Sharefishing

The High Court on 2 October 2001 issued judgements in the cases of Francis Griffin v The Minister for Social, Community and Family Affairs and William Deasy v The Minister for Social, Community and Family Affairs. We reproduce two Fact Sheets on this topic. The first is a Revenue Fact Sheet on the tax implications while the second is a Department of Social, Community and Family Affairs on the PRSI implications.

“Clarification of the tax implications for boat owners/skippers/sharefishermen/women arising out of the High Court judgements of 2 October 2001

Introduction

There have been contacts with tax offices for clarification of the tax implications for boat owners/skippers and sharefishermen/women following the High Court decisions of 2 October 2001 in the cases of Francis Griffin v The Minister for Social, Community and Family Affairs, and Wm. Deasy v The Minister for Social, Community and Family Affairs.

There appears to be confusion as to the tax implications for the sharefishing sector arising out of the above judgements. This Fact Sheet is intended to provide this clarification. It also supercedes any earlier instructions for tax purposes relating to sharefishing relationships.

Consideration of the High Court Judgements relating to Tax Issues

It is difficult, and indeed can be misleading, to try to give a synopsis of a court decision. This Fact Sheet is meant to be a brief outline of the implications of the judgements. From contacts with tax offices it appears that the ramifications of the judgements and that of the earlier judgements i.e McLoughlin and Griffiths are not fully appreciated.

In the course of the Griffin and Deasy hearings Ms Justice Carroll indicated that the 1986 tax case of the DPP v Martin McLoughlin and the 1992 Social Welfare case of The Minister for Social Welfare v John Griffiths “represented Irish Law applicable to Sharefishermen in similar circumstances”.

The decisions in the four cases are similar in that their effect is to state that sharefishermen were not employees of the boat owner but in partnership with him.

The four boats were similar in most respects. There were generally five crewmembers on the McLoughlin and Griffin boats. It is not clear how many were on the Deasy or the Griffiths boats but it would appear that the number of crewmembers and also the size of the boats were similar. In the course of the Griffin and Deasy hearings evidence was introduced on the working relationship between the owner and the crewmembers.

Essentially, Ms. Justice Carroll laid emphasis on the fact that the considerations and findings of Mr. Justice Costello in the earlier Mc Loughlin case should have been matched against the circumstances of both cases in coming to a conclusion.

In his decision in the Mc Loughlin case Mr. Justice Costello considered some indicators of the existence of employment and partnership relationships. He ultimately came down in favour of partnership status for the boat owner and the crewmembers in the specific circumstances of the case for the following reasons:

• “It is true that the defendant (the owner) exercised a large measure of control over the manner in which each member of the crew performed his work but the right to do so arose as much from the nature of the operations being carried on as from the contractual relationship which existed and is a factor which is consistent both with the existence of a contract of service and an agreement of partnership.
• It is also true that the defendant engaged the other members of the crew for each voyage but, again, this is consistent both with an employer/employee relationship and an agreement in the nature of a partnership, that is one in which the defendant agreed to provide the vessel and its equipment for the voyage whilst each crew member agreed to provide his labour and skills.
• The strongest elements of the case in support of the DPP’s submissions are that the proceeds of the sale of the catch were paid directly to the defendant and that he dispersed them even making in some instances payments to members of the crew of what were termed ‘subs’ when no profit was made and the crew bore no losses.”

He continued

“But these factors seem to me to be outweighed by the cumulative effect of three others:

• Each weekly voyage was a separate venture and no crewmember had a contract, which entitled him to take part in any subsequent voyages
• When he participated in an expedition he was not paid any wages but became entitled to a share in the net profits (if any)
• And, most importantly, although he engaged each crew member the defendant did not himself determine what the rate of remuneration would be; this was determined partly by custom (namely 50% of the profits being allotted to the boat) and partly by agreement between the crew themselves in consultation with the defendant".

He went on to say-

“These factors, it seems to me, strongly suggest that the skipper and his crew were partners in a joint adventure”.

Implications arising from the Judgements

General

Whether or not a partnership exists on any boat is a question of fact. Consequently, in order to establish the factual position on any boat it is necessary to compare the situation with the circumstances of the Mc Loughlin case.

he position is that there are a number of boats, which should be operating in what has been decided by the Courts to be a partnership. Where this is the case Partnership Law, including the Partnership Act of 1890, will govern the relationship between owner/skipper and crew.

For Corporation Tax, Income Tax and PRSI, the rules of self-assessment will apply. The partnership may also need to register for VAT and for PAYE/ PRSI where they have employees.

There may be other boats where the circumstances are different when compared with the circumstances of the McLoughlin case. The indicators may be that an employer/employee relationship exists. For such boats tax and PRSI should continue to be collected from crew members through the PAYE system and remitted monthly to the Collector-General by the employer.

Boat Owner/Skipper: Partnership and Personal Tax Returns

Where a partnership relationship exists the owner/skipper, whether a company or an individual, is the precedent acting partner of the partnership ‘firm’. Consequently there are obligations imposed on him/her by the Tax Acts. The precedent acting partner is obliged, under the rules of self-assessment, to submit an annual account of the activities of the partnership. The precedent acting partner is obliged to identify the partners and include details of the division of the profits/losses and of capital allowances.

There are special commencement and cessation rules for new partners and partners leaving partnerships.

In addition to the above obligations, the owner is obliged to file his/her personal tax return and to calculate and pay his or her tax under the new Pay and File provisions.

Similar provisions apply for corporation tax purposes under the rules of self-assessment where the boat owner is a Limited Company.

There are significant additional charges for non-compliance - see references below to crewmembers.

Capital Allowances

Where an employer/employee relationship exists the boat owner/employer is entitled to claim the full capital allowances on the boat and equipment for tax purposes. Crewmembers who are employees have no entitlement to claim a share of the capital allowances for personal tax purposes.

Where a partnership exists, the capital allowances relating to the boat and equipment become the capital allowances of the partnership and not of the boat owner because the boat is used in the joint enterprise with the other crewmember partners. The capital allowances must be apportioned between the individual partners for personal taxation and PRSI purposes in the same way as for any other partnership - in the same ratio as the net profits from the partnership to which each member of the partnership is entitled.

The following example illustrates the effect of the apportionment of capital allowances between the partners. The figures used in the example are for illustration purposes only. The actual position will depend on individual circumstances and agreements, etc.

Crew Members

Personal Tax Returns:

If a crew member has always been a partner based on the 1986 Mc Loughlin decision, he should already be registered for tax purposes as self-employed.

If the crew member became a partner in the business due to the October 2001 High Court decisions contact should be made with his local tax office without delay.

The onus is on a crewmember under the Taxes Acts to file annual tax returns under the rules of self-assessment. There are also obligations to make appropriate preliminary tax payments and pay the balance of any tax due. There are specific time limits for return filing, significant interest charges, surcharges and penalties for late payments, late filing and non-filing of returns. The recently introduced Pay and File procedures will also apply. Information on self-assessment, etc. can be obtained on request from the local tax office.

The crew member/partner is also entitled to the appropriate share of the capital allowances due on the boat and other equipment, which should be shown on his or her tax return.

It may be necessary to cease tax deductions under the PAYE system unless the owner wishes to continue to operate the PAYE system voluntarily. PRSI Class A will cease to apply to be replaced by PRSI Class S. Should any partner wish to contribute to Class P, such payments should be made directly to the Department of Social, Community and Family affairs. If a partnership is using this voluntary form of PAYE, capital allowances can be claimed at the year end on filing a Return of Income.

Partnership Law

Where a partnership exists the Partnership Act of 1890 will govern that relationship. Among other matters provided for in the Act are:

• Individual and collective responsibility for the debts and obligations of the partnership
• Sharing of capital and profits and contributions towards losses in equal measure subject to any agreement
• Rules relating to partnership property
• Dissolution of partnerships.

It would be advisable for boat owners/skippers and crewmembers and their advisers to familiarise themselves with their responsibilities under the Act.

Conclusion

This Fact Sheet attempts to deal with the main aspects of the High Court decisions and some of their implications for boat owners and fishermen engaged in sharefishing for tax and partnership law purposes. The issues are complex. The Fact Sheet gives only a brief outline of the issues arising, which hopefully will help to dispel some of the confusion that has arisen.

For boat owners and crewmembers trying to establish their own position, it should be borne in mind that the implications may be significant individually and collectively under tax and partnership law.

If it becomes necessary to arrange further exploratory discussions to bring finality to the issues involved contact can be made initially with: Bob Dowdall, Chief Inspector of Taxes Office, Setanta Centre, Nassau St., Dublin 2 at 01 - 6470764 and Kieran O’Connell, District Manager, Letterkenny Tax District at (074) 69400.