The administration of stamp duty has seen a range of changes due to the Finance Act 2012, and these changes are likely to present significant challenges for solicitors.
- For instruments executed on/after 7 July 2012, a new late-filing surcharge applies
- Late filing interest is charged on the amount of the original stamp duty liability plus the surcharge amount
- The Finance Act 2012 introduces a new fixed penalty of €3,000 on each accountable person for failure to file a stamp duty return and expands the category of tax-geared penalties to include failure to file a stamp duty return
The Finance Act 2012 introduced a range of changes in the administration of stamp duty that came into effect by ministerial order in respect of instruments executed on or after 7 July 2012.
The specified return date for the filing of stamp duty returns – that is, 30 days after first execution – and the rate of late filing interest (0.0219%) have not been changed by the act.
The Revenue Commissioners have confirmed that they will continue to accept returns filed up to 44 days after first execution, in line with previous practice.
For instruments executed on/after 7 July 2012, a new late filing surcharge applies, equal to 5% of the unpaid duty where the stamp duty return is filed within two months after the specified return date, subject to a maximum of €12,695, or 10% of the unpaid duty where the return is filed later than two months after the specified return date, subject to a maximum of €63,485.
The surcharge is not a penalty and therefore forms part of a stamp duty charge. Late filing interest is charged on the amount of the original stamp duty liability plus the surcharge amount.
The tables below, reproduced from guidance published by the Revenue Commissioners, illustrates the main differences between the sanctions applicable to late filing under the old and new regimes (excluding fixed and tax-geared penalties for non-filing).
Failure to File a Return
The Finance Act 2012 introduces a new fixed penalty of €3,000 on each accountable person for failure to file a stamp duty return. This penalty applies to instruments executed on/after 7 July 2012. There is no de minimus threshold on the application of this penalty, which could theoretically apply even where the amount of stamp duty payable on the unfiled return would have been negligible. However, it is understood that it is not intended to apply this penalty automatically in each case of late filed returns and, in my view, is more likely to be levied in audit cases.
The act also expanded the category of taxgeared penalties to include failure to file a stamp duty return, which operates similarly (but not identically) to the tax-geared penalties for non-disclosure introduced by the Finance (No 2) Act 2008. The operation of the tax-geared penalties for failure to file a stamp duty return are summarised in the table overleaf.
Tax-geared penalties are most likely to be levied in the context of an audit, and the matrix for mitigation of penalties follows a similar approach to that used in other tax heads that are the subject of regular audits.
Abolition of adjudication
Adjudication had been compulsory in order to claim certain reliefs. Adjudication is no longer possible in respect of instruments executed on or after 7 July 2012 and nor can adjudication be requested by the Revenue or the taxpayer.
The principal benefit of an instrument that had been adjudicated was that it was considered to be duly stamped (see below). Practitioners also drew comfort from the fact that the interaction with the Revenue made it less likely that the transaction would be reopened and therefore adjudicated transactions carried with them a fair degree of certainty.
Although the Revenue Commissioners no longer retain the power to adjudicate documents, they have the power to require the taxpayer to produce the instrument together with such other evidence (including statutory declarations similar to those routinely required in adjudicated transactions) as they deem necessary in order to establish that the instrument has been properly stamped. In addition, the Finance Act 2012 granted the Revenue Commissioners new powers to inspect and require the production of documents (see below).
Penalties and Interest for Instruments Executed before 7 July 2012
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New Duty Surcharge and Interest Regime for Instruments Executed on or After 7 July 2012
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Admissibility in evidence
Under section 127 of the Stamp Duties Consolidation Act 1999 (SDCA), an instrument that is not duly stamped is not (subject to limited exceptions) admissible in evidence in court or arbitral proceedings. Prior to the Finance Act 2012, instruments that had been adjudicated were considered to be duly stamped, but instruments that had been ‘straight stamped’ were not considered to be duly stamped.
Section 127 of the SDCA has been amended by the Finance Act 2012 so that all instruments executed on/after 7 July 2012 and stamped using the e-stamping system are considered to be duly stamped. This change will be of considerable benefit to solicitors and other professionals, who otherwise would have had to satisfy themselves as to the sufficiency of the stamping of documents. Solicitors will still have to ensure that instruments executed prior to 7 July 2012 (unless bearing an adjudication stamp) have been duly stamped.
Tax-Geared Penalties: Failure to File Stamp Duty Returns
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Expression of doubt
Prior to the Finance Act 2012, a valid expression of doubt (EOD) operated to protect the taxpayer against certain penalties associated with inadequate disclosure. However, for all instruments executed on/after 7 July 2012, a valid EOD will only operate to remove any liability to the late filing interest that could arise on any additional stamp duty that may be payable when the subject matter of the EOD is determined.
EOD cases are now more narrowly defined: they are cases where the accountable person is in doubt about the application of any enactment relating to stamp duty to an instrument that could give rise to a liability to stamp duty for that person or could affect that person’s liability to stamp duty or his entitlement to an exemption or a relief from stamp duty.
An EOD must meet certain additional criteria in order to valid. It must:
- Set out full details of the facts and circumstances affecting the liability of an instrument to stamp duty and make reference to the provisions of the law giving rise to the doubt,
- Identify the amount of stamp duty in doubt,
- Be clearly identified as an expression of doubt, and
- Be accompanied by supporting documentation where relevant.
The Revenue Commissioners may reject an EOD as not being genuine. The Finance Act 2012 set out a non-exhaustive list of situations that will not be accepted by the Revenue Commissioners as genuine EODs. These include where the Revenue Commissioners:
- Have issued general guidelines concerning the application of the law in similar circumstances,
- Are of the opinion that the matter is sufficiently free from doubt so as not to warrant an expression of doubt, or
- Are of the opinion that the accountable person was acting with a view to the evasion or avoidance of tax.
Where the Revenue Commissioners do not accept an EOD as genuine, they will notify the accountable person and they will issue a notice setting out their reasons. Immediately upon receipt of such notification, the filer must file an amended return and pay the additional duty and late filing interest thereon.
An accountable person who is aggrieved by a decision of the Revenue Commissioners not to accept an EOD as genuine can, within 30 days of the notification of such decision, bring an appeal to the Appeal Commissioners on the net point of whether the EOD is genuine.
The Finance Act 2012 imposes a duty on an accountable person to retain, or cause to be retained, certain records for a period of six years from the later of (a) the date on which the stamp duty return is delivered to the Revenue Commissioners, or (b) the date on which stamp duty was paid.
An accountable person is required to retain, or to cause to be retained on his or her behalf, such records as are required to enable a true return or statement to be made, or a claim to a relief or an exemption to be substantiated. Any person who fails to comply with these requirements is liable to a fixed penalty of €3,000.
Powers of Inspection
The Finance Act 2012 gives the Revenue Commissioners new powers to require the production of records and to inspect records held by, or on behalf of, an accountable person, which are backed up with significant penalties for non-compliance. These new statutory provisions do not contain any defence based on legal privilege.
These new powers give authorised officers of the Revenue Commissioners the power to require the production of books, records and documents, the furnishing of information and explanations, and the giving of assistance by a relevant person and an employee of a relevant person.
These new powers also allow an authorised officer of the Revenue Commissioners to enter any premises or place of business of a relevant person for the purpose of auditing a stamp duty return. A ‘relevant person’ is defined as an accountable person and any person who holds records on behalf of an accountable person. An employee of an accountable person is defined as an employee who, by virtue of his or her employment, is in a position to procure the production of the books, records and so on, or the furnishing of information, explanations and particulars.
If a relevant person fails to comply with the requirements of an authorised officer of the Revenue Commissioners, he is liable to a penalty of €19,045 and, where the failure continues, a further penalty of €2,535 for each day on which the failure continues. An employee of a relevant person who fails to comply with the requirements of an authorised officer of the Revenue Commissioners is liable to a penalty of €1,265.
Implications for Practitioners
Due to the abolition of adjudication and narrowing of the EOD facility, the Revenue Commissioners will have less visibility of the details of the transactions behind the stamp duty returns that are filed. The Revenue Commissioners have indicated that they will be conducting post-stamping assurance checks and audits of stamp duty returns. They have also indicated that the level of interventions in stamp duty cases will ultimately be in line with those in other tax heads. Recent Finance Acts, and especially Finance Act 2012, have brought the administration of stamp duty into line with other tax heads, thereby making it easier for Revenue auditors to conduct stamp duty audits, either as part of a more general audit or on a standalone basis. The Code of Practice for Revenue Auditors will apply to such audits.
Any stamp duty return is therefore potentially open to a post-stamp assurance check or audit, and the Revenue Commissioners have been given extensive powers to require production of documentation (including documents held by a solicitor), and no defence based on confidentiality or privilege can be asserted. The burden of dealing with such enquiries will inevitably fall on the solicitor who has filed the stamp duty return on behalf of the accountable person, who will expect that the solicitor will hold all necessary records.
The application of the EOD facility has been significantly restricted, and particular care needs to be exercised in assessing whether a particular case meets the statutory requirement to qualify as a valid EOD. Solicitors need to familiarise themselves with the legislation underpinning the new self-assessment regime and equip themselves in order to be able to deal with more frequent and more formal interactions with the Revenue Commissioners, such as EODs, post-stamp assurance checks and audits, and stamp duty appeals. The changes discussed here will give the advantage to the Revenue Commissioners in such interactions, and solicitors will have to get to grips with the new legislative landscape quickly.
Source: Law Society Gazette.