The Gazette 1985

GAZETTE

APRIL 1985

proposition as outlined above should apply and, again, each case must depend on its own facts. Corporation Tax In general a non-resident Company will be liable to Income Tax rather than Corporation Tax but if liable to Corporation Tax it is quite clear that the provisions of sections 200, 201 and 205 of the Income Tax Act are applicable. Revenue Position The Revenue Commissioners have to date expressed a different view on the liability of solicitors as Agents. They seem to have adopted the view that solicitors are agents and as such are liable to be assessed under sections 200 and 201 to Income Tax, Corporation Tax or Capital Gains Tax as may be appropriate. Solicitor's Dilemma The obvious question which arises is whether a solicitor is entitled to retain funds to meet any tax liability which may be assessed on him or is obliged to release all monies demanded by his client. This is a difficult question and one where practical necessity may outweigh theoretical considerations. If the solicitor were to release all funds he may find himself faced with an assessment which must be appealed and perhaps contested before the Appeal Commissioners and to the High Court on a Case Stated. In view of the attitude of the Revenue, the solicitor should, in any case in which the client sought to recover the funds from him, be entitled to issue interpleader proceedings, and his costs should be directed to be paid either by his client or by the Revenue — it is not the business of a solicitor to enter into personal litigation with the Revenue Commissioners by way of appealing assessments to protect his client. Two Important Exceptions where Solicitors are Liable There are two important exceptions where solicitors are liable in any event, for Tax on income of non-resident clients: 1. Collection and Accounting for rents. A solicitor who regularly collected rents and transmitted those to the landlord would be the agent of his client in that regard and even in the absence of section 25(1) of the Finance Act 1969 would be liable to deduct income tax remitted to a foreign client. A solicitor who occasionally collected rents on instructions from a landlord and as a result of the institution of proceedings would not be liable for assessment under sections 200 and 201. However, he would appear to be liable to deduct the appropriate tax on remittance under section 25(1) of the Finance Act, 1969. 2. Accounting for Interest to non-resident clients. Section 31 of the Finance Act, 1974 provides for deduction of standard rate income tax on any yearly interest charged with tax under Schedule D paid by any person to another whose usual place of abode is outside the State. It is understood that the Revenue Commissioners accept that the section does not apply where:

(a) a solicitor is merely transferring interest which has accrued, on bank deposits, to clients; (b) the deposit has been designated as for the client; and (c) there is no question of the interest being paid by the solicitor out of his own (the firm's) funds. Even if certain interest payments seem to satisfy the above conditions, it is strongly recommended that direct clearance be obtained form the solicitor's Inspector of Taxes on the procedure being adopted. Otherwise, there is the possible exposure to a substantial liability for tax which should have been deducted at standard rate. Tax at the standard rate must be deducted from interest payments to clients which do not satisfy the above conditions. If there is any doubt in any particular case the deduction should be made and clarification sought. Recommended Guidelines for Solicitors 1. When remitting rents to a foreign client solicitors must deduct tax at the standard rate and account to the Revenue making the appropriate Return on Form 8-2 in due course. 2. When remitting interest to a foreign client, solicitors must deduct tax, i.e., unless the criteria for non-applica- bility of section 31 of the Finance Act, 1974 are met. Even if these criteria appear to be satisfied direct clearance of the procedure for handling the client deposits in question should be obtained from the solicitor's Inspector of Taxes. If in doubt in any particular case, clarification should be obtained from the solicitor's Inspector of Taxes. 3. When remitting the proceeds of sale of property to a foreign client and irrespective of whether the considera- tion is under or over £50,000 — solicitors for a vendor should ensure that they retain sufficient cover for any possible liability for Capital Gains Tax. Solicitors should also ensure that they have authority from their client to deal with and procure an agreed assessment for Capital Gains Tax. The deduction by the purchaser in transactions exceeding £50,000, is an entirely independent matter and is purely the responsibility of a purchaser's solicitor. In any event, the amount of this deduction might not, in some cases, cover in full a vendor's liability. 4. Where no consideration passes on a sale or where the consideration is dealt with between non-resident parties abroad without passing through the hands of a solicitor it would seem, on balance, that it is fairly certain that a solicitor is not at risk. It is not possible to assert this with 100% certainty however. The Law Society is prepared to resist strongly any claim by the Revenue to make a solicitor who had acted in good faith, responsible in these circumstances and (in a suitable case) to assist any solicitor in resisting any such claim. 5. In the case of payments to Foreign Beneficiaries it is likely in most cases that a solicitor will not be an agent of such beneficiary. On the otherhand, however, he is almost certain to have an obligation to his own client, the Personal Representatives, or he may have a personal responsibility as a person through whom money passes to ensure that any liability of that beneficiary either for Capital Acquisition Tax (or Income Tax on any interest content or possibly Capital Gains Tax) is cleared before making the remittance. •

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