Tax Implications Of Ashe Holding Limited Sale Of Shares Of Beech Limited

Capital Gain Tax Implications

Discuss about the Changing Inequalities and Societal Impacts.

The Ashe Holding limited is a company that is equally owned by the Rosemary and Michael. The Ashe Holding Limited holds the share of the three companies that includes OAK limited, BEECH Limited and PALM Limited. In this case, Ashe Holding limited is planning to sell its stake of 85% in BEECH limited to a French company. The French company has made an offer of €120000 for purchasing its shares. The issue here is to ascertain the tax implication of sell its shares of BEECH Limited (Nolan et al. 2014).

The taxation system in Ireland includes income tax; value added tax and many other types of taxes. The Tax Consolidation Act 1997 governs the capital gain tax that is payable by an individual and the companies. The rate of tax and assets on which the capital gain tax is calculated is dependent on the residential status of tax. If an individual or company is an ordinary resident of Republic of Ireland (ROI) for the tax year then the CGT is payable on the worldwide gain during that year (McQuinn and Addison-Smyth 2015). On the other hand, if an individual or the company is not a resident or an ordinary resident of Republic of Ireland (ROI) then in such case the tax implication is different. In case of foreign resident, the tax will be applied for the amount remitted to Republic of Ireland. The section 28 of the Tax Consolidation Act provides that if a gain is made on the disposal of the capital asset then Capital gain tax is chargeable.  The section 532 of the TCA 1997 provides that for the purpose of capital gain the meaning of assets includes both tangible and intangible property.  The section 525 of the Tax Consolidation Act 1997 states that the disposal means that sale of capital assets from disposal of an assets.  The section 31 of the Tax Consolidation Act 1997 provides that CGT is charged on the gains after providing for allowable deductions (O’Connor et al. 2015).

The capital gain tax is payable on disposal of shares. The capital gain on sale of shares is computed after calculating the chargeable gain. The chargeable gain on disposal of company shares is arrived at by deduction the cost of shares from the consideration that is received from the disposal of shares. It should be noted that the cost of the shares should be adjusted for the inflation before disposal of the shares (Mytton et al. 2014). The indexation is applied for shares that are purchased before 2004. In this case, the company purchased the shares prior to 2004. Hence, it can be said that the indexation will not be applied in calculating the capital gain on sale of shares. The rate of capital gain tax is 33% on sale of shares. In this case, Ashe Holding has decided to dispose 85% of the shares of Beech limited. The disposal of shares is a capital gain event as per the Tax Consolidation Act. Therefore, sale of share of the business is a capital event so capital gain tax should be calculated. The calculation is given below:

Statement Showing calculation of Capital Gain Tax Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper
Particulars	Amount
Proceed from sale of Shares	€  1,020,000.00
Less:
Cost of acquisition	€     534,000.00
Profit on sale of Shares	€     486,000.00
Tax Rate	33%
Capital gain tax Payable	€     160,380.00

Value Added Tax Implications

Table 1: Calculation of Capital Gain

(Source: Created by Author)

The above calculation shows that if the company sales shares of the Beech limited then the company will make a profit of €666,000.00 on sales of shares. The capital gain is computed by applying the current tax rate of 33% on the amount of shares (Gray 2015). The tax rate is applied on the profit on sale of share for calculating the capital gain tax payable. The calculation shows that the capital gain tax payable by Ashe Holding on sale of shares is €219780.

Based on the above discussion it can be said that Ashe Holding limited is a resident company of Ireland. The calculation shows that the company will have to pay the capital gain tax of €219780.

In Ireland, the Value Added Tax is governed by the legislation of Value Added Tax Consolidation Act 2010. The VATC Act 2010 provides that Value added tax (VAT) is required to be paid by the taxable person that are engaged in the business of supply or providing of services within republic of Ireland during the course of business. The VAT is applied for importing and supplying the goods or services from outside the European Union, the intra community acquisition, movable goods and others (Richelle et al. 2017). The discussion above shows that the VAT is payable by taxable person. The taxable person includes a person that carries on the business in the community or elsewhere. The taxable person includes both the person that are exempted from tax and farmers that pays flat rate of tax. The section 5 of the VATC Act 2010 provides that a person who is required to charge VAT is known as accountable person. Therefore, it can be said that as per the act, the taxable person is the accountable person and it includes individual, partnership, company etc. The accountable person are required to registered for VAT. The section 65 of the Value Added Tax Consolidation Act 2010 provides that a person involved in the supply of goods and services that exceeds threshold limit should register for VAT (Dukelow 2016).

The section 37 of the VATC Act 2010 states that VAT is applied on the supply or receiving of goods and services. The VAT is charged on the total sum paid or payable that includes all the charges, commission, taxes etc. The section 38 of the Value Added Tax Consolidation Act 2010 provides that if the supply is between the connected person then the officer in the revenue will determine the value on which vat is chargeable (Breen et al. 2016). The value on which tax is charged is determined based on the the open market value. The open market value is determined by the referring to the amount that is reasonably expected to be paid for the goods and the services. If in the open market there is no comparable supplies then the cost price can be used as the value on which the tax is applied. The act provides that in general VAT is chargeable at the time of supply of goods and services (Christensen et al. 2013). The VAT becomes due at the time of issue of invoice or the date at which the VAT should have been issued. On the other hand if the payment is received in full or part before the date on which the VAT is normally due then in such case VAT is payable at the time of receipt of payment.

Transfer of Property and VAT Implications

The immovable property that are transferred during the course of economic activity are subject to value added tax. The section 94 of the Value Added Tax Consolidation Act 1997 provides that sale of property can be divided into two categories new property and old property. The property is classified as new or old property depending on the completion of the development (Godfrey et al. 2015). It should be noted that the VAT is chargeable for transfer of new property.  It is provided that if a property is sold within five year of its completion then it is subject to VAT. This rule is known as the 5 years rule. The subsequent supply of property is also subject to VAT provided the transfer has occurred within two years of occupation, there was prior vat sales and the transaction took place between the unconnected parties. 

In general, the VAT is not applied for letting of property. In the act, no distinction has been made based on the period of lease. There are certain long leases that are regarded as the supply of property (Cantens et al. 2015). The landlord has an option for applying VAT in letting the property. However, it should be noted that thus option does not apply in case of letting of residential property or letting of property between the parties that are connected. If the connected party tenant is able to recover, VAT of at least 90% then the option to tax letting is available (Ball 2014). 

In the given case, Palm Limited has acquired a property in the year 2010 directly from a supplier for €1589000 that are inclusive of tax. The OAK Limited required storage for expansion. Therefore, it was decided to transfer the excess storage capacity from Palm Limited to Oak Limited. The owner have considered two options for transferring the property. The first is option is to transfer property as sales. The second that has been considered is the letting of property by Oak to Palm limited. The issue is to determine the tax implication for each of the above cases (Ting 2014).  

The Ashe Holding limited holds the majority of shares of Palm Limited and Oak Limited. Therefore, it can be said that the Palm Limited and Oak Limited are connected parties, as Ashe Holding commonly owns them. The act provides that in case of transaction between the connected parties the officer in revenue department will determine the amount on which the VAT is chargeable (Fuest et al. 2013). It should be noted that VAT is chargeable in case of property that are new.  That means in case of transfer of old property the VAT is not chargeable. In this case, the Palm limited has acquired the property before 5 years from the date of transaction. Therefore, it can be said that the property transferred is an old property. Hence, in this case for the transfer of storage unit from Palm to Oak limited it can be seen that no VAT is chargeable.

On the other hand, another issue that has to be evaluated is the leasing of property by the Oak limited to the Palm Limited. In general, there is VAT that is applied for leasing but the tenant can choose to apply for VAT. In this case, both the parties are connected so the option to tax on leasing does not apply. However, in the case study it is provided that Palm have recovered 100% VAT during the acquisition. Therefore, in this case if Palm Limited leases the unit then the company has the option to apply VAT on those transactions (Bozio et al. 2015).   

Based on the above discussion it can be concluded that the tax implication for VAT changes based on the two type of transaction. If the unit is transferred from Palm to Oak limited as a sale then the VAT is not chargeable as the property is old. If the Palm limited leases the property to Oak Limited then in such case the Palm has the option to apply Vat on the lease amount.

In this case, several issues was identified during the Revenue Audit of Oak Limited. In this section of the report the issues are identified and the strategy for minimizing the penalties are also provided.

In the first issue, it can be seen that the account has failed to deduct payroll taxes on bonus made to senior management. The law provides that the employer should calculate and deduct taxes at the time of making payment of wages, salary etc. This system of deduction taxes from wages and salary is known termed as Pay As You Earn (PAYE). The section 484 of the Income Tax Act 1967, further provides that if an employed person fails to make payment of income tax then the Revenue commissioner may provide notice to the employer for deducting the amount of income tax from the remuneration that is payable by the employer. In this case, the bonus that have been to senior management and they are typo rated taxpayers (Leinert et al. 2013). The PAYE compliance code provides that the PAYE taxpayer is an individual whose main source of income is taxed using the PAYE system and the non-PAYE income is taxed after reducing the tax credit and tax rate bands. The PAYE taxpayers has the option to correct or normalize the errors that have been made by nonpayment of taxes. In order to correct, the tax affair the taxpayer should contact the revenue officer for providing the details. The three ways that are available to the taxpayer for correcting the tax default. The first option is to declare the innocent error that have been made in computation and payment of tax (Nerudova 2015). The second option is to make the correction of the error. The third option that is available to the taxpayer is to make a qualifying disclosure. The options that are available to the taxpayer is dependent on the action or behavior that has resulted in the default of tax.  The section 12 provides that the taxpayer is required to settle the underpayment irrespective of the cause of default. Therefore, in this case it is suggested that the taxes that are due on payment of bonus should be declared and immediately paid to the revenue department so that penalty is minimized. The benefit of this strategy is that the tax that were due will be declared and paid. The company will have to pay less penalties.

The second issue is that the OAK limited is engaged in the business of supplying and installation of storage units. The company is charging VAT at the rate 13.5% on all invoices irrespective of the cost related to material or labor. The current Vat rate are zero rate (0%), the agricultural rate 4.8%, standard rate 23% and the low rate 13.5%. The low rate is further reduced to 9% for certain goods and services. The standard rate of 23% is applied for supply of goods and the reduced rate of 13.5% is applied for services. The 9% rate is applied for payment made for supply related to tourism sector. In this case as the company is engaged in both the selling and supplying of goods so the two third rule should be considered while making the decision related to payment of taxes (Houston 2014). The two third rule is applied when a transaction is regarded as supply of goods though the transaction appears to be a case of supply of service. The law states that if the value of goods is more than the 2/3^rd of the total cost then in such case 23% should be applied and not the 13.5%. Therefore, in this case it is advised that the company should determine the cost of labor and cost of material before applying the VAT rate (McCloughan 2013). If on analysis it is found that the tax rate of 23% should have been applied then in such case the tax that is due should be immediately paid for minimizing penalties. The main benefit of the suggested strategy is to reduce the penalty. In addition to this strategy would help the company to make correct payment of tax on time (Spina 2015).

The third issue is that an employee of OAK limited has worked in Germany for four months. The company has made a foreign earning deduction from the salary of the employee. The law provides that a relief from taxation can be claimed for the proportion of income earned by the individual by working for significant time in a relevant state. The relevant states includes India, Russia, Brazil, South Africa and China. In January 2013, other countries were included like Egypt, Algeria, Senegal, Tanzania, Kenya etc. In 2015, there were further countries that have been added in the list of relevant states. However, the list does not include Germany so the foreign earning deduction should not be made from the salary. Therefore, it is suggested that the wrong deduction that have been made in calculating taxable salary should be added so that the correct amount of tax can be determined. It is advised to determine the correct tax and pay the amount that is due if necessary (Morgan 2016).

The fourth issue is that the company have purchased a software from Spain. The company in Spain did not charge VAT so the accountant of the company has ignored the computation of VAT. The law provides that if the company is a VAT registered company in Ireland then the company can purchase goods VAT free. This process is known as inter community acquisition. Then in such case, the company will be liable to account for VAT on acquisition. Therefore, in this case the company should not ignore the VAT. The company is required to account for VAT on acquisition. This strategy will benefit the company by reducing the penalty (O’Connor 2013).

The Value Added Tax Consolidation Act states that if the VAT becomes payable but it is not paid by an accountable person. Then in such cases, simple interest rate of 0.0274% per day is charged during the period the amount has remained unpaid. The simple interest on daily basis is also applied for excess amount refunded. Various penalties are imposed on the taxpayer. If the accountable person fails to register then €4,000 is charged as penalty (Lyons and Wightman 2014). The law provides that if proper records and books are not maintained then the penalty of €4,000 is charged. In case of failure of making invoices, the amount of €4,000 is charged as penalty. The list of reason is provided below for which the penalty of €4,000 is applied, this are:

• quarterly statement of intra-Community supplies;
• non-registered person VAT invoice;
• obstructing or delaying the revenue officer in exercising their power of is €4,000

In the case study, there has been many instances where there has been underpayment of tax. The OAK limited has failed to deduct payroll taxes this has resulted in under payment of taxes. The company supplies and installs storage units the company applies 13.5% on all invoices (Kabatek et al. 2014). If the two third rule applies then the company will have to make payment of tax at both the rate 23% and 13.5%. In such case, there is an underpayment of tax by the company of 23% on all the material supplied. The company has wrongfully deducted an amount of foreign Earning deduction from the salary of the employee as a resulted there is a short payment of tax that have been made. The company has not accounted for VAT on acquisition this could also result in short payment of tax.

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