Registered AITI Tax Qualification Info and Questions

Confused99 · 02-01-2011 3:33pm

Yes I'm going subsidiary but can't avail of loss relief. Not going branch to sub because you are getting hit with cgt on transfer to sub. Looked at s617 for relief on transfer but not sure if they are chargeable assets. What do you think?

For interest I'm going with S247.
Thanks

TheScriptFan · 02-01-2011 4:44pm

I am wondering what people think of the 'Participation Exemption' S626B so as not to have a chargeable gain in Ireland at all, rather than the DTA and getting credit that way?

bubblicious · 02-01-2011 4:47pm

I hadn't thought about the branch->subsidiary part. Would it be S.615 or S.617? You could probably argue both but I think S.615 would work better because the section is designed for giving relief for company reconstructions? Regardless it would appear that you would get CGT relief because the assets are chargeable assets (i.e. if they were disposed of to a third party, any gain on the disposal would result in a chargeable gain for the company). Also, the subsidiary company would be resident in Ireland under the UK/Ireland treaty.

Just wondering how you make the S.615 or S.617 election? Do you need to submit a written election to Revenue - if that was the case, for S.617 you may have to make an election to Revenue for each of the assets individually.

I'm the same with the interest -S.247. Whether it should be in TBL or the UK company I'm not sure though! Initially I would have said to have it in TBL but that was when I was going to set up the UK company as a sub from the start.

bubblicious · 02-01-2011 4:51pm

TheScriptFan wrote: »

I am wondering what people think of the 'Participation Exemption' S626B so as not to have a chargeable gain in Ireland at all, rather than the DTA and getting credit that way?

That's what I'm going to say. You'd have to have a subsidiary and would have to hold more than 5% of the ordinary share capital/assets on winding up for 12 months before selling the company.

Also, one of my friend's works in a Big 4 tax dept and she said that they're not getting any help!

Confused99 · 02-01-2011 5:29pm

Yeah me too for sub only and DTA for branch. Is that what you mean?

Not sure about s615 - what about the bona fida test?

Where it says there is no requirement to comment on company residency issues are you not making reference to explaining PE or foreign residence? I would have presumed that is important for leading onto double taxation etc.

vinnychase · 02-01-2011 5:35pm

gallyer wrote: »

I think for the interest look to Section 247, with a mention that thin capitalisation rules may apply in the UK. The section 130 only applies to close companies i think.

I am going to suggest operating through a branch initially to avail of loss relief (M&S won't apply - the notes at end of question set this out) and then converting to a subsidiary pre-sale to avail of the relief. Have a little research to do on consequences of converting branch to subsidiary.

I'm having most difficulty at the moment with selling the business when its operated through a branch, has anyone got any useful tips? It would be greatly appreciated!!

Isn't TBL a close company though so s130(2)(d)(iv) would apply?
not sure whether to go with s247 or s130(2)(d)(iv)??
Anyone any thoughts on which best way to structure the loan would be?

I'm thinking of a branch for the first few years as sub can't avail of loss relief, then transfer to sub prior to sale to avail of 626B relief?

bubblicious · 02-01-2011 5:41pm

I agree about the residency issue - I would have thought that we would need to cover off on it to some extent but maybe it's because the management and control will always be in Ireland so we don't need to go in to too much detail on it, just maybe a line or two to cover ourselves? Any ideas on that?

I wonder could you just state that the bona fide reason is to make it more attractive to sell in the future? That is a real commercial reason!

TheScriptFan · 02-01-2011 5:49pm

vinnychase wrote: »

Isn't TBL a close company though so s130(2)(d)(iv) would apply?
not sure whether to go with s247 or s130(2)(d)(iv)??
Anyone any thoughts on which best way to structure the loan would be?

I'm thinking of a branch for the first few years as sub can't avail of loss relief, then transfer to sub prior to sale to avail of 626B relief?

I had thought about that set-up for trading as a branch first and then transfer to a subs, but I think you may be caught by S634, and have a clawback of the profits you had sheltered via the loss, thus making it redundant anyway. Not 100% on that still researching it!
I would have thought S130(2)(d)(iv) would apply also, however in our Part 2 manual, Pg 103, it states ' in practice S130(2)(d)(iv) only affects companies who choose not to make the election for trade interest....etc so I tend to think S247 is more applicable.

Confused99 · 02-01-2011 6:25pm

vinnychase wrote: »

I'm thinking of a branch for the first few years as sub can't avail of loss relief, then transfer to sub prior to sale to avail of 626B relief?

Is CGT charge on transfer from branch to sub not potentially higher than benefit of loss relief by having sub in first 2 years and therefore is sub not better from start?

gallyer · 02-01-2011 8:06pm

Page 129 of the Part 3 Business book says that thin capitalisation rules don't really exist in Ireland but for Irish companies establishing subsidaries abroad must be aware of the rules in place in that territory (re thin capitalisation).

Thanks for the pointer to s615-7 for reconstruction!

Has anyone dealt with the sale of the business as a branch?? Im stuck on that, have the rest of it answered (good or bad it'll do now!) - the more i read the less confident i become in what i have done so i think i'll just leave it at what i have for now!

dcarlito · 02-01-2011 8:36pm

Thanks for the pointer to s615-7 for reconstruction!

I dont think this applies - See notes to s 617 and the Revenue Precedent. s.616 confines relief to where both companies resident in the State.

Any ideas what calculations are expected generally throughout the assignment??

Confused99 · 02-01-2011 9:04pm

Hi Guys

How do you reference in the articles of the DTA?

Thanks

gallyer · 03-01-2011 12:03am

For DTA, just eg Article 5 Ireland-UK DTA. Don't know if this correct but its what I'm doing.

How are people dealing with the sale of branch business? Does the CGT credit from the UK pretty much cover the CGT in Ireland? and are you factoring in capital allowances for equipment etc?

TheScriptFan · 03-01-2011 2:16pm

Is it okay to quote from the letter given in the solution - the first page, regarding not being liable...I was just going to copy it straight from the answer, as obviously it's the standard answer and just reference it at the end...but I wondered would I be better off coming up with my own one?

gallyer · 03-01-2011 2:23pm

Yeah i think thats ok, its a pretty standard opening few paragraphs so i think thats probably ok. Maybe not exactly word for word.

Is it just me or does the sale of branch assets not give rise to any additional tax as the credits from uk will cover tax arising in ireland, thats what im coming up with, but i dont trust myself that its right!

Legend100 · 03-01-2011 4:44pm

are we to lay it out the file note exactly as is in the model solution?

i.e with the boxes in relation to the sources, meaning and consequence?

i'm not very good with word 2007 sadly

TheScriptFan · 03-01-2011 5:07pm

Legend100 wrote: »

are we to lay it out the file note exactly as is in the model solution?

i.e with the boxes in relation to the sources, meaning and consequence?

i'm not very good with word 2007 sadly

i wouldn't worry about the boxes etc, if you can't do them. I shouldn't imagine that'd be a big deal at all. May stick with the headings, as I find they keep you focussed! Well me at least. Glad it's finally coming to an end. I had hoped to be totally wrapped up by today, but got side-tracked! Almost there though!! I don't think I'm turning in a very high quality paper though

vinnychase · 03-01-2011 6:49pm

potentially ye... havent really made my mind fully up on it... Altho if trade isnt sold after 3 years - repatriating dividends in a sub will trigger double charge to CGT whereas same problem won't arise for a branch...
finding it hard to come to a definite conclusion on this - it isn't clear cut at all

vinnychase · 03-01-2011 8:09pm

Confused99 wrote: »

Is CGT charge on transfer from branch to sub not potentially higher than benefit of loss relief by having sub in first 2 years and therefore is sub not better from start?

potentially ye... havent really made my mind fully up on it... Altho if trade isnt sold after 3 years - repatriating dividends in a sub will trigger double charge to CGT whereas same problem won't arise for a branch...
finding it hard to come to a definite conclusion on this - it isn't clear cut at all

Confused99 · 04-01-2011 2:47pm

Hi Guys

Did anyone find a CGT relief section on the transfer of branch assets to subsidiary or is it chargeable to CGT?

Thanks,

Hope the assignments are going well.

gallyer · 04-01-2011 10:05pm

I think it is chargeable, but i think the credit available for tax paid in the UK should cover it, but presumably there will be a balancing charge also on the equipment etc, which will have to be paid.

I thought S627 might give relief but on full reading i don't think so. The further I go the more I think it will be best to set it up as a subsidiary.

On the exam, i missed the re-scheduled personal taxes lecture, were we told anything about the exam?

Legend100 · 04-01-2011 10:24pm

missed that lecture too so don't know, sorry

possibly a very stupid question but I re read the notes and legislation re the taxing of foreign dividends at 12.5% and it seems to me that this would be the case for the subsidiary or am i completely wrong

This will be the worst effort i have ever made at an assignment i'd say

gallyer · 04-01-2011 11:07pm

yeah dats right re the dividends. will also get credit for tax paid in UK.

Just after re-reading the question and totally missed about the losses being before loan interest, am i right in thinking that loan interest can be used to increase a loss?? I'm pretty sure thats right but can't find it anywhere.

Pinkypod007 · 05-01-2011 4:43pm

What is the general consenus on whether to set-up a branch or sub? I initially thought branch and then transfer to sub but now starting to question that after all my research... Do we need to consider an asset sale of sub as opposed to just share sale and S.626B?

Deanobambino · 06-01-2011 12:26am

Does anyone know if once the losses have been utilised in the subsidiary in year 3, are the excess seen as a trapped loss at that point?

If so, can they then be offset against the Irish parent if within a 2 year period?

If so, does this suggest that a sub should be set up from the start?

Toing and froing with options, initially thought set up branch and convert to sub but would this point make sub more tax effective?

Can the capital allowances in uk sub augment the losses carried forward. What rate is uk capital allowances?

Any ideas - confused!!!

TheScriptFan · 06-01-2011 3:06pm

Deanobambino wrote: »

Does anyone know if once the losses have been utilised in the subsidiary in year 3, are the excess seen as a trapped loss at that point?

If so, can they then be offset against the Irish parent if within a 2 year period?

If so, does this suggest that a sub should be set up from the start?

Toing and froing with options, initially thought set up branch and convert to sub but would this point make sub more tax effective?

Can the capital allowances in uk sub augment the losses carried forward. What rate is uk capital allowances?

Any ideas - confused!!!

I'm going with a subsidiary from the start. I had thought about changing from branch to subs, but changed my mind.
As far as I know - the losses in subs can only be used against profits, so yes after year 3 would be trapped loss.
In regards to the cap allowances - it does say 'tax adjusted losses' so I would have assumed any cap allowances were already included..could be wrong though!

heffelump · 06-01-2011 3:49pm

Everyone seems to be changing their mind about starting with a branch and changing to sub and now are going with sub from the start. can any1 elaborate as to why. Im so confused. Am i missing a relief for a sub or is the idea not to utilise the losses?

Does any1 think that this assignment was ridiculously hard for the amount of material we have covered so far this year?:(:(:(

garytm · 06-01-2011 4:18pm

Nightmare...Just starting...24hr internet cafe and plenty of red bull for me... anybody know can TBL use losses in the branch in first two years and then the UK branch also use the losses forward against the third year profits against UK tax?

Pinkypod007 · 06-01-2011 4:33pm

Good luck if you are only starting it! Its a joke, theres so much to be covered.
Yes is the answer I think to your question, as far as I know you can utilise the losses in TBL but also carry them forward for use in uk branch....You get double relief.
I was going to convert from branch to sub in year 3, but given he plans on selling business I dont think we need to???

heffelump · 06-01-2011 4:51pm

Pinkypod007 wrote: »

Good luck if you are only starting it! Its a joke, theres so much to be covered.
Yes is the answer I think to your question, as far as I know you can utilise the losses in TBL but also carry them forward for use in uk branch....You get double relief.
I was going to convert from branch to sub in year 3, but given he plans on selling business I dont think we need to???

I had originally planned on doing that and had most of the answer done that way but it gets complicated when you come to the sale I think because the assets belong to tbl so you have to do a reorginisation and then theres a possible cgt element for moving assets into new co (I think)

Now im going with a sub all the way, granted itll take a few yrs to claim the loss relief as trapped losses but they will get them eventually, the sale will be straigtforward too using 626b.

dont know what company should borrow the money though

TheScriptFan · 06-01-2011 5:07pm

heffelump wrote: »

I had originally planned on doing that and had most of the answer done that way but it gets complicated when you come to the sale I think because the assets belong to tbl so you have to do a reorginisation and then theres a possible cgt element for moving assets into new co (I think)

Now im going with a sub all the way, granted itll take a few yrs to claim the loss relief as trapped losses but they will get them eventually, the sale will be straigtforward too using 626b.

dont know what company should borrow the money though

I have done similar to you, but how can they use the trapped losses? I thought they were just lost after year 3?

I borrowed the money via Irish TBL and lent on, I thought at least TBL IRL will get a charge and get some kind of deduction. I restricted the interest to 90% allowable because of Thin Capitalisation and final 10% as a non-deductible distribution, but I have no idea if that is right or not!

Almost finished, just doing the Step Plan, which is I have to admit being kept very brief!!

heffelump · 06-01-2011 5:21pm

TheScriptFan wrote: »

I have done similar to you, but how can they use the trapped losses? I thought they were just lost after year 3?

I borrowed the money via Irish TBL and lent on, I thought at least TBL IRL will get a charge and get some kind of deduction. I restricted the interest to 90% allowable because of Thin Capitalisation and final 10% as a non-deductible distribution, but I have no idea if that is right or not!

Almost finished, just doing the Step Plan, which is I have to admit being kept very brief!!

OK Im not the best at this but from my interpretation a trapped loss is a loss that cannot be used in a prior current or subsequent year so on that basis its trapped and an application needs to be made to revenue to claim it. I could be waaaayy off the mark though.

Ur doing really well Im still only typing in bits here and there as i find them. I cant find half the legislative references. Panic setting in!!!

Confused99 · 06-01-2011 5:25pm

TheScriptFan wrote: »

Are you charging subsidiary interest on loan and having to pay tax on that in TBL?

heffelump · 06-01-2011 6:04pm

TheScriptFan wrote: »

I borrowed the money via Irish TBL and lent on, I thought at least TBL IRL will get a charge and get some kind of deduction. I restricted the interest to 90% allowable because of Thin Capitalisation and final 10% as a non-deductible distribution, but I have no idea if that is right or not!

We dont have thin capitalisation rules though. So would it be best borrow through TBL and claim full interest relief under S247. If you borrowed through the sub the thin capitalisation rules would apply and there would be no relief for the interest??? If im wrong please tell me

Pinkypod007 · 06-01-2011 7:00pm

heffelump wrote: »

We dont have thin capitalisation rules though. So would it be best borrow through TBL and claim full interest relief under S247. If you borrowed through the sub the thin capitalisation rules would apply and there would be no relief for the interest??? If im wrong please tell me

Does anyone know if you borrow in TBL and its gets a deduction as a charge, does the sub also get a deduction i.e a double interest deduction?
If not I think I would borrow in sub and get bigger deduction at 28% vs 12.5%....

ramacc · 06-01-2011 8:29pm

Now that the tax assignment is done i am looking at doing something for the personal tax ne - is anyone studying the further reading detailed at the start of each chapter in the manuaks or just the manual and prereading :eek:

Legend100 · 06-01-2011 8:31pm

Ah crap!!!

I just saw in the notes at the end of the question that the interest would be deductible for the sub in the UK. I'm after writing (and researching) a load on the thin capitalisation rules in the UK. What a waste of time. Well i'm not changing it now :mad:

gallyer · 06-01-2011 9:31pm

heffelump wrote: »

OK Im not the best at this but from my interpretation a trapped loss is a loss that cannot be used in a prior current or subsequent year so on that basis its trapped and an application needs to be made to revenue to claim it. I could be waaaayy off the mark though.

Ur doing really well Im still only typing in bits here and there as i find them. I cant find half the legislative references. Panic setting in!!!

I may be totally wrong but my understanding on the subsidiary losses is that they wouldn't be available to TBL if the subsidiary is sold because the losses belong to the subsidiary and can be used by it into the future. If thats wrong please tell me. Im sorry if this confuses matters further for anyone.

Im either doing branch from the start or subsidiary from the start i dont think the switch from branch to subsidiary is tax efficient in the circumstances (Disclaimer - my calculations could be waaay off the mark!!)

I cant decided whether to do it branch or subsidiary, the 626B relief for subsidiary is obviously huge advantage, but on my calculations any irish tax arising on the sale of the branch assets would be pretty much eliminated by double tax credits - am i missing something really obvious??

TheScriptFan · 06-01-2011 9:57pm

gallyer wrote: »

I may be totally wrong but my understanding on the subsidiary losses is that they wouldn't be available to TBL if the subsidiary is sold because the losses belong to the subsidiary and can be used by it into the future. If thats wrong please tell me. Im sorry if this confuses matters further for anyone.

Im either doing branch from the start or subsidiary from the start i dont think the switch from branch to subsidiary is tax efficient in the circumstances (Disclaimer - my calculations could be waaay off the mark!!)

I cant decided whether to do it branch or subsidiary, the 626B relief for subsidiary is obviously huge advantage, but on my calculations any irish tax arising on the sale of the branch assets would be pretty much eliminated by double tax credits - am i missing something really obvious??

Yes the tax advantages might not outweigh by a huge amount, but you would never sell a UK branch of an Irish company, it would be very impractical.

TheScriptFan · 06-01-2011 10:01pm

Legend100 wrote: »

Ah crap!!!

I just saw in the notes at the end of the question that the interest would be deductible for the sub in the UK. I'm after writing (and researching) a load on the thin capitalisation rules in the UK. What a waste of time. Well i'm not changing it now :mad:

I don't think it is a waste - I have included thin capitalisation as I think it applies if the UK subs borrows from Ireland. On reading further, I don't think it needs to be restricted, as it says in an article in moneyterms that other factors are to be considered. If the company could borrow the funds at arms length. So I think it's okay. I know others disagree...

What calcs is everyone including?

TheScriptFan · 06-01-2011 10:02pm

ramacc wrote: »

Now that the tax assignment is done i am looking at doing something for the personal tax ne - is anyone studying the further reading detailed at the start of each chapter in the manuaks or just the manual and prereading :eek:

are you having a laugh?? I'll be hard pressed to study the manual! i can't believe its not open book this year!

heffelump · 06-01-2011 10:06pm

ok i think im ready to start typing but i was just wondering is the general opinion that we should form a subsidiary, suffer the losses in yrs one and two and carry forward for offset in year 3. Sell the company and claim 626b?
would the main reason for not using a branch be the admin?

And on the interest borrow through irish company claiming 247 on the full amount as the interest deduction would be of no benefit because we're selling the uk sub at the end of the day?

heffelump · 06-01-2011 10:10pm

ramacc wrote: »

Now that the tax assignment is done i am looking at doing something for the personal tax ne - is anyone studying the further reading detailed at the start of each chapter in the manuaks or just the manual and prereading :eek:

omg lucky you...itll be a late one here to try get it done.

as for pt exam im sticking with manuals and praying for a pass

+1 on the cant believe that we cant have the manuals......typical of ITI!! They'll be expecting us to sit them blindfolded yet!!!

ramacc · 06-01-2011 10:31pm

heffelump wrote: »

omg lucky you...itll be a late one here to try get it done.

as for pt exam im sticking with manuals and praying for a pass

+1 on the cant believe that we cant have the manuals......typical of ITI!! They'll be expecting us to sit them blindfolded yet!!!

yeah i'll just be going for the pray for a pass option i think - apparantly its beacuse of the failure rate with people using the books last year that they are trying to get people to study for it

:mad:

heffelump · 06-01-2011 10:35pm

TheScriptFan wrote: »

are you having a laugh?? I'll be hard pressed to study the manual! i can't believe its not open book this year!

ramacc wrote: »

yeah i'll just be going for the pray for a pass option i think - apparantly its beacuse of the failure rate with people using the books last year that they are trying to get people to study for it :mad:

really....that doesnt make a lot of sense sure if they couldnt understand the book what hope have they of passing without it!!!

ramacc what approach to your answer did you take if you dont mind me asking

Ill be a terrible tax consultant Im too indecisive!!!

Confused99 · 06-01-2011 10:35pm

gallyer wrote: »

I may be totally wrong but my understanding on the subsidiary losses is that they wouldn't be available to TBL if the subsidiary is sold because the losses belong to the subsidiary and can be used by it into the future. If thats wrong please tell me. Im sorry if this confuses matters further for anyone.

Im either doing branch from the start or subsidiary from the start i dont think the switch from branch to subsidiary is tax efficient in the circumstances (Disclaimer - my calculations could be waaay off the mark!!)

I cant decided whether to do it branch or subsidiary, the 626B relief for subsidiary is obviously huge advantage, but on my calculations any irish tax arising on the sale of the branch assets would be pretty much eliminated by double tax credits - am i missing something really obvious??

Do you mean even if you get participation exemption in Ireland there is still UK CGT?

gallyer · 06-01-2011 10:44pm

Confused99 wrote: »

Do you mean even if you get participation exemption in Ireland there is still UK CGT?

No i was referring to the UK tax on the sale of the branch assets, Uk tax would arise on them too and my working showed that the tax credits for the tax paid in the UK would pretty much eliminate Irish tax arising, did anyone else find this?

But i assume UK tax would arise on the sale of the subsidiary as it is a UK resident company, but we aren't asked for the UK tax consequences of the sale so its not something to worry about I wouldnt think, other than to give it a passing mention. Again I may be wrong, im entirely confused after trying to do this assignment, nearly there now though (bad and all as it is)!

Legend100 · 06-01-2011 10:50pm

i got all confused trying to do the calcs on the disposal of the assets of the branch and the UK credit for CGT so gave up and said we would need more details on individual assets to give an accurate answer and am leaving it that.

....half way through the letter and then the step plan, if i got 5/15 in this i'd be amazed!

heffelump · 06-01-2011 10:57pm

Legend100 wrote: »

i got all confused trying to do the calcs on the disposal of the assets of the branch and the UK credit for CGT so gave up and said we would need more details on individual assets to give an accurate answer and am leaving it that.

....half way through the letter and then the step plan, if i got 5/15 in this i'd be amazed!

The whole thing has me confused. just when i think im getting somewhere i find something else and doubt what i have written. I gave this assignment to a newly qualified man and he couldnt even advise me on how to aproach it really. :eek:
i dont even know what calculations to put in im considering leaving them out at this stage......actually at this stage im tempted to pack it all in:mad::mad:

Im thinking that 5/15 would be fantastic at this stage.

garytm · 06-01-2011 11:31pm

the remittance of branch profits is a given and taxed at 12.5% and the remittance of subsidiary divs is also taxed at 12.5% with no DWT. Is there any advantage to remitting in one way or the other?

somebody mentioned CGT on the remmitance of divs? How does this occur?

is the interest paid to TBL taxed at 25% or 12.5%?

I'm pulling my hair out at this stage!

Registered AITI Tax Qualification Info and Questions

Comments