126 / 406
GAZETTE
APRIL 1985
proposition as outlined above should apply and, again,
each case must depend on its own facts.
Corporation Tax
In general a non-resident Company will be liable to
Income Tax rather than Corporation Tax but if liable to
Corporation Tax it is quite clear that the provisions of
sections 200, 201 and 205 of the Income Tax Act are
applicable.
Revenue Position
The Revenue Commissioners have to date expressed a
different view on the liability of solicitors as Agents. They
seem to have adopted the view that solicitors are agents
and as such are liable to be assessed under sections 200
and 201 to Income Tax, Corporation Tax or Capital
Gains Tax as may be appropriate.
Solicitor's Dilemma
The obvious question which arises is whether a solicitor
is entitled to retain funds to meet any tax liability which
may be assessed on him or is obliged to release all monies
demanded by his client. This is a difficult question and
one where practical necessity may outweigh theoretical
considerations.
If the solicitor were to release all funds he may find
himself faced with an assessment which must be appealed
and perhaps contested before the Appeal Commissioners
and to the High Court on a Case Stated. In view of the
attitude of the Revenue, the solicitor should, in any case in
which the client sought to recover the funds from him, be
entitled to issue interpleader proceedings, and his costs
should be directed to be paid either by his client or by the
Revenue — it is not the business of a solicitor to enter into
personal litigation with the Revenue Commissioners by
way of appealing assessments to protect his client.
Two Important Exceptions where Solicitors are Liable
There are two important exceptions where solicitors
are liable in any event, for Tax on income of non-resident
clients:
1. Collection and Accounting for rents.
A solicitor who regularly collected rents and
transmitted those to the landlord would be the
agent of his client in that regard and even in the
absence of section 25(1) of the Finance Act 1969
would be liable to deduct income tax remitted to a
foreign client.
A solicitor who occasionally collected rents on
instructions from a landlord and as a result of the
institution of proceedings would not be liable for
assessment under sections 200 and 201. However,
he would appear to be liable to deduct the
appropriate tax on remittance under section 25(1)
of the Finance Act, 1969.
2.
Accounting for Interest to non-resident clients.
Section 31 of the Finance Act, 1974 provides for
deduction of standard rate income tax on any yearly
interest charged with tax under Schedule D paid by
any person to another whose usual place of abode is
outside the State.
It is understood that the Revenue Commissioners
accept that the section does not apply where:
(a) a solicitor is merely transferring interest which
has accrued, on bank deposits, to clients;
(b) the deposit has been designated as for the client;
and
(c) there is no question of the interest being paid by
the solicitor out of his own (the firm's) funds.
Even if certain interest payments seem to satisfy the
above conditions, it is strongly recommended that direct
clearance be obtained form the solicitor's Inspector of
Taxes on the procedure being adopted. Otherwise, there is
the possible exposure to a substantial liability for tax
which should have been deducted at standard rate.
Tax at the standard rate must be deducted from interest
payments to clients which do not satisfy the above
conditions. If there is any doubt in any particular case the
deduction should be made and clarification sought.
Recommended Guidelines for Solicitors
1. When remitting rents to a foreign client solicitors
must deduct tax at the standard rate and account to the
Revenue making the appropriate Return on Form 8-2 in
due course.
2. When remitting interest to a foreign client, solicitors
must deduct tax, i.e., unless the criteria for non-applica-
bility of section 31 of the Finance Act, 1974 are met.
Even if these criteria appear to be satisfied direct
clearance of the procedure for handling the client deposits
in question should be obtained from the solicitor's
Inspector of Taxes. If in doubt in any particular case,
clarification should be obtained from the solicitor's
Inspector of Taxes.
3. When remitting the proceeds of sale of property to a
foreign client and irrespective of whether the considera-
tion is under or over £50,000 — solicitors for a vendor
should ensure that they retain sufficient cover for any
possible liability for Capital Gains Tax. Solicitors should
also ensure that they have authority from their client to
deal with and procure an agreed assessment for Capital
Gains Tax. The deduction by the purchaser in
transactions exceeding £50,000, is an entirely independent
matter and is purely the responsibility of a purchaser's
solicitor. In any event, the amount of this deduction
might not, in some cases, cover in full a vendor's liability.
4. Where no consideration passes on a sale or where
the consideration is dealt with between non-resident
parties abroad without passing through the hands of a
solicitor it would seem, on balance, that it is fairly certain
that a solicitor is not at risk. It is not possible to assert this
with 100% certainty however. The Law Society is
prepared to resist strongly any claim by the Revenue to
make a solicitor who had acted in good faith, responsible
in these circumstances and (in a suitable case) to assist any
solicitor in resisting any such claim.
5. In the case of payments to Foreign Beneficiaries it is
likely in most cases that a solicitor will not be an agent of
such beneficiary. On the otherhand, however, he is almost
certain to have an obligation to his own client, the
Personal Representatives, or he may have a personal
responsibility as a person through whom money passes to
ensure that any liability of that beneficiary either for
Capital Acquisition Tax (or Income Tax on any interest
content or possibly Capital Gains Tax) is cleared before
making the remittance.
•
114