Where a resident individual creates a trust in another jurisdiction, there is an obligation on that person creating the trust to notify Revenue within three month. The person creating the settlements must make the return if the trustees are not resident.
There are similar obligations on certain advisors who are involved in the making of the settlement. Reporting obligations in respect of tax avoidance schemes.
A person who hold shares in a nonresident company or is beneficiary under a nonresident trust or agent on behalf of such a person may be required by Revenue to give requisite information.
Where capital gains tax arises due to a gift and the tax is not paid within 12 months, the beneficiary of the gifts may be assessed. He may recover it from the donor.
Capital gains tax is subject to special collection rules that do not apply to income tax. Resident shareholders of a non-resident company and resident beneficiaries of a non-resident trust may be directly assessed with capital gains realised by the trust or company respectively
The beneficiary can be assessed if the trustees do not pay the capital gains tax within six months of the assessment. There are rules for apportioning the liability between beneficiaries. Conditions apply including in particular the assets or proceeds have been transferred to the beneficiary.
Where a trust becomes non-resident tax may be assessed on the persons who were Irish residents who were trustees prior to this. Certain conditions apply. Gains arising to non-resident trusts are deemed attributable to persons with an interest in the trust property.A trustee may be exonerated.
Under certain circumstances shareholders in an Irish resident company can be assessed to capital gains tax of the company. This applies where the company makes a capital distribution to certain connected persons out of the proceeds of disposal of an asset or where it is disposed of to that connected person.
The tax due by the company can be assessed on the connected recipient. If gains payable by a company are not paid within six months it may be assessed on the principal company of that group or other group companies from which the relevant asset was acquired.
Trust Going Non-Resident
When a trust ceases to be Irish resident, it is deemed to dispose of its assets. This may apply when the trustees become non-resident. They are deemed to dispose of all the assets in the trust at open market and reacquire them.
A change of trust residence occurs when the general administration and the residence of the trustees both change. Tax may be collected from persons who are trustees of the settlement in the 12 months period before it became non-resident.
The Finance Act 2018 amended the provision that imposes a Capital Gains Tax charge where a trust which is resident in the State becomes non-resident. The Capital Gains Tax charge is based on the market value of the trust assets at the time when the trustees of a settlement become neither resident nor ordinarily resident in the State. The disposal arising upon cessation of residence may be elected to be paid in six yearly instalments following the deemed disposal.
Anti-Avoidance Going Non-Resident
The trustees are deemed to have disposed of the trust assets at a date when certain double taxation treaty protections kick in. This is to defeat certain exemptions that would apply to the exit tax under the double taxation treaty.
Where trustees become non-resident but would have been protected by a double taxation treaty, they are deemed to have disposed of the assets and therefore triggered a capital gains tax event on the earlier occasion when they became protected by the treaty.
When a person becomes non-resident temporarily and is unappointed and reappointed as a beneficiary of an offshore trust, anti-avoidance legislation may apply. A resident or ordinarily resident and domiciled individual is (proportionately) subject to capital gains tax on disposals made by the trust. There are exceptions where the arrangements are for bona fides commercial reasons.
Gains Attributed to Beneficiaries
The first and older provision applies where a non-resident trustee realises a capital gain. The rules apply to a trust created by a person domiciled and resident or ordinarily resident in Ireland. The gains of the non-resident trustee are attributed to beneficiaries who are resident and domiciled in Ireland. The gain is apportioned to those beneficiaries.
The second provision which may overlap but does not charge twice, attributes gains to beneficiaries who receive monies or benefit from the trust. The gains are attributed to the extent of the payment or benefit received.
Potential beneficiaries under a discretionary trust are deemed to have an entitlement to the purpose of the rules in proportion to amounts they have actually received within certain prior periods. In the absence of these provisions a person named as a potential beneficiary under a discretionary trust would have no entitlement and would avoid the charge.
If the person creating the trust is resident and domiciled in Ireland that person is assessed instead of the beneficiary. Losses are not available or attributed to the beneficiaries.
Where the person creating the trust is not domiciled nor resident in the State or does not have an interest in the settlement at the time of the gain, the gains to which the trustees would have been subject to capital gains had they been resident are attributed to the beneficiaries.
The gains are attributed to beneficiaries who receive a capital payment from the trustees. The cap is the amount of gains received by them.
FA 2012 closed off avoidance schemes where individuals had become temporarily non-resident and temporarily removed and reappointed as beneficiaries of an offshore trust in order to avoid CGT.
It applies, whether or not the settlor is domiciled in the State when the settlement was made or the gain arises. Beneficiaries cannot avoid liability by becoming non-resident or not ordinarily resident in the period of the gain, and then later taking up residence. They cannot avoid liability by being temporarily excluded as beneficiaries under the settlements.
Chargeable gains arise for beneficiaries when they receive capital payments, irrespective of whether another charge would have arisen. In this case the gain is restricted to the lower of the capital payment received or the apportioned gain that would have arisen, if the gain had otherwise been chargeable under the provision on the beneficiary.
The provision potentially applies to gains arising under non-resident settlements where the settlor retains an interest in the settlement and is, or was domiciled, resident or ordinarily resident at the State in the year of the gain or when the settlement was established.
Company Going Non-Resident
When a company ceases to be resident it is deemed to have disposed of its assets. The tax may be recovered from other group holders.
Gains of Offshore Company
Under certain circumstances capital gains incurred by a non-resident company may be assessed on their Irish resident shareholders. The company must be a close company if it was resident in the State. This will cover the vast majority of private and indeed many public companies. See our corporation tax section in relation to the definition of a close company.
The gains of the company may be attributed to shareholders who are Irish resident, ordinarily resident and domiciled. The gain equal to the proportion of the gain corresponding to the extent of the shareholders interest in the company is assessable. The rules also apply to resident companies who are shareholders of non-resident companies.
Where the shareholding is held indirectly through other companies the ultimate Irish resident domiciled shareholder may be assessed. There are also provisions to deal with where a trust is inserted in the chain.
Where the resident shareholder pays the tax he is allowed a credit irrespective of capital gains tax arising on the disposal of those shares.
The provisions do not apply to property used for the purpose of a trade carried out by the company outside the State. They do not apply to assets which are situated in the State.
In order to comply with the EU anti-discrimination requirements, the exclusions have been expanded to apply where it is shown to the satisfaction of the Revenue that the disposal by the non-resident company was made for a bona fide commercial reason and did not form part of an arrangement of which the main purpose or one of the main purposes was the avoidance of liability to capital gains tax or corporation tax.
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