Stamp Duties Consolidation Act 1999 (“SDCA”)-Background

The Finance Act 2012, Section 107 and Schedule 3, introduced significant changes to the administration of stamp duty, bringing stamp duty within the self-assessment system.

Statutory Instrument No. 234 of 2012 provides the regulations governing the electronic stamping of instruments within the self-assessment system and applies to instruments executed on or after 7 July 2012. Instruments executed prior to this date continue to be treated under the old non self-assessment system. Therefore, two regimes operate concurrently and identifying the date of execution of an instrument is critical to applying the correct stamp duty treatment.

Key Changes – Instruments Executed on or after 7 July 2012

• Self-assessment
• Abolition of adjudication
• Certification on the face of instruments no longer required
• New expression of doubt regime
• New penalty regime
• Retention of records
• Powers of entry and inspection
• Removal of surcharges for undervaluations and incorrect valuations

Self-Assessment – Instruments Executed on/after 7 July 2012

An accountable person is responsible for assessing the stamp duty liability that, to the best of his/her knowledge, information and belief, ought to be charged, levied and paid on the instrument and for filing a return based on that assessment.

Provided the stamp duty liability is paid in full and the option to lodge an expression of doubt is not selected, the stamp certificate issues automatically into the filer's Revenue On-Line Service inbox following the filing of the return.

The SDCA and S.I. 234/2012, require the delivery of an electronic return within 30 days of executing the instrument. However, Revenue have confirmed that the 14 day grace period continues to apply and the electronic return calculates a pay and file due date based on the 44 day period¹.

Abolition of Adjudication – Instruments Executed on/after 7 July 2012

Adjudication of instruments executed on or after 7 July 2012 is abolished and all returns are filed on a self-assessed basis.

This means the responsibility of assessing an instrument, calculating the stamp duty liability and filing a correct stamp duty return rests solely with the taxpayer and it is no longer possible to obtain Revenue's opinion as to whether an instrument is chargeable or as to the amount of duty payable.

In respect of instruments executed prior to 7 July 2012, adjudication remains an option and is mandatory in certain cases.

Relief under sections 79 & 80 SDCA – requirement for a statutory declaration?

Under the old regime, adjudication was mandatory in order to claim certain reliefs, e.g. associated companies relief under section 79 SDCA and reconstruction relief under section 80 SDCA.

Although adjudication has been abolished, sections 79 and 80 SDCA retain Revenue's right to request a statutory declaration. Revenue has stated that all documents previously submitted in support of these reliefs should be obtained and retained on file². Therefore, a sworn statutory declaration should be obtained at the time of execution as evidence that the conditions of the relief were met. The statutory declaration should be retained for a period of at least 6 years from the date the return was filed, in line with the new retention of records obligations.

Removal of Revenue Certificates – Schedule 1 SDCA-Instruments Executed on/after 7 July 2012

The insertion of certificates on the face of instruments to obtain a particular stamp duty treatment is no longer required.

Expression of Doubt

Section 8C SDCA, provides a new expression of doubt (“EOD”) regime, similar in approach to that applied in other tax heads.

Where an EOD is treated as genuine, no interest will arise in respect of any additional stamp duty payable.

An EOD may only be made where there is a doubt concerning the correct application of law relating to the stamp duty treatment of an instrument.

To be accepted as a valid expression of doubt:-

1. The filer must select the “Expression of Doubt” box,
2. File the stamp duty return,
3. Pay the stamp duty assessed to be the correct liability,
4. Lodge a letter with Revenue clearly identified as an EOD letter. This letter must:-
   • set out the full details of the facts and circumstances affecting the liability of the instrument,
   • make reference to the provisions of the law giving rise to the doubt,
   • identify the amount of stamp duty in doubt,
   • enclose supporting documentation, as relevant.

The return, liability assessed and EOD letter must be paid and delivered to the Revenue within 44 days of execution (the SDCA states 30 days, however, Revenue have confirmed that the 14 day extension period also applies to EOD cases³).

Genuine EOD

A genuine EOD can only relate to the correct application of law. The legislation is prescriptive insofar as it sets out circumstances where an EOD will not be regarded as genuine, “in particular” where Revenue:-

1. have issued general guidelines concerning the application of the law in similar circumstances,
2. are of the opinion that the matter is otherwise sufficiently free from doubt as not to warrant an EOD, or
3. are of the opinion that the accountable person was acting with a view to the evasion or avoidance of duty.

The use of the phrase “in particular” would indicate that the above list is not an exhaustive list of circumstances which are not regarded by Revenue as genuine EODs.

Genuine EOD – Revenue agree with point of law

Where Revenue accepts the EOD is genuine and the accountable person's interpretation is correct, Revenue will approve the Return as filed and the stamp certificate will issue automatically⁴.

Genuine EOD-Revenue disagree with point of law

If an EOD is accepted as genuine but Revenue disagrees with the accountable person's interpretation of the law, the accountable person may either appeal or accept Revenue's interpretation.

An appeal must be lodged within 30 days of Revenue's assessment. As the benefit of the EOD is subject to the additional duty being paid within 30 days of Revenue's notification, consideration should be given to paying the additional duty so as to minimise accrued interest should the Appeal Commissioners agree with Revenue's interpretation of the law.

Should the accountable person accept Revenue's interpretation then interest on any additional duty will not be charged and the return will not be treated as an incorrect return, provided an amended return is delivered and the additional duty paid within 30 days of the date of Revenue's notification.

If the additional duty is not paid within 30 days of notification, interest is charged on the outstanding balance from the date of execution to the date of payment. To obtain a stamp certificate an amended return must be filed. If a new return is filed then interest will be charged including the late filing surcharge.

EOD – Not Genuine

Where Revenue do not accept an EOD as genuine, Revenue's decision may be appealed to the Appeal Commissioners. The appeal must be made within 30 days after the notification of Revenue's decision and is limited to the question of whether the EOD is genuine. The accountable person should consider paying the additional duty which might ultimately be due in the event the Appeal Commissioner's decision favours the Revenue.

If the Appeal Commissioner agrees with Revenue, interest continues to accrue on any outstanding stamp duty. However, if the outcome of the appeal favours the accountable person then Revenue are obliged to treat the EOD as genuine.

An amended return must be filed immediately on receipt of either Revenue's notification that the EOD is not genuine or, if appealed, on notification of the Appeal Commissioner's decision. The additional duty including interest, as calculated in the amended return must be paid to obtain the stamp certificate.

Business Asset Purchase Agreements – “Earn-Out Clause”

In many commercial transactions the full value of the assets being acquired may not be known until a valuation exercise is carried out at a date after the execution of the instrument. In the past Revenue would agree to adopt a “wait and see” approach subject to a stamp duty payment being made on account, based on a best estimate of the consideration amount. Once the valuation was agreed additional stamp duty was paid or a refund claim made.

Revenue have indicated that practitioners should select the EOD box in these cases and pay the duty on a best estimate basis⁵ even though an EOD can only relate to the correct application of law. Once the consideration amount is agreed, an amended return should be filed and the additional duty, if any, paid.

Penalties

Failure to disclose all circumstances affecting the liability of an instrument

A penalty of €3,000 is imposed on the filer where a return does not reflect the facts and circumstances of which he/she is aware.

Failure to deliver a return within the time specified

In the case of failure to deliver a correct return on time:-

• a fixed penalty of €3,000 will be charged in respect of each accountable person. Revenue has indicated that the penalty will only be charged in audit cases⁶.
• a late filing surcharge will apply, equal to:-
  • 5% of the duty where the return is delivered within 2 months of the specified return date (maximum €12,695),
  • 10% of the duty where the return is delivered later than 2 months after the specified return date (maximum €63,485).

The “specified return date” means the 30^th day after the date of execution of the instrument.

However, in practice Revenue accept returns filed up to 44 days’ after execution and returns filed after this date are subject to the late filing surcharge⁷.

The late filing surcharge applies even though the stamp duty liability is paid on time.

Failure to pay stamp duty by due date

Interest is charged on any unpaid duty (currently 0.0219% per day) from date of execution to date of payment.

Obligation to Retain Records

A new section 128A SDCA, obliges an accountable person to retain/cause to be retained, records relating to:-

• a liability to stamp duty, and;
• a relief or exemption claimed.

The records must be retained for a period of 6 years commencing on the later of (a) the date the return was delivered or (b) the date the duty was paid.

“Records” is broadly defined to include books, documents etc. maintained manually or electronically which enable a true return to be made or a relief or exemption to be substantiated.

A fixed penalty of €3,000 is imposed for failure to comply with the record retention provisions.

Powers of Inspection

Section 128B SDCA, provides Revenue with new powers of entry, production and inspection of records and the right to receive information, explanations and assistance for the purpose of auditing a return. There are stringent penalties for non-compliance.

Conclusion

The purpose of self-assessment is to allow Revenue to focus on the auditing of stamp duty returns rather than administration. Therefore, it is probable that the auditing of returns will become more frequent. For this reason, it is critical that adequate procedures are in place to manage the risk of late filing and payment and that sufficient documentation to support a claim for relief is obtained and retained on file.

The implementation of the self-assessment system poses many challenges for practitioners. It is understood that Revenue will publish guidance notes which it is hoped will provide clarity on the operation of the new regime.

Risk Management

The following points should be considered in respect of a stampable instrument.

1. The correct stamp duty regime should be identified by recording the date of execution of the instrument.
2. Tax reference numbers and corresponding tax types for all parties to the instrument should be obtained at the earliest possible date and verified.
3. The return enclosing a copy of the executed instrument should be signed by the accountable person as a full and true statement of all facts and circumstances affecting the instrument.
4. Adequate office systems should be in place to ensure returns and liabilities are delivered and paid by the file and pay due date.
5. The stamp certificate should be attached to the instrument immediately upon receipt.
6. Statutory declarations and all other supporting documentation to substantiate claims for relief should be obtained and kept on file for the relevant retention period.
7. Records should be retained for a period of six years from the later of the date of filing or payment.

Margaret Coleman is a manager and Ingrid O'Gorman an Assistant manager with Ernst & Young

Telephone: Dublin (01) 4750555

Email: Ingrid.OGorman@ie.ey.com or Margaret.Coleman@ie.ey.com

Website: http://www.ey.com/ie

1.Revenue Publication – Self Assessment and Stamp Duty.

2.Revenue Seminar, Stamp Duty – Self Assessment – Summer 2012.

3.Revenue Publication – Self Assessment and Stamp Duty.

4.Revenue Publication – Self Assessment and Stamp Duty.

5.Revenue Seminar, Stamp Duty – Self Assessment – Summer 2012.

6.Revenue Seminar, Stamp Duty – Self Assessment Summer 2012.

7.Revenue Publication – Self Assessment and Stamp Duty.