Capital gains are taxable at rates that vary between 10% and 33% whereas dividends are subject to income tax, PRSI and USC that together can produce a tax rate of up to 55%.
Given the wide disparity in rates it becomes much more preferable to extract cash from companies in a capital, rather than an income, form.
Typical Problems that we come across
Because the tax saving in extracting cash in a capital, as opposed to an income, form can be as high as 45% shareholders sometimes enter into artificial arrangements that merely substitute capital gains for dividends.
Ill-considered actions like this can trigger challenges by Revenue disputing the tax-effectiveness of the transactions. They can also lead to prolonged disputes and carry the risk of litigation, unwanted publicity, interest and penalties.
How We Can Help
There is a considerable body of anti-avoidance legislation that needs to be considered when extracting cash in a capital form from a company. This contains many traps for the unwary.
Our tax team has many years’ experience of dealing with complex anti-avoidance legislation. Our directors guide clients through the legislation that applies to cash extraction and use their experience and skill to advise on tax-effective planning.