I am informed by the Revenue Commissioners that Relevant Contracts Tax (RCT) provides for withholding tax to be applied on certain payments made by Principals to subcontractors and is designed to promote tax compliance in the construction, forestry and meat processing sectors. The tax withheld by Principal contractors is paid over to Revenue and the subcontractor is given credit for any tax withheld. From 1 January 2012, the Revenue Commissioners have made available a new online system for the operation of RCT and the system provides for three rates of deduction - zero, 20% and 35%. The zero rate recognises that it would be undesirable to deduct tax from compliant subcontractors. One criterion for qualifying for the 0% rate is that the subcontractor has throughout the previous three years complied with all the obligations imposed by the Tax Acts, Capital Gains Tax Acts and the Value Added Tax Acts in relation to (i) the payment or remittance of taxes, interest and penalties, (ii) the delivery of returns and (iii) the supply, on request, of accounts or other information to Revenue. Notwithstanding this, the legislation provides for the granting of a 0% rate where a person satisfies Revenue that the three year compliance history ought to be disregarded.
For new tax registrations, the Revenue system automatically grants a rate of 20% as a three year compliance history does not exist. However, this may be changed to 0% if the subcontractor satisfies the Revenue that in all the circumstances the three year compliance period ought to be disregarded.
I am also advised by the Revenue Commissioners that the rate of deduction is reviewed periodically and, if a subcontractor who has been allocated the 20% rate meets the necessary conditions, the deduction rate is adjusted to zero. Similarly where a subcontractor no longer meets the conditions associated with either the zero or 20% rate the deduction rate is adjusted upwards as appropriate.
RCT plays an important role in ensuring tax compliance by subcontractors in the relevant sectors and it is the view of the Revenue Commissioners that it would not be appropriate to automatically allocate a zero rate to newly established subcontractors. Revenue has to be satisfied that a subcontractor has established a satisfactory record of tax compliance.