worked together on a number of projects and they are the majority shareholders in an Irish incorporated car insurance company NoXS Limited (“NoXS”) which is based in Grand Canal Dock. They act as non-executive directors to NoXS and travel over to Dublin three times a year to attend board meetings. Due to the recent media attention about Irish corporation tax rates and potential changes to the Irish legislation, they are concerned that NoXS might not be considered to be an Irish resident company for corporation tax purposes as both men are UK residents and controlling shareholders.
NoXS owns 100% of the shares in Bankfin Services Limited (“Bankfin”), an Irish resident company, which was profitable for the first time in 2014 and paid a dividend of €350,000 to NoXS. As this is the first time a subsidiary company of NoXS has paid a dividend, they are unsure of how to treat the dividend receipt from a tax perspective.
NoXS has been approached by a rival company looking to acquire the full shareholding in Bankfin which would result in a profit of €2 million. Bankfin is not considered to be part of the core business model for NoXS and they have agreed in principal to the disposal as it will provide them with much needed funding for a new venture they are taking on. Makeit Limited (“Makeit”) was incorporated in February 2015 and is a 100% subsidiary of NoXS. They are a manufacturing company and are only expected to generate a profit in the region of €100,000 in 2015. Peter and John recall that they were able to obtain relief from Irish corporation tax on a new company they set up in 2013 and would like to avail of this relief again if possible.
Upon the incorporation of Makeit, Peter and John were advised that they should also register the company for VAT. As the services provided by NoXS were exempt from VAT, the finance team have not had much exposure to VAT. Makeit will purchase raw materials from America and will sell goods to customers in Ireland and the EU.
NoXS had an exceptional year of trading in 2013 and incurred a tax liability of €270,000. The preliminary tax instalment had been sufficient to cover the tax liability however they recently received a letter from Revenue informing them that they had not filed a CT1 return for 2013. The matter is currently being investigated by the finance team however Peter and John aren’t too concerned as the correct tax liability has been paid. Prior to 2013, the tax liabilities for NoXS didn’t exceed €100,000 and the tax liability for 2014 was calculated to be €190,000.
Peter Matthews phoned you when he got back to London and asked you to prepare tax advice in relation to the above issues.
Write a letter to Peter and John addressing the tax issues for NoXS and Makeit covering the following points:
(a) Outline the criteria for a company to be considered Irish resident and if NoXS meets this criteria (12)
(b) Explain the tax treatment of the dividends received by NoXS from Bankfin (10)
(c) Outline the tax treatment on the potential sale of Bankfin and any reliefs that NoXS may be able to obtain (12)
(d) Advise them on the potential Irish corporation tax exemption for start-up companies (12)
(e) Outline the pay and file requirements for NoXS for 2014 (10)
(f) Advise Peter and John on the implications of filing a CT1 form late (10)
(g) Explain to Peter and John when does a charge to VAT occur (10)
(h) Advise on the VAT treatment of purchases made from outside the EU by Make It (12)
(i) Outline the VAT treatment on sales made to Irish and EU customers (12)