The Minister for Finance, Paschal Donohoe published Finance Bill 2019 today. This provides the legislative basis for measures announced in Budget 2020 last week together with some additional measures. Among the more significant measures included in the Bill are:
- The BIK charge on company cars will change from 2023, and will be based on C02 emission levels and business mileage as opposed to a car’s value.
- The BIK rate on company vans is to be increased from 5% to 8% from 2023.
- Qualifying expenditure on business cars to be determined by CO2 emissions thresholds from 1 January 2021.
Research & Development Tax Credits
- The increase to the R&D tax credit rate from 25% to 30% for small and micro enterprises has been confirmed.
- Additional changes announced include confirmation that all State or EU grants received must be excluded from qualifying R&D expenditure. Furthermore, a company which outsources to third parties must notify the third party in advance of the intention to claim the R&D tax credit on the expenditure.
Transfer Pricing Rules
- New Transfer Pricing (TP) rules have been introduced which will bring the Irish rules into line with international best practice OECD Guidelines. The main changes are that connected party transactions must be calculated on an arm’s length basis will also include non-trading income such as loans and capital transactions which have a market value exceeding €25m.
- Larger groups will now also be required to maintain a master and local TP file setting out their group TP principles. Medium sized groups are now also required to hold robust TP documentation, but may be required to provide master or local files where intercompany transactions exceed €1 million. Smaller groups who employ less than 50 staff with turnover less than €10m or net assets under €10m should continue to be exempt.
Hybrid Mismatch Rules
- Rules have been introduced to address so-called hybrid mismatches between associated enterprises. These rules are required under the EU Anti-Tax Avoidance Directive.
- Various scenarios are outlined which give rise to a hybrid mismatch outcome, including double deduction mismatch, deduction without inclusion mismatch and withholding tax mismatch outcome, etc.
- The Bill proposes a “primary rule” which would operate by denying a tax deduction to the paying entity, and a “defensive rule” which would apply to either deny a tax deduction to the payer, or include the payment as taxable income of the paying entity.
- The Bill also proposes that the anti-hybrid rules apply to certain “structured arrangements” between non-associated entities, where a mismatch outcome is factored into an arrangement or an arrangement is designed to produce a mismatch outcome.
Financial Services and Real Estate
- The rules for Section 110 securitisation companies have been amended to broaden the definition of a specified person with the result of widening the number of structures that will be subject to anti avoidance provisions. The Finance Bill also reaffirmed that profit participating notes that are entitled to a tax deduction will not be bound by general transfer pricing rules.
- There has been an introduction of limitations on interest expenses and other expenses for Irish Real Estate Funds (IREFs), thus increasing the potential ultimate exposure to IREF Tax along withtax at the fund level.
- The changes to Real Estate Investment Trusts (REIT’s) rules announced on Budget day have been incorporated into the Bill. These changes include the application of DWT to distributions comprising the proceeds of property disposals and the amendment of existing provisions, which allow for the re-basing of property values when a company ceases to be a REIT. This is now limited to cases where the REIT has been in operation for a minimum of 15 years.
- The Bill has also added a requirement that only expenses incurred for the purposes of the REIT business are deductible for tax purposes when calculating profits available for distribution and any excess amounts are subject to tax in the hands of the REIT.
- The increase in the stamp duty rate on non–residential property transactions to 7.5% from 6% was confirmed, with the new rate applying with effect from Budget night, unless a binding contract had been entered earlier whereby the old 6% rate may continue to apply.
- As announced on Budget day, a new anti-avoidance rule has been included which provides that stamp duty at 1% will apply where a scheme of arrangement is used for the acquisition of a company. Stamp duty will be payable on the consideration received by the shareholders for the cancellation of their shares in the company where such a scheme arises.
Mandatory Disclosure Rules
- As previously flagged, a mandatory disclosure regime for certain cross-border transactions that could potentially be used for aggressive tax planning has been introduced. This is in line with the EU Directive on Administrative Compliance 6 (DAC6).
- The new provisions introduce a requirement for intermediaries and/or tax-payers to report to Irish Revenue certain information in relation to cross-border arrangements which bear specified characteristics (referred to as hallmarks).
- Where the first step in a reportable cross-border arrangement is implemented between 25 June 2018 and 30 June 2020, the arrangement should be reported between 1 July 2020 and 31 August 2020. Thereafter, the return required must be filed with Irish Revenue within 30 days of prescribed transaction milestones.