Accounting Standards and Taxation

A. EUROPEAN UNION
I.

Accounting Standards

Adoption of IFRS by European Union

EU is an economic and political partnership between 28 European
countries that together cover much of the continent of Europe.
European Financial Reporting Advisory Group (EFRAG) is an advisory body
that takes part in the European endorsement process of IFRS
In 2002, the European Union adopted IFRS as the required financial
reporting standards for the consolidated financial statements of all
European companies whose debt or equity securities trade in a regulated
market in Europe, effective in 2005.
The adoption of IFRS was done by enactment of Regulation (EC) No
1606/2002 of the European Parliament and of the Council of 19 July 2002
on the application of international accounting standards (known as the
Accounting Regulation).
Individual EU member states have an option to require or permit
IFRS as adopted by the EU for:
1. Small securities exchanges that are not deemed regulated markets.
2. Separate financial statements (known as annual accounts) of all or some
companies whose securities trade on a regulated market.
3. Consolidated financial statements of all or some companies whose
securities to not trade on a regulated market.
4. Separate financial statements (known as annual accounts) of all or some
companies whose securities trade on a regulated market.

IFRS are required for some companies and permitted for others

The following modifications were made in IFRS adopted by the EU:

Carve-out concerning option to fair value all financial assets and

liabilities in IAS 39 Financial Instruments: Recognition and Measurement.
This carve-out was subsequently eliminated by Commission Regulation
(EC) No 1864/2005 of 15 November 2005.

Carve-out concerning fair value hedge accounting for portfolio hedge of

interest rate risk in IAS 39.
The effective dates of the following new /modified standards were
deferred to 1 January 2014: IFRS 10 Consolidated Financial Statements,
IFRS 11 Joint Arrangements, IFRS 12 Disclosure of Interests in Other
Entities, IAS 27 Separate Financial Statements, and IAS 28 Investments in
Associates.

II.
Taxation
EU does not have a direct role in raising taxes or setting tax rates.
Amount of tax you pay is decided by your government, not the EU.
The EU's role is to oversee national tax rules to ensure they are
consistent with certain EU policies, such as:
a. promoting economic growth and job creation
b. ensuring the free flow of goods, services and capital around the EU
(in the single market)
c. making sure businesses in one country don't have an unfair
advantage over competitors in another
d. ensuring taxes don't discriminate against consumers, workers or
businesses from other EU countries

EU decisions on tax matters require unanimous agreement by all member

governments. This ensures that the interests of every single EU country
are taken into account.

VAT & excise duties

all 28 national governments have agreed to broadly align their rules

and minimum rates, to avoid distorting competition across borders
within the EU

Corporate and Income Tax

the EU's main role is to ensure that principles such as nondiscrimination and free movement in the single market are followed
a coordinated EU approach is needed among all member countries

Tax Revenue

EU has no say on how countries spend their tax revenues.

due to the increasing interdependence of EU economies, countries
that overspend and go into too much debt could jeopardize growth
in their neighbors and undermine the stability of the Eurozone
To minimize risk: "EU countries try to coordinate their economic
policies closely, partly based on recommendations from the
Commission."
1. National tax policies
2. Seeking to make them fairer
3. More efficient and more growth-friendly.

Tax in the single market

a. Breaking down tax barriers
Personal and company taxes are mainly the responsibility of the
individual EU countries
under EU rules, they should not create barriers to mobility in
Europe
There are treaties in place between most EU countries designed
to eliminate double taxation but they may not cover all taxes or
all cross-border situations and may not be applied effectively in
practice.
b. Standardized taxation of goods & services
single market allows goods and services to be traded freely
across borders within the EU
Minimum tax rates are in place for VAT and excise duties, along
with rules on how these taxes should be applied. Governments
are free to apply their own national rates above the EU
minimums if they wish.
The Commission is currently working to reform the EU VAT
system, to make it simpler, more fraud-proof and efficient in the
revenues it delivers to national governments
Fair taxation across borders
a. Tax evasion & avoidance
tax laws of one country should not allow people to escape
taxation in another

B. UNITED KINGDOM
I.

Accounting Standards
IFRS adaptation

NEW UK GAAP

For periods beginning on or after 1 January 2015, three new

Financial Reporting Standards (FRS 100, 101 and 102) will be in
force, bringing with them a number of new options for all UK
entities and groups.

In addition to the above three standards, the Financial

Reporting Council (FRC) has also issued another standard, FRS
103 applicable to those entities that have insurance contracts
and are applying FRS 102.
FRS 100 Application of financial reporting requirements
o FRS 100 sets out the applicable financial reporting
framework for entities preparing financial statements in
accordance with legislation, regulations or accounting
standards applicable in the United Kingdom and Republic
of Ireland.
FRS 101: Reduced Disclosure Framework
o FRS 101 introduces a new reduced disclosure framework
enabling most subsidiaries and parents to use the
recognition and measurement bases of IFRSs in their
individual entity financial statements, while being exempt
from a number of disclosures required by full IFRSs.
FRS 102: The Financial Reporting Standard Applicable in the UK
and Republic of Ireland
o FRS 102 is a single coherent financial reporting standard
replacing old UK GAAP. Derived from the IFRS for SMEs,
the Financial Reporting Council has made significant
modifications to address company law requirements and
incorporate additional accounting options.
FRS 103: Insurance Contracts.

o FRS 103 contains specific accounting requirements for

entities with insurance contracts.

FRS 104: Interim Financial Reporting.

o FRS 104 is intended for use in the preparation of interim
financial reports for those entities that apply FRS 102 but
may also be used as a basis for preparing interim reports
by those entities applying FRS 101. The Standard is based
on IAS 34 Interim Financial Reporting.
FRS 105: The Financial Reporting Standard applicable to the
Micro-entities Regime.
o FRS 105 is based on FRS 102 but its accounting
requirements are adapted to satisfy the legal
requirements applicable to micro-entities and to reflect
the simpler nature and smaller size of micro-entities.
II.

Taxation

Currency: Pound Sterling

A. Corporate Taxation
Basis
o Resident - worldwide profits and gains, with credit given
for overseas taxes paid
o Non-resident - only UK source profits
Taxable income
o trading income, several baskets of non-trading income
and capital gains
Rates
o 20% starting April 1, 2015; proposed 19% in 2017 and
18% in 2020

Other corporate taxes

o VAT - 20% on goods and services; 5% domestic fuel and
power and certain other reduced-rate supplies
o Capital duty No
o Payroll tax No
o Real property tax - National non-domestic rate is
payable by occupier of business premises
o Stamp duty - 0.5% on transfer of UK shares
o Stamp duty land tax
o Residential property; 0%-12% depending on value
of property
o Non-residential property; 0%-4%
Withholding tax
o Dividends, Interest and Royalties - 20%
Compliance
o self-assessment regime
o online filing is mandatory for all company tax returns
B. Personal Taxation
Basis
o Resident - worldwide profits and gains
o Non-resident - UK profits, not be taxed for capital gains
even if asset is located in UK
Rate
o Progressive rates - 0% - 45%
Compliance
o Tax year - April 6 to following April 5
Filing and payment
o withheld by employer under PAYE system and remitted to
tax authorities
o not subject to PAYE, and capital gains tax is self assessed.
Tax treaties and authorities

o 125 tax treaties

o HM revenue and customs
C. IRELAND
I.
Accounting Standards
IFRS adoption
a. FRS 100 Application of Financial Reporting Requirements
b. FRS 101 Reduced Disclosure Framework
c. FRS 102 The Financial Reporting Standard applicable in the UK
and Republic of Ireland
The mandatory effective date of FRS 102 is for accounting
periods beginning on or after 1 January 2015, although early
adoption is permitted for periods ending on or after 31
December 2012.

The consolidated financial statements of listed groups will still need to be

prepared under EU-adopted IFRSs. However, all other entities, including
subsidiaries of listed groups and parents preparing their separate financial
statements, should consider the options available to them:
a. Full EU-adopted IFRSs;
b. FRS 101 EU-adopted IFRSs with reduced disclosures for
qualifying entities;
c. FRS 102 the replacement for Irish GAAP, with disclosure
exemptions available for qualifying entities; or
d. FRSSE still available for small companies within scope.

A recent change to the law means that a company that had previously
moved to IFRSs voluntarily will be able to move to FRS 101 or 102.
However, parents and subsidiaries will still need to prepare financial
statements using the same framework, being Companies Act or IAS
individual accounts, with certain exceptions or where good reasons exist
for a difference. Certain subsidiaries could adopt FRS 101 whilst others
adopt FRS 102, since both are Companies Act accounts.

Change from existing IRISH GAAP

a. Highlight 1 Financial instruments
Complex financial instruments, such as derivatives which may
historically have been off balance sheet, will now come on balance
sheet and be measured at fair value through profit or loss.

b. Highlight 2 Goodwill and intangibles

Intangibles and goodwill must have finite lives under FRS 102 and
must be amortized.
In the absence of a reliable estimate the life is presumed to be a
maximum of five years
c. Highlight 3 Group pension schemes
For groups that operate defined benefit pension schemes the multiemployer exemption that enables all the individual group entities to
use defined contribution accounting in their separate financial
statements, with no obligation appearing on their individual balance
sheets, will disappear.
Under FRS 102 or IFRSs, allocating these balances (often sizeable
deficits) to one or more group entities may significantly change the
appearance of a companys balance sheet and its ability to pay
dividends.
II.

Taxation

Currency: Euro
A. Corporate taxation
Basis

Resident - worldwide profits

Non-resident - only Irish source income

Taxable income

Company's profits (Business income, passive income and

capital gains)
Normal business expenses may be deducted

Rate

12.5% - trading income

25% - non-trading income

Certain dividends from EU and tax treaty territories are taxed

12.5%

Dividends

Received by an Irish resident company from another Irish

company
o Exempt

Received from a Foreign company

o corporate tax, in period dividends are payable, credit for
underlying corporate and withholding tax generally is
available for foreign tax paid

Received from company resident in EU member state

o may qualify for an enhanced credit up to the rate of tax
on profits in that country

Capital gains

taxed at 33% and 40%

Gains on sale of substantial shareholdings in companies in EU
member states or tax treaty country -EXEMPT if certain
conditions are satisfied

Losses

may be carried back to the immediately preceding period of

equal length or carried forward indefinitely

Foreign tax credit

may be credited against Irish tax on the same profits

credit is limited to amount of Irish tax payable on the foreign
income

Incentives

Expenditure on 1. Revenue items 2. Royalties 3. Certain

buildings and plant machinery related to R & D - credit of 25%
on a volume basis, may be set-off against company's corporate
tax liability in the year in which expenditure is incurred

Withholding Tax
a. Dividends
o paid to another Irish company EXEMPT
o paid to a non-resident company or individual - 20%, unless
reduced under tax treaty
b. Interest
o non-resident - 20%, unless reduced under tax treaty
c. Royalties
o Generally - tax exempt
o patent royalties - 20%
Other taxes
a. Capital duty No
b. Payroll tax No
c. Real property tax
o Residential real estate
0.18% -values up to 1M EUR
0.25% - values over 1M EUR
d. Social security
o 10.75% from the Employees salary
e. Stamp duty
o 1%-2%
f. Transfer duty No
Compliance
Filing
o self-assessment regime

B. Personal Taxation

Basis
o Resident - worldwide income and gains
o Non-resident - Irish source income and gains
Filing status
o Married couples and civil partners may opt for a joint or
separate
assessment
Taxable income
o Schedular system
o Income in form of Dividends -20%
o Capital gains - 33%
Rates
o progressive rates up to 40%
Other Taxes
o
o
o
o
o
o

Capital duty - No
Stamp duty - 1%-2%
Capital acquisitions tax -33%
Real property tax - 0.18% up to 1M EUR; 0.25% over 1M EUR
Estate tax - 33%
Net worth tax No

Compliance

o Tax year - Calendar year

Filing and payment

o withheld by the employer under the PAYE system and remitted

to tax authorities
o Income not subject to PAYE; Self-assessed.
VAT
o Taxable transactions - sale of goods and provision of services
o Rates - standard VAT rate of 23% with reduced rate of 13.5%
and 9%
Source of Tax law
o
o
o
o
o

Tax Consolidation Act 1997

Capital Acquisitions Tax consolidation Act 2003
Stamp duties consolidation act 1999
VAT consolidation act 2010
Annual finance acts

Tax treaties and Tax authorities

o 72 tax treaties
o Tax authority - Office of the Revenue Commissioner