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Building Ireland’s future

Finance Bill 2017

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Finance Bill published ......................................................................................3

Business taxation.............................................................................................4

Property transactions ......................................................................................6

Employee taxation ...........................................................................................8

Miscellaneous ................................................................................................10

What’s next ....................................................................................................11

Rates at a glance 2018 ..................................................................................12

Tax contacts ..................................................................................................13

2Finance Bill | 2017

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Contents

Table of contents


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On 19 October the Government published Finance Bill 2017. The Bill primarily seeks to implement the tax elements of the 2018 Budget measures announced on 10 October. However, its 94 pages, in addition to clarifying aspects of the Budget announcements, also contain many new measures.

Finance Bill published


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Changes in accounting policies

The Irish corporation tax code provides that trading income must be computed in accordance with accounts prepared in accordance with generally accepted accounting principles subject to any adjustments required or authorised by law. The Finance Bill clarifies the treatment to be adopted arising from changes to accounting standards or due to the correction of errors.

It provides that any retrospective impact of a change in accounting policy included in reserves shall be deductible or taxable in the first period after the change subject to ensuring no amounts are double counted or can fall out of charge to tax. Where a new accounting standard is adopted for the first time, provision is made for spreading of the taxable or deductible amount over a 5 year period. The Bill also addresses adjustments arising from errors, whether fundamental, material or otherwise.

This measure will be of particular interest to companies considering the impact of new accounting standards such as IFRS 15. It applies to accounting periods commencing on or after the date of passing of the Act (expected late-December 2017). Companies may elect to apply the new provisions for accounting periods ending on or after this date.

Chargeable gains – corporate groups

Transfers of chargeable assets within a chargeable gains group are deemed to be for such consideration that gives rise to neither a gain nor a loss. Effectively the gain is deferred until the asset leaves the group. From 1 January 2018, the Finance Bill will extend the definition of a group to include not only companies resident in the European Economic Area (EEA) but also to companies resident in territories with which Ireland has double tax agreements in place.

Holding companies – interest as a charge

The Finance Bill will legislate for a Revenue administrative practice which accepts that a corporation tax deduction for interest as a charge will not be denied by virtue of a loan being used to acquire, or lend to, a trading company indirectly through more than one intermediate holding company. Such holding companies are often required for commercial reasons especially in take-over situations. Consequential amendments will apply to the ‘recovery of capital’ rules.

The extension will not apply to loans used to acquire or lend indirectly to Irish property rental companies held via multiple holding companies.

These changes will apply to loans made on or after 19 October 2017.

Business taxation

Companies Act 2014 – mergers and divisions

As anticipated, Finance Bill 2017 introduces some technical measures addressing mergers under the Companies Act 2014. It clarifies that both the ‘associated companies’ and ‘reconstruction or amalgamation’ reliefs from stamp duty will apply to mergers under the Act. In this regard provision is made to treat the resolution under the summary approval procedure or the relevant court order as a ‘conveyance on sale’. The Finance Bill confirms that, subject to certain conditions, liquidations or dissolutions of transferors within 2 years of conveyances will not result in a clawback of relief and it introduces a ‘bona fide’ commercial requirement.

The Bill also provides that all tax payment, filing and reporting obligations and liabilities of a transferor company transfer to a successor company pursuant to a merger or division under Part 9 of the Companies Act 2014. Certain further technical amendments are included in the Bill in Schedule 2.


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Multilateral convention

As a consequence of signing up to the Multilateral Convention to implement certain matters identified by the BEPS project, many existing double taxation treaties will need to be amended in the manner set out in that agreement. Provision is made in the Finance Bill to give the Multilateral Convention the force of law. The precise nature of the amendments and timing will be subject to the detailed terms of the Convention and the ratification timetable of Contracting States.

Intangible assets

The Finance Bill legislates for the Budget announcement of a reinstatement of a cap on the utilisation of capital allowances on specified intangible assets (and related interest) in any one year. For capital expenditure incurred by a company on or after 11 October 2017, the aggregate relief is capped annually at 80% of the trading income of the relevant trade in which the intangible assets are used.

Life assurers

The Bill includes two changes relating to the taxation of life assurance business. Firstly, the legislation is amended with the intention of preventing life companies obtaining relief for foreign tax, suffered on policyholder income, in a trading profits computation. The precise impact of the Bill’s wording requires detailed examination. Secondly, no exit tax charge will apply where an interest over a life policy is assigned to a Section 110 company, as security for a loan originally granted by a bank. This mirrors the existing treatment of such an assignment to a bank.

Other measures

Other corporation tax measures include the expected technical amendment to the Knowledge Development Box rules to ensure loss restrictions operate as intended. The Bill will also require (subject to the requisite Revenue Regulations), investment undertakings to provide iXBRL financial statements electronically to the Revenue.

Business taxation(continued)


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Stamp Duty – commercial property

The Bill provides for the Budget night increase in the rate of stamp duty on transfers of non-residential property from 2% to 6%. As expected the Finance Bill contains transitional provisions.

The former 2% rate will continue to apply where binding contracts were in place before 11 October 2017 and where the instruments for the transfers are executed before 1 January 2018. In order to avail of the transitional relief the instrument must contain a statement, in such form as Revenue specifies, certifying that the instrument was executed solely in pursuance of a binding contract entered into before 11 October 2017. The furnishing of an incorrect statement will be a Revenue offence.

The Bill does not contain any stamp duty rebate scheme measures. The Department of Finance has indicated that the relevant measures will be introduced at Committee Stage.

As expected, the Bill extends the termination date for consanguinity relief for certain transfers of farm land between closely related individuals to 31 December 2020. In addition to providing for a fixed 1% rate, the Bill removes the upper age limit of 67 for transferors, the latter only from the date of passing of the Act.

Capital gains tax relief – holding period reduced

As announced in the Budget, the capital gains tax relief for land or buildings purchased between 7 December 2011 and 31 December 2014 is being amended to reduce the requisite holding period from a minimum of 7 years to 4 years.

A full exemption from CGT will apply to disposals of such assets held for a minimum of 4 years, but only for disposals made on or after 1 January 2018

This aims to increase liquidity in the Irish market although it should be noted that the relief applies to certain overseas properties also.

Irish Real Estate Fund (IREF) Regime

The 2016 Finance Act introduced a 20% withholding tax applicable to IREFs. This year the Finance Bill introduces a statutory advance clearance regime for certain indirect and direct investors in respect of this withholding tax. Absent a tax clearance system, indirect investors entitled to refunds could face a significant time lag between suffering withholding tax and obtaining a refund. Likewise certain investors such as approved pension funds could have faced deduction of tax at source on certain sales of IREF units. The Bill also extends the non-application of the withholding tax beyond pension funds to Approved Retirement Funds, Approved Minimum Retirement Funds and vested Personal Retirement Savings Accounts.

Property transactions


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Property transactions (continued)

Anti-avoidance

A number of anti-avoidance provisions in the Finance Bill address indirect disposals of Irish property.

The Bill provides that a non-resident’s disposal of quoted shares that derive their value from Irish land will be within the charge to Irish tax for disposals made on or after 19 October 2017 if those shares are not actively and substantially traded on the relevant stock exchange. A similar proviso will apply to the ‘quoted share’ exclusion from the IREF withholding tax.

The corporation tax exemption for gains on disposals by companies of certain shares does not apply to disposals of shares that derive the greater part of their value from Irish land. The Bill amends the exemption to ensure that money or other assets that are transferred to a company by a connected party prior to a disposal of the company’s shares in order to reduce the value of the shares attributable to the land will not be taken into account. This applies to disposals from 19 October 2017. A similar amendment applies for the purpose of the 15% withholding tax.

The 2016 Finance Act restricted the ability of section 110 securitisation companies to deduct interest against their Irish property profits. The Bill expands the type of property profits to which the restriction applies to include shares deriving their value or the greater part of their value directly or indirectly from Irish land.


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Key Employee Engagement Programme (KEEP)

The Finance Bill gives effect to a new tax-efficient share option relief announced in the Budget. As expected, the regime, subject to certain conditions, provides for the application of capital gains tax to share options gains rather than income tax and USC/PRSI at the time of exercise.

The relief will be available in respect of share options granted to employees of qualifying unquoted companies from 1 January 2018 to 31 December 2023 although this is subject to EU approval. The relief applies to employees of Irish incorporated and resident companies or EEA resident companies carrying on a business in Ireland through a branch. However, employees of companies carrying on certain types of businesses are excluded.

The company must be a small or medium sized enterprise under European Commission rules which means it must have less than 250 employees and either a turnover of not more than €50m or a balance sheet size of not more than €43m. The total market value of the issued but unexercised qualifying share options cannot exceed €3m.

The relief is open to a full time employee or full time director that works at least 30 hours per week for the company. The relief is capped for an individual at a maximum share value of €100,000 in any one year of assessment or €250,000 in any 3 consecutive years of assessment. Furthermore the market value of the shares over which options have been granted cannot exceed 50% of the annual emoluments of the qualifying individual in the year in which the qualifying share option is granted.

Other conditions apply.

Employee taxation

PAYE modernisation

The PAYE Modernisation project will see a move to a real-time PAYE system from 1 January 2019. The Finance Bill primarily introduces a number of technical measures to help prepare for the move.

One significant preparatory measure is that with effect from 1 January 2018, the Finance Bill provides for a change in the basis of taxation under which most PAYE taxpayers are liable to pay income tax from an earnings basis to a receipts basis. It won’t apply to proprietary directors. Where emoluments arise in 2017 but are not paid until 2018 the amount of emoluments chargeable in 2017 will be reduced (upon a claim) as if the receipts basis applied in 2017.

Also, with effect from 1 January 2018, the Finance Bill provides that where a payment is made to an employee without the deduction of PAYE or the nature of the payment is disguised, any unremitted income tax will be recouped on a grossed-up basis.


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Miscellaneous

As announced in the Budget the Finance Bill introduces a temporary benefit in kind exemption for employer provided electric cars and vans. The exemption does not apply to hybrid vehicles and only applies to electric vehicles provided from 1 January 2018 to 31 December 2018 pending a comprehensive review of benefit in kind on vehicles. Employer provided electricity for charging vehicles will also be exempt if the facility is open to all employees and directors.

The Bill also provides for the taxation of employees of authorised health insurers and tied health insurance agents who receive discounted health insurance policy rates.

A technical anti-avoidance amendment is also being introduced to ensure the benefit in kind rules on preferential loans operate as intended.

Employee taxation(continued)


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The Finance Bill legislates for the Sugar Sweetened Drinks Tax which will come into effect by Ministerial Order. In his Budget speech the Minister announced that this would be introduced from 1 April 2018.

Current Revenue powers allow for information requests of third parties. The Finance Bill amends these information request powers to remove the requirement that the third party be notified of the identity of the individual whose liability the Revenue officer is investigating. The stated reason for this is to avoid unnecessary breaches of data confidentiality. The Bill also reduces the bar for non-disclosure to taxpayers of court applications seeking third party information to situations where it is likely to lead to serious prejudice to the proper assessment or collection of tax.

The Bill also amends certain anti-avoidance measures that target the use of offshore trusts and companies. To comply with EU law these provisions wil not apply where genuine economic activities are carried on by the non-resident company or settlement in an EEA State. This replaces a more generally applicable ‘bona fide commercial’ test.

Miscellaneous


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The next stage of the process at which amendments may be tabled is the Select Committee Stage, which is expected to commence on 7 November. Tax Alerts on selected measures will issue over the coming weeks as the Finance Bill progresses towards enactment. It is expected that this Finance Bill will be enacted by the end of 2017.

What’s next


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Rates at a glance2018

2018

Income Tax Rates

Standard 20%

Marginal 40%

Standard rate bands

Single (2017: €33,800) €34,550

Married/civil partnership (two income) (2017: €67,600) €69,100

Married/civil partnership (one income) (2017: €42,800) €43,550

Single parent (2017: €37,800) €38,550

Income Tax Credits

Single €1,650

Married €3,300

Single person child carer tax credit (primary carer only) €1,650

PAYE €1,650

Earned income credit (2017: €950) €1,150

Age credit - single (married x2) €245

Medical insurance relief max premium - adult/child €1,000/€500

Home carer credit (2017: €1,100) €1,200

Income Tax age exemption

Single and widowed €18,000

Married (either spouse aged 65 or over) €36,000

Rent-a-room relief €14,000

Preferential loan specified rates - benefit in kind

Qualifying home loans 4%

All other loans 13.5%

Benefit in Kind on Electric Vehicles

2018 tax year only 0%

2018

Pensions

Annual earnings cap €115,000

Marginal rate deduction 40%

Tax free lump sum limit €200,000

Standard fund threshold €2,000,000

Savings tax

DIRT on deposit accounts (2017: 39%) 37%

Investment funds 41%

Property Charges

Local Property Tax

Market value < €1m 0.18%

Excess value > €1m 0.25%

Capital gains tax

Standard rate 33%

Withholding tax rate 15%

Annual exemption €1,270

Entrepreneur relief (up to €1m chargeable gains) 10%

Capital acquisitions tax

Standard rate 33%

Thresholds

Group A €310,000

Group B €32,500

Group C €16,250

Stamp duty

Residential property

First €1m 1%

Excess over €1m 2%

Non-residential property (Prior to 11 October 2017: 2%)

6%

2018

Small benefit exemption

Single non-cash voucher 500

Universal Social Charge

Earnings

0 to €12,012* 0.5%

€12,013 to €19,372 (2017: €12,013 to €18,772 @ 2.5%) 2%

€19,373 to €70,044** (2017: €18,773 to €70,044 @ 5%) 4.75%

> €70,044 to €100,000 8%

PAYE income > €100,000 8%

Self-employed income > €100,000 11%*Exempt if income < €13,000 ** Reduced rate 2% for persons holding medical card and/or aged 70, where income < €60,000

PRSI rates

Employee

PRSI 4%

Weekly PRSI threshold (tapering relief available) €352

Employer

Standard rate (2017: 10.75%) 10.85%

Lower rate (2017: 8.5%) 8.6%

Weekly lower rate limit €376

Self-employed

PRSI 4%

Minimum contribution €500

2018

Vacant Site Levy

Year 1 3%

Year 2 onwards 7%

Corporation Tax Rates

Standard rate 12.5%

Higher rate on passive income 25%

Knowledge Development Box rate 6.25%

VAT Rates and limits

Standard rate 23%

Reduced rate 13.5%

Reduced rate (certain goods and services) 9%

Farmer's flat rate 5.4%

Distance selling limit €35,000

Registration limit - taxable goods €75,000

Registration limit - taxable services €37,500

Cash receipts basis limit €2,000,000

Sugar Tax

Sugar sweetened drinks with a sugar content between 5-8 grams per 100ml

20 cent per litre

Sugar sweetened drinks with a sugar content of 8 grams or more per 100ml

30 cent per litre

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Frank O’NeillCorporate Tax ServicesT: +353 21 480 5718E: [email protected]

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