Financial Services Insights Breakfast Briefing - PwC

www.pwc.ie 

Financial Services 

Insights Breakfast 

Briefing 

February 2013

Agenda 

1. Introduction 

John O’Leary 

2. Finance Bill 2013 

• Property Related Tax Changes 

Enda Faughnan 

• Key legislative changes for financial services 

Yvonne Thompson 

3. International tax developments 

Pat Wall 

Financial Services Insights Breakfast Briefing 

PwC 

February 2013 

2

Introduction 

John O’Leary 

Financial Services Tax Partner 




February 2013 

3

Property Related Tax Changes 

Enda Faughnan 





February 2013 

4

Finance Bill 2013 



February 2013 

5

Local Property Tax (Amendment) Bill 2013 

Property tax introduced by Finance (Local Property Tax) Act 2012 in 

December 2012 

Levied annually on owner at 

0.18% of property €1m 

Valuation date 1 May 2013 fixes 

valuation for 2013-2016 

Local Property 

Tax 

Market value assessed by liable 

person in accordance with Revenue 

Guidelines 

Levied at the midpoint of bands of 

€50k (no banding on excess over 

€1m) 



February 2013 

6


Amendments reflect commitments from Minister in Dáil debates and 

include: 

Exemption for 

• Pyrite damage 

• Property used by charitable 

body for recreation 

• Property purchased/adapted 

for permanently incapacitated 

Deferral for 

• Personal representative of a 

deceased 

• Individual for personal 

insolvency 

• Cases of excessive financial 

hardship 



February 2013 

7


• Measures aimed at under declaration of chargeable value by person 

who intends selling before next valuation date 

• Late filing of LPT return can result in income/ corporation tax 

surcharge 

• Provisions to facilitate employers, pension schemes and social 

welfare to deduct LPT at source 

• Next steps – Revenue to issue LPT returns in early March 

Filing Deadlines 7 May 2013 

(paper) 

Payment Dates By 1 July 2013 

(half year) 

28 May 2013 

(electronic*) 

By 1 January 

thereafter 

*Mandatory electronic filing for persons with more than one property subject to LPT 



February 2013 

8

Finance Bill Measures 

1. REITs 

2. Receiverships 

3. Developers 

4. Land Transactions 

Financial Services Insights Breakfast Briefing February 2013 


9

1. REIT -What is a Real Estate Investment Trust 

• Internationally recognised structure 

• Listed company used to hold rental investment properties 

• Aim is to provide risk diversification allied to an after-tax return for 

investors similar to direct investment in property 

• Eliminates double taxation which can occur when holding property 

through a company 

• Required to distribute majority of its profits to investors annually 

• Must have a diverse ownership – no one person or group of 

connected persons can control 

Lack of a REIT option viewed as a limitation to attracting 

foreign capital to the Irish property market 



February 2013 

10

REIT market 

Country Introduced Market Cap (€bn) 

US 1960 521 (11%) 

Japan 2000 89 (5.2%) 

France 2003 44 (5%) 

Germany 2007 10 (1%) 

UK 2007 26 (3.3%) 

Total 35 1,000 



February 2013 

11

Finance Bill 

Qualifying conditions 

Condition 

Irish incorporated and tax resident 

Listed on recognised EU stock exchange 

Not be a close company (certain exceptions) 

Minimum 75% profits from property rental business 

Minimum 3 properties held with none >40% of total value of 

the REIT 

Profits from property rental business must be minimum 1.25 

times financing costs 

REIT must distribute at least 85% of rental profits p.a. (subject 

to distributable reserves) 

3 year 

grace period 

No 

Yes 

Yes 

Yes 

Yes 

No 

No 



February 2013 

12

Taxation of a REIT 

• Elect into regime subject to satisfying qualifying conditions 

• No entry charge into regime for existing property companies but 

deemed disposal of assets 

• Anti-avoidance - 25% tax at corporate level if financing, distribution 

or control conditions not met. 

Stamp Duty 

normal 2% rate applies to Irish property transfers 

Corporation Tax tax exempt on property rental income/gains 

DWT 

distributions from REIT liable at 20% (some 

domestic exemptions apply) 



February 2013 

13

Taxation of Investors – Irish residents 

• Irish residents subject to tax at normal rates with credit for DWT 

- Individuals taxed at marginal rates of income tax plus USC/PRSI 

- Companies taxed at 25% 

• Certain exempt investors, e.g. pension funds, regulated funds, etc. 

• Disposal of REIT shares subject to CGT (33%) and stamp duty (1%) 

7 year CGT exemption not available 



February 2013 

14

Taxation of Investors – Non-Irish residents 

• Treaty residents can benefit from reduced rate of WHT under treaty 

• Reduced treaty rate must be claimed as a refund 

• Disposal of REIT shares subject to stamp duty at 1% 

Benefit – capital gains do not have to be 

distributed and non resident can dispose of 

REIT shares free of Irish CGT 



February 2013 

15

Tax treatment of Non Resident Investors 

Investment via 

REIT 

Investment via 

Company 

Direct Investment 

Individual 

REIT 

Property Co 

REIT Company Direct 

DWT 20% on income Company CT/CGT on profits/ gains WHT 20% on rental income 

No CGT on share 

disposal 

Investor CGT on disposal of Property 

Co 

CGT on property disposal 



February 2013 

16

REITs - 

Assessment 

• Not as attractive as the QIF/ Section 110 offering 

• Interested parties – NAMA, Banks, Property Companies 

• Stamp duty costs and leverage restrictions are constraints 

• Set up costs may make only viable for large scale property investment 

• Cross border property investment vehicle 

• International Property Services Centre 



February 2013 

17

Tax Update 

• 1. REITs 

• 2. Receiverships 

• 3. Developers 

• 4. Land Transactions 



February 2013 

18

2. Taxation of receiverships and mortgagees in 

possession 

Category Liable Tax attributes 

Rent Lender/receiver Borrower* 

Capital gains Lender /receiver Borrower* 

Clawback of property 

allowances 

Lender/receiver 

Lender 

* Attributes include borrowers’ other income, spouses income, personal tax credits, 

other losses, unused capital allowances, principal private residence relief, high earners 

restriction 



February 2013 

19

Consultation Paper Options 

Direct Taxes 

Tax 

receiver/lender 

and ignore 

borrower 

or 

Tax borrower 

but have 

receiver/lender 

withhold flat 

tax 

Finance Bill 

• Not dealt with 

• Revenue response to consultation and draft legislation to be 

circulated shortly 



February 2013 

20

2. VAT on Receiverships 

Receivers/Liquidators/MIPs (“Receivers”) 

• Receivers already have obligation to return & remit VAT on disposal 

of goods 

• Now extends to services – trade/lettings etc 

• All CGS obligations rest with Receiver (previously borrower) 



February 2013 

21

2. VAT Examples 

Example 1: 

Borrower has opted to tax his lettings or Receiver puts an option to tax in 

place – Receiver obliged to account & return VAT on services 

Example 2: 

Borrower operates hotel. Receiver takes control and continues to operate 

hotel - Receiver obliged to account & return VAT on trading activities 

Example 3: 

Sale of property by Receiver - If sale exempt (purchaser refuses to exercise 

joint option), CGS adjustment payable by Receiver out of sales proceeds 



February 2013 

22

Tax Update 

• 1. REITs 

• 2. Receiverships 

• 3. Developers 

• 4. Land Transactions 



23

3. Developers – Section 17 

• Changes to the taxation rules relating to individuals who are 

engaged in, or deemed to be engaged in, the trade of dealing in or 

developing land 

• Firstly, the release of debts, incurred on foot of money borrowed 

to acquire land held as trading stock, will be treated as an income 

receipt in the year of release 



24

3. Developers 

Secondly, for certain taxpayers, loss relief relating to 

• interest deductions, or 

• write-offs re decline in the value of land held as trading stock 

will be restricted to 

• interest actually paid, or 

• realised losses on disposal of the land 



February 2013 

25

3. Land Dealing 

Example 

• Property developer acquires development land 

for €5m in 2007 

• Developer borrows €4m from the bank to fund 

the purchase and uses €1m of own funds 

• Between 2009 and 2011, the land is revalued to 

€450k and developer claims a total loss of 

€4.55m over the 3 period which is sets off 

against other income 

• In 2013, developer comes to an agreement with 

the bank whereby €3m of the debt is forgiven 

Cash 

€1m Bank 

€4m 

€5m 



February 2013 

26

3. Land Dealing 

Example (cont....) 

Result 

• The €3m of debt forgiveness will be treated 

as a trade receipt for developer in 2013. 

• A potential tax liability of up to 55% could 

arise as a result of the loan write-off 

Cash 

€1m 

 

€5m 

Bank 

€4m 



February 2013 

27

3. Impact of Section 17 

• Only applies to individuals and does not apply if a deal has already 

been done with the bank 

• Bankruptcy and personal insolvency situations 

• Bank deals with customers become more complicated 

• Confirms tax treatment of release or write off of debt generally 



February 2013 

28

Tax Update 

1. REITs 

2. Receiverships 

3. Developers 

4. Land Transactions 



February 2013 

29

4. Stamp Duty: Land transactions anti-avoidance 

provisions 

Conveyance 

Landowner 

End Purchaser 

Developer 

• Resting on contract – not stampable 

• Licence – not stampable 

• Agreement for lease exceeding 35 years – not stampable 



February 2013 

30

4. Stamp Duty: Land transactions anti-avoidance 

provisions 

What has changed 

• Rest on contract - stampable where 25% or more of the consideration is 

paid and a conveyance has not been stamped within 30 days of executing the 

contract 

• Licence – stampable where licensee pays 25% or more of the value of the 

land 

• Agreement for lease exceeding 35 years – stampable where 25% or more of 

the consideration is paid 



February 2013 

31

Other Property Measures 

Extension of 

EIIS to Hotels 



February 2013 

32


Living City 

initiatives 



February 2013 

33


Property 

Measures 



February 2013 

34

Key legislative changes for financial 

services 

Yvonne Thompson 





February 2013 

35


What did we 

get … 

• FED 

• FCE (of sorts) 

• FII GLO 

• IF 

• ILPs 

• MRO 

• R&D 

• REITS 



February 2013 

36

Finance Bill 2013 – FED 

Foreign Earnings Deduction 

• FED reintroduced in FA12 

• Aim to provide an incentive to send employees to “new economies” 

• Maximum deduction of €35,000 

• 2012 - Brazil, Russia, India, China, and South Africa 

• 2013 – Algeria, DRC, Egypt, Ghana, Kenya, Nigeria, Senegal, 

Tanzania 

• Amendment driven by expanding agri-business markets 

• Where to next 



February 2013 

37

Finance Bill 2013 – FCE – loss 

groups 

A step 

backwards… 

• “Worldwide” loss groups 

• Definition of a “group” substantially 

enhanced in FA 2012 

• Widened to include non-EU/EEA resident 

companies as “link” companies 

• FB 2013 restricts the ambit of the relief 

• Introduced “top down” and “bottom up” 

tests 



February 2013 

38

Finance Bill 2013 – FCE - loss groups 

Top down test 

• In determining whether Irish Co 2 

is a 75% subsidiary of Irish Co 1: 

- Irish Co 1 must disregard 

direct/indirect shareholdings in 

non EU/non treaty Co 

• Consequently, Irish Co 1 does not 

form a group with Irish Co 2 

Irish Co 1 

Bermuda 

Irish Co 2 



February 2013 

39

Finance Bill 2013 – FCE – loss groups 

Bottom up test 

• Irish Co 1 and Irish Co 2 cannot be 

75% subsidiaries of TopCo unless: 

- TopCo is EU/treaty resident or 

- TopCo’s principal class of shares 

(or those of its ultimate parent) 

are substantially and regularly 

traded on a recognised Stock 

Exchange 

• No equivalent Stock Exchange test 

in “top down” test 

Irish Co 2 

TopCo 

Irish Co 1 



February 2013 

40

Finance Bill 2013 – unintended consequences 

Post FA12 - ‘Group’ formed for 

Irish CT purposes 

Shares substantially and 

regularly traded on a 

recognised stock 

exchange 

Post FB 13 - ‘No Group’ formed 

for Irish CT purposes 

Shares substantially and 

regularly traded on a 

recognised stock 

exchange 

Irish Co 1 

Irish Co 1 

Bermuda 

 

Bermuda 

Irish Co 2 

*Case I losses 

Irish Co 2 

*Case I losses 



February 2013 

41

Finance Bill 2013 – FCE – loss groups 

• Effective for accounting periods ending on or after 1 January 2013 

• Does not apply to losses incurred pre 1 January 2013 

• Concerns 

• Came as a surprise to industry –no consultation 

• Consider competition - UK already has worldwide group loss 

provisions 



February 2013 

42

Finance Bill 2013 – FII GLO 

FII Group Litigation case – are we there yet 

• Introduces an additional tax credit on foreign dividends 

• Follows ECJ decision in FII Group Litigation case in November 2012 

• Case concerned basis on which the UK taxed overseas dividends 

• Prior to 2009, Irish and UK systems very similar 

UK 

UK 

Dividend 

Exempt 

UK 

EU 

Dividend Taxed 

and Credit 



February 2013 

43


2006 2008 2012 

2013 

Original ECJ 

Decision 

Ireland’s First 

Response 

Latest ECJ 

Decision 

Ireland’s 

Latest 

Response 



February 2013 

44


• Effective for dividends paid on or after 1 January 2013 

• Excludes dividends from non EU countries so doesn’t deal with 

dividends from third countries as dealt with in the case. 

• Not available for pooling/carry forward. 

• Increased complexity 

• Limited application – but some opportunities 

• Participation exemption on dividends a better option 



February 2013 

45

Finance Bill 2013 – the “I”’s 

IF – Islamic finance 

• Restriction on the ability of an Irish sukuk issuer to issue its 

investment certificates to connected companies or the originator of 

the assets in certain cases 

ILPs – Investment Limited Partnerships 

• Confirmation of the tax transparency of Irish regulated ILPs 



February 2013 

46

Finance Bill 2013 - MRO 

Building out 

Ireland’s 

aviation 

offering 



• Introduction of accelerated industrial 

buildings allowances 

• On capex incurred on the “construction or 

refurbishment” of buildings or structures 

which are employed in a MRO trade 

• Write-off period is 7 years (15% x 6 years, 

and 10% in the final year) 

• Includes typical provisions and restrictions 

vis a vis property developers and high 

earners 

• Scheme available for a period of 5 years from 

the date the scheme becomes operational – 

not yet commenced. 

February 2013 

47

Finance Bill 2013 – R&D 

• Mechanism to reward key employees – 

threshold reduced to 50% 

• Increase in limited volume basis - from 

€100k to €200k 

Continuing to 

enhance the R&D 

tax credit regime 

• Consultation paper - Review of R&D tax 

credit – submissions due by close of 

business on Friday 29 March 2013 



February 2013 

48


What we didn’t 

get … 

• EETC 

• FED/SARP 

• FTC/Leasing 

• FTC/Insurance 

• IME 



February 2013 

49

International tax update 

Pat Wall 





February 2013 

50

Agenda 

1. International Tax Update 

2. Post Crisis Tax Reform 

3. Anti Evasion 

4. Anti Avoidance 

5. US, EU and OECD 



February 2013 

51

US FATCA – Ireland Update 

• Ireland - Model I Intergovernmental Agreement with the US. 

• Irish laws & regulations will govern FATCA: 

1. Annual reporting to Irish Revenue; 

2. No 30% FATCA withholding tax on US income/gross proceeds; 

4. No 30% FATCA withholding on recalcitrant accounts; 

5. New account opening procedures required from 1 January 2014. 

• Deemed Compliant Status for Irish Funds 



February 2013 

52

US FATCA – Next Steps. 

1. Review existing accounts for US residents 

2. Consider changes to the new account on-boarding systems 

3. Start discussions with your service providers 

4. Stay tuned for latest developments on Irish regulations 

5. Understand FATCA /IGA process...will impact many countries 

6. Other “FATCAs” coming! 



February 2013 

53

EU - Financial Transaction Tax (FTT) 

• “New” draft proposal by 11 Countries 

• Largely the same as the original proposal released in September 

2011; already rejected! 

• Will impact both EU ( all 27!) and non-EU financial institutions 

• Outside of the 11 countries who have formally joined the Enhanced 

Cooperation on FTT, 7 other countries already operate some form of 

FTT = Stamp Duty 

• Financial institutions need to be lobbying! 

• Multi layered nature of tax would destroy AM products! 



February 2013 

54

EU – Financial Transactions Tax (FTT) 

Existing EU draft proposal: cascading effect 

Asset Management example 

Mr X 

Investor 

Broker 

Fund 

Manager 

EU 

Investment 

Fund 

Financial 

Institutions 

Purchase 

Units N/A 

Purchase 

Units 

Purchase 

Units 

Purchase 

Securities 

Sale 

Units 

Sale 

Units 

Insurance 

Units 

Sale 

Securities 

 

 

= FTT hit 

= potential FTT hit (case-by-case analysis) 



FTT cost = from 50bp to 70 bp 

February 2013 

55

EU - Alternative Investment Fund Managers 

Directive (AIFMD) – Tax related Aspects 

• Operating conditions (conflicts of 

interest, treatment of inducements 

and fair treatment of investors) 

• The role of the risk management 

function 

• Delegation 

• Reporting requirements and 

frequency 

• PE Risk 

• Transfer Pricing 

• VAT 



February 2013 

56

OECD TRACE Project – WHT on Portfolio 

Investors 

Existing Systems - “Traditional” 

• Residence country: 

― investor reporting implicit in 

requirement to obtain cert 

(tax treaty) 

― exchange on request 

• Source Country: local paying 

agent can apply TRS 

• Weakness: layers of 

intermediation, paying agent 

may not have sufficient 

information to apply TRS 

(TRS = tax relief at source) 



February 2013 

57

New System - OECD TRACE Proposal 

Investor 

information 

C 

Non qualified/ 

Authorised 

Intermediary 

Country C 

Investor 

information 

Investor 

Residence 

Country 

B 



A 

Qualified/ 

Authorised 

Intermediary 

Country A 

Qualified/Authorised 

Intermediary/Paying 

Agent 

Source country 

paying agent 

Investor 

information 

Pooled rate 

information 

Pooled rate 

information 

TAX 

Investor 

Reporting 

Tax Authority 

Source 

Country 

• TRACE = Treaty Relief and 

Compliance Enhancement 

• QI system plus Investor 

Reporting 

• Investor reporting to 

Source/Residence Country 

• Contractual arrangements & 

procedures drafted 

• To be finalised later this 

year 

• Similar to EU Commission 

recommendation 

(“Simplified withholding tax 

relief procedures”) 

February 2013 

58

OECD - Report on Base Erosion and Profit 

Shifting 

Key pressure areas 

- hybrid mismatch arrangements 

- the tax treatment of related party debt-financing, captive 

insurance and other intra-group financial transactions; 

- transfer pricing 

- effectiveness of anti avoidance measures (GAAR, CFC rules, thin 

cap) 

- availability of harmful preferential regimes 



February 2013 

59

Portfolio Investing - Review operational taxes! 

 

Investor tax reporting EU Savings Directive FATCA 

Fund 

Compliance with 

special funds regime 

Monitoring fund 

residence 

Investment Manager 

Exemption 

monitoring 

Permanent 

establishment risk 

management 

Fund tax compliance 

Investments 

Withholding tax 

Financial Services Insights Breakfast Briefing management 


Transactional taxes 

Non-resident capital gains 

tax 

Fund indirect taxes 

February 2013 

60

Post Crisis Tax Reform 

Investors will pay a heavy price......... 

• Impact on after tax profits..BEPS 

• Transactions taxes....FTT 

• Withholding Taxes...Beneficial Ownership 

• Reporting....FATCA, EUSD etc 

Impact on retail and Institutional portfolios 



February 2013 

61

Concluding remarks 

Finance Bill 

• A “mixed bag” 

• REIT regime positive but ... 

• A number of unwelcome measures 

International tax developments 

• Governments in revenue raising mode 

• Array of new taxes/reporting requirements/anti-avoidance measures 

• FS sector should participate in the debate 



February 2013 

62

Thank you. 

This content is for general information purposes only, and should not be used as a substitute 

for consultation with professional advisors. 

© 2013 PricewaterhouseCoopers. All rights reserved. PwC refers to the PwC network and/or 

one or more of its member firms, each of which is a separate legal entity. Please see 

www.pwc.com/structure for further details.

Financial Services Insights Breakfast Briefing - PwC

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