Section 31

Amendment of Chapter 2 (payments to subcontractors in certain industries) of Part 18 of Principal Act

Section 31 amends the law relating to Relevant Contracts Tax (generally referred to as RCT). RCT applies to payments made by principal contractors to subcontractors under relevant contracts in the construction, meat processing and forestry industries.

There are three aspects to the amendment as follows:

Firstly, the definition of construction operations is extended to include the installation in or on any building of systems of telecommunications. The mobile and fixed-line phone companies operating in the State are all involved in substantial ongoing capital investment in relation to the upgrading of their telecommunications systems. While the existing definition of “construction operations” already includes the physical laying of cables for telecommunications purposes, the primary purpose of the new provision is to bring within the RCT regime the installation/ upgrading of mobile telecommunications networks and local wireless networks. In the case of the mobile network, the equipment (relay stations etc.) is normally attached to tall buildings or structures, while local wireless networks are installed inside buildings such as hotels or offices or in areas like shopping centres or railway stations. These systems involve no wiring or cables and none of the traditional apparatus of a telephone exchange. The “exchange” and “switching equipment” may simply be a bank of computer servers located in the companies' offices. The installation work is generally contracted out to subcontractors, many of whom are based outside the State with associated significant compliance risks. It is this subcontracting out of the installation work that is now to come within the RCT regime.

Secondly, the list of principal contractors who are obliged to operate RCT is being extended to explicitly include a person carrying on a business involving the development of land and a board or body established by or under royal charter and funded wholly or mainly by the State. As regards the former, this will put beyond doubt that a person engaged in land or site development who contracts out work involving, for example, engineering operations such as site levelling, earth moving, construction of roads, and the laying of sewers, or water or gas mains etc. will be required to operate RCT in respect of the contractors engaged. As regards royal charter boards, the change is designed to ensure consistency of application of RCT as between such boards operating in the public sector and State boards set up under statute who are already obliged to operate RCT in respect of construction operations etc.

The above changes have effect in respect of relevant contracts entered into on or after 1 May 2007.

Finally, a number of changes are being made to meet commitments contained in Towards 2016 (the Ten-Year Framework Social Partnership Agreement 2006-2015) in relation to the strengthening of the RCT system. Specifically–

• an enabling provision has been included to allow the Revenue Commissioners (by way of Regulations) to make provision for increased monitoring of RCT1 declarations by requiring such declarations to be delivered to them in certain circumstances. The RCT1 is the declaration required to be made by both a principal and a subcontractor prior to entering into a relevant contract to the effect that they have satisfied themselves, having regard to Guidelines published by the Revenue Commissioners, that the contract is not a contract of employment, and
• the existing fixed penalty of a fine of €1,265 on summary conviction for the offence of failure to comply with regulations requiring the making of an RCT1 declaration is being extended to include a failure to comply with regulations requiring the delivery of an RCT1 declaration to the Revenue Commissioners.