Joan Burton (Dublin West, Labour)
Link to this: Individually | In context

Question 256: To ask the Minister for Finance his views on the Revenue Commissioners investigations into artificial transactions where builders, owning sites, use their own building companies to carry out a development and the invoiced amount to the owner from their company is at or below cost; if the Revenue Commissioners will tax such transaction as income, as the provision of the building service has not been provided at arm's length, and as such below the normal cost; the number of such cases under investigation by the Revenue Commissioners; the total value of the tax at risk; and if he will make a statement on the matter. [11163/07]

Brian Cowen (Laois-Offaly, Fianna Fail)
Link to this: Individually | In context

I am informed by the Revenue Commissioners that they are not undertaking any specific investigation into individuals who enter into building contracts with companies that they own.

Whether a transaction is artificial or is a genuine business transaction, at arm's length or otherwise, is a question of fact having regard to the facts and circumstances of each case.

As to an income tax charge, directors of companies are 'office holders' and, as such, are treated in like manner as employees for income tax purposes. Office holders and employees are chargeable to income tax in respect of all salaries, fees, wages, perquisites or profits from their office or employment. The question of whether anything received by an office holder or employee from their office or employment comes within any of these descriptions — in particular, whether it is a perquisite or profit — and the quantum of same is a question of fact having regard to the facts and circumstances of the arrangements in place surrounding the provision of the advantages to an office holder or employee.

On a slightly separate note, as regards the individuals acquiring properties in such manner, there is the possibility that such individuals could be held to be carrying on a separate trade of dealing in property the profits of which attract income tax rather than capital gains tax.

In the case of VAT, Section 80 of the Finance Bill 2007, as passed by Dail Eireann, permits the Revenue Commissioners, where they consider it necessary in order to ensure correct collection of the tax, to determine that VAT will be charged on the open market value of a supply. They can do this in circumstances where the supply is being made for a consideration other than market value where the parties are connected.

The section may be applied by Revenue to prevent the value of a supply being manipulated by the connected parties in order to gain a VAT saving, for example where a building service is supplied to a land owner and the finished building will be used for VAT exempt activities, such as short-term letting of residential accommodation. Open market value is defined as the value at which the supply could reasonably be expected to be made between unconnected parties dealing at arms length. Where there is no comparable market value, the open market value of a supply of services means an amount not less than the cost to the supplier of providing the service.

The Revenue Commissioners have advised me that the scenario described by the Deputy appears to indicate a situation in which the issue of a determination under the proposed section would be considered.