Taxation Update 18 October 2005

Taxation Update

18 October 2005

Taxation UpdateTaxation Update

• Tax strategy

• Income derived from land &

property

•Corporate income tax

• Distributable Profits Charge

• International issues

Taxation StrategyTaxation Strategy

• Background

• International considerations

• “0/10”

10% Rate for Companies10% Rate for Companies

• Licensed banks, banking business• Post-importation or wholesaling of

goods by branches and subsidiaries of non-resident companies

• Income from land and property• Companies that elect to pay 10%

Company Rates of TaxCompany Rates of Tax

2% - Banks’ income from reserves

0% - General rate for companies

20% - Understated income

TimingTiming

April 2006• 0/10• Distributable Profits ChargeApril 2007• Exempt/international companies

repealed• Land transactions• New income tax regime for

companies

Income Derived from LandIncome Derived from Land

Consultation Document•Introduction of schedular system•10% rate on the schedule•Legislation for property

development income

Income Derived from LandIncome Derived from Land

schedular system includes

•Rental income

•Property development •Trading•New charging provision

•Other e.g. mineral extraction

Income Derived from LandIncome Derived from Land

Property development income• Changes to Part 3 IT (Amendment) Bill 2005• 5 year ownership• Principal private residence exemption• Disposal by a non-resident

Development levy

Company Income TaxCompany Income Tax

Timing• Consultation• Legislation• CommencementBasis of assessment• Accounts period basis• Computation

Company Income TaxCompany Income Tax

Pay and file• Within 9 months from end of

period of account• 12 month review period• Discovery (S84A ITA 1970)• Reduction request (S107 ITA 1970)

CompanyCompany Income TaxIncome Tax

Compliance in a zero rate

regime

• Default assessments

• Flat-rate penalties

• Investigation rate of tax

Company IncomeCompany Income Tax Tax

Transition Option 1 (Corporate Tax Working

Party)•5 years•Move payment dates

Option 2•1 Year•Taper relief

Other Options

Distributable Profits ChargeDistributable Profits Charge

• Income Tax (Amendment)(No.2)

Bill 2005

• Consultation

• DPC “Big Guide”

• Regulations early 2006

Distributable Profits ChargeDistributable Profits Charge

What is a distributing company?

• Distributes 55%/100%• 10% tax paying companies• Tax exempt bodies• Companies where members are unable to benefit from a distribution

• PLC traded on recognised stock exchange

Distributable Profits ChargeDistributable Profits Charge

• Timing of distributions

• 3 year averaging

• Current/ future years

• Resident interest

• Look through

Distributable Profits Distributable Profits ChargeCharge

The charge

•Only for “non- distributing company”

•55% x 18% trading/100% x 18%

non- trading

•Resident interest

Distributable Profits ChargeDistributable Profits Charge

Co A

Resident Non -Resident

Resident

50% 50%

10%

Non-Resident

90%

Distributable Profits ChargeDistributable Profits Charge

•Payment

•Treatment of interim distributions

•Interest charge for late payment

Distributable Profits ChargeDistributable Profits Charge

The Calculation

•Change resident/non-resident

shareholding

•Double taxation relief• Foreign income taxed at more than 18%

• Foreign income taxed at less than 18%

•Groups

International IssuesInternational Issues

TIEAs•Netherlands•Others

EU •EUSD

OECD

Taxation UpdateTaxation Update

QUESTIONS ?