Taxing Foreign Assets Kieran Twomey Director, Twomey Moran Tax issues for Foreign investment property Foreign investment portfolios Foreign bank accounts
Key points Can Ireland tax the foreign asset? On what? Foreign tax costs Relevance of double taxation agreements Credit for foreign tax in Ireland Structures The global reporting environment
Foreign investment property Belfast apartment GBP Cost 800,000 Purchased 2006 Bank debt 200,000 Rent - gross 50,000 p.a. UK taxable rent 40,000 p.a. Ownership Jointly owned by husband and wife Issues that arise in practice Different tax years Foreign currency Irish rule on deductions Capital allowances Rental losses
Sale of property Commercial position GBP Sale price 1,000,000 Cost (800,000) Profit 200,000 CGT position GBP EUR Sale price 1,000,000 1,160,000 Cost 800,000 (1,192,000) Allowable loss (32,000)
Foreign investment property New York Office USD 000 Cost 15,000 Purchased 2006 Original Bank debt 15,000 Rent roll 800 p.a. Ownership structure Delaware LLC Owners 4 individuals 25% each All Irish resident Distributions to members None US tax position LLC is a transparent entity LLC members taxed on a look through basis US complicated system of tax deductions Tax rates Federal income tax 39.6% Federal tax gains 20%/25% NY state tax 8.82%
A A C D 25% 25% 25% 25% US LLC NY Property Rent roll EUR800k pa Irish tax position No distributions from LLC Status of LLC in Ireland Is it opaque? HMRC Irish Revenue Anson decision Post Anson?
Section 806 Transfer of assets abroad rule Anti-avoidance rule Section 806 is widely drawn Section 806(7) exclusion No tax avoidance Commercial transaction Sale of the NY property US tax position USD 000 Sale price 25,000 Cost (15,000) Gain 10,000 US federal tax (20%) 2,000 New York state tax 882 Total US tax 2,882
Irish capital gains tax position Section 590 TCA 1997 CGT anti-avoidance rule Finance Act 2015 new exclusion from s590 New York property sale is a bona fide commercial transaction An exception under s590(7)(aa) TCA 1997 applies Section 590 and DTAs CGT on LLC distribution USD 000 Proceeds of sale 25,000 Less: Bank debt (15,000) US tax costs (2,882) Net distribution to members 7,118 Irish CGT @ 33% 2,349
Total tax costs USD 000 US federal tax 2,000 New York state tax 882 Irish capital gains tax 2,349 Total US and Ireland tax 5,231 Commercial gain 10,000 Tax as a % 52.31%
London investment portfolio Broker London stockbroking firm Portfolio value GBP750,000 Set up in 2000 Portfolio type Discretionary management Ownership structure Direct ownership by client Portfolio charges 1% management fee Normal transaction charges London investment portfolio The portfolio includes the following investments: SPDR S&P 500 ETF Trust Units First State Investments (UK) Stewart Inv Asia Pacific fund Fidelity Funds SICAV UK Gilt Treasury Stock Schroder Oriental Income Fund Shares in L Oréal SA, a French company Shares in Allianz SE, a German company Shares in Lotus NV, a Belgian company
London investment portfolio Investment SPDR S&P500 ETF First State Asia Pacific Fidelity Fund SICAV UK Gilt Treasury Stock Schroder Oriental Income Fund Investment type ETF subject to CGT UK EU fund Offshore distributing fund UK Government bond Offshore fund - bad L Oréal shares Allianz SE shares Lotus Bakeries shares Shares in French Company Shares in German Company Shares in Belgium Company London investment portfolio Important rules to watch 8 year charge Offset of losses Charge arising on death CAT offset Tax return reporting Credit for underlying tax on dividends
London investment portfolio Further points CGT asset or a fund? Portfolio costs deduction for costs London investment portfolio Is there a better structure?
UK bank account Bank Barclays UK Date account opened 2011 Amount deposited 100,000 Currency GBP 2011 Converted to USD 2013 Interest 1% p.a. Held Individual s sole name Withdrawals None
What is the CGT position? fx is a CGT asset Normal debt exemption does not apply Exemption for personal expenditure outside Ireland Barclays bank account Tax return matters 2011 open bank account Interest each year An acquisition of a new asset in the form of the interest earned each year In 2013, there is a CGT disposal on the conversion from GBP to USD
Practical problems Barclays account The example is not too complicated What about large portfolios? What about active accounts/portfolios? This causes real problems Suggested approach on fx Very few transactions for client Client with small to modest investment portfolio Client with large and active investment portfolio
Foreign estate taxes Belfast apartment New York office London portfolio UK bank account Foreign estate taxes Belfast apartment GBP Assumed net value as above 750,000 Less current UK threshold (325,000) Taxable 425,000 UK inheritance tax @ 40% 170,000
Foreign estate taxes New York Office USD 000 Value assumed today 25,000 Bank debt today (15,000) Net value 10,000 Each members interest 2,500 Taxable as: 60,000 @ 0% 0 1,000,000 @ 18% - 39% 346 1,440,000 @ 40% 576 Total US tax 922 Double taxation agreement UK DTA Gift and inheritance tax Credits US DTA Inheritance tax only All other countries Unilateral relief
The credit crunch NY office example Client dies Estate to spouse US estate tax 922,000 Irish CAT Nil Estate to children CAT, no credit Key questions 1. Do you have a foreign estate tax liability? 2. What is the liability, who is liable? 3. Is there a CAT liability in Ireland on foreign asset? 4. Can you get a credit for the foreign estate tax against the Irish CAT?
Structures Good structures Bad structures Global reporting The new world
OECD Offshore tax evasion is a serious problem for jurisdictions all over the world, OECD and non-oecd, small and large, developing and developed. Countries have a shared interest in maintaining the integrity of their tax systems. Cooperation between tax administrations is critical in the fight against tax evasion and in protecting the integrity of tax systems. A key aspect of that cooperation is exchange of information. What is CRS? OECD initiative Over 100 countries have signed up CRS is an automatic exchange of information by one Revenue authority to another Revenue authority Financial institutions in each country have to report to their local Revenue authority There will be annual reporting Each Revenue authority will then share that information
What information will be exchanged? The name, address, taxpayer number and date and place of birth The account number The name of the Reporting Financial Institution The account balance or value as of the end of the relevant calendar What does this mean for our clients? Client foreign assets/income - June 2017 to the Revenue authority of that country Foreign Revenue authority will send that to the Irish Revenue Irish Revenue are likely to seek to match that information against tax returns Revenue will undertake enquiries or verification checks on tax returns