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Statement of Practice - IT390

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Statement of Practice - IT390

     SP -

    IT/3/90

    Statement of Practice

    Withholding tax -Interim Refunds

    Section 19, Finance Act, 1987

1 Introduction

    1.1 Chapter III of Part I of the Finance Act, 1987 contains provisions for the deduction of

    income tax from payments for professional services by Government Departments, local

    authorities, health boards and certain statutory bodies. These provisions are generally

    known as “the professional services withholding tax ". The tax deducted is available

    for credit against the income tax or corporation tax liability of the recipient for a

    specified year of assessment (income tax) or accounting period (corporation tax). The

    current year basis of assessment of certain income which was introduced under the

    terms of the Finance Act, 1990, does not alter the basic operation of the withholding

    tax scheme. The interim refund and particular hardship provisions continue to

    operate as before.

    1.2 Section 19 of the Finance Act, 1987, contains provisions for an interim refund of the

    withholding tax pending ascertainment of the tax liability against which the withholding

    tax is to be credited. That section sets out certain requirements with which a taxpayer

    must comply before qualifying for an interim refund. These refunds are made in certain

    circumstances in the cases of ongoing businesses, commencing businesses and in cases

    of particular hardship.

     (i) Ongoing businesses. A person carrying on a trade or profession who

    suffers a deduction of withholding tax may claim an interim refund if certain

    requirements are met.

     These requirements are that -

     (a) the profits of the accounting period or basis period immediately

    preceding that which is the subject of the claim must have been

    finalised;

     (b) the tax payable for the accounting period or for the year of assessment

    for which the profits referred to at (a) form a basis of assessment has

    been paid, and

     (c) the claim must be supported by the necessary documentation (i.e.

    Forms F45/1 and F50).

     The amount of the interim refund is the excess of the withholding tax in the claim

    (excluding any amount already repaid) over the tax liability mentioned at (b) above less

    any VAT, PAYE or PRSI due but unpaid.

     (ii) Commencing businesses. The conditions applicable for ongoing businesses

    would not allow any interim refund in the case of a person who had only

    commenced business as such a person would not have any profits or tax

    payable for a preceding accounting period or year of assessment as is needed to

    meet the conditions already outlined. Special provisions are, therefore,

    available to cater for this situation so as to enable interim refunds to be given in

    such a case - details are available from the Revenue Commissioners.

     (iii) Particular hardship. It is provided that, where a taxpayer claims and proves

    particular hardship, the Revenue Commissioners may waive, in whole or in

    part, one or more of the requirements already mentioned.

    1.3 The purpose of this Statement of Practice is to outline a number of situations where

    the Revenue Commissioners may, in accordance with paragraph 1.2 (iii) above, agree

    to the waiving of some of the requirements for an interim refund. These involve

    circumstances in which the ordinary rules relating to the interim refund mechanism

    would operate in such a way as to be unreasonably harsh on a person. The Statement

    also sets out the basis of computation of the interim refund in such cases.

    1.4 The Statement is issued for guidance only. It does not purport to be a legal

    interpretation nor does it affect the rights of taxpayers under the relevant provisions. It

    is to be regarded as illustrative rather than exhaustive of the types of situations in

    which particular hardship may be found.

2 Situations where particular hardship may arise

    2.1 The term “particular hardship" is interpreted so as to modify the general provisions

    outlined in paragraph 1.2 (i) concerning interim refunds for cases that would normally

    come within those provisions but are excluded due to some unusual and extraordinary

    circumstances.

    2.2 The Revenue Commissioners are prepared to accept that particular hardship may arise

    in the following types of circumstances:

     (i) Where, through no fault on the part of a taxpayer, the tax liability for the

    previous year of assessment or accounting period is not yet finally determined

    and the withholding tax deducted in the period of claim is substantially in

    excess of the taxpayer's normal tax liability. The delay in settling liability might

    be due to an exceptional occurrence in the business of the taxpayer or his

    adviser - for example, as a result of a fire at their premises.

     (ii) Where, owing to once-off or unusual receipts, irrespective of their source, the

    tax liability of the previous year of assessment or accounting period is

    substantially in excess of the taxpayers usual tax liability. For example, a

    barrister might, during a particular period, act in connection with a judicial

    enquiry. Fees, substantially higher than usual, might be received and taxed in an

    assessment related to that period and such tax might be substantially higher

    than would be normal in the practice.

     (iii) Where, owing to a once-off or unusual reduction in the level of a person's

    income, the withholding tax paid in the credit period for a year of assessment is

    substantially in excess of the liability for that year. An instance of this kind of

    situation would be where, say, a chemist suffers serious illness and is obliged to

    hire a locum to service his business. This additional expense would impact on

    the taxpayer's income and would probably lead to a substantial reduction in the

    tax liability for the year of assessment or accounting period in which the

    occurrence takes place.

     (iv) Where, owing to a demonstrable permanent substantial reduction in the level of

    income of the taxpayer (arising, for example, from the loss of a major

    contract), the use of the tax liability of the previous year of assessment or

    accounting period would not constitute a reasonable estimate of the tax liability

    which the withholding tax is intended to cover.

     (v) (a) Where income tax (i.e. income tax net of withholding tax credited) which

    becomes due, and is actually paid, in a period of claim when combined with

    withholding tax deducted in that period exceeds 53% of a person's income for

    the period.

     (b) For the purposes of subparagraph (a), provided the Revenue

    Commissioners are satisfied that the person's income has not materially

    changed, the income of the immediately preceding basis period will be taken

    as the income of the period of claim If the Revenue Commissioners are

    satisfied that there is a material change in the amount of a person's income, the

    Revenue Commissioners will, having regard to all the circumstances, estimate

    to the best of their knowledge and belief the person's income for the period of

    claim.

     (vi) In paragraphs 2.2 (ii), (iii), (iv) and (v), references to the amount of a person's

    income or to changes in the amount of a person's income mean, in the case of

    trading professional or rental income, the amount or changes in the amount of

    that income as disclosed by the accounts of the trade etc. prepared or to be

    prepared in accordance with correct principles of commercial accounting.

3 Amount of interim refund

    3.1 In general, the amount of an interim refund is the excess of the tax deducted over a

    figure representing the tax paid (before credit of withholding tax) for the preceding

    year of assessment or accounting period (referred to subsequently in this section as

    "the figure").

    3.2 Section 19 enables the Revenue Commissioners to refund an amount which they

    consider to be just and reasonable in a case of particular hardship. In all hardship cases

    (other than that outlined in paragraph 2.2(v) - which is dealt with in paragraph 4 of this

    Statement of Practice) the amount of the refund follows the general rule in paragraph

    3.1 as modified by paragraph 3.3.

3.3 In the cases listed in paragraphs 2.2 (i), (ii), (iii) and (iv) “the figure” is as follows:

    Cases within paragraph 2.2(i)

     (a) Where details of the income for the previous period are not available - the normal

    tax based on the tax liability for earlier periods and any further relevant information

    available.

     (b) Where details of income are available but the case is subject to an appeal to the

    Appeal Commissioners on a point of principle, normally the point of principle will

    affect only the liability for the period in which it arises. In such a case the figure to be

    taken is the liability based on the taxpayer's view of the correct treatment of the

    disputed item. This is subject to the Revenue Commissioners being satisfied that the

    question as to the taxpayer's liability in the matter in dispute gives rise to a substantial

    issue to be determined on the appeal and that it would in the circumstances be

    appropriate to allow the taxpayer's view of the correct treatment of the disputed item

    to stand for the purpose of computing the amount of the interim refund pending the

    appeal.

     (c) Where the Appeal Commissioners have given their decision on the point in

    contention and the case is subject to further appeal either to the Circuit Court or the

    High Court - if the point of principle affects only the liability for the period in which it

    arises, the figure to be taken will be the liability based on the taxpayer's view of the

    correct treatment of the disputed item. In any other case, the figure to be taken will be

    the liability based on the decision of the Appeal Commissioners.

    Cases within paragraph 2.2(ii)

     The liability on the basis of omitting the once-off or unusual receipts.

    Cases within paragraph 2.2(iii)

     The liability based on the present level of the taxpayer's income. This will be estimated

    by the Inspector to the best of his ability. In such cases the interim refund (or the

    additional interim refund) will be made in respect of the credit period for the year of

    assessment in which the substantial reduction in liability occurs (i.e. the immediately

    preceding period).

    Cases within paragraph 2.2 (iv)

     The liability based on the present level of the taxpayer's income. This will be

    estimated by the Inspector to the best of his ability.

4 Cases within paragraph 2.2(v)

     In general, the relief will be such that, where the sum of the withholding tax deducted

    plus the income tax which becomes due in the period of claim and is paid in that period

    exceeds 53% of the person's income for that period, the excess will be repaid.

5 Other matters

    5.1 To qualify for an interim refund a taxpayer must have paid the income tax/corporation

    tax due for the previous period. In cases of particular hardship, the Revenue

    Commissioners will waive this condition where the taxpayer agrees to the set-off of the

    interim refund against the outstanding tax.

    5.2 In calculating the interim refund, any amounts of PAYE/PRSI/VAT which a taxpayer

    is liable to remit to the Revenue Commissioners are also deducted. In cases of

    particular hardship, the Revenue Commissioners will consider waiving this requirement

    as part of a comprehensive arrangement by which the taxpayer proposes to bring

    his/her affairs up to date. Such an arrangement would normally involve the setting off

    of any interim refund against the taxpayer's liabilities.

6 Procedure

    6.1 All claims for repayment of withholding tax should be submitted to the Tax District to

    which the claimant makes his/her return of income.

    6.2 Claims to repayment on the basis of particular hardship should be supported by such

    documentation as is necessary to satisfy the Revenue Commissioners that the claimant

    comes within the terms of this Statement of Practice. Appropriate assurances should

    also be supplied - for example, in a case within paragraph 2.2(ii) of the Statement, the

    taxpayer or agent should certify that the receipt which gives rise to the claim was a

    once-off and exceptional receipt.

     The Revenue Commissioners

     Dublin Castle.

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