Tax

Finance Bill 2017

Peter Vale Peter Vale

Minister Paschal Donohoe today published Finance Bill 2017, which provides the legislative basis for measures announced last week on Budget Day, as well as introducing new previously unannounced measures.

Among the more interesting measures included in Finance Bill 2017, and not previously flagged, are:

  • Corporate tax - In a positive move, interest relief under Section 247 TCA 1997 will now apply for multiple holding company structures, which removes ambiguity that existed in the past for such structures.
  • Corporate tax - The Bill provides for the transition from current Irish GAAP (FRS 100 to FRS 105) to IRFRS and vice versa. There is also legislation to cater for the tax treatment of amounts recognised in opening reserves, as a result of a change in accounting policy, that had not previously been taxed/deducted for tax purposes.
  • Corporate tax – As announced in the Budget, the 80% cap on allowances/interest that may be deducted against IP related income has been re-introduced in relation to IP expenditure incurred post 11 October 2017.
  • Corporate tax - On the international tax side, the first step has been taken in giving effect in Irish law to the multilateral convention to implement tax treaty related measures to prevent base erosion and profit shifting (Multilateral Instrument - MLI). Essentially, an order may now be made which will give legal effect to the MLI. This Order will then be included in Irish tax legislation, which will represent the final step in the ratification procedure.
  • VAT – There have been amendments to the VAT exemption for providers of education and vocational training or retraining. The most notable is the removal of the requirement that the provider of vocational or retraining services is a “recognised body” as defined. Instead, Regulations may now be made which can specify the bodies which provide Exchequer funding to providers for the purposes of providing education or vocational training or retraining. Regulations may also be made which can provide for the conditions under which:
    • education provided to children or young people would be the curriculum set out by the Minister for Education and Skills, and
    • training or retraining services may or may not be treated as vocational training or retraining services.
  • Sugar sweetened drinks tax – The new sugar tax will be chargeable on the first supply of the sugar sweetened drinks made in the state.
  • Domicile Levy - The levy, which was introduced with effect from the tax year 2010, applies to Irish-domiciled individuals who meet certain criteria in a particular year. The amendment in the Bill clarifies that capital allowances and losses will not be taken into account in determining an individual’s worldwide income for the purpose of the levy. The amendments apply to domicile levies chargeable for the year 2018 and subsequent years. This effectively means that more Irish domiciled individuals could be brought within the charge to the domicile levy.
  • CGT – Various anti-avoidance provisions have been introduced to prevent the avoidance of CGT in certain situations, in particular in relation to the sale of Irish land/buildings.
  • CGT relief on sale of buildings – While announced in the Budget, it is worth noting that full relief from CGT will apply where a qualifying building (broadly one acquired between 7 December 2011 and 31 December 2014) is sold between four and seven years post acquisition, effective for disposals on or after 1 January 2018.
  • Stamp duty – As announced in the Budget, the stamp duty rate for non-residential property has increased to 6% for conveyances and transfers on or after 11 October 2017. Transitional measures are in place for binding contracts in place by 10 October 2017, with the 2% rate retained where conveyances or transfers executed prior to 31 December 2017.
  • Stamp duty on mergers – Various provisions have been introduced to provide for relief for stamp duty under section 79 and section 80 in the case of mergers.
  • Inheritance tax - The exemption from inheritance tax on certain retirement funds is extended to include retirement annuity contracts and personal retirement savings accounts that are deemed to vest on the owner’s 75th birthday. This means they are not subject to CAT at 33% where inherited by children over the age of 21.
  • Irish Real Estate Funds (IREF) - A number of changes are proposed to the application of the IREF rules which are mainly of a technical/clarification nature. In addition, a number of advance clearance procedures for certain exempt investors are to be given legislative basis through the Finance Bill. The advance clearances, previously published through Revenue Guidance, facilitate the following for such exempt investors.

Upfront exemption from withholding tax:

  1. arising from direct disposal of units (required to be withheld by the purchaser at a rate of 20% where consideration for disposal exceeds €500,000); and/or
  2. refund mechanism directly from IREF itself (depending on traceability of relationship) for other chargeable events, such as distributions etc.
  • Section 110 companies - Finance Act 2016 introduced significant changes to the taxation of section 110 companies holding particular Irish property-related assets, restricting certain interest deductions in relation to ‘specified property business’. Finance Bill 2017 proposes the broadening of the range of assets to be included within the ‘specified property business’ of such companies, to include the holding of shares in certain Irish property rich companies (i.e. shares that derive their value/the greater part of their value from Irish land). The question of whether or not shares can be said to derive their value from Irish property is a notoriously complex one. The Finance Act 2016 changes are quite targeted in their application, however the proposed amendments could have unintended consequences by potentially bringing other section 110 companies within the scope of those changes.
  • Share schemes, Key Employee Engagement Programme (KEEP)– in a positive move, subject to certain conditions, shares options in SMEs will not now be taxed on exercise but rather will be subject to CGT on an ultimate sale.

PAYE Modernisation - 1 January 2019 is the launch date for the modernised PAYE system, which will provide employers and other stakeholders limited time to comply with the significant administration burden that comes with the reformed PAYE system. It is welcome that provisions are included for specific exclusions including for example globally mobile employees who are employed under foreign employment contracts in certain cases. In addition, with effect from 1 January 2018, the Finance Bill provides for both a change to the basis of taxation under which most PAYE taxpayers will be liable to pay income tax, from an earnings basis to a receipts basis and a new provision for the recoupment, on a grossed-up basis, of income tax where PAYE is not operated by an employer.