Finance Act 2010: Individuals
The Finance Bill as expected very much reflects the tone expressed in the Minister’s Budget speech last December. We welcome the fact that there have been no increases in tax rates, or significant abolition of tax reliefs. Following the announcement in the budget speech that “High Earners Must Pay Their Fair Share” the Finance Bill introduces various measures that will mean that not only will high earners pay their fair share but also Irish domiciles will pay their “fair” share. Specifically, a number of measures focus on collecting taxes on Irish domiciled individuals while extending employment taxes reliefs for non Irish domiciles.
High earners income restriction
Finance Act 2006 introduced a High Earners Income Restriction (HEIR) which took effect from 2007. The aim of the restriction was to limit the amount of certain reliefs the “high net worth” individuals could claim to broadly the greater of €250,000 or half of their income per annum, ensuring that they had a minimum effective tax rate of c.20%. Any reliefs not claimed due to the restriction could be carried forward and claimed in future years. The restriction not only impacted on the more prevalent reliefs such as property incentives, where the deferral of the reliefs greatly impacted on the IRR of such investment, but also on charitable donations, interest relief for investment in certain companies, and the artist and patent exemptions.
The Finance Bill gives effect to the announcement by the Minister on Budget Day of an increase in the effective rate of income tax to c.30%. From 2010 onwards, those individuals who have income in excess of €400,000 and are claiming reliefs in excess of €80,000 will be subject to the restriction. The amount of reliefs that such individuals will be able to claim will be limited to the greater of €80,000 or 20% of their income. The changes, together with the Income Levy introduced last year mean that those individuals with significant income will have an overall effective tax rate of c.36%.
The workings of the original HEIR formula inadvertently brought certain individuals into its remit, who on first glance may not appear to have been affected. In particular, individuals with significant amounts of deposit interest were affected, as deposit interest erodes the €250,000 limit. Therefore, the greater the deposit interest, the less reliefs that could be claimed. It is regrettable that the Finance Bill does not rectify this, particularly given the increase in savings levels.
Please see high earners income restriction overview attached.
Remittance basis
Remittance basis removal for Irish Citizens – not ordinarily resident in the State
The remittance basis for income tax for non Irish income is being removed with effect from 1 January 2010. For the last number of years the remittance basis had been restricted specifically in respect of foreign employment income where the duties were performed in the State. It was however still available to:
- Non Irish domiciles OR
- Irish Citizens who were not ordinarily resident in the State
in respect of their:
- Foreign Employment income relating to non-Irish duties AND
- Other foreign (non employment) income
As from 1 January 2010 this beneficial tax regime has been removed for Irish citizens irrespective of their ordinary residence status in the State. Although a full removal of the remittance basis was recommended in the Commission of Tax report, this amendment remains disappointing in that it removes one of the few attractive points for any Irish entrepreneur seeking to return home. The relief itself was typically only available for a period of 3 years following an individual’s return to Ireland, until ordinary residence was regained, and, as such, it is unfortunate that such a short term benefit has been removed.
Extension of the remittance basis to EU countries
Some welcome news for non-Irish domiciles with foreign employments, and ultimately good news for Ireland in general, is the extension of the tax repayment available for unremitted employment income designed to compensate for the removal of the original remittance basis.
Introduced in Finance Act (No.2) 2008, this repayment claim was available only in very limited circumstances where Ireland had a Double Taxation Agreement with a country outside the EU. Additional restrictions also applied to the employee such that a repayment claim was not always available.
The amendment, which applies to non Irish domiciled individuals who become resident in and working Ireland for first time during 2010 or thereafter, makes a repayment claim more widely available. Specifically, the amendment provides that being an EU national or having an EU employer, no longer excludes an employee from making a repayment claim.
Additionally, a claim can be made in respect of 2010 and future years where an employee has only been working in Ireland for one year, whereas for 2009 an employee has to work in Ireland for 3 years.
Where all conditions are satisfied, an employee may make a claim on their tax return for the appropriate year for their taxable income to be determined based on the higher of:
- The actual amount attributable to Irish duties that was remitted in that year OR
- €100,000 plus 50% of the balance attributable to Irish duties
While the repayment claim is not available to Irish domiciles even if they have a foreign employment, this measure is likely to increase Ireland’s attractiveness to foreign multinational companies considering investing into Ireland.
Domicile levy
The “Domicile Levy” is introduced as indicated in the Ministers budget speech. The domicile levy is designed to ensure that certain individuals who continue to have close ties to the State will pay a minimum amount to the Department of Finance irrespective of their residence position here. The domicile levy itself is a maximum annual amount per tax year of €200,000 which can be reduced to the extent that income taxes which are due for that tax year and have been paid by or on the due date of the domicile levy. The due date for the domicile levy is the 31 October following the end of the tax year in question. As such the first domicile levy due will be payable on 31 October 2011 at which time a return must also be made to the Revenue Commissioners with all the particulars. Any income taxes due for 2010 and paid before 31 October 2011 will therefore reduce the level of domicile levy payable.
The domicile levy will be due in respect of:
- An individual who is domiciled in, and is a citizen of, the State AND
- Whose worldwide income for that tax year is more than €1,000,000 AND
- Whose liability to income tax in the State for that tax year is less than €200,000 AND
- The market value of whose Irish property on the valuation date in the tax year is in excess of €5,000,000
The valuation date is 31 December of the tax year in question. As currently drafted it appears that Revenue will be taking a strict line with the new levy, in that they must be satisfied with the valuation of the property on the return otherwise they can use their own estimate which would then have to be appealed by the tax payer if disputed. Revenue would appear to have been granted a great deal of latitude in this regard, while it is acknowledged that they may utilise qualified persons to determine the appropriate valuation and thankfully not at the taxpayers’ expense, at least not directly. Irish property relates to all property situate in the State at the 31 December in question but specifically excludes:
- Shares in a company which exists wholly or mainly for the purpose of carrying on a trade or trades AND
- Shares in a holding company which derive the greater part of their value from subsidiaries which wholly or mainly carry on a trade or trades
Worldwide income will also come under close scrutiny with the valuation to be made on the basis of an individual being resident in the State even if not otherwise resident here. Following the trend set by the income levy, certain deductions normally available for income tax are disregarded when considering worldwide income for the purpose of the domicile levy. The removal of the remittance basis for Irish citizens who are not ordinarily resident may also increase the level of worldwide income for the domicile levy.
The Committee Stages of the Bill have been used to at an early stage apply anti-avoidance provisions surrounding the disposal/transfer of Irish property to a spouse/minor child or through the use of a discretionary trust or other vehicle. The provisions only apply to disposals/transfers on or after 18 February 2010 for less than market value, and result in the property remaining under the beneficial ownership of the transferor for the purpose of the domicile levy.
The potential negative impact of the Domicile Levy on investment into Ireland is also acknowledged in the Committee Stage amendments. An individual may now request an opinion from Revenue, when considering making a significant investment in the state, whether such an investment would bring them within the Domicile Levy net. Revenue are not, however, obliged to give such an opinion.
Preferential loans
Certain changes were introduced to ensure that in the cases of preferential loans where the loan no longer qualifies for interest relief, the individual remains liable to tax on the benefit-in-kind arising on the difference between 5% and the interest rate charged.
Mortgage interest relief
The Finance Bill provides for the measures announced in the Budget, as follows:
- An extension until 2017 of mortgage interest relief at current rates and levels of relief for qualifying loans taken out on or before 31 December 2011
- The extension of the relief, albeit at reduced levels and duration, for those who take out qualifying loans between 1 January 2012 and 31 December 2012
- Mortgage interest relief will cease to be available for 2018 and onwards
Service charges
As was recommended in the Commission on Taxation Report, relief for service charges paid in 2011 and onwards has been discontinued. Relief will be available in 2011 for service charges paid in 2010.
Rent-a-room relief
The Rent-a-Room is a valuable relief for homeowners looking to supplement income, whereby income up to €10,000 per annum can be earned free of tax. The relief was restricted in previous Finance Acts to counteract parent/child tenancy situations. This Finance Bill further extends the restrictions to cases where in certain circumstances, rents are received by an employee from their employer.
Age related relief for health insurance premiums
The Bill provides for a further increase in tax relief for medical insurance premiums entered into or renewed on or after 1 January 2010, for those aged 60 and over. This further enhances the increased relief for the elderly introduced with effect from 2009 onwards.
Equity awards
Restricted shares
The Bill contains two technical amendments to the rules regarding the taxation of shares acquired by directors and employees which are subject to certain restrictions.
The first amendment provides that the trust in which the restricted shares are held, must be established in the State or in another EEA State and that the trustees must also be resident in the State or in another EEA State. Employers seeking to provide such restricted shares to directors/employees will need to ensure that the employee benefit trusts which are established to hold the shares during the restricted period fulfill these conditions. The amendment applies to restricted shares acquired on or after 4 February 2010.
The second amendment clarifies that it is the amount of income chargeable to tax on the acquisition of the restricted shares that is reduced and not the amount of income tax payable. This definition has been back dated to 20 November 2008, the day the restricted shares legislation was originally introduced. This is a welcome move as there had been a lack of clarity in the language of this section.
The amount of income chargeable to tax on the acquisition of the restricted shares can be reduced by up to 60%, depending on the length of the restricted period.
Share scheme reporting
The Minister has announced a new section which makes it mandatory for employers to automatically file returns of information to the Revenue Commissioners regarding shares and other securities awarded to directors and employees. The filing deadline is 31 March in the year of assessment following the year in which the award was made.
While the new section applies to all awards of shares to directors and employees, it is aimed at the reporting of “free” shares awarded to directors and employees which employers have not previously been automatically obliged to report to the Revenue Commissioners. The new section will not apply where employers have an obligation to report specific types of share awards (e.g. unapproved share options, restricted shares, forfeitable shares, convertible securities) to the Revenue Commissioners under other income tax provisions.
While this new reporting section applies on or from 1 January 2010, employers will need to file a return detailing the shares awarded to employees and directors in the 2009 tax year by 31 March 2010. This reporting requirement will add more strain to employers whose administrative burden regarding share scheme reporting has increased significantly in recent years.
It also remains to be seen how this new reporting obligation will interact with the Form P11D on which employers are required to report employee benefits (including free shares) when notified by Revenue to do so.
Broadly, as a result of this provision, employers are now required to report all equity awards to Revenue.
The Bill also provides for penalties where employers fail to make the required returns of information and where they fraudulently or negligently make incorrect returns.
Approved profit sharing schemes
The Bill provides for amendments to the legislation regarding Revenue approved profit sharing schemes which are designed to counteract tax avoidance schemes which have arisen in this area.
The first amendment provides that with effect from 4 February 2010, the Revenue Commissioners will not approve a profit sharing scheme unless they are satisfied that there are no arrangements in place that provide for loans to be made to employees eligible to participate in the scheme.
The second specifies that shares appropriated to employees on or after 4 February 2010 cannot be shares in certain service companies.
Income levy
Following the introduction of and subsequent increase in the income levy in 2009 the Bill looks to clarify a number of issues previously discussed in the Revenue’s Income Levy Guide. The amendments primarily relate to the clarification of certain exemptions from the income levy in relation to payments provided on cessation of an employment and also the interaction of the income levy and the various double taxation agreements Ireland has in place with its treaty partners.
Development land
The National Asset Management Agency (NAMA) Act introduced a tax of 80% on profits or gains arising on certain land disposals The Finance Bill introduces a number of amendments including the exclusion of profits on the disposal of small sites (a site that does not exceed 0.4047 hectares or 1 acre in size and has a market value of less than €250,000) and extends the provisions to situations where windfall profits arise where planning authorities grant planning permission in contravention to the development plan for the area.
Sub-contractors
In relation to relevant contracts tax (RCT) the compliance obligation on contractors has been reduced. In this regard the Finance Bill reduces the frequency with which principal contractors are required to file RCT returns and make associated payments and also allows for a longer validity period for the Form C2. The section provides that a C2 can be issued to cover two tax years whereas previously the C2 could only be issued for a period of one year. The provisions should reduce the administrative burden on taxpayers.
Lessees – capital allowances
There are two main changes proposed – one being an anti-avoidance piece and the other an important extension and enhancement to our leasing legislation around operating leases.
The anti avoidance piece, whereby capital allowances can only be claimed by one party (and not both lessor and lessee) on the same asset is reasonable and cannot be considered unfair in any way. Conditions are set out in order for the lessee to claim the allowances and include the requirement that (in some cases) a joint election is to be made by the lessor and the lessee to that effect.
The second change is to extend Section 80A to operating leases (this currently only applies to finance leases), such that the lease is taxed per the accounting profit in the financial statements, rather than including the capital on the lease flows in the tax computation whilst also taking a deduction for the capital allowances on such assets. It basically means the lessor can chose to follow the accounts basis and ignore the “normal” leasing adjustments for such capital and tax depreciation entries. It seems that the new rules will only apply to increases in the portfolio of leased assets of the company/group, with a group threshold being applied. It is intended to take effect for accounting periods commencing on or after 1 January 2010.
A change that had been sought and has not come through is to permit such S80A leasing income to be treated as falling within the leasing ringfence. Such an amendment would facilitate S80A leasing income to be combined with other leasing income on which capital allowances has been claimed and therefore treat them all as one trade. From a business perspective it makes absolutely no sense not to facilitate such an offset so it is a pity to see an opportunity lost.
Carbon taxes
There are a number of new provisions detailing the carbon tax charges promised in the Budget. Carbon tax is levied at €15 per tonne of CO2 emitted and will apply to petrol and auto diesel, natural gas and solid fuels.
In real terms the new charge gives rise to an increase of 4 cent on a litre of petrol and 4.5 cent on a litre of auto diesel. There is relief from carbon tax for bio-fuel or where bio-fuel is mixed with other mineral oils and the bio-fuel makes up more than 10% of the mix.
The new Natural Gas Carbon Tax will apply to any supplies of natural gas made on or after 1 May 2010 and will be levied at a rate of €3.07 per mega-watt hour. The supplier will account for the tax to Revenue, based on bi-monthly taxable periods. The returns and accompanying tax will be due within 30 days of the end of the taxable period. Non established suppliers will have to establish a company in the State that will be liable to account for the tax.
The Solid Fuel Carbon Tax will apply to supplies of coal and peat. There are varying rates set out depending on the fuel, for example the charge will amount to €39.51 per tonne of coal and €27.50 per tonne of Peat Briquettes. The rates are set to correspond to a levy of €15 per tonne of carbon dioxide emitted by the fuel. The supplier will account for the tax to Revenue, based on bi-monthly taxable periods. The returns and accompanying tax will be due within 30 days of the end of the taxable period The tax will apply from a date specified by ministerial order.
Capital gains tax
Compulsory acquisitions
A welcome amendment has been introduced to the deadline for payment of CGT on the disposal of land on foot of a compulsory purchase order. Previously, CGT on such disposals was payable in certain circumstances before the receipt of any consideration.
This has now been changed so that the CGT on disposals of land compulsorily acquired will only become payable on either the date on which the proceeds of sale are received or if a person dies before receiving the payment the disposal will be deemed to become payable immediately before death (otherwise the disposal could potentially have fallen outside the charge to tax).
Such amendment is long overdue and will mean that people who are required to sell their land to authorities with compulsory purchase powers will not be required to get funding to discharge a CGT liability once they agree on the price. This was often necessitated as, in practice, agreement around the price to be paid could be reached a number of years before the proceeds were actually paid to the vendor.
Extension of retirement relief on the disposal of shares in a family company
There is a relief from capital gains tax available on the disposal of certain trading assets by an individual over the age of 55. The legislation has been amended to ensure that the relief will apply if the conditions are satisfied, to shares purchased or redeemed by the Company. The relief is restricted once the consideration exceeds €750,000. Any payments received by an individual from such a redemption will be taken into account in terms of determining the level of available relief in the future.
Anti avoidance legislation
S. 590 of the Taxes Consolidation Act 1997 attributes capital gains made by foreign entities to Irish resident persons in certain circumstances. There is an existing exception to such attribution where the gain accrues in respect of the disposal of assets used by a company for the purposes of the trade. The exception has been extended to include disposals by a foreign company of assets which are used by another company within the same corporate group for trading purposes outside the state. This will apply to all such disposals made by the non trading foreign company as of 4 February 2010.
New legislation has been introduced to deny the availability of capital losses where such losses were created to shelter existing capital gains, resulting in the taxpayer not having to pay any CGT. This new provision states that a capital loss will not be allowable if the main purpose, or one of the main purposes, of it is to secure a tax advantage. Further, it is irrelevant whether the loss is created when there is an existing gain against which to offset it and also regardless of whether the advantage is for the benefit of the person to whom the loss accrues. In addition, losses created through the use of Irish gilts will no longer be available to offset against chargeable gains. In essence, tax planning structures which were devised to create such losses will no longer be effective for disposals made on or after 4 February 2010.
Vehicle registration tax
Scrappage scheme
The scrappage scheme announced in the Budget and already in operation has been copper fastened in provisions that confirm a rebate of VRT on the registration of new vehicles with a CO2 emission level not exceeding 140g/km. New cars which replace cars that are at least 10 years old are eligible for a repayment of up to €1,500. The scheme will run up to 31 December 2010. The rebate is only available where the scrapped vehicle has been owned by the person for a period of 18 months prior to the registration of the new vehicle. The old vehicle must be scrapped by 31 December 2010, and subject to this time limit can be scrapped either 60 days before or 60 days after the registration of the new vehicle.
We welcome any efforts to reinvigorate the ailing motor industry, and hope that the €1,500 limit is sufficient incentive to give a meaningful boost to new car sales. It seems to have had a modest impact on January sales.
Capital acquisitions tax
Agricultural relief
This relief operates to reduce the market value of agricultural property received by a qualifying farmer by 90%. One of the conditions of the relief is that the income from the sale or compulsory acquisition of certain types of agricultural property, acquired within the previous six years, must be reinvested in other agricultural property within one year of the disposal.
The legislation has been amended to counteract a situation whereby an individual transferred other agricultural property to their spouse prior to the sale or compulsory acquisition and seeks to reinvest the proceeds from this disposal in the agricultural property owned by their spouse. The transfer of agricultural property to a spouse prior to the sale of the agricultural property, on which the agricultural relief had been claimed, will not give rise to a CAT charge and thus would have been an ideal way of ensuring that the proceeds could be reinvested in agricultural property and thus ensuring that the agricultural relief from CAT previously granted is not clawed back.
The introduction of this section is surprising as it had been widely speculated that the level of relief available on the gift or inheritance of agricultural or business property would be reduced or capped. Indeed this was the only change introduced to CAT reliefs and we welcome the fact that the government chose not to implement the tough recommendations set out in the Commission on Taxation Report in this area.
Administration
A number of changes have been made to the administration of CAT. These changes are designed to bring the tax more in line with the self assessment system. The most important changes are as follows:
- The payment and filing dates have now been changed to 31 October similar to CGT and income tax. Where a valuation date falls in the period 01 January to 31 August, the tax will have to be paid and a return filed by 31 October in that year. Where the valuation date falls in the period 01 September to 31 December, the tax will have to be paid and a return filed by 31 October in the following year.
This raises some concerns in relation to the timeframe for the payment of tax where the valuation date arises between 1 January and 31 August. This concern would primarily arise in the context of inheritances. For example, where a beneficiary takes an interest in joint property or is in possession of an asset from the date of death, the valuation date will be the date of death. Accordingly, if the disponer died on say 29 August, then the tax must be paid and the return filed by 31 October, which is only some two months from the date of death. In the circumstances, it may not be practical for a beneficiary to raise funds to fund the tax in such a short timeframe. Similarly, where a grant of probate issues close to the 31 August deadline, the beneficiaries will have a very short timeframe to arrange for the tax to be paid. This amendment will only come into effect on the passing of a Ministerial Order – thus there is still an opportunity to reconsider the practical implications.
- Secondary accountability for the payment of CAT no longer applies. Therefore liability will rest solely with the beneficiaries. The disponer or the personal representatives of the disponer will no longer have liability for unpaid CAT. This is a welcome change as the previous position placed an unfair burden on disponers and in particular their personal representatives in the distribution of an estate
- CAT will no longer be a charge on the property for 12 years following the gift or inheritance. This will mean that purchasers of property will no longer have to seek a certificate of clearance from CAT where a property has been gifted within the previous 12 years
Your Country, Your Call
The Bill proposes that a receipt from the “your country, your call” competition will not be within the charge to CAT.
DIRT
There are a number of changes proposed in relation to DIRT, but the most significant ones relate to an acceleration of payments of DIRT to the Exchequer (but only on foot of an order from the Minister to that effect) and the requirement for financial institutions to issue DIRT certificates whether requested or not.
Benefit in kind
The Commission on Taxation recommended that some tax reliefs should be withdrawn and the Finance Bill has implemented two changes:
- An exemption from a Benefit in Kind charge on the provision of qualifying art objects to certain employees or directors by an employer is no longer available from 1 January 2010
- Income tax relief on the premiums paid under long term care policies has ceased from 1 January 2010
Relief for health expenses
The Revenue has previously provided a list of the hospitals, nursing homes etc. which were approved for the purposes of claiming tax relief for health expenses incurred as a patient. Unless the institution was on the list no tax relief was available.
Hospitals no longer need to be approved by the Minister for Finance before a claim for expenses is made, subject to some conditions. Nursing home fees will also qualify for relief provided it supplies 24 hour qualified nursing care.
The Minister has disallowed general cosmetic surgery costs and has the power to deem some treatments ineligible for the relief where they are considered contrary to public policy.
Cross border workers relief
This relief applies to an individual who is employed where the employment is held in a country outside the state and in a country with which Ireland has a double taxation agreement and provided other conditions are met the income may not be subject to tax in Ireland. One of the conditions is that the person must spend one day per week in the state.
The definition of a day for the purpose of this relief has been brought in line with the definition of a day for tax residency purposes and therefore a day counts if the person is in Ireland for any part of the day. The requirement to be present in the State at midnight no longer applies to this relief.
Qualifying farmer and stock relief
A “qualifying farmer” can obtain stock relief equal to 100% of the increase in stock values during the accounting period. Such a farmer would have commenced farming in 2007 or later, be under 35 years of age and be suitably qualified by completing certain training courses.
The Bill adds the Bachelor of Agricultural Science - Agri-Environmental Science awarded by UCD degree to the list of training courses.
Rental losses and capital allowances
The Bill clarifies the order of utilisation of certain rental losses and capital allowances in computing an individual’s taxable income, stating that rental capital allowances arising in a year are to be deducted in priority to Case V losses brought forward from prior years. While this has been Revenue practice, the legislation was not clear and it was arguable that losses forward could have been used first.
Significant buildings and garden schemes
Tax relief has been available for up to €31,750 on expenditure of significant buildings and gardens where the person is a “passive investor”. A passive investor is in broad terms a person who has acquired an interest in the building or garden in order to het the relief and title will pass back to the original owner or a person connected with him. The relief is unlimited for other investors.
As recommended in the Report by the Commission on Taxation, the Bill has abolished the relief available to ‘passive’ investors with effect from the tax year 2010. The relief will continue to be available for 2010 and 2011 in respect of work which was underway or contracted for on or before 4 February, 2010.
Professional services withholding tax
The Bill has increased the scope of accountable persons who must now operate professional services withholding tax. The list of bodies now includes:
- Pobal
- Commission for Energy Regulation
- Digital Hub Development Agency
- National Transport Authority
- The Medical Council
- Anglo Irish Bank Corporation Limited
- Central Bank and Financial Services Authority of Ireland
- Financial Services Ombudsman’s Bureau
- Broadcasting Authority of Ireland
Approved charities and donations
In order to bring Irish legislation in line with certain provisions of EU Treaties, the Bill introduces a number of provisions relating to charities. The Bill provides that charities established in any state which is a member of the European Economic Area or the European Free Trade Association will be entitled to apply for a tax exemption in respect of any qualifying income arising in the State. The exemption is currently only available to Irish charities. The Bill also provides that where such a charity is granted charitable status, it may apply for the donations relief scheme after a period of two years so that tax relief would be available for donations made, provided certain conditions are satisfied.
The Bill also includes provisions to assist Revenue in administering the extension of the schemes.
Tax treatment of Government securities
The Bill provides that the tax exemption which currently applies to income arising on Government Savings Certificates will apply to interest in respect of similar products issued by governments of other EU Member States.
The Bill also provides that the tax exemption for certain Government securities is extended to apply to non-resident individuals. Currently, there is a requirement for the person to be non-ordinarily resident and/or non-domiciled.
Donations of gifts to the State
Current tax legislation results in no tax payable where a person donates property to the State in certain cases. In line with the Commission on Taxation Report, the Bill proposes that this exemption will cease to be available for gifts donated on or after 4 February 2010.
Voluntary gift scheme
The Bill effects a voluntary gift scheme for members of the judiciary and military judges, whereby tax relief will be available for certain gifts to the State made by members of the judiciary and accepted by Revenue.
Co-operation to combat tax evasion
The Bill includes provisions which will allow the Government to enter into double-taxation agreements with other countries which facilitate the recovery of Irish taxation in the foreign treaty jurisdiction and vice versa. Provisions are also included to facilitate the Convention on Mutual Administrative Assistance in Tax Matters being incorporated into Irish law. This convention provides for co-operation between signing countries in relation to recovering foreign tax and exchanging information in order to combat tax avoidance and evasion.
New tax treaties
The Bill ratifies new double-taxation agreements with Bahrain, Belarus, Bosnia and Herzegovina, Georgia, Moldova and Serbia.
It also provides for the ratification of information exchange agreements with eight other countries/territories, which are Anguilla, Bermuda, the Cayman Islands, Gibraltar, Guernsey, Jersey, Liechtenstein, and the Turks and Caicos Islands.
Relief for childcare facilities
The Bill proposes the abolition of the scheme of capital allowances in respect of childcare facilities/crèches on 30 September 2010. The Bill provides for transitional measures for projects already in the pipe-line. Therefore, where certain conditions are satisfied, relief may continue to be available for expenditure incurred by 31 March 2012.
Mandatory disclosure of certain transactions
In what is described as an anti-avoidance measure the Minister for Finance introduced a very late amendment to the Finance Bill 2010 at committee stage providing for the mandatory reporting of certain transactions.
Broadly speaking the proposed amendment provides that either promoters (which will include accountants, tax advisors and banks) or tax payers contemplating or implementing certain transactions will be obliged to provide details of those transactions to Revenue. The transactions are described as disclosable transactions and are broadly defined as any transaction or any proposal for a transaction which might result in the obtaining of a tax advantage for any person.
Apart from broad policy concerns mentioned below in relation to the proposed legislation an unsatisfactory feature of the amendment as presented is that it is vague on precisely what type of transactions will require to be reported to Revenue and when they must be reported. This detail is to be contained in regulations made by the Revenue Commissioners with the consent of the Minister for Finance. Among the matters to be contained in the regulations are:
- The type of transactions which are to be “disclosable transactions”
- The type of information to be provided to the Revenue Commissioners in relation to disclosable transactions
- The time period within which information must be provided to the Revenue Commissioners
Therefore, while clearly signalling that there will be compulsory reporting of certain transactions, the draft legislation does not set out precisely what those transactions will be, how they are to be reported to Revenue or when. Given that the provisions if enacted will apply to transactions falling after the date of the passing of the Act, which is likely to be before the publication of the detailed regulations, there will be a period of uncertainty during which persons contemplating transactions will not know whether those transactions will be included as “disclosable transactions” when the detailed regulations are published. This is most unsatisfactory.
The Minister has stated that his officials and officials of the Revenue Commissioners will engage in a consultative process with practitioners and other interested parties in the drawing up of the detailed regulations. In these difficult economic times the regulations when drafted must ensure:
- Certainty for tax payers engaging in normal commercial transactions
- The regulations are clear on what transactions are reportable, what information is to be provided and when
- Compliance with regulations must not lead to burdensome tax administration impositions and compliance costs
The manner in which this very significant amendment was introduced by the Minister without consultation is to be regretted. The vagueness of the legislation creates uncertainty at a time when business needs it least. Hopefully the consultative process which the Minister has promised leading to the detailed regulations will remove any uncertainties.