Principal Contractors - Energy Related Companies & RCT |
Persons engaged in the production of electricity, which includes for example the construction of wind farms, are considered Principal Contractors for Relevant Contracts Tax (RCT) purposes. RCT is a withholding tax at 35% which a principal should operate on payments made to contractors in respect of ‘relevant operations’ which in essence encompass all aspects of a wind farm construction, site prep, supply and install contracts, operations & maintenance contracts which include subsequent repairs, etc.
Whether the construction works are performed by local or foreign contractors it’s important to note that the tax residence of the principal and the subcontractor is irrelevant, RCT must be operated when the construction works are being carried out in Ireland.
Careful consideration should be given to RCT issues at the initial stages of any energy related project such as a wind farm as RCT should be operated on contractors who are engaged from the early stages, on site clearance and provision of access routes, etc. However, RCT is not applicable to professional services received in isolation, such as feasibility studies, geology studies, etc.
A key factor in any due diligence conducted pre acquisition of an energy related entity, especially wind farms should be RCT. The failure to operate RCT can lead to substantial dormant liabilities, for example, if RCT is not operated correctly on a €5 million turbine contract which includes ‘supply and installation’ the potential tax exposure could be €1.75m plus interest and penalties. Errors in documentation can be extremely costly for taxpayers.
Please contact the RCT team for more information.
