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Finance Bill 2014
24 October 2014
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Table of contents
Welcome3
Introduction4
FDI5
PLCs7
Private Business
Financial Services 9
11
R&D13
Agri Sector
14
Personal Tax
15
Pensions17
Property18
Anti-avoidance20
Compliance matters
22
VAT23
Excise duty
25
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2
Welcome
In the context of tax policy, we are
in a golden era the likes of which I
would not expect to see again. The
BEPS process is the greatest change
to the global tax system since it was
established after the first World War
and is likely to shape the tax landscape
for the next 50 years or more.
Feargal O’Rourke
+353 1 792 6480
[email protected]
As anticipated, this Finance Bill
represents a significant change in Irish
corporate tax law. The well signalled
changes to the corporate residency
rules, coupled with the significant
current and proposed enhancements to
our R&D and IP offerings demonstrate
Ireland’s commitment to ensuring
that its taxation system is globally
accepted as an open, transparent,
rules based system which is fair
and, most importantly, competitive.
These various measures are crucial
for Ireland in an environment where
many countries have attractive
‘Innovation Box’ offerings. In addition,
the measures introduced to stimulate
domestic activity, including the
changes to EII and the abolition of the
“windfall gains tax”, should reaffirm
that Ireland continues to be ‘open for
business’.
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3
Introduction
Fiona Carney
Senior Manager Tax Technical Centre
+353 (0)1 792 6095
[email protected]
It seems that not a day goes by when
we don’t see some mention of tax in
the media, be it an EU Commission
announcement or the Base Erosion
and Profit Shifting (BEPS) process.
All of these have an impact on a
country’s Rate, Reputation and Regime
(the 3 Rs) and Ireland’s approach to
this is reflected within yesterday’s
Finance Bill.
The Bill is short and contains a number
of measures additional to those
announced by Minister Noonan in last
week’s Budget, particularly in the area
of anti-avoidance which is discussed as
part of this paper.
Ireland has suffered a lot of unfair
criticism internationally around
the “Double-Irish” structure. The
decisive action taken in introducing
domestic legislation to close this off
should boost Ireland’s reputation
internationally and should further
strengthen the transparency of the
Irish tax regime. The proposed
legislative amendments to effect
changes to Ireland’s corporate tax
residence and Intellectual Property
amortisation rules are broadly in line
with expectations. In particular, the
transitional corporate tax residence
rules for existing companies and
enhancements to our IP regime should
provide certainty to existing and new
FDI investors and help ensure that
Ireland remains competitive as an
FDI location.
As anticipated, there is no further
detail at this stage on Ireland’s
proposed “Knowledge Development
Box” regime announced in the Budget.
This will involve a consultation process
in 2015 ahead of expected draft
legislation in next year’s Finance Bill
and an effective date of 1 January
2016 (subject to EU approval).
Indeed, the complete abolition
of the 2003 base year in the R&D
credit is very significant as it reflects
a strong recommendation arising
from the public consultation process
undertaken last year and demonstrates
the Government’s commitment to
enhancing our offering in this area.
As well as a focus on FDI, Finance Bill
2014 introduces a number of measures
which are aimed at stimulating activity
in the domestic economy. For example,
the increase in the annual and overall
investment limits for a company in the
Employment and Investment Incentive
(‘EII’) to €5m and €15m respectively
will be welcomed as will the expansion
of the incentive to include medium
sized enterprises in non-assisted areas,
the management and operation of
nursing homes and internationally
traded services, these being subject
to certain conditions.
The abolition of the “windfall gains
tax” and the extension of the Home
Renovation Incentive (“HRI”) to
landlords who are subject to income
tax should assist in increasing
construction activity in the country,
which in turn should lead to an
increase in jobs.
From a pensions perspective,
the amendments there make the
‘ARF-regime’ a more accessible
option for those with lower pension
fund values.
The Bill has a number of stages to
go through before it becomes an Act
and there may be some changes to
the above and other measures as part
of this process before its enactment.
Overall, it is a Bill which seeks to
reinforce the 3 Rs and to stimulate
domestic activity.
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4
Foreign Direct Investment (FDI)
Following on from last week’s Budget
2015 announcements, the proposed
legislative amendments to effect
changes to Ireland’s corporate tax
residence and IP amortisation are
broadly in line with expectations.
Liam Diamond
+353 1 792 6579
[email protected]
These changes should further
strengthen the transparency of the
Irish tax regime. In particular, the
transitional corporate tax residence
rules for existing companies and
enhancements to our IP regime should
provide certainty to existing and new
FDI investors and help ensure that
Ireland remains competitive as an FDI
location.
As anticipated, there is no further
detail at this stage on Ireland’s
proposed “Knowledge Development
Box” regime announced in the Budget.
This will involve a consultation process
in 2015 ahead of expected draft
legislation in next year’s Finance Bill
and an effective date of 1 January
2016 (subject to EU approval).
Company residence
The Finance Bill introduces
amendments to the corporate tax
residence rules to phase out the socalled “Double Irish” structure.
In order to ensure alignment with the
treatment of company residence in
double tax agreements, however, there
is an exception to the incorporation
rule. This provides that if, under the
provisions of a double tax agreement,
an Irish incorporated company is
tax resident in another territory, the
company will not be regarded as Irish
tax resident.
The amendments also clarify that a
non-Irish incorporated company that
is managed and controlled in Ireland
will continue to be regarded as Irish
tax resident.
These amendments will have effect
from 1 January 2015 for companies
incorporated on or after that date.
For companies incorporated prior to
the end of 2014, these amendments
will only apply after 31 December
2020. This means that all of the
current corporate tax residence
provisions contained in the legislation
(including the “Stateless” provisions
introduced in last year’s Finance Bill
and applying to pre-existing companies
from 1 January 2015) will continue to
apply until 31 December 2020.
The amendments provide that an
Irish incorporated company will be
regarded as Irish tax resident.
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5
Intangible assets capital allowances
The Finance Bill introduces a number
of enhancements to the existing
regime for capital allowances (tax
depreciation) on intangible assets.
Firstly, the definition of specified
intangible asset is extended to
include customer lists. However, the
acquisition of a customer list will
only qualify to the extent that it is
acquired otherwise than as part of
the transfer of a business as a going
concern. While a welcome addition,
this proviso could limit its applicability
and disappointingly is not as wide as
announced by the Minister.
Secondly, the cap on the combined
capital allowances and related interest
expense that can be claimed for
intangible asset acquisitions in any one
accounting period is increased from
80% of the related IP profits to 100%.
This means that trading profits from
qualifying IP related activities and
exploitation in any one year can be
sheltered in full (with carry forward
of any excess capital allowances and
interest to later years), which is a
significant enhancement to the current
regime. However, it should be noted
that, as is the case at present, it is
not possible for a company to use the
combined IP capital allowances and
related interest expense to create or
increase a loss for tax purposes.
The above changes will have effect for
accounting periods beginning on or
after 1 January 2015.
Finally, an amendment has been
introduced in relation to transfers of
intangible assets between connected
companies which applies to transfers
occurring on or after 23 October 2014.
This provides that where a company
has acquired a specified intangible
asset and, after a five year period, a
“balancing event” arises (e.g. the asset
ceases to be used for the company’s
trade), no balancing charge/clawback
arises for the transferring company.
Double tax agreements
The Taxes Consolidation Act 1997
includes a schedule listing of all the
international double tax agreements
entered into by Ireland.
The schedule has been amended to
(i) add Botswana and Thailand as
territories with which Ireland has a
double tax agreement and (ii) reflect
new Protocols to existing double tax
agreements with Belgium, Denmark
and Luxembourg.
An anti-avoidance provision applies,
however, in the scenario where
a connected party incurs capital
expenditure in acquiring the intangible
asset in question. The latter company
may claim capital allowances on the
acquisition, but only up to the amount
of the asset’s tax written down value
(i.e. the amount of capital allowances
remaining unclaimed by the
original acquirer).
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6
Plcs
As announced by the Minister on
Budget day, Finance Bill 2014 gives
effect to the following measures, a
number of which are designed to boost
Ireland’s tax competitiveness:
Accounting Standards
Paraic Burke
+353 1 792 8655
[email protected]
The Finance Bill makes an amendment
to the schedule of the Taxes Acts which
deals with Accounting Standards.
Broadly, transitional rules are applied
where a company’s taxable profits
begin to be calculated using, for
example, IFRS or equivalent Irish
GAAP standards. The rules seek to
ensure that, on the move, no amounts
are double counted or fall out of the
charge to tax.
The amendment contained in
this year’s Finance Bill extends
these transitional arrangements to
companies which are changing their
accounting standards to comply with
updated Irish accounting standards.
It applies to accounting periods
commencing on or after 1 January
2015 and will be particularly relevant
for companies which are transitioning
to the new Irish and UK Financial
Reporting Standards (FRS). Similar
amendments introduced in the past
allowed companies to spread certain
transitional adjustments over a 5 year
period for tax purposes.
Capital Allowances
The Bill extends to 31 December 2017
the scheme for accelerated capital
allowances for capital expenditure
incurred on the provision of certain
energy efficient equipment for use in
a company’s trade. An amendment
has also been made to the descriptions
of the ten classes of technology that
may qualify under the scheme in
order to keep pace with technological
developments in this field. Both of
these measures will be welcomed by
suppliers and purchasers of ‘green’
plant and machinery.
Group Relief
The Finance Bill clarifies when tax
becomes due and payable in respect of
a chargeable gain arising to a company
where it leaves a capital gains tax
group within 10 years of having
acquired an asset from another group
company.
As a result of this amendment, any
tax payable in respect of a chargeable
gain arising on the earlier intragroup transfer (which was previously
deferred) will now be treated as
due and payable in respect of the
accounting period of the company in
which it leaves the group. The rate
of tax applying to the disposal has
been confirmed as being the rate that
applied at the time of the original
intra-group transfer.
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R&D
FED and SARP
The abolition of the base year for
R&D from 1 January 2015. This
introduction of a volume based R&D
tax credit regime is detailed further in
the R&D Section of this paper and will
be a major boost for companies that
had a presence in Ireland in 2003.
The extension of both the Foreign
Earnings Deduction (FED) and Special
Assignee Relief Programme (SARP).
See the Personal Tax Section of this
paper for further details on how the
measures announced in Finance Bill
2015 will support Irish companies
in attracting and maintaining senior
talent.
IP
The removal of the 80% cap on the
aggregate amount of allowances and
interest which may be claimed as a
tax deduction under our current IP
regime. The definition of “specified
intangible assets” under the regime
has been extended to include customer
lists, except where these are acquired
in connection with the transfer of a
business as a going concern. These
changes will apply for accounting
periods commencing on or after 1
January 2015. Further details of these
enhancements to the current onshore
regime for IP are set out in the FDI
Section of this paper.
The Future
While Irish plcs and other Irish
headquartered groups assess the
impact of Finance Bill 2014 on their
businesses, they will also be awaiting:
• T
he launch of the public
consultation on the introduction of
the Knowledge Development Box;
• D
evelopments in the evolving
BEPS agenda.
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Private business
Employment and
Investment Incentive (‘EII’)
Colm O’Callaghan
+353 1 792 6126
[email protected]
Finance Bill 2014 outlines a number
of initiatives to facilitate Irish private
business as follows:
The Finance Bill increases the
annual and overall investment limits
for a company to €5m and €15m
respectively. In addition, the Bill
expands the incentive to include
medium sized enterprises in nonassisted areas, the management and
operation of nursing homes and
internationally traded services, subject
to certain conditions.
While the broadening of the relief and
the increase in the investment limits
are welcome, the staggering of the tax
relief into two stages will most likely
continue to deter potential investors.
The required minimum holding period
has also been extended from 3 to 4
years which will hopefully be seen as
a more realistic payback period for
companies, particularly those in the
start up or growth phase. Finally, the
Capital Gains Tax treatment for losses
made on EII investments continues to
be unfavourable.
Relief for start-up
companies
The measure, which provides relief
from corporation tax on trading
income of new start-up companies in
the first 3 years of trading, has been
extended to new business start-ups in
2015. The Minister has also signalled a
review of the measure in 2015.
CGT Entrepeneur Relief
This is an incentive for serial
entrepreneurs who have disposed of
trading assets and reinvested in assets
used in another trade in the period
from 1 January 2014 to 31 December
2018. Where they later dispose of the
second assets, the CGT payable on
that disposal will be reduced by
the lower of:
• T
he CGT paid on a previous
disposal of assets, and
• 5
0% of the CGT due on the
disposal of the new investment.
It should be noted that this legislation
had not yet been enacted by the
Minister for Finance and Finance Bill
2014 is now making some technical
adjustments to avoid the requirement
to obtain EU State Aid approval.
The Bill also includes some
amendments aimed at widening the
application of the relief. For example,
the minimum shareholding required
to qualify for the relief has now been
reduced to 15%.
While the changes are welcome, the
relief, when compared to similar reliefs
operated within the EU, remains overly
restrictive and is only likely to benefit
serial successful entrepreneurs.
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Film Relief
The Finance Bill has made some
technical amendments to Film Relief to
bring the relief in line with EU rules on
State aid to this sector.
Business Property Relief
Business property relief is designed
to encourage the inter-generational
transfers of businesses and related
assets. The Finance Bill amended the
relevant section to deal with a specific
circumstance where a business is
controlled by a husband or wife (or
civil partners) on a 50:50 basis. The
legislation as originally drafted did not
allow for relief to apply on the transfer
of assets personally held (but used in
the business) unless the disponer also
controlled the shares (i.e. greater than
50%). This has now been changed
so that the control requirement is
satisfied where both partners taken
together control the company. This
technical adjustment is therefore
welcome.
Restriction of Losses –
‘Passive Trades’
The Finance Bill introduced a new
restriction on the use of personal
trading losses that arise by virtue of
“passive trades”. A passive trade is
defined as a trade where the individual
does not spend the greater part of their
time on the day to day management
of the trade (i.e. less than 10 hours a
week). In such circumstances the loss
available is limited to the lower of the
loss sustained or €31,750.
Furthermore, where an individual
makes a loss which arises directly
or indirectly from a tax avoidance
arrangement designed to create the
loss then no loss relief will now be
available. This is an anti-avoidance
measure to close any schemes
designed to artificially generate a
personal trading loss.
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Financial services
Real Estate Investment
Trusts (REITs)
John O’Leary
+353 1 792 8659
[email protected]
Finance Bill 2014 introduces a
number of measures of importance
to the financial services sector:
The Finance Bill proposes an
amendment to the Irish REIT regime
to prevent a capital gains tax free
intra-group transfer of Irish real estate
to a REIT. The aim of this proposed
measure is to ensure that a capital
gains tax charge arises as Irish real
estate moves into the REIT regime.
If an existing company which holds
Irish real estate converts to become an
Irish REIT, a deemed disposal arises
with consequent Irish capital gains tax
implications. Likewise, if Irish property
is transferred to a REIT, this would
typically crystallise a capital gains tax
charge for the transferor. The change
in the Bill ensures that such a charge
arises even where the transferor and
the REIT are part of an Irish capital
gains tax group. As a result gains
which have accrued in a group of
companies prior to joining a group
REIT will not be exempt from capital
gains tax.
The Finance Bill exempts deposits of
a REIT or group REIT from Deposit
Interest Retention Tax (DIRT). This
is being introduced to ensure that the
current exemption for profits from the
investment of cash raised by the issue
of ordinary shares or the sale of rental
properties for a period of 24 months
operates as intended.
Finally, the Bill proposes that a
REIT must notify the Revenue
Commissioners on each occasion that
a new company is added to the REIT
group. This notification must be made
within the period of 30 days after the
date on which the company becomes a
member of the group.
Taxation of short-term
leases of plant and
machinery
The ‘short life assets’ leasing regime, at
a broad level, provides for the cost of
acquiring assets to be deducted in line
with accounting depreciation (subject
to an election being made) as opposed
to under the normal capital allowances
regime. The regime was previously
extended in 2010 to operating leases
subject to certain conditions being
met (prior to this change only finance
leases could benefit from Section 80A).
For existing assets, the deduction
available effectively could not exceed
the capital allowances claimed in
the period immediately prior to the
extension of the regime. For periods
ending on or after 1 January 2015 this
limitation is removed and the amount
deductible will instead be set at the
depreciation charged to the profit and
loss account.
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Unit trusts and
offshore funds
OECD Common
Reporting Standard
Capital allowances
for aviation services
The Alternative Investment Fund
Managers Directive provides, among
other things, for the appointment of
alternative investment fund managers
(AIFMs) located in one jurisdiction
to manage alternative investment
funds (AIFs) outside of their home
jurisdiction. The Finance Bill provides
that the appointment of an Irish AIFM
to manage non-Irish AIFs will not bring
such non-Irish AIFs within the charge
to Irish tax. Similar provisions were
introduced previously to allay similar
concerns in relation to the UCITS
Management Company Passport.
This change, along with the enactment
of the legislation later this year to
introduce the new Irish corporate
fund vehicle, the ICAV (Irish Collective
Asset-management Vehicle), should
further enhance Ireland’s reputation as
a global leader in the management of
alternative investment funds.
Legislation was expected to come
through in the Finance Bill to allow for
the reporting of information under the
OECD’s Common Reporting Standard
(“CRS”). Under the CRS, Irish
Financial Institutions will be obliged to
gather information and report details
to Revenue in respect of account
holders located in approximately 40
OECD countries from 1 January 2016.
It is now expected that this legislation
will be introduced at Committee Stage.
Finance Act 2013 introduced enhanced
industrial buildings allowances on
capital expenditure incurred on
buildings employed in a maintenance,
repair or overhaul trade (MRO)
where the MRO relates to commercial
aircraft. The Bill amends the scheme
so that it will be available only to
enterprises that construct qualifying
buildings in regionally assisted areas
and comply with EU Regional Aid
Guidelines. This section is subject to
Ministerial Order.
Right to receive interest
on securities
The Bill amends an existing antiavoidance provision which taxes the
right to receive interest on securities
where that right is sold without also
selling the underlying securities. The
amendment in the Bill limits the scope
of the anti-avoidance provision so that
it will not apply where the receipt of
the interest itself would not have been
taxable or where the profits from the
sale are taxable as trading income
e.g. in the case of a sale by a financial
trader in the course of its trade.
Information returns
Financial institutions such as banks
and life assurance companies are
required to make automatic annual
returns to the Revenue Commissioners
of payments of interest and other
profit type payments which they make
to their customers. The definition
of a ‘financial institution’ has been
expanded by the Bill to include An Post
and the Prize Bond Company.
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Research and development (R&D)
Stephen Merriman
+353 1 792 6505
[email protected]
The R&D tax regime has become a very
important instrument in attracting
foreign direct investment to Ireland
as well as supporting innovative Irish
companies. To date the 25% tax credit
has only been available on qualifying
R&D expenditure over and above
similar expenditure incurred in a base
year (i.e. 2003). This incremental
basis has acted as a barrier to Ireland
attracting new R&D investment.
While welcome amendments had been
made in recent years to introduce some
flexibility, these have been limited in
nature and relatively small in scale.
The announcement by the Minister on
Budget day in relation to a complete
abolition of the base year is therefore
very significant. It reflects a strong
recommendation arising from the public
consultation process undertaken last
year and demonstrates the Government’s
commitment to the regime.
The Finance Bill 2014 introduces
the following amendments:
• T
he abolition of the base year
for the purposes of calculating
the R&D tax credit for accounting
periods commencing on or after
1 January 2015.
The abolition of the base year will
increase Ireland’s cost competitiveness
for R&D investment, particularly for
long-standing companies that have
been restricted by the incremental
nature of the regime. This will allow
such companies to re-establish
themselves as cost effective R&D
centres thereby helping to protect
existing jobs and create new ones.
Interestingly, in another positive
development, Revenue recently
released an e-brief through their
website (applies to accounting periods
pre 1 January 2015) which clarifies
that the base year R&D expenditure of
a company acquired by a group should
not form part of the base year R&D
expenditure of the acquiring group.
The release of the e-brief endorses our
long held view.
The above amendments together with
the announcement on Budget Day
regarding a consultation process to
consider the creation of a ‘Knowledge
Development Box’ reinforce Ireland’s
commitment to a comprehensive
innovation tax policy.
• A
technical amendment to the
provisions that were introduced
in Finance Act 2010 to provide
flexibility to the base year where
a research and development
centre closes under certain
specific circumstances.
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Agri sector
• I n addition a new exemption from
CGT on gains arising from the
disposal by farmers to active farmers
of payment entitlements under
the”Single Payment Scheme” where
those entitlements were fully leased.
A range of Agri tax measures have
been introduced in the Finance Bill,
many of which are designed to free up
land supply in the post milk quota era.
•F
rom 1 January 2015 the definition
of farmer for CAT Agricultural relief
has narrowed such that only “active”
farmers qualify. The recipient farmer
must spend not less than 50 % of
his/her working time farming on a
commercial basis for not less than 6
years following the gift or inheritance.
Alternatively someone who leases the
agricultural assets for at least 6 years
to such an “active farmer” can qualify.
The previous “80%” ownership test
also still applies.
Succession Issues
•C
GT relief for farm restructuring has
been extended to 31 December 2016.
Ronan Furlong
+353 53 915 2421
[email protected]
To support the transfer of farms to the
next generation the following measures
were introduced:
•C
GT Retirement Relief – Land which
has been leased for up to 25 years
in total ending with the disposal of
that land will now qualify for relief
(previously 15 years).
•C
GT Retirement Relief for disposals
outside the family – Land let on
a conacre basis will now qualify
provided the land is disposed of by
31 December 2016 or is leased before
that date for a minimum period
of 5 years (max 25) ending with
the disposal.
•S
tamp Duty consanguinity relief
(which halves the stamp duty from
2% to 1% on transfers of nonresidential property between close
relatives) is due to be abolished from
1 January 2015. However, the relief
will be retained for a further 3 years
in respect of transfers of land where
the transferor is less than 66 years of
age and the transferee is an individual
who will, for at least 5 years from the
transfer date, spend at least 50% of
their normal working time farming
land (including the land transferred)
on a commercial basis with a view to
the realisation of profits.
Farm Leasing
Particularly in the area of long term
leases of farm land, some interesting
new measures have been introduced:
• Income thresholds for relief from
leasing income have been increased
by 50% e.g. for leases greater than
10 years the exemption increases
from €20,000 to €30,000.
• New income tax threshold of €40,000
for leases greater than 15 years.
• Incorporated farm companies will be
allowed as an eligible lessee and the
lower age threshold of 40 years
is removed for eligibility as a
qualifying lessor.
• The abolition of stamp duty on
agricultural leases between 5 and 35
years to active farmers. The lessee
must farm the land for not less than
50% of their normal working time for
at least 5 years from the date the lease
is granted, otherwise the relief will be
clawed back.
Price volatility
To address recent beef and milk price
volatility, Income Averaging of profits
has been extended from 3 to 5 years and
to farmers who receive income from onfarm diversification. Special transitional
measures are available on election.
In addition, previous restrictions on
alternative trades/professions are
being relaxed.
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14
Personal tax
Mobile Employees
The Finance Bill introduces enhanced
provisions for certain foreign employees
coming to work in Ireland and for
Irish employees who spend time
working overseas.
Inbounds
Pat Mahon
+353 1 792 6186
[email protected]
Income Tax and USC
There were no additional changes to the
tax or USC rates, bands or thresholds
changes announced in the Budget.
The Special Assignee Relief
Programme (SARP) is being extended
to 2017 and provides a reduction in
taxable employment earnings for
individuals who are assigned by their
overseas employer to work in Ireland.
There has been little uptake on SARP to
date as the conditions to qualify were
considered too restrictive for foreign
employees. However the conditions to
qualify are now being revised to include:
•R
emoving the upper €500,000 salary
threshold for claims in the years 2015
to 2017 inclusive;
•T
he tax residency requirement is
being relaxed and will be based
solely on Irish tax residency for new
arrivals from 2015 to 2017 inclusive.
Therefore, if an employee also
remains tax resident in their home
country they could now qualify;
•T
he limitation on overseas duties
is being relaxed;
• The requirement to have been
employed abroad by the employer
prior to moving to Ireland is being
reduced from 12 months to
6 months; and
• The employer must certify within
30 days of arrival in the State that
an employee meets the necessary
conditions to avail of the relief.
Outbounds
The Foreign Earnings Deduction
(FED) is being extended until the end
of 2017 and provides for a reduction in
taxable employment income for Irish
employees who spend time working
overseas, typically in expanding markets.
The maximum deduction in any year is
limited to €35,000. Also, the number of
days required abroad to qualify for the
relief is being reduced to 40 days (down
from 60) and each trip must now last a
minimum of 3 consecutive days (down
from 4). Importantly, time travelling
between Ireland and a qualifying state
will now also count.
The list of qualifying countries is being
extended to include Japan, Singapore,
South Korea, Saudi Arabia, The
United Arab Emirates, Qatar, Bahrain,
Indonesia, Vietnam, Thailand, Chile,
Oman, Kuwait, Mexico and Malaysia.
These changes should be welcomed by
companies looking to expand overseas.
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15
DIRT & First Time
Buyers
First time buyers will be entitled to a
refund of Deposit Interest Retention
Tax (DIRT) in respect of interest earned
on savings to be used as a deposit of up
to 20 per cent of the purchase price of
a house or apartment. The relief will
apply in respect of purchases between 14
October 2014 and 31 December 2017.
Share awards
Going forward, details on the grant,
exercise, assignment and release of
share options must be filed electronically
by employers.
Vodafone Plc Special Dividend
Relevant Contracts
Tax (RCT)
Non-Executive
Directors (NEDs)
A new default position is being
introduced for Vodafone shareholders
who received €1,000 or less earlier
this year. In essence, the receipt will be
deemed to be chargeable as a capital
gain rather than an income receipt.
In practice, since most recipients will
have capital losses on “Eircom” shares,
no taxes should arise based on this
classification.
Principal Contractors will now be
required to notify Revenue of any
instances where payments were made
to subcontractors that were not in
accordance with the eRCT procedures.
It is disappointing that no reference
has been made to the recent change
in Revenue practice in relation to the
taxation of NED expenses relating to
travel and attendance at Board meetings
in Ireland. It will be interesting to
monitor the Bill as it progresses through
the various stages in the Oireachtas for
any late changes in this regard.
Changes have also been introduced
to the penalty regime for Principal
Contractors where the eRCT procedures
have not been followed. The level
of penalty imposed on the Principal
will now be dependent on the
subcontractor’s RCT rate.
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16
Pensions
Helpful changes
to ARF regime
The Bill reduces the amount that is
deemed to be withdrawn from an
Approved Retirement Fund to 4% per
annum – where an individual is aged
between 60 and 70 and has a fund value
of €2 million or less. No withdrawals
are required up to age 60.
Munro O’Dwyer
+353 1 792 8708
[email protected]
Following a Budget speech that
contained very little reference to the
pension taxation regime, the Finance
Bill does contain some previously
unannounced changes which will
receive broad welcome.
The deemed distribution rule is being
reduced from 5% - where an Approved
Retirement Fund (“ARF”) holder drew
an income of less than this amount they
were deemed to have drawn a minimum
of 5%, and paid tax as if they had drawn
5%. For this reason most individuals felt
forced, from a tax perspective, to draw
up to the deemed limit.
The reduction from 5% to 4% (albeit
only until age 70 and only on funds
below €2 million) reduces the tax
motivation to draw a 5% income, and
as a result reduces the risk that the
value of ARF funds would be drawn
down too quickly in retirement.
The existing 6% rate of drawdown
continues to apply to all ARF funds
where the value exceeds €2 million
(as at 30 November in any tax year).
The Approved Minimum Retirement
Fund (“AMRF”) regime was also
amended – with the introduction of an
ability to draw 4% of the AMRF fund
value as an income year-on-year. This
is of particular assistance to individuals
with lower pension fund values at the
point of retirement. To take an example
of an individual with €100,000 at the
point of retirement, the requirement to
place €63,500 in an AMRF left €36,500
to invest in an ARF – meaning that the
ability to access an income before age 75
was severely limited.
This amendment makes the ‘ARFregime’ a more accessible option for
those with lower pension fund values.
The ‘penalty’ taxation payable where an
individual with a larger pension fund
breaches the Standard Fund Threshold
is reduced to 40% (from 41%) in line
with the reduction in the marginal rate
of income tax.
While this is helpful, it is against a
backdrop where the expectation is that
the Standard Fund Threshold remains
fixed at €2 million and any Personal
Fund Thresholds remain set in nominal
terms. Thus these thresholds will
be reducing in real terms for the
foreseeable future.
Technical changes were made around
how tax is apportioned for pension
benefits subject to a Pension Adjustment
Order where the Standard Fund
Threshold is breached. This changes
the position from previously, where
the original member bore the tax.
Anti-avoidance rules have been
extended to circumstances where
an ARF or the assets of an ARF are
assigned to a third party and to certain
transactions where value shifts from
a pension to an ARF or vested PRSA.
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17
Property
Following on from the Construction
2020 strategy announced by the
Government in May of this year and
as announced in last week’s Budget,
Finance Bill 2014 gives effect to
the following measures which are
designed to create a strong and
sustainable sector in Ireland, as well as
creating jobs in the sector:
Tim O’Rahilly
+353 1 792 6862
[email protected]
•T
he “windfall gains tax” charge
of 80% in respect of disposals of
development land (where both a
rezoning and a disposal took place
on or after 30 October 2009) has
been abolished. From 1 January
2015, such profits will be taxed at
the standard rate of CGT (currently
33%).
•A
number of changes to the
“living in the city” initiative were
announced including the extension
of the definition of “relevant house”
to include single storey buildings,
the requirement for the claimant
to provide certain information to
Revenue and the insertion of an
upper expenditure limit.
•T
he availability of the Home
Renovation Incentive (“HRI”) until
the end of 2015 has been extended
to landlords who are subject to
income tax.
•A
number of amendments impacting
on REITs have been introduced.
Such amendments have been
outlined in the Financial Services
section.
•A
n exemption from stamp duty has
been introduced for leases of land,
where the lease term is not less than
5 years and not greater than 35
years, and the land is to be farmed
on a commercial basis with a view
to the realisation of profits. This is
outlined in the Agri Sector section
of this paper.
•A
n increase in the threshold
for exempt income under the
rent-a-room scheme to €12,000.
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18
The 7 year relief from CGT in respect
of land and building purchases
between 7 December 2011 and
31 December 2014 has not been
extended. There remains a window of
opportunity to make acquisitions on or
before 31 December 2014.
The abolition of the “windfall gains
tax” and the extension of the HRI
should assist in increasing construction
activity in the country, which in turn
should lead to an increase in jobs.
The public consultation process as
announced in Budget 2015 could
result in further positive measures
being introduced in respect of
undeveloped land.
In addition, Budget 2015 outlined a
commitment to construct a minimum
of 10,000 new social housing units by
the end of 2018. Such commitment is
an important step in solving Ireland’s
social housing problems.
While the measures introduced are
quite comprehensive and should
assist in solving the main objectives
as detailed in Construction 2020,
further measures will need to be taken
in future years. Such measures might
include:
•R
eduction in the VAT rate applicable
to construction activities from
13.5% to 9%, which should promote
increased construction activity and
assist in the creation of jobs.
•A
n indication from the Minister
that current rates of CGT, which are
high by international standards, are
unlikely to remain as high in the
future.
•A
bolition of the 25% restriction
on interest deductibility in respect
of loans taken out by individuals
to purchase, improve or repair
their rental properties. Anecdotal
evidence suggests that this
restriction is contributing to the
ever increasing costs of rents, as
landlords struggle to meet their tax
bills. In addition, this restriction is
particulary penal for landlords with
no economic rental profits, but who
still suffer tax in respect of their
rental activities.
Only time will tell whether the
Government has done enough in
Finance Bill 2014 to achieve the
objectives set out in their Construction
2020 strategy, but the steps taken are a
positive indication that they are on the
right track.
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19
Anti-avoidance
primarily to create an artificial tax
deduction or to avoid or reduce a tax
charge”. Its purpose is clear and the
proposed GAAR would appear similar
in that it is mostly based on the current
GAAR.
Fiona Carney
+353 (0)1 792 6095
[email protected]
There are a number of specific
anti-avoidance provisions in the Bill
and they are discussed in the relevant
sections of this paper. However,
certain anti-avoidance measures in the
Bill apply more generally and they are
discussed below.
General Anti-Avoidance
Rule (GAAR)
Ireland’s GAAR has been in law since
1989 with a protective notification
provision since 2006. The explanatory
memorandum which accompanied
the original GAAR in 1989 made
the following point: “The purpose of
this section is to counteract certain
transactions which have little or no
commercial reality but are carried out
The GAAR and protective notification
provisions have now been replaced
with effect from the date of publication
of yesterday’s Bill i.e. 23 October 2014.
There are transitional provisions such
that if a taxpayer who entered into a
tax avoidance transaction on or before
the date of the Bill’s publication, and
who, before 30 June 2015, makes a full
disclosure and full payment of all tax
due to the Revenue Commissioners,
then that taxpayer will not be subject
to the surcharge provided for in
the existing protective notification
provision and any interest payable will
be subject to a maximum of 80 per cent
of the interest otherwise payable.
The proposed GAAR provides
that where a taxpayer enters into
a transaction and “it would be
reasonable to consider”, based on
specific criteria that the transaction
was a tax avoidance transaction, then
that taxpayer will not be entitled
to any tax advantage arising from
that transaction. A tax advantage
could be summed up as a reduction
in tax payable. In the past it was a
nominated officer that had to arrive
at the opinion that a transaction was
a tax avoidance transaction such that
the tax advantage could be withdrawn.
The proposed GAAR provides that an
officer of the Revenue Commissioners
may, at any time, withdraw that tax
advantage by making or amending
an assessment on that person.
The proposed protective notification
provision provides that where a
person enters into a tax avoidance
transaction which gives rise to a tax
advantage then a surcharge of 30%
of the tax advantage is payable. The
surcharge provided for in the existing
Protective Notification provision is
20% so this is a substantial increase.
However, where a taxpayer considers
that the proposed GAAR could be
relevant for a transaction entered into
by that person then it may submit a
‘protective notification’ which protects
the taxpayer from the surcharge. The
new protective notification provision
allows for a reduced surcharge to be
payable in certain instances. However,
the protective notification provisions
will generally not be in point where
the transaction was required to be
disclosed to Revenue under the
Mandatory Disclosure Regime (MDR).
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20
Mandatory Disclosure
Regime (MDR)
The Bill brings most of the rules
relating to MDR into the Taxes
Consolidation Act 1997 itself.
However, and somewhat similarly to
the UK the Bill proposes that Revenue
assign a unique Transaction Number
to each scheme notified. Taxpayers
who enter into a transaction which
should be disclosed to Revenue must
include that Transaction Number
in their annual tax return. Certain
transactions which include the use
of a discretionary trust are now
transactions which should be
disclosed under MDR.
Payment Notices
Where the Appeal Commissioners
make a determination relating to a
taxpayer engaging in tax avoidance
transaction under the proposed
GAAR, certain specific anti-avoidance
provisions or a transaction that was
subject to MDR, then the Revenue
Commissioners can issue a notice to
that taxpayer for payment of tax due as
a result of the Appeal Commissioners’
decision. Critically though, where the
Appeal Commissioners have decided
a case, then a payment notice may
be issued by Revenue to the other
taxpayers participating in the same
transaction or similar transactions.
Taxpayers can request Revenue to
review the issue of the payment
notices and the taxpayers may appeal
the result of that review to the Appeal
Commissioners in certain instances.
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21
Tax Compliance Matters
As in prior years, the Finance Bill
contains a number of compliance and
administrative measures which apply to
taxpayers and their tax affairs.
•A
mendments have been introduced
to the e-filing and self-assessment
provisions to bring them up-to-date
with the electronic submission
requirements which currently exist.
Doone O’Doherty
+353 1 792 6593
[email protected]
•T
he Finance Bill amends the film
relief provisions to provide for the
disclosure of taxpayer information
relating to recipients of relief for
investment in films, in keeping with
EU rules on State Aid to this sector.
•T
he provisions covering the
obligation to keep certain records
have been amended to extend the
retention period for records where
an injury, investigation, appeal,
judicial process or claim is ongoing
until such time as the inquiry,
investigation appeal, judicial process
or claim has been completed. It also
provides for the retention of records
by a personal representative of a
deceased person.
•T
wo changes have been introduced
in the Finance Bill in relation to the
surcharge applied where returns
are filed late. A surcharge will apply
in situations where the taxpayer
submits a timely but incorrect
return and a penalty is imposed for
deliberately or carelessly making
an incorrect return. The second
amendment substitutes the terms
“deliberately” and “carelessly”
for the terms “fraudulently and
“negligently” in the relevant
legislation.
• I n addition to the above measures,
the Finance Bill provides for the
introduction of an electronic tax
clearance system to improve the
efficiency and effectiveness of the
existing tax clearance process. The
issuance of tax clearance certificates
will now be dependent on taxpayers’
compliance status. The new tax
clearance procedures will come into
operation from a date to be specified
by regulation.
•A
change to the rules relating
to security for certain taxes has
been introduced to address certain
difficulties associated with applying
the current provision, particularly
in relation to directors/shareholders
of a company who establish a
new company and set up in
business again.
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22
VAT
if they relate to a transaction or return
that is the subject of:
•A
Revenue inquiry or investigation
•A
claim
•A
n Appeal to the Appeal
Commissioners, or
•A
ny proceedings relating to any matter
within the remit of the VAT legislation.
Caroline McDonnell
+353 1 792 6526
[email protected]
From a VAT perspective, the changes
introduced by way of the Bill are
quite light in comparision to previous
years. The key changes proposed by
the Bill are generally centred around
the administration of VAT and also
address/clarify the appropriate VAT
rate/exemption on certain supplies on
the back of a recent European case and
a more general review of the existing
provisions.
A ‘linking document’ is essentially any
document drawn up in the making up of
the accounts/returns and which show
details of the calculations linking the
records generally required to be kept by
a business.
The new provision requires businesses
to keep records and any such linking
documents for a period of 6 years
or until such time as the inquiry/
investigation/claim/Appeal etc is
finalised, whichever is longer.
Additional Measures concerning
the Prevention and Detection of
Tax Evasion
Duty to Keep Additional Records
The Bill introduces two new sections
aimed at the prevention and detection of
tax evasion.
Existing VAT legislation already provides
that businesses have an obligation
to keep certain records (financial
documents, accounts, invoices etc) for
a period of, generally speaking, 6 years.
The Bill now provides an additional
obligation on a business in that it must
retain such records and any ‘linking
documents’, for an extended period,
The first section provides Revenue with
the power, for the purposes of an inquiry
or investigation, to serve a notice on a
business to issue a document detailing
the same particulars, as already
prescribed to that of a valid VAT invoice,
if that business was not obliged to issue a
VAT invoice. Such a notice can be served
(for a maximum period of two months)
Administration
if Revenue have reasonable grounds
to believe that such a notice may assist
in the prevention and detection of tax
evasion. The Bill provides that Revenue
can impose a penalty of €4K should the
business not issue same.
The second section provides for the
imposition of joint and several liability
in certain circumstances, namely where
there has been a series of VATable
supplies which have resulted in
‘fraudulent evasion’ at some point in the
supply chain.
If a business supplying goods or
services or making intra-Community
acquisitions of goods, is liable for the
VAT chargeable on same and such VAT
is not paid to Revenue (or not paid in
full), then Revenue now have the power
to seek such VAT from other persons,
by extending the concept of joint and
several liability. The new section allows
Revenue to serve notice specifiying that
the liability rests with any other person,
if that person participated as a purchaser
or as a supplier in the series of VATable
supplies and that person knows that, or is
reckless as to whether or not, the supply is
connected to fraudulent evasion of tax.
It is possible that this new additional
power and the broadening of the
concept of joint and several liability
may impact innocent traders caught up
in a series of fraudulent supply chain
transactions. Consequently additional
care will need to be taken to ensure such
businesses have taken the necessary
precautions when entering supply chain
transactions.
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23
VAT Rates & Exemptions
The Bill provides for the following:
Increase in Farmer’s Flat-Rate
Addition
An increase from 5% to 5.2% from 1
January 2015. The rate, which is subject
to annual review, ensures that farmers
who are unregistered for VAT and are
incurring VAT on certain expenditure,
are compensated appropriately.
VAT Exemption Extended to
Certain Defined Contribution
Pension Schemes
An amendment to the VAT exemption
relating to certain defined contribution
pension schemes other than onemember arrangements, within the
meaning of the Pensions Act 1990. It is
proposed that this legislative change will
take effect from 1 March 2015.
VAT Exemption Extended to Cover
Golf Green Fees
A recent Court of Justice of the European
Union (CJEU) Judgment found that
green fees (payable by non-members)
in respect of golf facilities provided by
non-profit making organisations should
be considered as VAT exempt rather
than VATable. It is proposed that this
legislative change will take effect from 1
March 2015.
VAT Exemption Extended to
Fostering Services
Generally speaking, the supply of
services for the protection or care of
children and young persons is exempt
from VAT. The Bill proposes to extend
this exemption to certain fostering
services where such services are referred
to in specific child care legislation.
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Excise Duties
Mineral Oil Tax rates
for Vehicle Gas
John O’Loughlin
+353 1 792 6093
[email protected]
The mineral oil principal legislation
has been amended to legislate for
and set rates of excise duty and
carbon tax for “vehicle gas”. The
proposed rate of charge is €9.36 per
megawatt hour which includes a
carbon charge of €4.10. Any person
who produces vehicle gas in the
State, or brings vehicle gas into the
State, will be liable for this duty.
Anyone who wishes to trade in
vehicle gas will be required to register
with the Revenue Commissioners,
have their premises/location/
installation for storage of such gas
approved by the Commissioners and
comply with whatever conditions
the Commissioners determine. A
relief from the carbon charge for
vehicle gas will apply where such
gas is biogas or contains biogas. The
vehicle gas provisions are subject to
commencement order.
Mineral Oil Traders Licence
The Finance Bill has introduced
amendments in relation to applicants
and holders of auto-fuel trader’s licences
and marked fuel trader’s licences. The
granting or holding of a licence will be
conditional on the applicant or holder
complying with excise law in relation to
the production, sale, dealing in, keeping
and delivery of mineral oil, including
compliance with the new provisions
relating to systems.
Where a company applies for a mineral
oil traders licence, the definition of
“applicant” in the current legislation
is extended to include any director or
person having control of that company.
Cases where a licence can be refused or
revoked have been extended to include
the failure of the applicant/holder to
prove, when required to do so by the
Commissioners, that:
• The activity relating the licence is
to be undertaken with a view to the
realisation of profits from legitimate
trade in mineral oils;
• The activity will be conducted solely
for the trader’s benefit ; and
• The systems (including the measuring
systems) and procedures of the
business to which the licence relates
will provide a full and true record of
all mineral oil transactions of that
business in a form readily accessible
to the Commissioners.
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Excise duty relief for
microbreweries
The excise duty relief of 50% on the
standard Alcohol Products Tax for
beers produced in microbreweries
which produce not more than 20,000
hectolitres per annum has been
increased to allow production of
not more than 30,000 hectolitres
per annum.
The increase is also extended to beer
brewed by one qualifying microbrewery
for another, under licence, with the limit
for the total quantity of beer brewed in
all breweries under the arrangement
in the previous calendar year increased
from 40,000 to 60,000 hectolitres.
Tobacco Products
VRT reliefs and repayments
As announced in the budget, and with
effect from midnight on 14 October
2014, the following excise duty increases
have been applied to tobacco products:
The Vehicle Registration Tax (VRT)
relief available for the purchase of
hybrid electric, plug-in hybrid electric
and plug-in electric vehicles and electric
motorcycles has been extended until 31
December 2016.
•4
0 cents (VAT inclusive) on a packet
of 20 cigarettes;
•A
corresponding pro-rata increase to
other categories of tobacco products
(i.e. cigars and other smoking
tobacco);
•2
0 cents (VAT inclusive) on a pack
of roll-your-own tobacco.
Tax concessions for
disabled drivers and
passengers
The availability of tax concessions for
disabled passengers has been amended
to remove the requirement for a certain
percentage of the value of the vehicle
to have been incurred in adapting
the vehicle for a disabled passenger.
However, the vehicle must have been
specially constructed or adapted to take
account of the passenger’s disablement,
as was the case previously.
The repayment of VRT on the export of
certain vehicles will include an interest
payment (methodology of calculation
to be determined by future Ministerial
regulation) in addition to the export
repayment amount. This provision is
subject to a commencement order.
Powers of Revenue Officers
The Finance Bill extends the powers
of Revenue officers to enter premises
where they suspect a betting
intermediary may be carrying on
activities.
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Contents