Are there any capital gains tax issues arising on the transfer of residence?


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1: Jack Dundon moved back to Ireland on the 20th April 2008 to take up employment with a high-tech start-up company, Data Magic Ltd. (Irish incorporated and resident), under a 4 year employment contract. He acquired a 5.01% shareholding in the company within 6 months of commencing employment costing €10,000.This represented an arm’s length consideration. Jack is Irish domiciled having Irish parents who were Irish domiciled.
After qualifying in software engineering from the University of Limerick Jack worked in the US with Micro Genius, a software development training organisation in Chicago, until he came to work in Ireland in April 2008.
Data Magic Ltd grew exponentially and had a market value of €35m in 2012. One of the large ICT companies in the US has suggested they may be willing to buy out the existing shareholders for a straight cash price. Jack decides to relocate overseas prior to the share sale in an attempt to mitigate his capital gains tax liability in Ireland. He ceased to be tax-resident in Ireland from the 29th January 2013, at which time the shares in Data Magic Ltd derived their value from the technology they owned. His shareholding was valued at €8.75m in January 2013; you can assume this was their value as of 31 December 2012. He has presented to you, his tax advisor, with a number of different scenarios on which he seeks your tax advice.
Requirement:
Write a letter to Jack setting out what his CGT position would be in the following situations:-
(a) If he sells the shares in July 2013 for €10m and returns to Ireland (and becomes tax resident) in a tax year before 2019.
(b) If he sells the shares in 2016 for €14m and
(i) returns to Ireland (and becomes tax resident) in the 2018 tax year (ii) returns to Ireland (and becomes tax resident) in the 2019 tax year.
(c) If it could be established that Jack was not domiciled in Ireland at any stage during his lifetime up to (and including) the time of the sale of the shares, would it make a difference to the outcomes of your advice in both (a) and (b) above. You are not required to recalculate the figures at (a) or (b).
In addressing your client, legislative referencing to support your answers should be provided.
2: Bright Ideas Ltd is an Irish resident company which carries on a trading activity in Ireland. It is wholly owned by a Bermudan company, which in turn is owned by a US privately owned company. The company has a 31st December year end. The Bermudan company advanced two separate loans to the Irish company. The first loan (“Loan #1”) was advanced on the 1st February
2013. Loan #1 was in the amount of €1m and is for a period of 10 months; interest on the loan is charged at 5% per annum. The loan and the associated interest have been repaid before the year end. The loan was used for working capital purposes. The second loan (“Loan #2”) of €5m was advanced on the 1st June 2013 and is for a four year period; Loan #2 was used by Bright Ideas Ltd to fund the acquisition of a patent license from the US. Interest on the loan at 5% has been charged. The interest rate on both loans can be regarded as being arm’s length.
Requirements:
(a) Advise the Irish resident company on its withholding tax obligations relating to interest paid on both loans. Legislative referencing to support your answers should be provided.
(b) Advise the Irish resident company as to whether it is entitled to a tax deduction in Ireland in respect of the interest paid on both loans and what steps (if any) it is required to comply with. Legislative referencing to support your answers should be provided.
3: A Brazilian privately owned company JK Software Inc. set up an Irish subsidiary in 2002. The shareholders in the company reside in Brazil. The company owns significant intellectual property which is has licensed to third parties in Europe. The Irish company is owned by an intermediary company in the Netherland Antilles. This was set up for US tax reasons. Due to changing tax laws in Switzerland it wishes to transfer the tax residence of the Irish company to Switzerland. Prior to changing residence the company had availed of significant tax reliefs in Ireland under s291A and sections 766/766A respectively. The company has significant value, which primarily vests in the IP owned by the company.
Requirements: Are there any capital gains tax issues arising on the transfer of residence?
Legislative referencing to support your answers should be provided.



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