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TaxingTimes
Finance Act 2014
& Current Tax Developments
December 2014
kpmg.ie/financeact2014
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KPMG is Ireland’s leading Tax practice with
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For further information on Finance Act 2014
log on to: kpmg.ie/financeact2014
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TaxingTimes Finance Act 2014 1
Introduction
The Government published Finance Bill 2014 on 23
October 2014. The bill contains the taxation measures
announced in the Minister for Finance’s Budget speech
on 14 October 2014 as well as a number of measures
not previously announced. As the Report stage is
complete, we refer to the bill in this issue of Taxing
Times as Finance Act 2014.
The Act contains a number of very
welcome provisions which were
announced on Budget day. These
measures include:
Conor O’Brien
Partner
have until 2021 to restructure and it
is expected that it will be possible to
restructure so that the corporation tax
treatment of Irish operations will remain
very competitive.
n E
limination of the base year limitation
for the Research and Development tax Given the foregoing we believe the
Act is to be welcomed. The main area
credit.
where we would suggest that more
ignificant improvements to the
n S
should have been done is the taxation
capital allowances regime for
treatment of domestic entrepreneurs.
intellectual property.
The failure to reduce the top rates of
ignificant improvements to the
n S
tax of 52% for the employed and 55%
income tax regime for workers coming
for the self-employed (which includes
from abroad to work in Ireland.
income tax, USC and PRSI) and the
These measures, together with the
indication that those rates will be kept
strong reaffirmation of the Government’s at these levels is disappointing. These
commitment to the 12.5% rate of
rates are very high by international
corporation tax and the commitment
standards as is the Irish capital gains tax
to introduce a best in class Knowledge
rate of 33%. It means that the taxation
Box regime at a low, competitive and
environment for domestic entrepreneurs
sustainable rate, mean that Ireland
compares very unfavourably with that in
retains its position as one of the most
other jurisdictions. It is hoped that in the
attractive countries in the world to locate future, taxation policy will take account
a business.
of the risks taken by business creators
Other measures which ought to
along with the societal benefits that they
stimulate growth and employment
generate.
include:
It is a commendable achievement that
n T
he lowering of the income tax burden the Irish State has managed to retain
on low and middle income earners
the key planks of its business tax
he abolition of the 0.6% pension levy offering notwithstanding the enormous
n T
pressure endured during one of the
n T
he abolition of the 80% rate of capital
worst financial crises ever and has now
gains tax on rezoned land
started to upgrade and enhance that
he retention of the 9% tourism VAT
n T
offering. It demonstrates that Ireland’s
rate
determination to remain attractive to
n Improvements to the EII scheme
international business which has endured
(income tax relief for investment in
for 60 years remains extraordinarily
certain trades)
strong.
hasing out of the base year limitation
n P
for the short life asset leasing regime
The Act also contains measures to
eliminate the so called “double Irish”
structure. Existing operations will
Conor O’Brien
Head of Tax and Legal Services
Personal Tax 2
Employee Issues & Pensions
4
Business Tax
8
Research & Development 15
Financial Services
16
Property & Construction 18
Indirect Taxes
20
Revenue Powers
22
Base Erosion and Profit
24
Shifting (BEPS) update for Irish businesses
A new era for Foreign
Direct Investment into
Ireland
30
Tax Rates & Credits 2014
33
2 TaxingTimes Finance Act 2014
Personal Tax
Robert Dowley
Partner
This provision applies for 2015 and
subsequent years of assessment.
A separate anti-avoidance provision
concerning loss relief was also
introduced to completely restrict loss
relief claims where the loss arises on
an artificial or tax-motivated basis.
Agricultural relief
Tax relief for water charges
Measures for the introduction of tax
relief on water charges announced
in the Budget are not included in the
Finance Act.
Full time carer allowance
The Act introduces an increase in
the tax deductible amount for a full
time carer from €50,000 per annum
to €75,000 per annum. The relief is
claimable by an individual where he/
she employs a person to take care of
a family member who is physically or
mentally incapacitated, and is granted
at the individual’s marginal rate of
income tax.
Restriction on losses
Where a trading loss is incurred by
a partnership, the extent to which
a non-active partner can offset that
loss against their other income in the
year for tax purposes is restricted to
€31,750. The Act introduces a provision
bringing loss relief for an individual
spending less than an average of 10
hours per week personally involved
in a trade or profession on a noncommercial basis into line with that
applying to a non-active partner in a
partnership, by restricting the loss
offset to a maximum of €31,750.
On Budget Day, the minister
announced a change to the qualifying
conditions for agricultural relief for
capital acquisitions tax purposes to
introduce an ‘active farmer’ test. For
gifts or inheritances taken on or after
1 January 2015, an individual will only
qualify for the relief where he/she
meets the existing “80% asset test”
and either (i) holds a qualification in
farm management for example Teagasc
Certificate in Farming (or attains such
a qualification within four years of the
date of the gift or inheritance) and
who farms the agricultural property
on a commercial basis with a view
to the realisation of profits from that
agricultural property for a period of at
least six years; (ii) spends at least 50%
of his/her normal working time farming
agricultural property on a commercial
basis with a view to the realisation of
profits from that agricultural property
for a period of at least six years; or
(iii) leases the whole or substantially
the whole of the agricultural property
for a period of at least six years to an
individual who would qualify under (i) or
(ii) above.
Where an individual initially qualifies
as a ‘farmer’ under this revised
definition but ceases to do so within
the subsequent six-year period, any
agricultural relief previously granted will
be clawed back.
Business property relief
Business property relief reduces
the taxable value of certain gifts or
inheritances by 90% provided certain
conditions are met. The relief extends
to land, buildings, machinery or plant
used by a trading company for the
purpose of its business, provided
the company was controlled by the
disponer.
In family-run trading companies,
spouses or civil partners may each
hold 50% of the share capital in the
company. Without a change to the
legislation, relief might not apply to
land, buildings, machinery or plant
used by such a company, as neither
spouse nor civil partner can control
a majority of the votes and therefore
neither of them controls the company.
The Act addresses this issue by
allowing shareholdings held by spouses
or civil partners to be aggregated in
determining whether the disponer had
control of the company. This change
takes effect from 23 October 2014.
Mortgage interest relief
Mortgage interest relief was previously
only available in respect of family
homes situated in Ireland, Northern
Ireland and Great Britain. Amid
concerns that these territorial limits
would be in breach of EU law, the
Act contains a provision to extend the
scope of the relief to residences in
other European countries (members
of the European Economic Area).
This additional relief will come into
effect on 1 January 2015. The relief
only applies to loans taken out on or
before 31 December 2012 (subject to
a transitional measure for certain loans
agreed before 31 December 2012
which were drawn down in 2013). The
relief is due to be phased out by the
end of 2017.
Temporary non-residents
Irish tax law includes provisions
designed to counter the avoidance of
TaxingTimes Finance Act 2014 3
capital gains tax by individuals who
become temporarily non-resident (for
less than five years) for tax purposes.
These provisions operated by deeming
that certain types of assets disposed
of by the individual in any years of nonresidence be treated as being disposed
of and immediately reacquired at their
market value on the last day of the
year the individual left Ireland to reside
elsewhere, thus imposing a capital
gains tax charge.
The Act provides that where there is
an increase or decrease in the market
value of the assets between the last
day of the year of departure and the
date they were disposed of, the market
value of assets on the date they were
actually disposed of will be used for
the purposes of the capital gains tax
charge.
Domicile levy
The Act provides the Revenue with
the right to issue a notice requiring an
individual to file a domicile levy return
and pay the appropriate levy within 30
days of the notice. Where the individual
fails to do so, or makes an incorrect
return, penalties may be charged. The
measure will come into effect after the
passing of the Finance Act.
Support and maintenance
payments
Under current legislation, payments
during the lifetime of the disponer
made for the support, maintenance or
education of children of the disponer,
or children of the civil partner of the
disponer, are exempt from capital
acquisitions tax regardless of the age
of the child. The Act introduces an age
limit such that the exemption will only
apply to children under the age of 18,
or those between the ages of 18 and
25 who are in full-time education, and
to children (regardless of age) who
are permanently incapacitated from
maintaining themselves.
At present there is a similar exemption
for payments made to orphaned
minor children. The Act extends that
exemption to orphaned children up
to the age of 25 who are in full-time
education and to children (regardless
of age) who are permanently
incapacitated from maintaining
themselves. This is to ensure that
children of living parents and orphaned
children are treated equally for capital
acquisitions tax purposes.
The changes are effective for gifts
made after the passing of the Finance
Act.
Trusts for permanently
incapacitated individuals
Trusts established for the benefit of
permanently incapacitated individuals
are afforded relief from income tax
provided they satisfy certain conditions.
One of these conditions is that any
funds remaining in the trust at the
date of death of the permanently
incapacitated individual have to be
applied for charitable purposes. This
condition is to be amended such that
the trust deed can also provide for the
remaining funds to be distributed to the
estate of the permanently incapacitated
individual where he/she is survived by a
child, spouse or civil partner.
This measure will come into operation
on 1 January 2015 for newly created
trusts and for existing trusts that
amend the terms of their trust deed to
provide for the distribution of remaining
funds to the estate of the permanently
incapacitated individual.
Charitable discretionary
trusts
Charities are often structured as
discretionary trusts. In general,
discretionary trusts are subject to
a once-off capital acquisitions tax
charge of 6% of the trust’s assets and
an annual charge of 1% thereafter.
However, discretionary trusts created
exclusively for charitable or public
purposes in Ireland or Northern Ireland
were granted an exemption from these
discretionary trust taxes. The terms of
this exemption will now be amended
such that there will be no territorial
limit on the charity’s activities, provided
the purpose of that trust would be
regarded as public or charitable under
Irish law.
In addition, an anti-avoidance provision
has been introduced to ensure the
exemption from discretionary trust tax
does not apply to a discretionary trust
established for public or charitable
purposes if it is at any time a party to
an arrangement, of which the main
purpose is to secure a tax advantage
for any person.
These amendments will apply from the
date of the passing of the Finance Act.
Return of value on
Vodafone shares
As part of a return of value and share
consolidation exercise in February
2014, Vodafone plc issued “C shares”
to shareholders. The Finance Act
provides that return-of-value special
dividends made in respect of these
shares will be treated as a capital
receipt for tax purposes where the
payment does not exceed €e1,000.
However, a shareholder will be able
to opt to have the payment treated as
income. As a result, Irish shareholders
who received this payment on foot
of an original investment by them in
eircom will have no tax liability where
they are still carrying capital losses
as a result of their original eircom
investment.
4 TaxingTimes Finance Act 2014
Employee Issues &
Pensions
John Bradley
Partner
Special Assignee Relief
Programme
The Special Assignee Relief
Programme (SARP) is a tax relief,
introduced in 2009, intended to
encourage the relocation of key talent
to Ireland. Such a scheme is essential
for Ireland to remain competitive on
the international stage and to continue
to attract key skills. SARP provides
relief in the form of a tax deduction
from employment income for qualifying
employees relocating to Ireland.
Under the current programme (which
applies to individuals arriving in Ireland
in 2012, 2013 and 2014), tax relief is
granted by allowing for a tax deduction
equal to 30% of the difference
between e75,000 and the total of
the individual’s employment income
(subject to a ceiling of e500,000).
Therefore the maximum relief allowed
is e52,275, i.e. e127,500 (e425,000 x
30%) at the current marginal income
tax rate of 41%.
Restrictive features in the current
scheme have resulted in low take-up.
In 2012, only 15 employees availed of
the relief (2013 data not yet available).
The Finance Act changes will allow for
SARP to be available to a larger group
of key talent relocating to Ireland. The
new features include:
n
An extension of SARP for individuals
arriving in Ireland up to the end of
2017
Removal of the e500,000 ceiling
n
for the tax years 2015 onwards
(individuals who have arrived in
Ireland prior to 1 January 2015 may
also benefit from the removal of this
ceiling)
The following changes apply to
individuals arriving in Ireland from 1
January 2015:
n
The requirement to be tax-resident
in Ireland only has been removed.
This will allow employees to avail
of this relief even if they retain tax
residence in their home country.
n
Where employees are required to
perform duties outside of Ireland,
the relief will still apply.
n
The requirement for the employee
to be hired by the relevant employer
prior to their relocation to Ireland for
12 months has been changed to 6
months.
While the above amendments are
welcome, we would like to see
the relief made more competitive
by increasing the 30% deduction,
extending it to cover USC, and
permitting it to apply to new hires.
By way of example:
n
An employee is assigned to Ireland
from the UK on 1 May 2015 for two
years.
n
The employee is Irish tax-resident
but also retains UK tax residence up
to 31 December 2015.
n
The employee commenced
employment with the relevant
employer in the UK 14 months prior
to assignment.
n
Base salary of e250,000 with
40 workdays in the UK up to 31
December 2015.
n
Although the employee is taxresident in the UK in 2015, the new
measures introduced in relation to
residence mean that the employee
is not precluded from qualifying
for SARP relief from 1 May 2015.
Furthermore, the employee will
continue to qualify for SARP in the
year of departure.
n
The fact that the employee works
abroad during the assignment will no
longer disqualify him/her from SARP
relief.
Administrative changes
The Act introduces a requirement for
employers to notify the Revenue of
an employee’s entitlement to SARP
within 30 days of the employee’s arrival
in Ireland. It appears that failure to
meet this condition will mean that the
employee cannot avail of the relief.
This condition is onerous and we would
like to see the time period extended.
There is also a requirement on the
employer to deliver certain information
in respect of the employee to Revenue
by 23 February following the end of the
relevant tax year. This is in line with
the P35 filing deadline.
Overall impact
The most welcome feature of the
SARP changes is the removal of the
€500,000 earnings ceiling for those
qualifying for SARP, irrespective of
whether the individual arrives in Ireland
on or before 1 January 2015. However,
onerous conditions continue to apply
for those who have arrived in Ireland
prior to that date.
The original drafting of the bill
included a provision whereby the
income qualifying for the relief is
apportioned twice in the year of arrival
or departure. This would have resulted
in less relief available under SARP
TaxingTimes Finance Act 2014 5
in those tax years. KPMG identified
this discrepancy and advised of the
unintended double apportionment.
This was amended in the final version
of the Act such that SARP relief is
apportioned once in the year of arrival
or departure.
Foreign Earnings Deduction
Foreign Earnings Deduction (FED) is a
tax relief available to employees of Irish
companies who spend time working
abroad in certain qualifying countries.
The relief was introduced in Finance
Act 2012 to support efforts by Irish
companies to expand into emerging
markets.
The relief is available to Irish-resident
individuals who spend at least 60
“qualifying days” working outside
Ireland in any of the qualifying countries
in a continuous 12-month period.
Currently, a “qualifying day” is one
of at least four consecutive days
throughout the whole of which the
individual is performing duties in any of
the qualifying countries.
The relief is calculated by applying the
following formula:
Qualifying
employment
income
Number of
qualifying days
in a year
X
Number of days
in year that the
employment is
held
According to latest figures available
from Revenue, only 83 FED claims
were made during 2012, at a cost to
the Exchequer of e0.6 million.
The Act introduces improvements to
the relief, including a reduction in the
minimum number of qualifying days
in a 12-month period from 60 to 40. In
addition, the requirement to spend four
consecutive days in a qualifying country
has been reduced to three days, and
certain travel time can be included.
Finally, the relief has been extended to
31 December 2017.
By way of example, under the current
rules, an employee who leaves Ireland
every Monday and returns every
Friday would not qualify for FED as
that employee would not have four
consecutive qualifying days when
travel time is excluded.
Under the new rules, that employee
could have up to five qualifying days in
each week travelled.
The level of deduction available to an
individual employee remains capped at
e35,000 for any one year. This means
that, while the maximum relief available
in 2014 is e14,350 (e35,000 @ 41%),
the maximum relief available in 2015
will be e14,000 (e35,000 @ 40%) due
to the reduction in the marginal income
tax rate.
While raising the e35,000 cap on the
relief would have been welcome, the
relief has been extended such that
more employees should qualify for the
relief.
The qualifying countries are as follows:
Qualifying Countries - FED
2012
Additional qualifying
Additional qualifying
countries in 2013 & 2014 countries from 2015 to 2017
Brazil
Egypt
Senegal
Japan
Singapore
Republic of
Korea
Russia
Algeria
Tanzania
Saudi
Arabia
UAE
Qatar
India
Nigeria
Kenya
Bahrain
Indonesia
Vietnam
China
Ghana
Democratic
Republic
of Congo
Thailand
Chile
Oman
Kuwait
Mexico
Malaysia
South Africa
6 TaxingTimes Finance Act 2014
Withdrawals from an AMRF
Previously, it was not possible to make
withdrawals of the capital deposited
in an Approved Minimum Retirement
Fund (AMRF) until the AMRF converted
to an ARF, e.g. at age 75. The Act
provides that from 1 January 2015, an
AMRF holder may draw-down up to
4% of the value of the assets in the
AMRF each year, subject to PAYE.
Tax charge on pension funds at
retirement
Where an individual’s pension fund
exceeds the higher of:
Share scheme
administration
The Act provides for Form RSS1,
which is the annual return of share
options and other rights, to be filed
electronically.
It is expected that this will apply to
returns for the 2014 tax year onwards.
PAYE taxpayers with
interest subject to DIRT
Currently, individuals with deposit
interest are required to file a tax return
where that deposit interest was not
coded onto their tax credit certificate.
The Act excludes an individual
with deposit interest that has been
subject to DIRT from the definition
of a chargeable person and relieves
the requirement to file a personal
tax return. This applies where the
individual has total non-PAYE income
of not more than e3,174 and any
non-deposit interest is coded onto the
individual’s tax credit certificate.
Pensions
Deemed ARF and vested PRSA
distributions
The level of deemed minimum annual
distributions from an Approved
Retirement Fund (ARF) or vested
Personal Retirement Savings Account
(PRSA) are to change to the following
from 2015:
(a)Where the value of the fund is not
greater than e2 million:
- 4%, or
- 5% where the individual is aged 70
years or over for the whole of the tax
year, or
(b)6% where the value of the fund is
greater than e2 million
Unless distributions of at least this
amount are actually made, the
Qualifying Fund Manager is obliged
to account for PAYE on the deemed
minimum distributions.
n
a personal fund threshold (PFT)
agreed with Revenue by the
individual, or
e2 million,
n
a tax charge on the excess arises at
retirement. The Act provides for the
reduction of the applicable rate from
41% to 40% in line with the reduction
in the higher rate of income tax. This
reduction will apply in respect of
retirements on or after 1 January 2015.
Tax charge on pension funds at
retirement
In cases of separation and divorce,
pension funds can become subject
to a pension adjustment order
(PAO), whereby a portion of the fund
is designated for the party to the
relationship who is not a member of
the pension fund.
The Act includes provisions to ensure
that any tax charge on the excess over
the member’s Pension Fund Threshold
(PFT) or e2 million, whichever is
higher, is to be shared between the
member and non-member parties –
TaxingTimes Finance Act 2014 7
i.e. discharged pro rata from that part
of the fund retained for the member
and that part of the fund subject to
the PAO. Detailed administrative
procedures to deal with the foregoing
are included. This amendment takes
effect from 1 January 2015.
Anti-avoidance – pension
investments
The definition of a distribution from
an ARF, a vested PRSA and an
occupational pension is being extended
to include instances of assignments
of the fund and joint investments with
pension funds owned by connected
parties where the connected party’s
return or unit value is or could be
attributable to the investment. The Act
includes provisions to ensure that such
uses of assets are:
n
regarded as distributions that are
liable to PAYE, and
n
deemed to be made by the
Qualifying Fund Manager or scheme
administrator, who is responsible for
operating PAYE.
to 30 June 2008. The contribution can
be made up to 31 December 2018. The
usual four-year time limit on obtaining
a tax refund in respect of a tax year
is replaced with an extended time
limit of four years from the end of the
year in which the special additional
contribution is paid. This amendment
has effect from 1 January 2015.
Furthermore, the scheme trustees or
administrators are to be chargeable to
tax in respect of any income or gains
arising from the use of the assets for
joint investments with pension funds
owned by connected parties. These
changes take effect from 23 October
2014.
As legislated for under Finance (No
2) Act 2013, the levies of 0.6% and
0.15% on pension fund assets will
expire as follows:
NUI Galway employees
n
0.6% levy at the end of 2014
The Act introduces relief for additional
contributions to the NUI Galway
pension scheme paid by an individual
who was a fixed-term employee of NUI
Galway during the period 14 July 2003
n
0.15% levy at the end of 2015
Pension levy
The combined levy of 0.75% that
applied for 2014 will therefore reduce
to 0.15% for 2015, with no pension
levy for subsequent years.
8 TaxingTimes Finance Act 2014
Business Tax
Anna Scally
Partner
n
An increase in the amount of finance
which can be raised by qualifying
companies. The existing 12-month
threshold will be increased from
e2.5 million to e5 million and
the amount of finance which can
be raised over the lifetime of a
company will be increased from
e10 million to e15 million. These
amendments should improve the
position for those companies who
require large amounts of capital to
grow their businesses.
Employment and
Investment Incentive (EII)
The Act includes amendments to the
tax regime for income tax relief for
investments made in certain qualifying
companies. EII relief was introduced
into law in late 2011 to replace
Business Expansion Scheme (BES)
relief which was viewed by many as
being too restrictive in scope and overly
burdensome from an administrative
perspective. The aim of EII relief is to
provide small and medium enterprises
(SMEs) with an alternative source of
finance by providing income tax relief
for individuals who subscribe for new
shares in qualifying SMEs. There
are a number of conditions which
must be satisfied in order for the
relief to be claimed and the Revenue
Commissioners must certify that the
relief applies in each case.
The amendments introduced in the
Act follow a consultation process
undertaken by the Department of
Finance with practitioners and industry
representatives. The objective of
the consultation process was to
gain an understanding of potential
improvements which could make the
relief more attractive for companies
and investors. The amendments
introduced in the Act are as follows:
n
An increase in the minimum holding
period for which investors are
required to hold their shares to
avoid a clawback of the relief from
three years to four years. These
amendments should improve the
position for those companies who
require large amounts of capital to
grow their businesses.
n
An extension of the scope of the
relief to include medium-sized
companies operating in non-assisted
areas (such as Dublin and Cork
city), companies involved in the
management and operation of
nursing homes, and internationally
traded financial services. It should
be noted that companies involved
in internationally traded financial
services must obtain certification
from Enterprise Ireland in order to
qualify for the relief.
n
Directors or employees of a
qualifying company who have
invested in shares in the company
and want to claim relief on their
investment must receive only arm’s
length payments from the company
for a defined period (i.e. reasonable
remuneration and expenses). This
defined period will also be increased
from 3 to 4 years.
n
An amendment which requires that
any claim for EII relief will not be
allowed unless, at the time the claim
is made, the company in which the
investment is made qualifies for a
tax clearance certificate. It appears
that the intention is that a company
which applies for certification as
an EII company will be denied the
necessary certification if it would not
meet the requirements to obtain a
tax clearance certificate.
The relief is given by means of a
tax deduction which is granted in
two tranches. The first tranche is
provided in the year in which the share
investment is made with the second
tranche provided in the year after the
date on which three years of the fouryear holding period have elapsed. As
the law currently stands the amount of
the first tranche of the relief is 30/41sts
of the amount invested. The second
tranche is 11/41sts of the amount
invested. A technical amendment is
included to bring the calculation of
both tranches in line with the income
tax rate so that the first tranche will be
30/40ths of the amount invested and
the second tranche will be 10/40ths of
the amount invested. This change will
take effect from tax year 2015.
Apart from the technical amendment
in relation to the calculation of
the tranches of relief, the other
amendments highlighted above require
a Ministerial Order to take effect as EU
State Aid approval will be required. It
is not yet known whether the above
amendments will impact on any shares
which are issued in 2014 or whether
the changes will only impact on shares
issued from 2015 onwards.
TaxingTimes Finance Act 2014 9
Capital allowances for
specified intangible assets
The Act provides for enhancements to
the capital allowances provisions for
specified intangible assets. At present
there is an 80% cap on the aggregate
amount of capital allowances and any
related interest expense that may be
offset in any accounting period against
related income (with any restricted
amount carried forward for use in
future years). The Act provides for the
removal of this restriction. This will
enable many companies to use the
allowances and related interest over
a shorter period and removes some
of the complexity in calculating the
allowances.
The list of specified intangible assets
on which capital allowances are
available has been extended to include
customer lists provided they are not
acquired as part of the transfer of a
business as a going concern. This is an
unexpected restriction and is likely to
significantly limit the application of the
relief to this class of asset.
These two amendments are to
have effect for accounting periods
commencing on or after 1 January
2015.
The Act also provides that, where
intangible assets on which allowances
have been claimed are sold on or
after 23 October 2014, no balancing
charge will arise where the sale takes
place more than five years after the
beginning of the accounting period in
which the asset was acquired. Prior to
this amendment the period could have
been as long as 15 years, depending
on when the asset was acquired.
Another welcome amendment is
that, where the acquirer is connected
with the seller, the acquirer will be
entitled to allowances on the capital
expenditure incurred in acquiring the
intangible asset. Where the capital
expenditure incurred by the acquirer
exceeds the amount of the seller’s
unclaimed allowances, the allowances
of the acquirer will be restricted to the
unclaimed allowances of the seller
company.
Company residence
The Finance Act confirms the
amendments announced in the Budget
to the company residence rules. These
changes, designed to address concerns
about the “Double Irish” structure,
provide that a company incorporated
in Ireland will, by default, be treated
as resident in Ireland for tax purposes.
There is one exception to this new rule.
If a company is regarded as resident
in another country under the terms of
a tax treaty between Ireland and that
other country, it will not be considered
to be resident in Ireland.
The Act also confirms that the
changes do not prevent a non-Irish
incorporated company that is managed
and controlled in Ireland from being
resident for tax purposes in Ireland.
These amendments apply from
1 January 2015 for companies
incorporated on or after 1 January
2015. For companies incorporated
before 1 January 2015, these changes
will apply from the earlier of1 January
2021 or from any date on or after 1
January 2015 where there is a change
in ownership of the company and,
within a period of one year before that
date to five years afterwards, there is a
major change in the nature or conduct
of the company’s business.
Company capital gains
The Finance Act includes an
amendment to the substantial
shareholding exemption from capital
gains tax as it applies to companies
owned in closely held groups.
Under existing legislation, where a
foreign closely held company realises
gains on the disposal of its assets, that
gain can be attributed to the first Irish
resident shareholder/participator in
the chain of ownership of that foreign
company – this could be an Irish
tax resident individual or an Irish tax
resident company. In circumstances
where the shareholder/participator is
an individual, the change introduced
prevents the substantial shareholding
exemption from being used to
exempt any gain realised by a foreign
close company on shares in another
company. The change will not apply
where the shareholder/participator is
a company and subject to the relevant
conditions being met, the substantial
10 TaxingTimes Finance Act 2014
Pat McDaid
Partner
shareholding exemption may continue
to be relied upon to prevent attribution
of gains of a foreign close company
to an Irish corporate shareholder/
participator.
Entrepreneur’s relief
Finance Act (No 2) 2013 introduced
a relief from capital gains tax (CGT)
for individual entrepreneurs who
reinvest the proceeds of previous asset
disposals in new business ventures.
The introduction of this relief was
subject to obtaining EU State Aid
approval. Such approval is not required
where the relief complies with the EU
General Block Exemption Regulation
(GBER), which came into force on 1
July 2014. The Finance Act amends
the entrepreneur’s relief to comply
with the GBER so that EU State Aid
approval is no longer required. Other
amendments have been made in an
effort to improve the effectiveness
of the relief. However, it remains to
be seen whether the relief will be
effective in its new form.
The Act provides for a CGT tax credit
where the proceeds of disposals made
on or after 1 January 2010, on which
CGT has been paid, are applied in
acquiring certain chargeable business
assets during the period 1 January
2014 to 31 December 2018. The tax
credit equals the lower of the CGT
paid on the original asset disposed
of (capped at the “initial risk finance
investment” and in proportion to
whether the full proceeds have been
reinvested), or 50% of the CGT due
on the subsequent disposal of the
chargeable business assets.
“Initial risk finance investment” means
funding not exceeding e15 million,
provided in full within six months of the
commencement of the new business.
To avail of the relief, an entrepreneur
must have made a disposal of an asset
on which he/she paid CGT in the period
since 1 January 2010. This essentially
restricts the cohort of entrepreneurs
who might be capable of qualifying for
the relief.
Chargeable business assets for the
purposes of the relief are defined as
assets costing at least e10,000 which
are either used wholly for the purposes
of a new business, or comprise
new ordinary shares in a “qualifying
company” carrying on new business
(or a 100% parent of such a company)
where the individual claiming the relief
owns at least 15% of the ordinary
share capital and is a full-time working
director of the qualifying company.
A qualifying company is a qualifying
enterprise that at the time the
investment is made, is not listed on a
stock exchange. A qualifying enterprise
is one that qualifies as a micro, small
or medium-sized enterprise under
EU Commission recommendations
(i.e. fewer than 250 employees and
either annual turnover of less than e50
million or a balance sheet total of less
than e43 million). The enterprise (or a
person connected with the enterprise)
must not have been carrying on the
new business prior to 1 January 2014,
and the enterprise must not have
been carrying on a business, trade or
profession for seven years or more.
To qualify for the relief, the chargeable
business assets must be held for more
than three years. Subsequent disposals
are capable of qualifying for the relief.
Where, for bona fide commercial
reasons, a person making the disposal
of chargeable business assets first
transfers the asset to a wholly owned
company immediately prior to making
a sale of the shares in that company,
the tax credit should continue to be
available.
The provisions are to have effect
retrospectively from 1 January 2014.
Farming and Agribusiness
Income tax
A relief from income tax is currently
available in respect of rental income
from the lease of farmland by one
individual to another. The relief
exempts the lessor from income tax
on progressively increasing amounts
linked to the duration of the lease.
The Finance Act improves the relief by
increasing the exemption thresholds by
50% and introducing a fourth threshold
for lease periods of 15 years or more.
The Act also removes the pre-condition
for a lessor to be either 40 years of age
or over, or permanently incapacitated.
The Act provides for the relief to be
extended to include income from the
lease of land to a company that uses
the land for the purpose of farming.
However, the relief will not apply if the
company is connected to the lessor.
Under the current rules, there is an
income averaging system which gives
the farmer the option to average his/
her farming income over a threeyear period for tax purposes. The Act
TaxingTimes Finance Act 2014 11
extends this period to five years. It
also extends the averaging regime to
allow income-averaging by farmers
who derive income from another trade
or profession as a result of on-farm
diversification. Special transitional
measures are included for those
farmers who opted into the income
averaging system in 2014 or opted out
of it for 2015 or 2016.
Capital gains tax
Under the current rules for capital gains
tax (CGT) retirement relief in relation
to farm land, the individual concerned
must have owned and farmed the
land for the 10-year period prior to its
disposal. Where the land has been
leased by the individual, in order to
qualify for the relief the individual must
have owned and farmed the land for a
10-year period immediately prior to the
lease and the land cannot have been let
for a period in excess of 15 years. To
help ensure that farms are transferred
to the next generation of farmers, the
relief is being extended to apply to
farm land which has been leased out
for periods of up to 25 years prior to
disposal.
The Act provides for retirement relief
on a disposal of land currently let under
conacre agreements and which is
disposed of on or before 31 December
2016.
The Act also provides that, where
individuals switch land from conacre
letting to long-term leasing (i.e. leases
of not less than five years) before the
end of 2016, the disposal of the farm
land will also qualify for CGT retirement
relief, subject to certain conditions.
CGT relief for qualifying farm
restructuring was introduced in Finance
Act 2013. The Act provides for the
completion date for the first part of
the restructuring to be extended by 12
months, to 31 December 2016.
However, the Act also amends the CGT
relief for qualifying farm restructurings
to exclude farm buildings from the
relief. This new restriction appears to
contradict the Budget speech where
it was indicated that the relief would
be extended to the replacement of an
entire farm.
The Act also provides for an exemption
from capital gains tax for chargeable
gains arising from the disposal by
farmers of payment entitlements under
the Common Agricultural Policy Single
Payment Scheme, subject to certain
conditions.
Stamp Duty
The Finance Act legislates for the
Budget Day announcement on
exempting from stamp duty the
granting of leases of agricultural land
for a term of five to 35 years. Such
leases would otherwise be subject
to stamp duty at a rate of 2% of any
premium and 1% of the average
annual rent reserved under the
lease. The exemption is subject to
the lessee using the land exclusively
for commercial farming or forestry
purposes. The lessee must farm the
land for a minimum of 50% of his/her
normal working time from the date on
which the lease is executed. The Act
also provides for a clawback of the
relief if the lessee fails to satisfy this
condition throughout the first five years
of the lease term.
Consanguinity relief is a relief from
stamp duty which reduces the stamp
duty rate by half (from 2% to 1%) on
the transfer of non-residential property
between certain relatives. This relief
will expire on 31 December 2014. The
Act provides for the retention of this
relief until 1 January 2018 for transfers
of land where the transferee farms
the land and either holds an eligible
qualification (or obtains one within four
years of transfer) or spends at least
50% of his/her normal working time
farming land (which must include the
transferred land) on a commercial basis
for a period of at least six years after
the transfer. Relief is also available
where the land is leased for a period
of at least six years to an individual
who meets the same conditions. From
1 January 2016 transferors must be
under 67 at the date of transfer in order
to obtain the benefit of the relief.
12 TaxingTimes Finance Act 2014
Conor O’Sullivan
Partner
The Act adds the Bachelor of Science
(honours) in Sustainable Agriculture to
the list of eligible qualifications required
to meet the definition of a “young
trained farmer”. A qualifying “young
trained farmer” can avail of stamp duty
relief on transfers of farm land where
certain conditions are satisfied.
Start-up relief for
entrepreneurs
The minister announced in the Budget
that the Seed Capital Scheme will
be rebranded as “Start-up Relief for
Entrepreneurs” (SURE). This follows
public consultation on the Seed Capital
Scheme during 2014. Details of the
changes were not included in the Act
but are expected to be released in
the coming months. The minister did,
however, confirm after the Budget that
the relief will apply to individuals who
have been unemployed for up to two
years.
Start-up companies’ 3-year
relief
The three-year relief from corporation
tax on trading income and capital gains
on certain capital assets used in trade,
introduced in 2009, will be extended
to new companies which commence
a new trade in 2015. The measure
relieves a company from corporation tax
where its annual corporation tax liability
on qualifying income and gains does
not exceed e40,000 (marginal relief is
also available where the corporation
tax liability is between e40,000 and
e60,000). The relief is capped at the
amount of employer’s PRSI contributed
in the period. A review of the operation
of the measure will take place in 2015.
the end of 2014) for three years, to
the end of 2017. This incentive was
introduced as a means of encouraging
businesses to invest in energy-efficient
equipment. The scheme provides for
a 100% deduction in the first year
for expenditure incurred on qualifying
equipment.
In addition, the categories of technology
which may qualify for accelerated
capital allowances have been
amended to be brought up to date
with technological developments. The
taxpayer still needs to ensure that the
particular equipment complies with the
relevant criteria and is included on a list
maintained by the Sustainable Energy
Authority of Ireland.
Energy-efficient equipment
Film relief
The Act gives effect to the Budget
Day announcement on extending
the scheme for accelerated capital
allowances for certain energyefficient equipment (due to expire at
The Act makes a number of
amendments to the provisions which
provide relief for investments in films.
The provisions previously required a
qualifying company to exist for both
the production and distribution of
a qualifying film. The Act removes
the requirement for the company to
distribute the film. It broadens the tax
compliance requirements to include
companies controlled by applicants for
the relief.
The Act also amends the minimum
expenditure requirements to bring
the provisions into line with EU rules
on State Aid to this sector. To qualify,
the eligible expenditure amount must
now be at least e125,000, or the total
cost of the production must be at least
e250,000.
Finally, the Act removes the
requirement for applications to be made
TaxingTimes Finance Act 2014 13
Eoghan Quigley
Partner
Standards (IFRS) or equivalent Irish
Generally Accepted Accounting
Practice (GAAP) standards. The
purpose of the rules is, in the case
of revenue recognition and gains and
losses on financial assets and financial
liabilities, to ensure that, on the move
to IFRS, no amounts are doublecounted for tax purposes and that no
amounts fall out of the charge to tax.
The provisions also contain rules for
bad debts and bad debt provisions
to ensure that, where a bad debt is
written off against a provision that has
not been deducted for tax purposes,
the write-off of the debt will be
deductible for tax purposes.
in advance of the commencement of
principal photography, first animation
drawings or first model movements.
This is to allow for the contracting of
elements of a production to a qualifying
company in Ireland after the overall
production of a film has commenced.
Double taxation treaties
The Act ratifies new double taxation
agreements with Botswana and
Thailand, as well as new protocols
to existing treaties with Belgium,
Denmark and Luxembourg.
Relief for microbreweries
Currently, microbreweries producing
up to 20,000 hectolitres of beer per
annum qualify for a special relief
which reduces their Alcohol Products
Tax liability by 50%. The Act provides
that, from 1 January 2015, the relief
will be extended to microbreweries
which produce not more than 30,000
hectolitres of beer per annum. In
addition, where beer is brewed by one
qualifying brewery for another under
a licence (or other arrangement), relief
is still available, provided that, in the
previous calendar year, the quantity of
beer brewed in each of the breweries
did not exceed 30,000 hectolitres
and the combined total quantity of
beer brewed did not exceed 60,000
hectolitres (an increase from the
previous limits of 20,000 and 40,000
hectolitres respectively).
Accounting standards
Irish tax legislation contains certain
transitional provisions which apply
where a company’s taxable profits
begin to be calculated under
International Financial Reporting
The Act extends the transitional
arrangements to companies that are
changing their accounting standards in
order to comply with the new Irish and
UK Financial Reporting Standards (FRS)
that will take effect from 1 January
2015.
Capital gains tax and de-grouping
The Act includes a technical
amendment to the capital gains tax
de-grouping provisions. It clarifies that
any gain will be a chargeable gain in
the accounting period in which the
company owning the asset ceases to
be a member of the group.
Wasting assets
A gain on the disposal of a “wasting
asset” is exempt from capital gains
tax. The Act amends the definition of a
“wasting asset” to ensure that certain
works of art do not qualify for the
exemption.
14 TaxingTimes Finance Act 2014
Capital gains tax relief –
time limits
To date, the time limits applicable to
the amending of assessments which
relate to capital gains tax retirement
relief and relief on disposals of assets
to the State or to a charity have been
different to those generally applicable
to capital gains tax. The Act deletes
these time limits. As a result, the
general four-year time limit for making
or amending an assessment will now
apply.
Non-commercial statesponsored bodies
Certain non-commercial statesponsored bodies are exempt from
certain tax provisions. The Act
expands the relevant section to
include the Credit Union Restructuring
Board and the Health and Social Care
Professionals Council. The exemptions
take effect from the date that the
bodies were established.
Accounts information
Irish tax legislation now requires
accounts and accounts information
to be provided to the Revenue in
electronic format. The Act updates
some older provisions in this respect.
Obligation to keep certain
records
Irish tax legislation requires that certain
records must be kept, in general, for
a period of six years. The Act extends
the retention period of records where
an inquiry, investigation, appeal, judicial
process or claim is ongoing until such
time as the inquiry, investigation,
appeal, judicial process or claim has
been completed.
An obligation to retain records of a
deceased person is also imposed
on the personal representatives
of the deceased person. Personal
representatives will need to be aware
of this obligation as there are penalties
for failing to comply.
Professional Services
Withholding Tax (PSWT)
The Finance Act amends the list of
Accountable Persons for Professional
Services Withholding Tax (PSWT)
purposes. PSWT applies to payments
made by accountable persons to
individuals and companies in respect
of “professional services”. Four
entities have been removed from the
list of accountable persons: An Foras
Áiseanna Saothair; Arramara Teoranta;
Forfás, and any county Enterprise
Board within the Schedule to the
Industrial Act, 1995. In their place,
three entities have been added to
the list: Child and Family Agency; An
tSeirbhís Oideachais Leanúnaigh agus
Scileanna (SOLAS), and any regional
assembly established under the Local
Government Act, 1991.
TaxingTimes Finance Act 2014 15
Research &
Development
Ken Hardy
Partner
Ireland’s Research and Development
(R&D) regime currently operates on
an incremental basis. This means that
the 25% R&D tax credit is available on
current-year qualifying expenditure to
the extent that it exceeds the qualifying
R&D expenditure incurred in 2003 (this
is known as the “base year”).
As indicated by the Minister for Finance
in the Budget, the Finance Act provides
for the complete removal of the 2003
base year restriction. This change will
enable companies to claim the R&D
tax credit on a volume basis; i.e. they
will be entitled to claim credit for all
current-year qualifying expenditure.
to invest this amount clearly indicates
the importance of the R&D tax credit to
Ireland’s corporation tax offering.
The change both enhances and
simplifies the R&D regime. It will
apply for relevant periods (usually the
same as a company’s accounting year)
commencing on or after 1 January
2015.
The Act includes a further technical
amendment to the R&D tax credit
provisions relating to the cessation of
activities at R&D centres. This change
will not affect R&D credit claims
made in respect of relevant periods
commencing on or after 1 January
2015.
The cost of removing the base year is
expected to be €50 million annually,
according to the Budget documents.
The fact that the Government is willing
16 TaxingTimes Finance Act 2014
Financial Services
Colm Rogers
Partner
income. The new measures will take
effect from 1 January 2015.
Short-term leases of plant
and machinery
Under the special regime for shortterm leases of plant and machinery,
certain lessors of assets with a
useful economic life of not more
than eight years can, in broad terms,
elect to be taxed based on their
accounting profits. Under the regime,
the acquisition cost of qualifying
assets may be deducted by lessors
in line with accounting depreciation
computed in accordance with generally
accepted accounting practice (instead
of standard capital allowances).
Investment funds
The Act amends the tax regime for
non-Irish funds to ensure that neither
a non-Irish UCITS (Undertaking for
Collective Investment in Transferable
Securities) nor a non-Irish AIF
(Alternative Investment Fund) will
be considered chargeable to Irish
tax solely by reason of the fund
being managed by a management
company or Alternative Investment
Fund Manager, or by an Irish branch
or agency of an AIFM authorised in
another European Economic Area (EEA)
state.
This change will be implemented
by the replacement of an existing
provision which applies only to UCITS.
It should be noted that, if the UCITS or
AIF would otherwise be chargeable to
Irish tax by virtue of an entitlement to
Irish source income, the new provision
will not operate to exclude the fund
from the charge to Irish tax on that
While the regime originally applied to
finance lessors only, it was extended
to operating lessors by Finance
Act 2010. As this extension was
designed to apply to new portfolios
of assets, a “threshold restriction”
was introduced for operating lessors
who elected into the regime where
the lessor (or its affiliates) had existing
leasing portfolios. The Act removes
the threshold restrictions on a phased
basis. This should bring about parity
between operating lessors established
pre- and post-2010, who have elected
into the regime. The new measures
will take effect from 1 January 2015.
Stamp duty exemptions
The Act provides that neither the
National Treasury Management Agency
(NTMA) nor the Minister for Finance
(in relation to a function exercised by
the minister which is capable of being
delegated to the NTMA under section
5 of the NTMA Act 1990) will be an
accountable person for stamp duty
purposes. This provision replaces an
existing exemption.
The Act also provides that certain types
of securities, including debt securities,
issued by the Minister for Finance
or the NTMA acting on behalf of the
Minister for Finance or the Minister for
Agriculture will be exempt from stamp
duty. The new measures will take
effect from the passing of the Finance
Act.
Bank levy
The Act contains a technical
amendment to enable Revenue to raise
a stamp duty assessment where a
financial institution has failed to deliver
a full and proper bank levy return. The
new measures will take effect from the
passing of the Finance Act.
Reporting of interest
payments
Currently, certain financial institutions,
such as banks, investment funds and
assurance companies, are required
to make annual returns electronically
to the Revenue relating to customers
to whom they have made payments
of interest and certain other types of
payments. The Act extends the scope
of this requirement to include an
agent appointed by the NTMA to carry
out certain functions of the NTMA in
respect of State savings products. For
this purpose, the term “State savings
products” means savings products
offered by the Minister for Finance
through the NTMA, including Post
Office Savings Bank accounts and prize
bonds.
Incentives for certain
aviation services facilities
Finance Act 2013 introduced provisions
to grant industrial buildings allowances
for capital expenditure incurred on the
construction of buildings or structures
TaxingTimes Finance Act 2014 17
Gareth Bryan
Partner
Securities issued by Bord
Gáis Éireann gas network
company
used for the purposes of a trade which
consists of the maintenance, repair or
overhaul of commercial aircraft or the
dismantling of commercial aircraft for
the purpose of salvaging or recycling
parts or materials. This could include
aircraft hangars, maintenance sheds
and “tear-down” facilities.
The Act includes restrictions to the
scope of the incentive to comply
with EU State Aid requirements, and
provides that certain information must
be provided when making a claim for
allowances. Where it is required to
demonstrate that the EU Regional
Aid guidelines have been met, the
Revenue may share such information
with a third party. Industrial buildings
allowances will now only be available
where qualifying buildings are
constructed in regionally assisted areas
(such as Shannon Airport) and comply
with EU Regional Aid guidelines. The
Act provides that the Minister for
Finance, after consultation with the
Revenue Commissioners, shall draw up
guidelines with respect to the operation
of the relief. The guidelines will be
framed with an aim to ensure that the
provisions comply with the EU Regional
Aid guidelines. The commencement of
the relief remains subject to the issue
of a Ministerial Order.
The Gas Regulation Act 2013 provided
for the establishment of a subsidiary
company of Bord Gáis Éireann, to be
responsible for the ownership and
operation of the gas network. The
Act provides that interest on any
securities issued by the new gas
network company may be paid without
deduction of withholding tax and that
such securities will not be chargeable
assets for capital gains tax purposes.
The new measure takes effect as
respects any securities issued by the
new gas network company on or after
23 October 2014.
Transfers of right to receive
interest from securities
Where the owner of a security
transfers the related right to receive
interest, without transferring the
security, the owner may nonetheless
remain liable for tax on the interest,
despite not receiving the interest. The
Act includes provisions to disapply this
treatment if: (i) the interest would not
have been chargeable to tax in Ireland
had it been received by the owner at
any time between the date of transfer
of the right to receive the interest and
the date the interest was paid, or (ii)
where the proceeds from the transfer
of the right to receive the interest are
taken into account in computing the
income of the owner for income tax
or corporation tax purposes under
principles applicable to Case I or Case
II of Schedule D. The new measure
applies to a transfer which takes place
after 23 October 2014.
OECD Common Reporting
Standard (CRS)
The Act makes provision for the
Revenue Commissioners to make
regulations for the collection of
data from Irish financial institutions
to comply with the Standard for
Automatic Exchange of Financial
Account Information (the “Standard”)
which was recently approved by the
OECD. The Standard provides for the
automatic exchange of information
in respect of financial accounts
maintained by a non-Irish resident
person with a financial institution with
the tax authorities of the jurisdiction
in which the account holder is tax
resident. The regulations, when
made, will specify the information to
be reported by financial institutions
in relation to reportable accounts.
The measures will be of significant
importance to the financial services
sector which will want to minimise
the administrative cost and burden
of collecting account-holder tax
information for FATCA, CRS and
other similar exchange of information
initiatives.
Life assurance policies and
offshore funds
The Act makes provision to increase
the income tax rate that will apply on
the disposal of a foreign life policy that
is a personal portfolio life policy or a
material interest in an offshore fund
that is a personal portfolio investment
undertaking to 80% in cases where the
details of the disposal are not correctly
included in the taxpayer’s income tax
return.
18 TaxingTimes Finance Act 2014
Property and Construction
Jim Clery
Partner
which will deem the expenditure to be
incurred in 2015 for the purposes of
the new relief.
If the work involves conversion of the
residential premises into more than
one unit, relief is available for work on
each of those units.
There has been no change to the
minimum spend amount, which
remains at €5,000 (inclusive of VAT).
The maximum credit available is
€4,050 per residential property.
Expiration of seven-year
capital gains tax exemption
Home renovation incentive
extended
As expected, given the recent increase
in levels of activity in the property
sector, the Act has not extended
beyond 31 December 2014 the
capital gains tax exemption for gains
on land or buildings purchased and
owned for a period of seven years.
If an unconditional contract for the
acquisition of the property is signed
before 31 December 2014, the
exemption should be available on a
subsequent gain on a disposal of that
property that meets the conditions.
Finance (No.2) Act 2013 introduced a
new incentive (a 13.5% tax credit) for
individuals who were owner-occupiers
and who renovated or improved their
principal private residence located
in Ireland in 2014 or 2015, using the
services of a tax-registered and taxcompliant builder/contractor. The Act
introduces measures to extend this
incentive to include rental properties
owned by individual landlords, where
the property is occupied under a
tenancy registered with the Private
Residential Tenancies Board (PRTB), or
which is intended for occupancy under
a tenancy registered with the PRTB,
and is occupied within six months of
completion of the qualifying work.
Abolition of windfall tax
The Act confirms the abolition of the
“windfall tax” provisions introduced
in 2009 that applied an 80% rate of
tax to certain profits or gains from
disposals, where those profits or gains
were attributable to a relevant planning
decision. The 80% tax rate will be
abolished for disposals on or after 1
January 2015. This measure should
remove a disincentive to the sale of
certain land holdings.
The new relief is available for work
carried out from 15 October 2014
until 31 December 2015. Transitional
rules will apply in certain cases for
expenditure incurred from 15 October
2014 to 31 December 2014, and from
1 January 2016 to 31 March 2016,
In addition to the reporting
requirements already in place through
the Revenue’s online system, the
contractor will now be required to
notify Revenue where the work is
being carried out on a rental property
and the number of units the rental
property is being converted into, if
relevant. The property owner will have
to make similar confirmations when
claiming the relief.
Living City Initiative
The Living City Initiative is aimed
at the regeneration of retail and
commercial districts, and encouraging
families to live in historic buildings
in six cities. The relief is subject to
European Commission approval, but
discussions are at an advanced stage
and it is hoped that the local authorities
in Dublin, Cork, Limerick, Waterford,
Galway and Kilkenny will be in a
position to suggest final proposals for
eligible areas that will qualify for the
relief later in 2014, with full rollout of
the initiative in early 2015. The relief is
intended to include regeneration works
on any residential buildings built prior to
1915, and now includes single-storey
buildings.
The Act introduces measures to
ensure that a claim for relief is
TaxingTimes Finance Act 2014 19
made electronically and that certain
information is provided to Revenue
with the claim, including details of the
aggregate of all qualifying expenditure
incurred in respect of the qualifying
premises.
In relation to the conversion or
refurbishment of certain commercial
premises, the Act incorporates new
limits on the amount of qualifying
expenditure on which relief can be
claimed. These are €1,600,000 in the
case of a company, and €400,000 in
the case of an individual. To comply
with EU State Aid rules, the Act also
incorporates provisions which ensure
that, where expenditure is incurred by
two or more persons, the maximum
amount of expenditure on which relief
is available does not exceed €200,000.
Similar to the above provisions
for residential buildings, the Act
introduces measures to ensure that
certain information must be provided
to Revenue electronically before the
first claim for relief is made, including
details of the aggregate of all qualifying
expenditure incurred in respect of
the qualifying premises and a brief
description of the nature of the retail
or other services provided/or to be
provided in the qualifying premises.
Rent-a-room relief
The threshold for exempt income
under the Rent-a-Room Scheme has
been increased to €12,000 per annum
from €10,000 per annum for the tax
year 2015.
Relevant contracts tax
Amendments have been made to
the Relevant Contracts Tax (RCT)
legislation to introduce a revised range
of penalties to be applied where a
principal contractor fails to operate
RCT on payments to subcontractors.
The penalties, based on the amount
of the payment, vary between 3% and
35% depending on the subcontractor’s
profile and will apply from 1 January
2015.
Where a penalty arises due to the
non-operation of RCT on a payment,
the Act introduces a new requirement
for a principal contractor to submit an
unreported payment notification to
Revenue. The details of what will be
required in this notification will be set
out in regulations to be issued by the
Revenue.
Refund of DIRT for firsttime purchasers
The Act provides for a refund of
deposit interest retention tax (DIRT)
deducted from interest on savings
used by first-time purchasers to buy or
build a dwelling or apartment for use
as their place of residence. “First-time
purchaser” is defined as an individual
who has not, either individually or
jointly, previously purchased or built
any other dwelling. Where 2 or more
persons acquire or build the dwelling,
each person must be a first-time
purchaser to avail of the relief.
The Act provides for a refund of DIRT
to be made to a first-time purchaser on
making a claim. Details of how claims
can be made will shortly be published
by the Revenue.
The refund applies to DIRT deducted
from interest paid on savings by the
first-time purchaser (up to a maximum
of 20% of either the consideration
paid for the purchase of the dwelling)
(where it has been acquired) or the
completion value of the dwelling
(where the dwelling has been built)
at any time in a 48-month period
ending on the date of the conveyance/
transfer into the name of the firsttime purchaser (in the case of an
acquired dwelling) or on the date
the dwelling becomes suitable for
immediate occupation (in the case of a
constructed dwelling).
For a purchased dwelling, the relief
applies to the conveyance or transfer
of a dwelling which occurs between 14
October 2014 and 31 December 2017.
In the case of a constructed dwelling,
the relief applies where the completion
of the construction of the new dwelling
to a standard suitable for immediate
occupation occurs between 14 October
2014 and 31 December 2017 (provided
that the dwelling must have been
built directly or indirectly on their own
behalf by the first-time purchaser and
is constructed on property conveyed/
transferred into the name of the
first-time purchaser on or before 31
December 2017). It does not apply to
the purchase of sites. Given the current
low rates of interest being earned on
deposits, the relief, while helpful, is
unlikely to materially change a buyer’s
circumstances.
20 TaxingTimes Finance Act 2014
Indirect Taxes
Terry O’Neill
Partner
Anti-fraud VAT measures
The Finance Act contains a number of
measures to counteract the fraudulent
evasion of VAT.
It is stated that the Revenue will have
the power to make a person jointly and
severally liable for unpaid VAT due to
the Revenue by another person. This
may arise in circumstances where the
person is involved in a transaction or
series of transactions and that person
knows, or is reckless as to whether
or not, the transaction (or series of
transactions) was connected with the
fraudulent evasion of VAT.
In addition, the Revenue may serve
a notice on a taxpayer to issue a
document (or documents) similar to a
VAT invoice in circumstances where
the supplier would otherwise not be
obliged to issue a VAT invoice. This
would only apply for the purposes of
an enquiry or investigation where the
Revenue believe that the notice may
assist in the prevention and detection
of tax evasion. An example of where
this may apply would be sales to
unregistered customers where an
obligation to issue an invoice would not
(otherwise) exist. The maximum period
covered by a notice is two months.
The Revenue will be entitled to impose
a penalty of €4,000 where the person
fails to comply with the notice.
These provisions will take effect on the
passing of the Finance Act.
Farmer flat-rate addition
The Act provides for the increase in
the flat-rate farmer addition from 5% to
5.2% with effect from 1 January 2015.
The flat-rate scheme compensates
unregistered farmers for irrecoverable
VAT incurred on their farming inputs.
Pension schemes
The Act contains measures to
extend the VAT exemption for the
management of “qualifying funds” to
defined contribution pension funds
(other than one-member defined
contribution pension funds). Up
to now, services consisting of the
management of defined contribution
pension funds in Ireland would have
been subject to standard rate VAT
(currently 23%). The measure will take
effect from 1 March 2015. However,
as the change follows a ruling by the
Court of Justice of the European Union,
there is the possibility for suppliers and
recipients of such services to revisit
the VAT treatment applied to such
services in prior years.
Golf clubs
The Act introduces measures to
place on a statutory footing the VAT
exemption for green-fees payable
at member-owned golf clubs. This
measure will take effect from 1
March 2015, although the Revenue
had already accepted that exemption
applies following a recent Court of
Justice of the European Union VAT
ruling, which confirmed that greenfees qualify for VAT exemption in such
circumstances. Previously, VAT at the
rate of 9% applied.
Childcare
The exemption from VAT which
applies to the care of children and
young persons is being extended with
effect from the passing of the Act to
include fostering services (as defined in
childcare legislation), including services
provided by certain bodies on a profitmaking basis.
Herbal tea
The Act introduces a measure to
ensure the same VAT treatment applies
to herbal tea as to other tea products,
with effect from the enactment of the
Act.
Aircraft and vessels
services
The Act contains measures to clarify
the scope of the VAT “zero rating”
for supplies of certain intermediary
services provided in respect of aircraft
and aircraft parts used by qualifying
international airlines, and in respect of
seagoing vessels and parts for such
vessels. These measures will take
effect from the passing of the Finance
Act.
Duty to keep records
The Act introduces a requirement
to retain documents that show
calculations linking relevant accounts
and returns to the underlying VAT
records. The requirement to keep
such documents is already in place in
respect of other taxes.
TaxingTimes Finance Act 2014 21
Niall Campbell
Partner
The Act also provides that records
(including linking documents) must
be retained for a period of six years
from the date of the transaction to
which they relate and, in cases where
the transaction is subject to a dispute
with Revenue or other proceedings,
the records must be retained until that
dispute or proceedings have been
finally determined.
Appealing an assessment
The Act proposes an amendment to
the VAT Act confirming that a person
may appeal a VAT assessment if he or
she is “aggrieved by the assessment”.
Currently, the wording used is that a
person may appeal an assessment if
the person “claims that the amount
due is excessive”.
Excise
The following excise-related measures
are included in the Act:
n
Confirmation of the increase
announced in the Budget in excise
duty on tobacco products from 15
October 2014 including (when VAT
is taken into account) a 40 cent
increase on a pack of cigarettes in
the most popular price category
n
The application of mineral oil tax,
including carbon tax, to natural
gas and biogas used as vehicle
fuel and related registration
requirements (subject to Ministerial
Commencement Order)
n
Licensing requirements for mineral
oil traders (with effect from the
passing of the Act) and provision
for deferred payment of mineral
oil tax subject to Ministerial
Commencement Order)
n
The extension of Vehicle
Registration Tax (VRT) reliefs
available for the purchase of
certain electric vehicles and electric
motorcycles to 31 December 2016.
This measure will take effect from
the passing of the Finance Act.
Other Topical VAT Matters
Place of Supply Changes &
MOSS
New EU VAT rules will come into effect
from 1 January 2015 in relation to
business-to-consumer (B2C) supplies
of telecommunications, broadcasting
and e-services (TBE services). These
services will be treated as being
supplied for VAT purposes where the
consumer resides and the supplier will
be obliged to account for VAT on the
services in that country. This change
will have particular relevance for EU
businesses that currently apply VAT on
the services in the country where they
(the suppliers) are located.
Both EU and non-EU businesses
supplying TBE services will need to
consider whether systems changes
are required to deal with the new VAT
obligations. In order to simplify VAT
compliance obligations for suppliers
and avoid multiple VAT registrations
in different Member States, a new
optional scheme known as the Mini
One Stop Shop (MOSS) will come
into operation from 1 January 2015
in relation to B2C supplies of TBE
services. The MOSS will enable
businesses to use the web portal of
one Member State (e.g. ROS in Ireland)
to submit quarterly VAT returns and
pay the relevant VAT due in relation
to the TBE services to the various
Member States. The MOSS will
replace the current VAT on e-services
scheme which is available for non-EU
businesses supplying e-services in the
EU.
Horses and Greyhounds
The Minister for Finance has issued a
Commencement Order to bring into
operation VAT measures in relation
to sales of horses, greyhounds and
related supplies. The measures
will take effect from 1 January
2015. These measures had been
included in Finance (no. 2) Act 2013
but were subject to the Ministerial
Commencement Order. The issue
of the Order follows a period of
consultation between Revenue and
industry bodies. The applicable rate of
VAT will increase from 4.8% to 9% for:
(a) the supply of live horses, other than
those intended for use as foodstuffs
or for use in agricultural production,
(b) the supply of greyhounds, and (c)
the hire of horses. The 4.8% rate
will continue to apply to supplies of
other livestock and to horses that are
intended for use as foodstuffs or for
use in agricultural production only.
Revenue has confirmed that the 4.8%
rate will apply where the horse is sold
directly to a slaughterhouse for entry
into the food chain, or where the buyer
of the horse is a farmer. The seller of
the horse will be obliged to obtain a
signed declaration from the buyer that
it satisfies these conditions for the
4.8% rate to apply.
The 13.5% VAT rate will apply to all
animal insemination services and to the
supply of livestock and horse semen.
Horse breeding and horse minding
will continue to qualify as agricultural
services under the flat rate scheme.
22 TaxingTimes Finance Act 2014
Revenue Powers
Kevin Cohen
Partner
Finance Act 2014 introduces wide-ranging changes to the operation of the general anti-avoidance regime, the
mandatory disclosure regime, the tax appeals system and the inter-action between them. These changes, due to
become operative from 23 October 2014 have not been subject to any advance public consultation or discussion.
Representative bodies, such as the Irish Tax Institute, are seeking a commencement order for the relevant
sections of the Finance Act, to allow time for due process and proper consultation to take place. This would
ensure that the legislation operates in practice as intended by the legislature.
Anti-Avoidance legislation
New anti-avoidance
legislation
The Act introduces two new sections
to replace the general anti-avoidance
provisions included in section 811 and
section 811A.
The new measures do not significantly
move away from the principles of the
existing anti-avoidance provisions, but
the process by which Revenue has the
power to withdraw a tax advantage has
been simplified. A new section, 811C
(replacing section 811), removes the
requirement for the Revenue to form
and issue an opinion that a transaction
constitutes a tax avoidance transaction
in order to withdraw a tax advantage.
Under the new provisions, Revenue
may make any adjustment (e.g. raise
or amend an assessment) solely on the
basis that it would be reasonable to
consider that the transaction gives rise
to a tax advantage and that obtaining
the tax advantage was the purpose of
the transaction.
The new provisions also specifically
disapply all time limits on the
Revenue’s ability to withdraw a tax
advantage unless they have received
a “protective notification” within 90
days of the commencement of the
transaction.
The new provisions are to apply in
respect of transactions entered into
after 23 October 2014.
The new section 811D (replacing
section 811A) increase to 30%
(previously 20%) the surcharge on tax
which becomes payable as a result of
the Revenue denying a tax advantage
under the general anti-avoidance
provisions. The new provisions also
extend the scope of the surcharge
which becomes payable under other
specific anti-avoidance provisions, as
specified in a schedule to the Act.
Under the existing provisions, a
taxpayer could make a “protective
notification” that would protect them
from the surcharge. This option is still
available but the taxpayer is required to
satisfy additional conditions, including
the submission of (i) all documentation
pertaining to the transaction and (ii) an
opinion by the taxpayer (or someone on
their behalf) as to why the general antiavoidance provisions do not apply.
The new section 811D introduces a
range of reduced surcharge rates that
can apply to a taxpayer who decides
to make a disclosure in relation to
a transaction after the expiry of the
time limits for making a “protective
notification”. The rate of reduced
surcharge to apply will depend
on when the qualifying avoidance
disclosure requirements are acted
upon.
Where a taxpayer decides to make a
disclosure in relation to a transaction
after the expiry of the time limits for
making a “protective notification”
but before the Revenue commences
enquiries into the transaction, the
taxpayer can avail of a reduced
surcharge. In addition, a reduced
surcharge would apply where a
taxpayer makes a disclosure at any
point before the hearing of an appeal
by the Appeal Commissioners. To
avail of these reduced surcharges,
the taxpayer must make a full signed
disclosure of all details and pay all tax
and interest due.
Amendment to existing
anti-avoidance legislation
Under provisions included in the Act,
taxpayers will have the opportunity to
make a disclosure of tax avoidance
transactions which commenced
on or before 23 October 2014. The
benefits of such a disclosure include
the non-imposition of the 20%
surcharge and a reduction of 20% in
the statutory interest chargeable. It
appears that such disclosures could
be made whether or not the Revenue
had already formed an opinion that
a transaction is a tax avoidance
transaction.
TaxingTimes Finance Act 2014 23
Mandatory disclosure
The Act introduces a number of
measures to add to existing mandatory
disclosure provisions.
Under the updated rules, the Revenue
will assign a unique reference number
to all disclosable transactions within
90 days of receipt of the relevant
disclosure. Similar to the system
in place in the UK, all promoters or
marketers of disclosable transactions
will have to provide this unique
reference number to all taxpayers
involved in the transaction, and all
of those taxpayers must quote the
reference number on each return
or tax declaration affected by the
transaction in question. Failure to
include the reference number on a tax
return will attract a penalty of €5,000.
This will allow Revenue to easily
identify those taxpayers from whom
additional tax must be sought, if they
find that the transaction resulted in an
underpayment of tax.
The Act also introduces a new type of
“disclosable transaction”, being all
transactions to which a trustee of a
discretionary trust is a party unless the
transaction is of a type specified in the
regulations.
The Act amends the mechanism
by which Revenue seek payment
of liabilities arising from the denial
of tax advantages and the timing of
the payments. Where the Appeal
Commissioners have determined an
appeal of the decision by the Revenue
to deny the tax advantage and that
determination is not fully in favour of
the taxpayer, Revenue will have the
right to issue a payment notice to
the taxpayer requiring the immediate
payment of the tax arising. This
payment is required even though the
issue may not be fully decided due
to the taxpayer having a right to (i)
have the appeal reheard in the Circuit
Court, or (ii) have a case stated by the
Appeal Commissioners and sent for
the opinion of the High Court. The new
provisions entitle Revenue to collect
tax not just from the taxpayer who has
taken the appeal but also from other
taxpayers who have entered into the
same “scheme” transaction. The
new legislation also entitles Revenue
to collect tax from taxpayers who
Revenue believe have entered into
similar “schemes”. This is achieved
by giving Revenue the power to
collect tax from taxpayers who have
entered another transaction where,
in the opinion of a Revenue officer,
the provisions of the Tax Acts or the
principles and reasoning given by the
Appeal Commissioners in making
a determination in relation to the
transaction which is subject to the
appeal would, if applied in making a
determination in an appeal against an
assessment on this transaction
result in a determination other than
the assessment being reduced by the
full amount of the tax advantage. This
collection method would be available to
Revenue against taxpayers in advance
of their own case being heard by the
Appeal Commissioners.
A taxpayer has a right of appeal
against a payment notice to the Appeal
Commissioners but no further right of
appeal is available – a determination
by the Appeal Commissioners will be
treated as final.
Where it is ultimately found that
the payment made on receipt of
the payment notice exceeds the tax
properly due, the taxpayer will be
entitled to interest from the Revenue
on the repayment. The current rate of
interest applicable to refunds of tax is
0.011% per day (c. 4% per annum).
Other measures
The Act provides that a taxpayer will
be liable to a surcharge where the
taxpayer deliberately or carelessly
submits a timely but incorrect return
and does not rectify the error before
the return deadline. However, the
taxpayer will not be subject to a
surcharge where the taxpayer submits
a timely but incorrect return and pays
the full amount of any penalty for
making the incorrect return.
The Act also provides for the
introduction of an electronic tax
clearance system to improve the
efficiency of the process. The tax
compliance status of the applicant
may be reviewed by the Revenue on
an ongoing basis and may result in
certificates being rescinded. The new
tax clearance procedures will come into
operation from a date to be specified
by Regulations.
24 TaxingTimes Finance Act 2014
Base Erosion and Profit
Shifting (BEPS) update
for Irish businesses
Background
Since the release of the BEPS Action
Plan by the Organisation for Economic
Co-operation and Development
(OECD) over 12 months ago, there has
been much speculation and debate
(not all of it well informed) as to the
potential impact this review will have
on businesses, and the timing of any
changes.
The BEPS project has threatened to
overhaul the international tax landscape
by reforming the rules around key
areas such as access to double tax
treaties, creating a taxable presence
(permanent establishment) and transfer
pricing, thereby altering the taxable
profits allocated to your business
operations across the jurisdictions in
which you operate. The key focus of
BEPS is to move towards a tax system
Conor O’Sullivan
Partner
where the taxation of profits is based
on substance and economic activity.
There is also a stated aim to limit some
of the opportunities for tax planning
adopted by multinational companies
(MNCs) that result in non-taxation of
profits anywhere.
work is required and where reaching
consensus on implementing specific
measures will be challenging. It is
difficult to identify an outcome on
any of these items which will not
be potentially disruptive to business
models or the status quo.
The task is not an easy one given the
long-established and generally well
understood current rules and the
need to achieve consensus across the
various OECD member countries.
While a deadline of the end of 2015 has
been set to conclude on the actions,
even where high-level agreement is
reached, the process of implementing
detailed measures into local law is
likely to take some time to complete.
It is very unlikely that Ireland will take
steps to implement detailed measures
arising from the Action Plan until the
overall picture has become clearer.
The BEPS Plan set out 15 actions
on which the OECD would report.
Reports on seven of these actions
were released on 16 September
2014 and are discussed briefly below.
Reports on the remaining eight actions
are due over the next 12 months.
While some progress has been made,
there are many areas where further
Is the BEPS Plan achieving
consensus?
While some consensus has been
reached, there are also differences
in views between the participating
countries. As the detailed proposals
emerge, a number of the larger
economies are realising that they
have as much to lose as to gain from
some of the proposals. Inevitably, such
matters will have to be addressed
politically.
What seems likely from the outputs
to date is that differences in views
of participating countries will lead
to proposals which offer a menu of
options for countries to adopt in order
to achieve consensus on a common
direction. In our view, this is likely to
lead to more complexity in future for
taxpayers, as businesses operating
in multiple jurisdictions may have
to cope with local country adoption
of measures which range across a
menu of broad-based options. There
TaxingTimes Finance Act 2014 25
is concern that the risk of greater
complexity arising from the need
to cope with multiple local country
variations in implementing measures
will inhibit, rather than support,
taxpayers’ efforts to expand through
cross-border trade.
The following sets out in summary
form the broad thrust of the recent
announcements.
Action 1: Tax Challenges of
the Digital Economy
Concerns have been raised that
businesses operating in the digital
economy have exploited the mobility
inherent in the use of technology to
avoid the creation of a taxable presence
in their customers’ markets.
The report acknowledges that the
digital economy is “pervasive”
throughout business and that it does
not make sense to create a new and
different framework for companies
operating in the digital economy. As
such, much of the work in this area
will fall within the parameters of other
actions, in particular the ongoing work
on intangibles (Actions 8 to 10) and on
permanent establishments (Action 7).
One area of specific focus identified
is the potential to adopt a destinationbased VAT model for Business-toConsumer (B2C) supplies, where
the place of supply for VAT purposes
is deemed to be the location of the
customer. Such an approach would
appear to be the most practical
and appropriate way of addressing
concerns in this area and would be
familiar to Irish companies due to
the impending EU VAT changes on 1
January 2015.
The final outcomes may lead to
changes in the current international
framework for recognising taxable
presences and the basis of attribution
of profits to activities in different
jurisdictions. For example, an Irishbased head office with centralised
or remote sales functions, combined
with on-the-ground activities in the
customer market, could find that
changes to the rules for recognising a
permanent establishment could lead to
taxable presences in markets where it
currently does not have any.
Activities currently considered to be
“ancillary” and below the scope of a
taxable permanent establishment in
the local market might, under future
guidance, be considered to be “core”
and could, therefore create a taxable
permanent establishment. Similarly,
the extent to which “in-market”
activities (including the provision of
digital supplies) could create a taxable
presence through a local permanent
establishment will also be considered.
In circumstances where your business
already has a local business presence,
outcomes from the combined effect of
BEPS actions may result in a greater
attribution of profits under transfer
pricing principles to the activities
conducted in those markets.
Action 2: Hybrid
Mismatches
This report addresses the issue of
“double deductions” for payments
(i.e. deductions in two countries for
the same expense) and non-taxation
of profits anywhere that can arise from
planning that takes advantage of Hybrid
Mismatch Arrangements. The report
sets out recommended measures
for countries to adopt in local law
and in tax treaties to neutralise such
opportunities. The treaty measures
also propose to change the manner
of applying a tie-breaker test to a
dual resident company to replace the
effective management tie-breaker
test for companies with a competent
authority agreement.
These mismatches in treatment can
result in a deduction for a payment
with no taxable income recognised
anywhere, or in double deductions for
a single payment. The recommended
approach is to align the tax treatment
26 TaxingTimes Finance Act 2014
Action 5: Countering
Harmful Tax Practices
The overall focus of this action is to
improve substance (to better align
taxability of profits with substance and
economic activity) and transparency
(through exchange of information).
From an Irish perspective, the report
makes it clear that countries are free,
broadly speaking, to set their own tax
rates and therefore Ireland’s 12.5%
corporation tax rate on trading income
is not in any way under review. In
addition, tax incentives for R&D are not
in themselves considered harmful.
of an instrument or entity with the
tax outcomes in the counterparty
jurisdiction to ensure the payment is
treated consistently.
a participation exemption for dividends
in the country of the parent where the
payor has obtained a tax deduction for
the payment.
For example, if a hybrid arrangement
results in a deduction for a payment
with no taxable income recognised,
either the deduction is denied in the
country of the payor if the payment
is not taxed in the country of the
recipient, or the country of the recipient
would tax the receipt where there is a
tax deduction taken.
Groups with tax planning arrangements
that take advantage of current
mismatches in the tax treatment
of instruments and legal entities
to achieve double deductions for
expenses or non-taxation of income
will likely be affected by these
measures. These rules, should they
be implemented, will require you to
review the treatment of your intragroup payments.
The use of hybrid entities, such as
partnerships which can be viewed as
“opaque” entities and taxed at the
partnership level in one country but as
“transparent” with partnership income
taxed on the partners in another
country, are also within the scope of
this action.
The EU has already moved to adopt
anti-hybrid measures in the EU-Parent
Subsidiary Directive by the end of
2015, by introducing measures to deny
Ireland already has a number of
domestic anti-avoidance measures
which serve to protect its tax base
from the effects of these mismatches,
but Irish-headquartered groups will also
need to consider the impact of foreign
measures on existing structures. Our
view is that these measures are not
likely to affect the common use of
interest-free loans by Irish companies.
Of interest to many groups will be the
future findings under this action of the
review into the preferential tax regimes
currently in existence for intellectual
property (IP), such as patent/innovation
boxes. These findings will heavily
influence the framework for Ireland’s
Knowledge Development Box, which
is to be introduced in 2015. The action
refers to the need for “substantial
activity” to avail of any regime, but
what exactly this entails has not yet
been agreed. Through the work of
the Code of Conduct group, the EU is
also currently carrying out a review of
certain IP regimes within the EU.
Action 6: Preventing the
Misuse of Tax Treaties
This action aims to design measures to
be adopted in tax treaties and domestic
law to prevent the inappropriate use of
tax treaties through “treaty shopping”.
A number of proposals have been put
forward to address this concern, chiefly
the inclusion of a Limitation on Benefits
(LOB) clause in tax treaties, and/or the
TaxingTimes Finance Act 2014 27
inclusion of a general anti-abuse rule,
referred to as a Principal Purposes
Test, which would seek to deny
treaty benefits if it is “reasonable to
conclude” that obtaining treaty benefits
was one of the principal purposes of
entering into the transaction.
While many businesses may be
familiar with LOB clauses from the
Ireland-US tax treaty, the draft wording
for this LOB clause is different and
could potentially result in quoted
Irish-headquartered groups failing
to satisfy the requirements if their
primary listing is outside Ireland. The
report acknowledges this difficulty,
and one would expect a future draft
to relax these provisions. There are
also proposals to allow treaty access
where a company has its “primary
place of management and control”
in that country or where it has an
“active business”. How these terms
are defined will be important for Irish
businesses to ensure future access to
tax treaties.
By its nature, a Principal Purposes
Test would be quite subjective, which
could lead to difficulty interpreting this
requirement, and more worryingly,
varying approaches adopted by
different jurisdictions.
Depending on the outcome of the
negotiations, this action has the
potential to be significantly disruptive.
Action 8: Transfer Pricing
Aspects of Intangibles
The third “Discussion Draft on Transfer
Pricing Aspects of Intangibles” (“2014
Intangibles Draft”) was released
in September in an evolving series
covering how to define, attribute
ownership to, and value intangible
assets of a multinational enterprise.
The 2014 Intangibles Draft needs
to be read in conjunction with other
actions under the Plan (Actions 9 and
10) addressing attributions to risk
or capital and high-risk transactions
which include work on profit splits
for companies with closely integrated
global value chains.
The key themes in the 2014 Intangibles
Draft include whether: (i) there should
be a broader definition of intangibles;
(ii) local markets, location savings,
assembled workforce and group
synergies should be treated as rising
to the level of intangible assets; and
(iii) economic ownership, rather than
legal or contractual ownership, should
define how to attribute income from an
intangible.
Guidance on “economic ownership” is
the most controversial and contentious
element, where only those parties
performing the “important functions”
related to intangibles are entitled to
their associated returns. It is clear
from the 2014 Intangibles Draft that
the mere funding of intangible creation
would be insufficient to attribute more
than a limited return on an investment.
The report also suggests the use of a
profit-split approach to the allocation
of profits may be appropriate in certain
circumstances. Certain larger countries
are likely to have difficulty agreeing
to such principles which, arguably,
are not based on the arm’s length
principle. On the other hand, some of
the principles expressed are already
de facto in place (e.g. tax authorities
arguing for profit splits where key
decision-making is divorced from the
ownership of intangibles).
28 TaxingTimes Finance Act 2014
Whilst work is ongoing, if there
continues to be an emphasis on
“economic ownership” and “important
functions” as key factors in pricing the
attribution of profits to intangibles, this
would have a very significant impact on
Irish businesses.
Further work is to be done to provide
simpler and clearer guidance on the
application of transfer pricing methods,
including profit splits in the context of
global value chains and, particularly,
those structures that attribute profits
to entities that own intangibles and
related risks but do not have economic
substance. These areas are directly
relevant to many multinationals.
Action 13: Re-examination
of transfer pricing
documentation
A document titled Guidance on
Transfer Pricing and Country-by-Country
reporting (“the draft guidance”) has
been released. The content should
be of interest to any group operating
internationally.
A three-tiered approach to transferpricing documentation has been
recommended: (i) the masterfile, (ii) the
local file and (ii) the country-by-country
(CbyC) reporting template.
The masterfile is described as a
“blueprint” for the group and is
intended to provide a “high-level”
overview of the group in order to place
the group’s transfer pricing practices in
their global economic, legal, financial
and tax context.
The local file is to provide more detailed
information relating to specific intercompany transactions, while the CbyC
template requires details of the global
allocation of profits, taxes and other
indicators by the location of economic
activity.
Such information would give tax
authorities much of the information
needed to conduct more thorough
transfer pricing audits, and work
is ongoing on the mechanisms
which might be used to share the
documentation content with taxing
authorities. While it appears that
agreement has been reached on the
content of the documentation, there
is still some way to go before the
mechanics of implementation can be
finalised and enacted into local law by
participating countries.
One of the main consequences
of the potential adoption of the
CbyC template would be increased
transparency. Tax authorities would be
able to compare the revenues, profits
and taxes in each entity of the group
and the number of employees (or
substance) that are generating those
revenues/profits.
TaxingTimes Finance Act 2014 29
For an Irish-headquartered company,
it will be necessary to consider the
implications of this, in particular where
high profits are generated in entities
with little or no substance. In addition,
consideration will need to be given to
whether all of the detail specified in the
guidance is included in the masterfile,
such as details on the group’s
strategy for intangible assets and
financing policies. Therefore, further
documenting of transfer pricing policies
is likely to be required.
For an Irish subsidiary of a
multinational, the implications of
information included in the CbyC
template, which could potentially
be shared with the Irish Revenue,
should be considered. In addition,
the prescriptive detail required in
the local file, together with details
of the amounts of all intercompany
payments each year, signifies a change
to what is normally included in local
documentation and may well require
substantial time and resource to
prepare.
Action 15: Multilateral
Instrument
to explore whether a multilateral
instrument could be developed to
streamline the adoption of agreed
measures and to ensure consistent
adoption in participating jurisdictions.
This multilateral instrument would
have the effect of making changes to
existing bilateral treaties.
The report concludes that such a
multilateral instrument is technically
feasible. However, further work is
required to reach consensus amongst
countries to support this proposal.
This report addresses the tax and
public international law issues
associated with the development
of a multilateral instrument to adopt
treaty-based BEPS actions whilst
respecting each country’s autonomy in
tax matters.
Whilst the BEPS measures to be
adopted by way of the multilateral
instrument are yet to be finalised, the
likely issues to be addressed include
anti-abuse provisions, changes to the
definition of permanent establishment,
and perhaps the transfer of country-bycountry reporting information between
tax authorities.
It appears likely that recommendations
will arise from the BEPS Action Plan to
amend existing provisions in the OECD
model treaty to achieve some of the
targets. Given the large amount of
tax treaties in place, the OECD sought
Businesses operating in multiple
jurisdictions and which frequently
avail of treaty provisions will need to
monitor the extent to which adoption
of a multilateral instrument might
accelerate the adoption of treaty-based
measures which arise from the BEPS
plan.
Whilst the use of a multilateral
instrument will not provide Irish
businesses with additional access to
treaty benefits in countries with which
Ireland has not concluded a bilateral
treaty, one potential benefit to the use
of the instrument could be more rapid
adoption of improved measures to
resolve multi-country disputes between
competent authorities.
Conclusion
Many are surprised at the progress
made to date. There is consensus
emerging in areas such as countryby-country reporting and hybrid
mismatches. However, many
contentious areas remain which
have the potential to be disruptive to
business. There is also uncertainty as
to whether consensus can be reached
about such politically sensitive matters.
Business needs to stay close to the
debate and stay informed as the
debate progresses.
30 TaxingTimes Finance Act 2014
A new era for Foreign
Direct Investment into
Ireland
Anna Scally
Partner
controlled and sensible manner. This
timeframe will also enable companies
to factor in the output of international
tax reform (in particular any US tax
reforms). Arguably, investors now have
more certainty in relation to the Irish
tax regime than they have in relation
to any of the other regimes with which
they interact – many of which will
change in the short to medium term.
Intangible Assets
The international tax landscape is
changing fundamentally. Discussions
on corporate tax have become part
of public debate like never before.
While there was much unease about
what Ireland would or would not do in
relation to the “Double Irish” structure,
the Budget and Finance Act tackled
that thorny issue in a reasonable
fashion and made a number of positive
changes to our tax regime.
We believe Ireland continues to be
excellently positioned to benefit from
renewed and ongoing investment from
the FDI community.
Last year the Minister for Finance
introduced his International Tax
Strategy paper which stressed the core
pillars on which Ireland’s corporate
tax offering is built: Rate, Regime
and Reputation. In this year’s Budget
he built on these core pillars and
delivered a Road Map for Ireland’s
Competitiveness in FDI.
Certainty
Certainty and competitiveness
are of paramount importance to
decision-makers. We believe that the
statements made by the minister on
Budget Day and the legislation issued
in the Finance Act delivered on these
requirements.
In the Budget the minister reconfirmed
that the 12.5% tax rate will not change.
This was never in question, but the
minister felt it was appropriate to put
it beyond doubt. Independent research
was also published on Budget Day
which supports the importance of the
rate to a successful FDI regime.
Residence
The “Double Irish” structure will
be abolished by adjusting our Irish
company residence rules. New Irishincorporated companies incorporated
on or after 1 January 2015 will be Irish
tax-resident (unless resident in a treaty
location). Existing Irish-incorporated
companies resident in non-treaty
locations will be given until the end
of 2020 to transition to the new
rules. The inclusion of a reasonable
transition period of over six years is
critically important to enable companies
to restructure their activities in a
The Budget also included changes
to Ireland’s capital allowances
regime for intangible assets. In the
legislation issued, the 80% cap on
the aggregate amount of capital
allowances and any related interest
expense, which may be offset in
any accounting period against profits
from the use of intangible assets, has
been removed. Essentially this will
simplify the calculation of the benefit
of any allowances and accelerate
the ability to use the allowances for
taxpayers which might otherwise
have faced an annual cap and delay on
the relief. The definition of specified
intangible assets was expanded to
include customer lists. The change
is likely to only have modest impact,
as a simultaneous restriction was
introduced to prevent allowances being
available on customer lists where
they are acquired in connection with
the transfer of a business as a going
concern. This is disappointing as it will
limit the applicability of the extension
of the definition. In addition, it would
have been helpful to see the definition
enhanced to include customer
relationships and marketing intangibles,
without restriction in the case of
business transfers.
The Act also makes improvements to
the position where intangible assets,
TaxingTimes Finance Act 2014 31
on which allowances have been
claimed, are sold. Essentially it aligns
the period after which no clawback
applies to five years after the beginning
of the accounting period in which the
asset was acquired. This makes sense
and is a good and practical change
in the operation of the provisions.
In addition, improvements are to be
made which will allow a company to
sell intangible assets after the five-year
period has elapsed to a connected
party, and that connected party will be
entitled to claim allowances on the cost
incurred or the unused allowances of
the seller. Again, a helpful and practical
change.
Research & Development
Our R&D tax credit regime has been
improved, particularly for more mature
companies that were doing R&D in
Ireland in 2003. Removing the “base
year” restriction and making our R&D
tax credit regime volume-based,
means that certain companies that
were not eligible for the R&D credit in
the past will now qualify. In addition,
companies will find it much easier
to price R&D investment decisions
knowing they no longer have to get
above a base year threshold in order
for the credit to count. This should lead
to an overall increase in the volume of
R&D undertaken in Ireland and make
it easier for companies to pitch more
competitively for R&D investment
projects.
Knowledge Box
One matter that will be included
in next year’s Finance Bill, if not
addressed before that, is the best-inclass ‘Knowledge Development Box’
which the Government has committed
to introduce. This will be designed
to ensure Ireland is an even more
attractive location for the development
of intangible assets and will deliver
an ongoing effective tax rate lower
than 12.5%. Public consultations
on the development of the regime
will commence in late 2014, with
legislation expected in 2015, once
the OECD and EU have completed
their reviews and deliberations on
existing regimes in other countries.
The Knowledge Development Box is
expected to be available from 2016.
While the consultation process is due
to commence in the next few weeks,
it will be important to ensure that in
designing the ‘Box’, we recognise the
breadth of endeavour and intangibles
that it should accommodate. We
also need to ensure it works in a
seamless and cohesive fashion with
our allowances-based regime and
our R&D tax credit to ensure that
Ireland’s package of measures is clearly
compelling.
Personal Tax
Our personal tax regime as a means to
attract the talent necessary to establish
and develop global businesses in
Ireland has been enhanced in the
Finance Act. The changes
32 TaxingTimes Finance Act 2014
will help to make the Irish regime
more competitive in Europe, and will
hopefully have the desired result of
attracting senior leaders to Ireland
who have significant capacity to
create jobs here. The requirement
for an international secondee to have
been working with the company or
group has been relaxed from 12 to
six months, and the salary cap has
been removed. Hopefully, we will start
seeing companies using the provisions
to bring senior leaders to Ireland now
that the cost is more competitive than
it might have been in the past.
Reputation
Reputation is important to us and to
international investors who choose
to invest in Ireland. The minister
announced a number of other
measures to help support Ireland’s
reputation. Ireland has committed
to strengthening its resources and
ability to robustly defend companies
operating in Ireland in transfer pricing
disputes. This is really important to
multinational companies locating
in Ireland. In addition, Ireland has
committed to further enhancing our
tax treaty network, which should
assist companies doing business
internationally, and some new and
renegotiated treaties were brought into
force in Finance Act 2014.
Ireland has reiterated its commitment
to maintaining a transparent tax regime.
We are also committed to our regime
being sustainable. We are a member
of an OECD group of early adopters on
common reporting standards and are
recognised as best in class in relation
to our implementation of procedures on
exchange of information arrangements.
We are also one of the first countries
worldwide to commence a “spillover
analysis”, which assesses the impact
of our tax system on developing
economies, again underlining our
commitment to transparency and
sustainability.
In 2013, Forbes placed Ireland as the
number one location in the world for
business. In 2013, The IBM Global
Location Trends Report confirmed
Ireland as the number one destination
in the world for inward investment,
by quality and value of investment
projects. Ireland is keen to remain
number one in these and many other
areas.
Number One
We firmly believe that the measures
introduced in this year’s Budget and
Finance Act mean that Ireland can
unashamedly claim to have a worldbeating regime for international
investment. Our regime is competitive,
transparent and sustainable. We
look forward to a new and even more
successful era for FDI in Ireland.
Tax Rates and Credits 2015
Personal income tax rates (rates and bands changed)
TaxingTimes Finance Act 2014 33
PRSI contribution, Universal Social Charge
At 20%, first
At 40%
Single person
€33,800
Balance
Married couple (one income)*
€42,800
Balance
Married couple (two incomes)*&**
€67,600
Balance
Employee** (class A1)
One parent/widowed parent*
€37,800
Balance
* Applies to civil partnership/surviving civil partner also
** €42,800 with an increase of €24,800 maximum
%
Employer
No limit
8.50%
If income is €356 p/w or less
PRSI
4%
No limit*
Universal Social Charge
1.5%
€0 to €12,012**
3.5%
€12,013 to €17,576
7%
€17,577 to €70,044***
8%
> €70,044
Personal tax credits
Single person
€1,650
Married couple*
€3,300
Single person child carer credit
€1,650
Additional credit for certain widowed persons*
€1,650
Employee credit
€1,650
Income
10.75%
*
Home carer credit
€810
Employees earning €352 or less p/w are exempt from PRSI. In any week in which an employee is subject
to full-rate PRSI, all earnings are subject to PRSI. Unearned income for employees in excess of €3,174 p.a. is
subject to PRSI
** Individuals with total income up to €12,012 are not subject to the Universal Social Charge
*** Reduced rate (3.5%) applies for persons over 70 and/or with a full medical card, where the individual’s income
does not exceed €60,000
Water charges credit**
€100
Self-employed PRSI contribution, Universal Social Charge
Rent credit - single and under 55 years (reduced)***
€120
%
Income
PRSI
4%
No limit*
Universal Social Charge
1.5%
€0 to €12,012**
3.5%
€12,013 to €17,576
7%
€17,577 to €70,044***
Home Renovation Incentive Scheme
8%
€70,044 to €100,000
Income tax credit split over 2015 and 2016 for homeowners who carry out renovation/
improvement works on their principal private residence from 25 October 2013 to
31 December 2015 (or to 31 March 2016 where planning permission for the work
is required and granted before 31 December 2015). The credit is calculated at a rate
of 13.5% on all qualifying expenditure over €4,405 (ex VAT). The maximum credit is
€4,050. With effect from 15 October 2014, this scheme is extended to landlords of
rental properties who are liable to income tax.
11%
> €100,000
* Minimum annual PRSI contribution is €500
** Individuals with total income up to €12,012 are not subject to the Universal Social Charge
*** Reduced rate (3.5%) applies for persons over 70 and/or with a full medical card, where the individual’s income
does not exceed €60,000
Home loan interest relief granted at source on principal private residence*
- Tax relief for pensions remains at the marginal income tax rate.
First time buyers loan taken out from 2009 to 2012
- The Defined Benefit pension valuation factor is an age related factor that will vary with
the individual’s age at the point at which the pension rights are drawn down.
* Applies to civil partnership/surviving civil partner also
** Available at the standard rate up to a maximum of €500 per household per annum, prior year basis
*** Rent credit will be phased out by 2017. €40 reduction in 2015 for a single person
Tax relief capped on medical insurance premia : premium of €1,000 per adult, €500
per child, per annum.
Years 3-5
Married/widowed**
Lower of €4,500 or 22.5% of interest paid
Lower of €4,000 or 20% of interest paid
After year 7 (where applicable up to and including 2017)
Married/widowed**
Lower of €900 or 15% of interest paid
Other mortgages, loans taken out from 2004 to 2012
Married/widowed**
- Except where a Personal Fund Threshold applies, the Standard Fund Threshold is €2m.
Capital gains tax (rate unchanged)
Years 6-7
Married/widowed**
Tax relief for pensions
Lower of €900 or 15% of interest paid
Rate
33%
Annual exemption
€1,270
Capital acquisitions tax (rate and thresholds unchanged)
Rate
33%
Thresholds
Group A
€225,000
First time buyers loan taken out from 2004 to 2008
Group B
€30,150
Remainder of first 7 years of mortgage
Group C
€15,075
Married/widowed**
Corporation tax rates (no change)
Lower of €6,000 or 30% of interest paid
After year 7 and up to and including 2017
Standard rate
Married/widowed**
Residential land, not fully developed
25%
Single persons
Non-trading income rate
25%
Thresholds set at 50% of those outlined above for married/widowed persons.
Value Added Tax (9% rate retained)
Lower of €1,800 or 30% of interest paid
*
L oans taken out on or after 1 January 2013 do not qualify for Mortgage Interest Relief. The relief will be
abolished completely from 2018 and subsequent tax years
** Applies to civil partnerships/surviving civil partner also
Local Property Tax (varying rates)****
Market Value less than €1,000,000*
Market Value greater than €1,000,000:
- First €1,000,000
- Balance
*
Standard rate/lower rate/second lower rate
12.5%
23%/13.5%/9%
Flat rate for unregistered farmers*
5.2%
Cash receipts basis threshold
€2m
* From 1 January 2015
0.18%
Deposit Interest Retention Tax (rate unchanged)
0.18%
0.25%
DIRT
Market Value less than €100,000 - calculated on 0.18% of €50,000. Market Value €100,000 -
€1,000,000 - assessed at mid-point of €50,000 band (i.e. property valued between €150,001 and
€200,000, assessed on 0.18% of €175,000)
** Applies to residential (not commercial) properties. Exemptions for houses in certain unfinished
estates and newly constructed but unsold property. Exemption until 31 December 2016 for new and
unused houses purchased between 1 January 2013 and 31 December 2016 and second hand property
purchased between 1 January 2013 and 31 December 2013
*** Certain payment deferral options may be available for low income households
****From 2015 onwards, local authorities can vary the basic LPT rates on residential properties in their
administrative areas. These rates can be increased or decreased by up to 15%
41%*&**
* Also applicable to exit taxes on financial products
** Refund of DIRT incurred in previous four years on savings (up to 20% of the purchase price) used by first time
buyers to purchase a dwelling. This scheme will be in place from 14 October 2014 to the end of 2017
Stamp duty - commercial and other property (unchanged)
2% on commercial (non residential) properties and other forms of property, not
otherwise exempt from duty.
Stamp duty - residential property (unchanged)
1% on properties valued up to €1,000,000
2% on balance of consideration in excess of €1,000,000
Exemption for Enterprise Securities Market share transfers (date TBA)
34 TaxingTimes Finance Act 2014
Notes
TaxingTimes Finance Act 2014 35
Notes
36 TaxingTimes Finance Act 2014
Notes
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