Finance Act 2012 has introduced significant changes to a number of aspects of stamp duty, which fall into two broad categories:
- Confirmation of measures in the Budget, new exemptions for certain company mergers and for certain financial services transactions, as well as a number of technical clarifications. These changes came into effect on the passing of FA 2012 into law on 31 March 2012 unless indicated otherwise below.
- Changes in the administration of stamp duty. Stamp duty is being changed into a self-assessment regime, with adjudication being abolished. New fixed penalties are introduced for failure to file stamp duty returns, and new obligations to keep records are being introduced, backed up by penalties and new powers given to the Revenue Commissioners to inspect and require the production of records. These changes will be brought into effect at a future date by Ministerial Order(s).
CHANGES EFFECTIVE ON OR BEFORE THE PASSING OF FA 2012
- FA 2012 confirms the reduction in the rate of stamp duty on non-residential property transactions to a flat 2%, effective from 7 December 2011.
- The Act also makes certain technical changes that simplify the conveyance on sale and lease heads of charge and remove certain certification requirements in deeds.
- Consanguinity relief is abolished on residential property transactions with effect from 7 December 2011. It will continue to be available on non-residential property transactions (other than share transactions) until the end of 2014 but thereafter will be abolished.
Grangegorman Development Agency
FA 2012 introduces a new s106C SDCA 1999, containing an exemption on any transfer or lease of lands to the Grangegorman Development Agency in order to allow that agency to acquire lands without having to pay stamp duty.
Exemptions for mergers
FA 2012 introduces exemptions for instruments made for the purposes of transferring assets pursuant to:
- a merger within the meaning of Regulation 4 of the European Communities (Mergers and Divisions of Companies) Regulations 1987,
- a cross-border merger within the meaning of Regulation 2(1) of the European Communities (Cross-Border Mergers) Regulations 2008, and
- the formation of a Societas Europaea by the merger of two or more companies in accordance with Council Regulation 2157/2001.
Options over shares
FA 2012 changes the definition of “stock” by including options over shares. This will result in the transfer of options over shares being subject to the same level of stamp duty as shares.
FA 2012 amends the definition of intellectual property in s101 SDCA 1999 so that it has the same meaning as “specified intangible asset” as defined in s219A(1) TCA 1997.
Exemptions for pension schemes/charities
FA 2012 introduces a significant new exemption for in specie transfers of pension fund and charity assets to certain investment vehicles (and vice versa) and, subject to certain conditions, between investment vehicles. These helpful changes cover situations that could give rise to a technical change in legal or beneficial ownership of the transferred assets although there was no substantive economic change. These changes became effective on 8 February 2012.
Financial services stamp duty changes
FA 2012 has introduced a number of changes in tax legislation to enhance Ireland’s position as a domicile of choice for international fund promoters. The stamp duty changes include:
- The exemption in s88(1)(b)(iii) SDCA 1999 is extended to include transfers of units in an exempt unit trust (i.e. a unit trust that is not authorised or deemed to be authorised by the Central Bank, e.g. where all of the issued units are usually held by a pension fund or charity).
- A new s88G SDCA 1999 introduces an exemption in connection with a scheme of amalgamation under which unit holders in an exempt unit trust exchange their units for units in an Irish investment undertaking (i.e. one to which the gross rollup regime applies).
- The exemption in s88(1)(b)(iv) SDCA 1999 is amended to include any foreign body corporate. Previously, this section used the words “company which is not registered in the State”. The word “company” could be interpreted as referring to an Irish company, although the Revenue Commissioners in their Guidance Notes treated the exemption as applying to all non-Irish incorporated companies.
- The exemption in s88B SDCA 1999 for cross-border mergers of investment funds, which before FA 2012 covered certain transfers of assets by a foreign fund to a domestic fund (“inbound mergers”), is extended to cover the transfer of assets by a domestic fund to a foreign fund (“outbound mergers”) on a similar basis.
- A new s88F SDCA 1999 introduces a new exemption covering (a) a transfer of assets pursuant to a scheme of reconstruction or amalgamation of two offshore funds to which s747F TCA 1997 refers and (b) an exchange referred to in s747E(1A)(b) TCA 1997, which covers an exchange of units in a sub-fund of an offshore umbrella fund for units in another sub-fund of that offshore umbrella fund.
- The exemption in s90(2)(g)(ii) SDCA 1999 of transfers of and agreements to transfer leases (excluding leases covered under Schedule 1 SDCA 1999) is extended to cover transfers of or agreements to transfer interests in such leases.
FA 2012 amends s98(2) SDCA 1999 to avoid a stamp duty charge arising on an in specie transfer of foreign immoveablethe issue of units in that undertaking.
Other stamp duty changes of note for the financial services sector include the extension of the existing exemption for recognized clearing houses in s75A SDCA 1999 to share transfers between recognised clearing houses, with a technical update to the definition of “ recognised clearing house”. The definition of greenhouse gas emission allowances in s90A SDCA 1999 is amended to ensure that there is consistency in terminology across tax heads.
Levy on health insurers
FA 2012 confirms increases announced in the Budget for 2012 and onwards on premiums received by health insurers on certain health insurance contracts to €95 for each insured person under 18 years and €285 for each insured person of 18 years and over. FA 2012 also makes certain technical changes to the operation of the levy.
CHANGES IN STAMP DUTY REGULATION
FA 2012 makes a number of changes to the legislation relating to the administration of stamp duty, which are covered below. These changes require a Ministerial Commencement Order to bring them into operation.
Abolition of adjudication
Currently, adjudication is compulsory in certain cases in order to claim certain stamp duty reliefs, and in other cases could be requested by the taxpayer or insisted on by the Revenue Commissioners. However, because of the large volume of adjudication cases and the resources tied up in dealing with them, the Revenue Commissioners have decided to abolish adjudication, and FA 2012 contains a range of technical amendments to the stamp duty legislation in this regard. Once these changes are brought into effect, a stamp duty return will include an assessment to the best of the accountable person’s knowledge, information and belief of the amount of stamp duty payable on the instrument to which the stamp duty return relates. The Revenue Commissioners are empowered to make their own assessment in substitution for the accountable person’s assessment or to raise an assessment where no stamp duty return has been submitted. The existing adjudication regime will continue in operation for documents submitted before the date of the Ministerial Commencement Order.
Admissibility in evidence
Under s127 SDCA 1999, a document that is not duly stamped is not (with limited exceptions) admissible in evidence in court or arbitral proceedings. Documents that had been adjudicated were considered to be admissible in evidence notwithstanding any stamp duty objection, but this did not extend to documents that had been stamped via the e-stamping system but not adjudicated. FA 2012 amends s127 SDCA 1999 to provide that every instrument stamped via the e-stamping system will be deemed to be duly stamped and therefore admissible in evidence.
Expression of doubt
FA 2012 narrows the application of the expression of doubt facility and will follow a very similar approach to that applied in other tax heads. Whereas before FA 2012 a valid expression of doubt operated to protect the accountable person against penalties associated with inadequate disclosure (ss8(2), 8(3), 134A(2)(a) and 134A(4)(a) SDCA 1999), a valid expression of doubt will now operate only to remove any liability to late filing interest that would arise on any additional stamp duty payable when the subject matter of the expression of doubt is determined. Expression of doubt cases are defined as cases where the accountable person is in doubt about the correct 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 the person’s liability to stamp duty or his or her entitlement to an exemption or relief. Before FA 2012, an expression of doubt could be lodged where a person was in doubt about the application of the law to, or the treatment for tax purposes of, a matter to be contained in an instrument or in a statement to be submitted under s8(2) SDCA 1999.
An expression of doubt has to meet certain criteria. 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 expression of doubt as not genuine. FA 2012 sets out a non-exhaustive list of situations that will not be accepted by the Revenue Commissioners as genuine expression of doubt cases. 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 otherwise 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 duty.
The ability to reject expressions of doubt on the basis that the Revenue Commissioners have previously issued general guidelines on the application of the law is drawn in such broad terms that it could be used to prevent an expression of doubt in cases where there may be genuine questions over the interpretation or application of the law but the Revenue Commissioners have adopted a particular stance in previously issued guidance.
An expression of doubt will be valid only if the stamp duty return and the expression of doubt meeting the requirements set out above are both delivered to the Revenue Commissioners within 30 days of the execution of the relevant instrument.
An accountable person who is aggrieved by a decision of the Revenue Commissioners that an expression of doubt is not 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 expression of doubt is genuine.
Retention of records
FA 2012 imposes a duty on the 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 a stamp duty return was delivered to the Revenue Commissioners or (b) the date on which the stamp duty was paid. An accountable person is obliged to retain, or cause to be retained, such records relating to a liability to stamp duty or any relief or exemption claimed as are required to enable:
- a true return or statement to be made, and
- a claim for relief or an exemption to be substantiated.
FA 2012 provides for a fixed penalty of €3,000 for failure to maintain records in accordance with these requirements.
Powers of inspection
FA 2012 gives the Revenue Commissioners new powers to require the production of 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 powers give authorised officers of the Revenue Commissioners 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 employees of a relevant person. They also provide that an authorized officer may at all reasonable times enter any premises or place of business of a relevant person for the purposes of auditing a stamp duty return.
A relevant person is defined as an accountable person and any person holding records on behalf of the accountable person. If a relevant person fails to comply with the requirements of an authorised officer, he or she is liable to a penalty of €19,045 and, where the failure continues, a further penalty of €2,535 for each day on which such failure continues. An employee of a relevant person who fails to comply with the requirements of an authorized officer is liable to a penalty of €1,265.
The new statutory provisions do not contain any defence based on legal privilege.
FA 2012 replaces the provisions of s21 SDCA 1999 relating to appeals to the Appeal Commissioners. Generally, the pre-existing provisions relating to the bringing and conduct of appeals are unchanged. However, it is provided that no appeal can be made against an assessment raised by the Revenue Commissioners where the duty had been agreed between the Revenue Commissioners and an accountable person (or his or her agent) before the raising of the assessment.
The new provisions also prevent the bringing of an appeal in circumstances where a stamp duty return has not been filed or where a stamp duty return has been filed but the Revenue Commissioners consider it to be insufficient. In a Notice of Appeal an accountable person must specify (a) each amount or matter in the assessment with which the accountable person is aggrieved and (b) the grounds in detail of the accountable person’s appeal as respects each such amount or matter. If a Notice of Appeal fails to meet these requirements, to the extent that it is so deficient it shall be deemed not to have been brought.
Failure to file a stamp duty return
FA 2012 introduces a new fixed penalty of €3,000 on an accountable person (or each accountable person where there is more than one) for failure to file a stamp duty return. There is no de minimus threshold on the application of this penalty, which therefore can apply even where the amount of stamp duty payable on the unfiled return would have been negligible. FA 2012 also extends the categories of tax-geared penalties to cover the failure to file a stamp duty return, which I address in more detail below.
Late filing of stamp duty returns
FA 2012 leaves the 30-day return filing date and the rate of interest on late returns unchanged. However, it is understood that the 44-day period that has been applied in practice will continue after the new measures come into effect. FA 2012 replaces the late filing surcharge (previously contained in s14(2) SDCA 1999) with a new surcharge equal to:
- 5% of the unpaid duty where the return is filed within twomonths of the return date subject to a maximum of €12,695, and
- 10% of the unpaid duty where the return is filed later thantwo months after the return date subject to a maximum of€63,485.
Where an accountable person deliberately or carelessly causes an incorrect stamp duty return to be filed, he or she is deemed to have failed to file a stamp duty return unless the error in the return is remedied by the delivery of a correct stamp duty return before the 30-day filing date. Where an incorrect return is filed but neither deliberately nor carelessly and it comes to the accountable person’s notice, the person shall be deemed to have failed to file the return within the 30-day filing deadline if a correct return is not filed without unreasonable delay.
In addition, where the Revenue Commissioners are dissatisfied with any information contained in a stamp duty return, they can require the accountable person to deliver a statement or evidence within specified time periods, and if the accountable person fails to do so, the stamp duty return is deemed not to have been filed within the 30-day filing deadline.
Surcharges for undervaluations and incorrect valuations
FA 2012 removes the surcharges for undervaluations in voluntary dispositions (previously contained in s15 SDCA 1999) and for incorrect apportionment of purchase price (previously contained in s16 SDCA 1999). It appears to be intended that undervaluation issues will be addressed under the provisions dealing with non-disclosure in s8(2) SDCA 1999, which are the subject of tax-geared penalties that are discussed below. Where a document operates or is deemed to operate as a voluntary disposition for the purposes of s30 or s54 SDCA 1999 and to the attention of the Revenue Commissioners in the stamp duty return, the accountasuch fact is not brought ble person is rebuttably presumed to have acted deliberately for the purposes of the taxgeared penalties.
FA (No. 2) 2008 introduced a new system of penalties on accountable persons for failure to comply with the disclosure requirements in s8 SDCA 1999. Under this regime, where the non-disclosure was deliberate or careless, there is a fixed penalty of €1,265 plus a further tax-geared penalty. The amount of the tax-geared penalty depends on a number of factors:
- whether the non-disclosure was deliberate, or careless but not deliberate,
- whether the accountable person co-operates with the Revenue Commissioners, and
- whether a prompted or unprompted qualifying disclosure is made to the Revenue Commissioners.
Table of tax-geared penalties: failure to disclose
Click here to see the table
As noted above, FA 2012 has inserted a new s8(5) SDCA 1999 creating a rebuttable presumption of deliberate behaviour where an instrument operates or is deemed to operate as a voluntary disposition pursuant to s30 or s54 SDCA 1999 and such fact is not brought to the attention of the Revenue Commissioners in the stamp duty return.
FA 2012 expands the category of tax-geared penalties to include failure to file a stamp duty return. The tax-geared penalties for failure to file a stamp duty return operate similarly (but not identically) to the tax-geared penalties for non-disclosure. The existing tax-geared penalties for non-disclosure apply different levels of mitigation for “careless but not deliberate” behaviour depending on whether the base penalty was above or below 15% of the unpaid duty. The new tax-geared penalties for failure to file a stamp duty return do not contain a similar provision.
Table of tax-geared penalties: Failure to file stamp duty returns
Click here to see the table.
*Calculated on the amount of stamp duty that would have been paid if the stamp duty return had been delivered.
Implications for practitioners
There are a range of implications for practitioners once the relevant provisions are brought into effect. On the positive side, a document with a stamp certificate will be considered to be duly stamped, with the result that practitioners will not have to make further enquiries regarding the sufficiency of stamping, thereby reducing the burden somewhat in investigating title to property.
While there are some improvements with respect to the surcharges for late filing, the introduction of the €3,000 fixed penalty per stamp duty return is potentially very onerous, particularly as there is no de minimus threshold.
The changes also herald more frequent audits of stamp duty returns, the application of taxgeared penalties and the potential use of the amplified powers of inspection, which expose practitioners and their staff to serious penalties in the event of non-compliance.
Against this backdrop, practitioners who carry out stamp duty compliance work will have to review their systems for file management to avoid the risk of substantial late filing penalties and to ensure that a sufficient record is kept of the information on which a stamp duty return was prepared and/or the basis on which an exemption or relief was claimed.
While FA 2012 contains a number of helpful changes relating to stamp duty rates on nonresidential property and new exemptions for certain pension and financial services transactions, the changes in the operation of the penalty regime and the general administration of stamp duty are going to have the most widespread impact on practitioners in the coming years.
First published in the Irish Tax Review, 25(2), 2012.