Next. Finance Bill 2018

Transcription

1 Finance Bill 2018

2 1 Contents Finance Bill 2018 published...2 Business taxes...3 Employer taxes...5 Property...6 Indirect taxes...7 Miscellaneous...8 What s next...9 Rates at a glance Contacts...11

3 2 Finance Bill 2018 published On 18 October the Government published Finance Bill 2018 (as initiated). The Bill primarily seeks to implement the tax elements of the 2019 Budget measures announced on 9 October. However, its 148 pages, in addition to clarifying aspects of the Budget announcements, also contain many new measures.

4 3 Business taxes Controlled Foreign Company provisions As expected, Finance Bill 2018 contains the detailed provisions to transpose Option B of the EU s Anti-Tax Avoidance Directive (ATAD) CFC rules into Irish law. The rules provide clarity on a number of key definitions and provide for a CFC income inclusion at an Irish parented level ( chargeable company ) for accounting periods beginning on or after 1 January The charge applies to undistributed income of >50% owned foreign entities based on share capital, voting rights or distributions on wind-up where: the relevant Irish activities, being significant people functions or key entrepreneurial risk-taking functions are performed in Ireland on behalf of the controlled foreign company group been provided for within the Irish provisions where certain conditions are satisfied. The provisions also contain a relief with respect to disposals of CFCs where chargeable gains arise which allow for an offset of a CFC tax charge on the undistributed income against the disposition proceeds. Exit Tax The ATAD exit tax legislated for with effect from 10 October 2018 is substantially the same as the provisions included within the Financial Resolution published on 9 October and provides for a deemed disposal of assets which applies where a company resident in a Member State: and where such functions are relevant to the legal or beneficial ownership of assets held by the foreign entity or the assumption and management of the risks included in the relevant assets and risks of the foreign entity. In line with ATAD, the charging provision excludes situations where the undistributed income attributable to the relevant Irish activities is a result of arrangements which would have been entered into by persons dealing at arm s length or where the essential purpose of the arrangements is not to secure a tax advantage. The provisions include a charge to Irish corporation tax at a rate of 12.5% on the basis that the undistributed income attributable would be treated as trading income had it accrued directly to the chargeable company and at a rate of 25% for passive income. Any foreign tax paid or borne, corresponding to Irish corporation tax, in respect of the chargeable income of the CFC shall be allowed as a credit against Irish tax arising on a CFC income inclusion. No other form of relief e.g. loss relief is allowed to mitigate the CFC charge. transfers assets from an Irish PE to a head office of another Member State or a third country; transfers a business carried on by an Irish PE to another Member State or a third country; or the company ceases to be resident in Ireland and becomes resident in another Member State or a third country. The Bill contains some minor technical changes and some additional anti-avoidance provisions whilst the deferral of exit tax payment provisions included under section 629 mirror their predecessor provisions within (now old) section 628A and which allow for deferral of exit tax payments over 6 years. It is noteworthy that the ATAD provisions allow for a 5 year deferral. The exemptions included within ATAD with respect to effective tax rates, low profit margins and low accounting profits have been included within the Irish legislative provisions. A twelve month exemption with respect to newly acquired CFCs has also

5 4 Business taxes Amendment to Employment Investment Incentive (EII) and Start-up Relief for Entrepreneurs (SURE) reliefs The Bill provides for substantial amendments to the Employment Investment Incentive (EII) and the Start-up Relief for Entrepreneurs (SURE). Both reliefs have also been extended for a three year period to 31 December EII and SURE are important reliefs designed to support and encourage entrepreneurial activity by providing income tax relief for investment in qualifying companies carrying out qualifying trades. Companies who would typically seek to attract such investment are those which may not be in a position to source sufficient funding through traditional channels. Film relief The Finance Bill confirms the four year extension of the corporation tax relief for investment in films. It also contains administrative provisions to facilitate a move away from Revenue certification to a more efficient self-assessment system. As announced in the Budget, a new time limited tapered uplift of up to 5% for productions in certain regional areas is provided for. This will apply to applications from 1 January 2019 but will be subject to a commencement order subject to State Aid approval. The relevant regional areas are those listed in paragraph 1(a) of the Annex to Commission Decision C(2014) It excludes Dublin, Cork and most of Kildare, Meath and Wicklow. As a welcome measure the Bill gives effect to the Budget day announcement to replace the existing pre-approval regime with a self-certification regime. The administration of the existing reliefs ran into significant delays in recent times due to the onerous pre-approval process. The Bill provides for related claw-back provisions which will apply where the relief is incorrectly claimed under the self-certification process. Specified intangible assets Finance Act 2017 reintroduced an 80% of relevant income cap on the utilisation of capital allowances for expenditure incurred on specified intangible assets. This cap only applied to expenditure incurred on or after 11 October The Bill also includes a number of other welcome improvements to the existing regime, including the following; Income tax relief can now be claimed when 30% of funds raised have been spent on a qualifying purpose (this replaces the various trigger points for claiming the relief under the existing provisions): Preference redeemable shares are now permitted as a qualifying investment The prohibition on companies quoting on a recognised stock exchange within a four year period of raising qualifying funds under EII has been removed Designated funds which invest in a number of qualifying companies are now permitted to invest in both qualifying and non-qualifying investments (so as to diversify their risk profile) The Bill contains a retroactive amendment to section 291A which formally legislates Irish Revenue guidance with respect to the ring-fencing of relevant trading income earned from the exploitation of specified intangible assets acquired before and after 11 October The rules now formally require trading income earned from assets acquired pre 11 October 2017 (which are not subject to the 80% cap to taxable income) and those acquired after 11 October 2017 (which are subject to the 80% cap) to be apportioned on a just and reasonable basis.

6 5 Employer taxes Employer provided childcare services and fitness centres Finance Act 2017 provided for a scheme of accelerated capital allowances for employers who incur capital expenditure on the provision of childcare services or a fitness centre for employees. The provision was subject to a commencement order which never issued. The Finance Bill re-enacts the relief with some amendments. As the aim is to ensure this relief is a general measure available to all employers, the restriction on the use of the relief by childcare or fitness businesses will be removed and the provision commenced from 1 January It will be a condition of the relief that the facilities are neither accessible nor made available for use by the general public. Employer provided electric vehicles Ordinarily, the provision of a company car attracts a benefit in kind (BIK) charge, calculated by reference to the original market value of the car. An exemption from BIK was introduced for 2018 where the car provided is an electric car. This exemption has been extended to December 2021, but applies a cap of 50,000 from 1 January 2019 on the original market value, irrespective of when the car was first purchased. Thus an electric car provided to an employee in 2018 with an original market value of 70,000 had a nil BIK in 2018 but will have a BIK charge calculated on 20,000 for The BIK calculated will depend on the individuals business mileage for the year, but in any event will not exceed 30% of the original market value in excess of 50,000. Defence forces In light of potential benefit in kind issues highlighted to the Department of Defence by the Revenue Commissioners, the Bill will exempt from BIK, medical treatment and accommodation provided to full-time members of the Permanent Defence Force with effect from PAYE health and dental insurance Finance Act 2017 introduced a BIK charge on health and dental insurance policies provided to employees of health insurance providers and tied health insurance agents. The Bill clarifies that this should be subject to the operation of PAYE.

7 6 Property Rent a room relief With effect from 1 January 2019, rent-a-room relief is being amended to expressly exclude short-term rentals. A minimum rental period of 29 consecutive days will be required subject to specific exceptions for: certain respite accommodation for incapacitated persons digs (where accommodation is provided for a minimum of 4 consecutive days per week for at least 4 consecutive weeks) and students in receipt of full-time or part-time education in the State. The aim is to remove any doubt that the relief is not available for short-term tourist or business travel accommodation which is often offered through the Internet. Site disposals to children The relief from capital gains tax (CGT) for certain disposals of sites by parents to their children for the purpose of allowing a child construct a dwelling house as a main residence will be extended to also include disposals to a spouse or civil partner of the child. This extension will apply for disposals from 1 January On a related note, the implications of the recent High Court decision in Deane v Revenue Commissioners for this relief have been recently raised by practitioners with Revenue. Stamp duty The stamp duty code provides for an exemption from stamp duty on conveyances or transfers on sale where stamp duty has previously been paid on a related contract or agreement. Instead of recording the exemption on the subsequent instrument by way of a Revenue transfer of the stamp duty paid, credit for the stamp duty already paid will be effected on the subsequent conveyance by way of denoting stamp duty as having already been paid without referring to the actual amount paid. The previous requirement to actually transfer the payment had created operational difficulties and confusion. Dwelling house relief The dwelling house exemption from capital acquisitions tax is subject to a condition that an individual must not have a beneficial interest in any other residential property at the date of the inheritance. Revenue have introduced further anti-avoidance measures targeting the use of discretionary trusts to avail of the exemption. The Bill ensures that successors will be deemed to have a beneficial interest in a dwelling house that is subject to a discretionary trust that they established and where the property may be applied for their benefit.

8 7 Indirect taxes VAT rate changes newspapers The Finance Bill confirms the Budget 2019 announcement of the retention of the 9% VAT rate only for sporting facilities and newspapers/ periodicals with effect from 1 January The provision of other goods and services which were previously subject to the 9% rate will revert to being subject to VAT at 13.5%. The 9% rate will be extended to electronic publications (books, newspapers and periodicals) but excludes those which are predominantly devoted to advertising or which consist predominantly of audible music or video content. Sales of property by receivers The Bill introduces an anti-avoidance amendment which clarifies the VAT treatment of certain sales of residential properties by receivers. The existing legislation was considered ambiguous and open to suggestion that a sale by a receiver of certain residential properties might be exempt in situations where a disposal would be taxable if sold by the developer.

9 8 Miscellaneous Anti-avoidance loans to participators in close companies Close companies (as defined) are subject to a standard rate income tax charge on the grossed up equivalent of certain loans or advances made to participators (typically shareholders or certain loan creditors). This is an anti-avoidance provision designed to counter the use of loans rather than dividends or salary. Arising from an examination of the Panama Papers, Revenue noted an avoidance scheme whereby loans were provided through unconnected non-resident companies. The Bill extends the charge more generally to any arrangement whereby a loan is made to a participator or an associate of a participator that isn t caught by the existing rules. It applies to arrangements entered into on or after 18 October 2018 so existing arrangements have been grandfathered. Implementation of minimum standards for Mutual Agreement Procedures (MAPs) Following a recent OECD peer review of Ireland s MAP implementation, a shortcoming was identified whereby in some cases a tax treaty might not override the normal four year time limit for amending assessments. The Bill will allow Revenue to amend an assessment to implement a bilateral MAP agreement regardless of the specific wording of the applicable tax treaty thus implementing OECD BEPS minimum standards. Tax appeals The Bill makes some technical changes in relation to tax appeals with the stated objective of facilitating improvements to the tax appeals process. From an appellant s perspective, the most substantive change is the removal of the requirement for a statement of case (of either party) to list and provide copies of all written material to be relied upon and particulars of potential witnesses that might be called upon to give evidence. The capital acquisitions tax (CAT) code is also to be amended to provide that CAT found to be due following a determination of the Appeals Commissioners is due and payable on the same date as the tax charged by the assessment is due and payable. However, if at least 90% of the tax found to be payable has been paid prior to making the appeal, the balance of CAT will be due and payable one month from the determination of the appeal.

10 9 What s next 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 2018.

11 10 Rates at a glance Income tax rates Standard 20% Marginal 40% Standard rate bands Single 35,300 Married/civil partnership (two income) 70,600 Married/civil partnership (one income) 44,300 Single parent 39,300 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 1,350 Age credit - single (married x2) 245 Medical insurance relief max premium - adult/child 1,000/ 500 Home carer credit 1,500 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 (Capped at 50,000 of original market value) 0% Small benefit exemption Single non-cash voucher 500 Universal Social Charge Earnings 0 to 12,012* 0.5% 12,013 to 19,874 2% 19,875 to 70,044** 4.5% 70,045 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 352 relief available) Employer Standard rate 10.95% Lower rate 8.6% Weekly lower rate limit 386 Self-employed PRSI 4% Minimum contribution 500 Pensions Annual earnings cap 115,000 Marginal rate deduction 40% Tax free lump sum limit 200,000 Standard fund threshold 2,000,000 DIRT Deposit accounts 35% 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 320,000 Group B 32,500 Group C 16,250 Stamp duty Residential property First 1m 1% Excess over 1m 2% Non-residential property 6% Vacant Site Levy Year 1 3% Year 2 7% Corporation tax rates Standard rate 12.5% Higher rate on passive income 25% Knowledge Development Box rate 6.25% Exit tax (from 10 October 2018)* 12.5% *Applies to unrealised capital gains where companies migrate/ transfer assets offshore such that they leave the scope of Irish tax 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 *No longer applies to tourism services, from 1 January 2019 subject to the 13.5% rate

12 11 Contacts Kevin McLoughlin Head of Tax Services T: E: kevin.mcloughlin@ie.ey.com Dublin Cork Irish Tax Desks Joe Bollard International Tax Services T: E: joe.bollard@ie.ey.com Breen Cassidy Indirect Tax Services T: E: breen.cassidy@ie.ey.com Ian Collins R&D Tax Services T: E: ian.collins@ie.ey.com Sarah Connellan People Advisory Services T: E: sarah.connellan@ie.ey.com Sandra Dawson Financial Services, Insurance T: E: sandra.dawson@ie.ey.com John Hannigan Financial Services, Aviation T: E: john.hannigan@ie.ey.com Dan McSwiney Transfer Pricing Services T: E: dan.mcswiney@ie.ey.com Aidan Meagher Corporate Tax Services, Life Sciences T: E: aidan.meagher@ie.ey.com Ray O Connor Financial Services, Banking T: E: ray.oconnor@ie.ey.com Donal O Sullivan Financial Services, Wealth and Asset Management T: E: donal.osullivan@ie.ey.com Jim Ryan People Advisory Services T: E: jim.ryan@ie.ey.com Aidan Walsh Financial Services, International Banking T: E: aidan.walsh@ie.ey.com Robert Henson Business Tax Advisory T: E: robert.henson@ie.ey.com Cian O Donovan Business Tax Advisory T: E: cian.odonovan@ie.ey.com Darragh McCarthy Private Client Services T: E: darragh.mccarthy@ie.ey.com Deirdre Hogan Indirect Tax Services T: E: deirdre.hogan@ie.ey.com Dave Barry Transaction Tax Services T: E: dave.barry@ie.ey.com Enda Jordan Business Tax Advisory T: E: enda.jordan@ie.ey.com Rory MacIver International Tax Services T: E: rory.maciver@ie.ey.com Petrina Smyth Financial Services Tax T: E: petrina.smyth@ie.ey.com Amanda (Stone) Murphy EMEIA & US Financial Services T: E: amanda.murphy@ie.ey.com Frank O Neill Corporate Tax Services T: E: frank.oneill@ie.ey.com Seamus Downey Corporate Tax Services T: E: seamus.downey@ie.ey.com Limerick John Heffernan Private Client Services T: E: john.heffernan@ie.ey.com Waterford Paul Fleming Corporate Tax Services T: E: paul.fleming@ie.ey.com Galway Paraic Waters Corporate Tax Services E: paraic.waters@ie.ey.com New York Deirdre Fenton Corporate Tax Services T: E: deirdre.fenton1@ey.com New York Siobhan Dillon Financial Services T: E: siobhan.dillon1@ey.com San Jose Karl Doyle Corporate Tax Services T: E: karl.doyle@ey.com

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