Baxter report by 5CKbcvya

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									            The above our discussions the Revenue etc and from recent discussions held by B.I.
            Arising fromis a synopsis of with position to date. Having worked with the fishing
                 Baxter & Associates
            industry for the past twenty five the Revenue Commissioners is the the propos
            we understand that the view of years, we believe the following is that reality of the
            situation:- PUBLIC ACCOUNTANTS & REGISTERED AUDITORS
            Decommissioning payments receivable will be treated as capital in nature and subject
               CERTIFIED
            taxation as follows:-

            1.        Subject to Capital Gains Tax where a Chargeable Gain arises on the disposal
                      both the vessel and the tonnage. For calculation purposes it is proposed that t
                      compensation should be apportioned between the vessel and the tonnage
                                                         the time of disposal. The current rate of Capi
                 Your reference to the market values at Our Ref:
                      Ref:
                                                                                    Date
                      Gains Tax is 20%.
                                                          CB/ISWFPO/CS/LA           15th October 200
             The Subject to Income Tax / Corporation Tax where Capital Allowances have be
            2. Board of Directors
                   claimed in prior years
             Federation of Irish Fishermen Ltdand a claw - back of allowances (i.e Balancing Charg
                   arises. & West Fish Producers Organisation Limited
             C/o Irish SouthAll vessels in use for the purpose of a trade qualify for annual capi
                   allowances. The claw-back or Balancing Charge is restricted to the actual amou
             The Pier
                   of Capital
             Castletownbere Allowances granted in the prior years. The current marginal rate
                   Income Tax / PRSI is 46.50%. The Current Rate of Corporation Tax is 12.5%
             Co Cork

             We further note that Revenue have advanced the case for application of the followi
              Dear Sirs,
             existing reliefs in respect of any potential taxation liabilities arising from the abo
             proposed treatment:-
              Re: Proposed Decommissioning: Scheme 2007 for Irish Fishing: Fleet
              Reference: Summary Report on the Taxation Implications of the Proposal for
              Retirement Relief for Capital Gains Tax purposes. Broadly to qualify an individ
              Decommissioning:
                 must be at least 55 years of age and held qualifying trade assets for a minimum per
                  refer to recent correspondence, e-mails such cases where the disposal set out hereun
             Weof 10 years at the time of disposal. In and discussions. As requested, we proceeds do n
             ourexceed
                  Summary Report on the taxation implications of the proposed Decommissioning Sche
             2007.
             We€confirm that we have spoken directly withTax on the disposal of Revenue Commission
                   750,000 full relief against Capital Gains both the Office of the qualifying trade asse
                is available. Where the disposal proceeds exceed € 750,000, marginal implications
             and the Department of Finance, on behalf of the Federation, regarding the taxrelief applies
                as to limit the may avail Capital Gains Tax payable on the disposal to one-half of
             vessel owners who amount ofof the proposed Decommissioning Scheme. As outlined the taxatt
             treatment of the proposed Scheme will be crucial to the take-up and ultimate success of same.
                difference between the amount of the consideration / proceeds and € 750,000.
                 understand that the not available to companies.(Section 598 TCA 1997)
             WeRetirement Relief isproposed Decommissioning Scheme will provide for the following:-
              Circa € 66 million will be made Gains of the first € 1,270 vessels and tonnage inindividual
                Annual Exemption. Capital available to decommission per annum for each the Irish
                fishing fleet sector.
                are exempt for Capital Gains Tax purposes.
              Vessels in excess of eighteen meters and older Income years /will qualify for Tax arises on
              Balancing Charge. Where a liability to than ten Tax Corporation approx. € 58
                million of the total proposed decommissioning fund.
                 Balancing Charge, the charge arising from decommissioning payments may be spre
              The proposed year period target a minimumTCA 1997)
                 over a three Scheme will (Section 288(6) 40% reduction in tonnage (approx. 11,140 gro
                tonnes)
             
              Focus will be on Exemption
(A) Licence I Tonnage - Tax reducing the catching capacity of pressure stocks (i.e endangered species).
Unlike farming milk quotas, vessel licence and tonnage costs do not qualify for Capital
              Maximum compensation payments will be in the order of € 6,500 per G.T for qualifying
Allowances under existing Revenue Legislation. Similarly Salmon Licence costs do not
                vessels with € 7,500 per G.T. available for certain qualifying polyvalent pelagic vessels.
qualify for Capital Allowance purposes. In accordance with Revenue Tax Briefing July
              A reduction part of the Salmon Hardship Scheme compensation the age
2007 (Issue No. 66) thaton decommissioning compensation payable will apply based onwhich of the
                vessel (i.e 1 % reduction be liable to of vessel
relates to the 2006 licence fee will notfor each year taxation.in excess of twenty years)
(C) Decommissioning Compensation - Spread of Taxation Liabilities
Any argument by Revenue that the proposed vessel Licence / Tonnage compensati
under the proposed examples of be construed as a tradeable asset and of any
There are numerous Scheme mayconcessions granted in relation to spreadtherefore liab
to tax is liabilities regarding payment schemes as follows:-
taxation not relevant as:
       Any vessels Payments / Tonnage in prior years has been restricted bybe spread
        Single Farm which the proposed Decommissioning Scheme may the limited
(I) Those transfer of Licence received under decoupling arrangementsspecifically wish
over number of vessels substantial encumbered bank debt,in the segments greater su
     target currently carry operating in the Irish fishing sector in that the majority of th
        three years where a single payment60, banking on Strategy for subsidy fall to b
        twelve meters. (Reference Page referred to sector.
     vessels are heavily mortgaged to the Irish Report above and anothera Restructure
 The majority2005. In such circumstancesheld in the name of individualover traders
        taxed in of vessels to be targeted are payments may be spread sole the thre
        Sustainable and Profitable Irish Seafood Industry 2007-2013).
        yearstransfer 2006 been 2007 for taxation purposes. (Referenceowners will ha
        Any 2005, a large restricted by legal the original vessel Section 657
(II) partnerships. In has and number of instances and Marine Regulations imposed (
        TCA 1997).
        active ownership in whole or in part to their younger family members or inde
     passed ontonnage requirements and transfer requirements etc. imposed by t
        Eligible applicants In such Salmon Retirement Relief for may opt to recei
(II) younger copartners. under theinstances Hardship Scheme 2007 Capital Gains T
        Department of Marine).
     purposes will nothas been for tax on any taxable element lack of viability of the Iri
        Any transfer account further restricted
(III) payments and provide any material relief. by the actualin three equal amounts ov
 The individual Annual Exemption industry in the past years. is of no material
        fishing sector to 2009. (Reference Revenue Tax Briefing No. 66)
        the years 2007as a profitable to Capital Gains of € 1,270 (Reference Report o
        Special relief applies for farmers in respect of profits arising from Irishdisposal
        Strategy for a Restructured, Sustainable and Profitable the Seafoo
(III)relevance to the overall proposed Scheme.
 The proposed Scheme will disease eradication measures.old orrelief provides forva
        livestock due to statutory apply to vessels often years The greater. In the t
        Industry 2007-2013).
        options      account for tax in respect of the Nil sums over a capital allowanc
     majority oftocases such vessels will have a said tax value forthree year period
     purposes. industry that the application 665-669 in 1997)
        four year period. (Reference Sections accepted by Revenue. Accordingly,
The fishing we believe would therefore argue thatTCAtaxation concessions willa
In summary This position has broadly beenof significant the case of the propose
2007 Decommissioning Scheme take-up of the give rise to2007 Decommissioni
     vessel the ultimate receivable will in such cases the proposed compensatio
crucial to compensation success and that part of proposed a substantial Reven
     claw-back (i.e Balancing Charge) at the potential marginal the net of whole Ta
Scheme. It to the Licence / viable for costs should be top Rate in Income or
applicablewill not be logical or Tonnage potential claimants ifexempt decommissioni
     PRSI 46.50 %.
part forofafter any tax payable will not precedent outstanding encumbered existsa
proceeds taxation purposes. Such discharge concession already bank
 The above scenarios may thatfurther complicated by the Scheme to be a success, t
relation to the Salmon Hardship order for the proposed fact that in years past som
other debts. We would stress be in Scheme.
      Decommissionine have assigned a specific value to the Licence and Tonna
(B)vessel owners may notScheme must not only be in a Based to ' Mulder' Schem
potential applicants to theCompensation - Exemption position onexit on a debt fr
     because must have sufficient available value remaining acquisition. f
basis but same may not have had any materialfunds at the time ofto provide Th
Tax
     may be particularly relevant to activities or than ten retirement.
      Treatment
diversification into alternativevessels greaterultimate years old. Accordingly, histo
     capital allowances may have been claimed on the full cost of the vessel claim
'Mulder' compensation is named after the Dutch farmer who successfully with
Wecorresponding cost excluded for LicenceEuropean Community the taxhad the rise
       note that BIM and commissioned the and Tonnage. This situation implications
against the Councilhave Commission of an Information Note on that he will give right
thean increased Revenue Balancing became entitled, policy and interpretation. wh
       proposed number based on existing Revenue as Allowances purposes Th
a milk quota. A Scheme of Irish farmers Charge for Capital a result, to compensation
loss of milkno base cost available for Capitaldecision of 18th May 1992.
     leaving Report included from the EC's Gains examples of liabilities to taxation. W
Information production dating a number of worked Tax purposes.
In accordance withuseful examples Briefing No. 14, the significant tax charges. Howev
perceive these as Revenue Tax highlighting potential taxation of the said
compensation was dealt with as follows:-
we parties involved with the worked example taking accountthe some of the of aligning k
All enclose herewith further Irish fishing industry recognise of importance circumstanc
outlined incompensation taxation with the proposedreceipt but the taxable amount 200
(I)     The this Report as was assessed in the year of                                   wa
concessions regarding above.                                Decommissioning Scheme
        initially reduced by 25 per cent.
These concessions may be precedent concessions based on previous tax concessio
(II) The remaining 75 per cent was reduced by a further 20 per cent or IR£ 10,000
granted to various industry sectors or new concessions which would require speci
        whichever was the greater.
Finance Bill approval. There are many examples of precedent concessions which th
fishing industry now argue should as a minimum apply to the proposed Scheme
follows:-

Again the industry points to the above concessionary tax
treatment and would argue for it's application to the proposed
Decommissioning Scheme
The Report on Strategy for a Restructured Sustainable and Profitable Iris
Seafood Industry 2007-2013 has called for a significant restructuring a
decommissioning programme to be implemented for the Irish fishing industry. All parti
associated with the industry agree that this strategy and recommendation is crucial to t
future viability and profitability of the sector. Such is an industry which provides vi
financial support and activity in many disadvantaged areas of our island. These are
have limited means of developing alternative sustainable economic activities. Hence t
importance of successfully implementing the proposed Decommissioning Scheme 200
All parties involved must therefore ensure that the proposed Scheme does not f
because of the failure to acknowledge and recognise the importance of granting taxati
concessions to the targeted applicants in this instance. The Scheme must ensure th
every encouragement both financial and otherwise is provided to those engaged in t
industry to exit and seek alternative means or retirement.
Based on the above facts, we believe that there are sufficient grounds to grant t
exempt status to the proposed compensation receivable under t
Decommissioning Scheme 2007. We estimate that the maximum cost to t
Exchequer in granting full tax exemption status will amount to circa €13 millio
This we believe is a relatively small cost to ensure the success of the propos
Scheme and the very future viability of the fishing industry in Ireland.
We will be glad to discuss the above in further detail as required.
Yours Faithfully,
Ciaran Baxter
BAXTER & ASSOCIATES
Example
Fisherman / Vessel owner Aged 53 Vessel 22 meters and 23 years old 159 GT's 403 Kws
Decommissioning Payments Purchased vessel in 1996 for
Cost of Tonnage / Additional Tonnage Capital Allowances Left of
€ 926,192 € 400,000 €Nil
€Nil
Split of Decommissioning Proceeds
€ 926.192 x 400,000               =
             400,000
€ 926, 192 (vessel)
€ 926.1 92 x Nil            =
             400,000
€ Nil (Tonnage)
Vessel
Sale Proceeds / Decommissioning Cost 1996-97 €400,000 Indexation Factor 1.251
€ 926,192
(€ 500,400)
Gain
€ 425,792
CGT@20%
€ 85,158
Balancing Charge Proceeds
TWDV of boat Balancing Charge
Restrict to Allowances Granted
€ 926,192 € Nil
€ 926,192 € 400,000
Income Tax @ 46.50%
€ 186,000
Total Tax Payable C.G. T - vessel Income Tax - vessel CGT - Tonnage
€ 85,158 € 186,000 € Nil
Total Payable
€ 271,158
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