Financial Services
Finance Bill 2013
Insight from Deirdre Power,Tax Partner
T: +353 1 417 2448
E: depower@deloitte.ie
On reading Finance Bill 2013, the words that summarise the Bill from a financial services perspective are recovery, innovation and compliance.
The Irish economy returned to growth in 2011 with the predictions for 2013 being GDP growth of 1.5%. Tax revenues are up by 7.7% in 2012, recent bond issuances have been well received by the markets and the rating agencies are more positive in their outlook on Ireland’s future.
While the challenges of the domestic financial services sector are well documented, it is worth noting that the international financial services sector in Ireland has weathered the storm extremely well with the international funds, leasing, insurance, treasury and financing sectors continually growing.
That being said, the international financial services sector in Ireland is acutely aware of the competition that other key financial services centres such as London, New York, Singapore and Germany pose.
The need to continually introduce new financial products and incentivise businesses not only to locate here, but to maintain their operations here and grow their international footprint from Ireland, is key to our future strategy and success. As with running any business, one has to innovate and respond to what the ultimate consumer wants. Without innovation, investors are not going to look to Ireland as a possible place to do business.
Therefore the various announcements in the Finance Bill that bring innovation to the top of the agenda are very welcome. Initiatives such as the Real Estate Investment Trust (REIT) are a good news story for the funds and property sectors and give a starting platform from which to refine and build a world class REIT environment.
In addition the amendment of the Investment Limited Partnership (ILP) framework to result in a tax transparent fund structure suitable for private equity and real estate investments sends a clear and positive message that Ireland is AIFMD (Alternative Investment Fund Managers Directive) ready and open for business.
With Ireland being the premier global location for aircraft leasing, there is good news for the aviation sector with the introduction of tax allowances and accelerated allowances on certain buildings used in connection with commercial aircraft (from a date to be determined by the Minister).
There are other smaller changes in the Finance Bill that impact the Financial Services sector such as amendments to R&D, Foreign Earnings Deduction, Islamic Finance, carried interest for venture capital fund managers, enhanced foreign tax credit on certain dividends from EU/EEA treaty countries, elimination of interest withholding tax on payments to approved pension schemes and a reduction in the clawback period under the Intangible Asset regime. Changes to DIRT and the rate of tax on returns from life and investment funds are given effect in the Bill.
The other area of focus of the Finance Bill is compliance. The Intergovernmental Agreement (IGA) between Ireland and the USA on the implementation of FATCA (Foreign Account Tax Compliance Act) was concluded in December 2012. The Finance Bill includes provisions bringing the IGA into law. The IGA is an exchange of information agreement between the US and Ireland in relation to financial accounts/interests in Irish financial institutions by US persons, and US financial accounts/interest by Irish persons.
Its main aim is to combat international tax evasion. In the last few months, the Irish Revenue has introduced a number of compliance programmes including the Transfer Pricing Compliance Review process and the Return of Values (Investment Undertaking) Regulations. Together with FATCA, such additional reporting/compliance is a fact of life for the FS sector, but a costly one to administer.
Initiatives which the industry would like to see reflected in the final version of the Finance Bill include a branch exemption for insurance companies, pooling of tax credits for leasing companies, the removal of withholding tax for treasury/cash pooling entities (regardless of the recipient’s location) and a full dividend participation exemption.
To sum up, this Finance Bill reiterates that Ireland is well and truly open for business and the various initiatives will hopefully play their part in our continuing recovery.
