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Coronavirus - Irish Revenue confirms new tax ‘warehousing’ scheme - Ireland

  • Ireland

    14-05-2020

    Overview

    Irish Revenue has provided further information in relation to the ‘warehousing’ of certain Covid-19 related tax debts for businesses (the “Scheme”), as previously announced by Minister for Finance and Public Expenditure and Reform, Paschal Donohoe T.D. The Scheme follows on from the suspension by Irish Revenue of debt collection, and the charging of late interest, in respect of VAT liabilities relating to the bi-monthly periods between January and June 2020, and payroll tax liabilities arising between February and June 2020.

    In light of the array of challenges that businesses will be facing when a level of normal trading resumes, by announcing the Scheme, the Irish Government has recognised that it would be both detrimental and unrealistic for businesses adversely affected by Covid-19 to repay both current and prior tax liabilities in the periods when they are seeking to trade their way back to profitability. 

    Operation of the Scheme

    The Scheme will effectively involve the parking of VAT and payroll tax liabilities arising in the Covid-19 period for 12 months. After this 12-month period has elapsed, a lower interest rate of 3% per annum (normally 10% per annum) will be applied to the unpaid VAT and payroll tax liabilities. 

    While the finer details of the Scheme are to be worked out and enacted into legislation, Irish Revenue has provided the following confirmations:

    • There will be three relevant periods under the Scheme.
    • In Period 1, the relevant tax liabilities which built up from 1 March 2020 while the business was unable to trade or was trading at a significantly reduced level due to Covid-19, together with debts for an additional two months, will be ring-fenced. No interest will apply to such tax liabilities during Period 1.
    • The duration of Period 1 will vary from business to business and sector to sector depending on when the restrictions introduced in response to Covid-19 are relaxed in line with the roadmap announced by the Irish Government on 1 May 2020 for re-opening Irish society and businesses.
    • Period 2 is the zero interest phase of the Scheme and will last for 12 months after the end of Period 1. During Period 2, there will be no collection of, or interest charged on, the relevant outstanding tax liabilities by Irish Revenue. However, businesses will be expected to discharge their tax liabilities arising following the expiry of Period 1 as normal, in addition to any outstanding tax liabilities prior to 1 March 2020.
    • Prior to the expiry of Period 2, businesses will be expected to engage with Irish Revenue to reach an arrangement on discharging any tax liabilities warehoused under the Scheme. Any engagement with Irish Revenue in this regard will be tailored to the specific business requirements and the need for continued viability.
    • The final period is Period 3 which constitutes the reduced interest phase. This period will last from the end of Period 2 until the Covid-19 related tax liabilities built up in Period 1 have been discharged. Provided that the business has remained compliant with all of its tax filing obligations, it should then qualify for a reduced rate of interest of 3% per annum on the relevant outstanding tax liabilities.
    • Refunds and repayments of tax which arise after Period 1 will be paid to businesses, notwithstanding that VAT and/or payroll taxes which arose in Period 1 are still owed (although businesses can choose to offset same against the Covid-19 tax liabilities).
    • The tax clearance of a business which avails of the Scheme will not be affected.

    Comment

    While the specifics of the Scheme will become clearer in due course (it is envisaged that the legislative basis of the Scheme will be in Finance Bill 2020), businesses should be cognisant of the ongoing requirement to file all relevant tax returns in line with Irish Revenue guidance (notwithstanding any inability to discharge relevant tax liabilities) in order to avail of the Scheme. 

    The announcement of the Scheme constitutes a further measure introduced by the Irish Government in an attempt to mitigate any detrimental effects caused by the Covid-19 pandemic which, when taken together with the further guidance provided by Irish Revenue on the operation of the Scheme, is to be welcomed during this period of uncertainty.1 In particular, the Scheme should provide businesses affected by the Covid-19 pandemic with an opportunity to plan their recovery at a time when they will be dealing with non-tax liabilities and attempting to trade their way back to profitability. It is hoped that the Scheme will be extended to taxes other than VAT and payroll taxes, such as corporation tax and income tax, although there has been no indication of this to date.

    For support on legal issues facing your business in light of the outbreak of Covid-19, please visit our Coronavirus hub to get our latest information and guidance.

    For more information please contact

    Alan Connell, Partner and Head of Tax - alanconnell@eversheds-sutherland.ie

    Robert Dever, Associate in our Tax department - robertdever@eversheds-sutherland.ie

    Niall Pilkington, Solicitor in our Tax department - niallpilkington@eversheds-sutherland.ie

    1 Please see our separate article here in relation to an overview of relevant Irish tax measures and guidance announced to date.

    Disclaimer

    This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full terms and conditions on our website.

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