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A number of minor technical amendments are being introduced in respect of the existing interest limitation rules, introduced in Finance Act 2021, to ensure that the rules operate as intended.
The amendments include expanding the definition of long-term infrastructure project to include large-scale residential developments. Read our analysis of this measure in our Real Estate Sector bulletin.
The Bill also includes a clarification on the operation of the exemption for interest on legacy debt, to specify that a “first-in-first out” basis applies where there is a repayment in respect of facilities which have a mixture of legacy debt and non-legacy debt.
The Bill introduces several VAT changes of significance to the Financial Services Industry.
- From 1 March 2023, the VAT exemption for fund management will exclude qualifying companies under section 110 of the Taxes Consolidation Act 1997 which hold qualifying assets (within the meaning of section 110) that consist of plant and machinery. This will impact in particular those companies which hold aircraft assets, albeit that they may be expected to have the ability to recover the VAT incurred. It will also impact on the recovery rate of the management company.
- The VAT exemption has been removed from agency services relating to the management of certain investment funds (e.g. UCITS).
- Clarity has been brought that the management of special investment funds which are subject to Directive 2009/65/EC (the Undertakings for Collective Investment in Transferable Securities Directive) and Directive 2011/61/EU (the Alternative Investment Funds Managers Directive) and which are registered in other EU Member States are exempt from VAT, similar to such funds which are regulated by the Central Bank of Ireland.
- A technical amendment has been made in respect of obtaining a VAT deduction for costs relating to the issue of new stocks, new shares, new debentures or new securities for the purpose of raising capital. A VAT deduction is now available under general VAT recovery provisions.
- The VAT exemption in respect of cost sharing groups has been extended to include groups whose members also carry out activities which are subject to VAT, in line with recent EU case-law.
Revenue may request information from financial institutions where that information has been requested by another EU Member State under EU Council Regulations. A penalty may be imposed where such a request is not complied with.
In a change to VAT registrations, where a trader registers for VAT in respect of a “domestic only” registration but subsequently engages in intra-community trade with other EU Member States, the trader is now required to notify Revenue within 30 days.
Read our VAT bulletin for further analysis of the VAT measures included in the Bill.
The Foreign Earnings Deduction, which provides income tax relief to Irish residents who spend time working abroad in certain states, is due to be extended by three years to 31 December 2025.
The Special Assignee Relief Programme (“SARP”) is also to be extended by three years to 31 December 2025. The income threshold to avail of the scheme is to increase to €100,000 (previously €75,000) for the tax years 2023 to 2025. Another new measure provides that employees, who wish to claim SARP, must have a PPS number prior to applying for the relief.
Read our Employment Tax bulletin for more information on the employment tax measures.
Banking levies and Stamp Duty
The Bill includes further developments on modernisation of insurance and banking levies which were first included in Finance Act 2021. The Bill provides for the modernisation of banking-related stamp duties. A new electronic system has been developed for filing returns on Stamp Duty on cheques and cards.
Furthermore, health insurance companies are to file and pay the health levy electronically from 1 January 2023. The normal Stamp Duty compliance provisions, such as a surcharge for late filing, penalties for incorrect filings or failure to file, will apply to such companies.
The Bill also makes provision for financial institutions for extending the bank levy for a further year to 2023. The charge is based on a percentage of the amount of Deposit Interest Retention Tax (DIRT) paid by each financial institution in a specified “base year”. The amendment maintains the base year of 2019 and the rate of duty chargeable on the DIRT paid by financial institutions in respect of that year. For the year 2023 (as was the case in 2022), no charge will arise in respect of DIRT paid by KBC Bank Ireland plc and Ulster Bank Ireland DAC in 2019.
The Bill provides for certain technical amendments to the application of stamp duty to electronic trading in securities. The Bill amends record-keeping obligations that apply where there is transfer of securities (or an interest in securities) in a settlement system, the operator of which has an agreement in place with the Revenue for the collection of stamp duty.
Reporting by exempt unit trusts, common contractual funds and investment limited partnerships
The Bill introduces additional and new reporting requirements for exempt unit trusts, common contractual funds (CCFs) and investment limited partnerships (ILPs). Matters such as asset values, connected party transactions and material transactions must now be included in the annual statement submitted to Revenue. A €3,000 penalty will apply where the management company of a CCF or the partners of an ILP fails to submit an annual statement or submit an incomplete or incorrect annual statement.
Material interest in offshore funds
The Bill proposes an amendment to the principal legislation to clarify that an authorised unit trust, the general administration of which is carried on in Ireland, will not be treated as an offshore fund solely because its trustee is an Irish branch of a company resident in another EU or EEA Member State.
Vacant Homes Tax
The Bill outlines the legislative basis for the Vacant Homs Tax (VHT), which will apply to residential properties that are occupied for less than 30 days in a 12-month period, running from 1 November to 31 October. The rate of tax is equal to three times the property’s Local Property Tax rate. The VHT will likely apply to mortgagees in possession when in possession of residential property for an extended period.
Read more on the measures in the Bill which impact the Real Estate sector.
Foreign currency: computation of income and chargeable gains
In relation to the taxation of foreign exchange gains and losses arising to trading companies, the definition of “relevant monetary item” has been expanded to include trade debtors and trading bank accounts. Foreign exchange movements on such items are to be treated as part of the profit or losses of a company’s trade and subject to corporation tax rather than capital gains tax. This is a welcome development as foreign exchange movements on trade debtor balances were not previously covered by the legislation.
For additional information, contact a member of the Financial Services Tax team or your usual Grant Thornton contact.