TaxingTimes. Finance Bill & Current Tax Developments. October 2014

Transcription

1 TaxingTimes Finance Bill 2014 & Current Tax Developments October 2014 kpmg.ie/financeact2014

2 KPMG is Ireland s leading Tax practice with over 500 tax professionals based in Dublin, Belfast, Cork and Galway. Our clients range from dynamic and fast growing family businesses to individuals, partnerships and publicly quoted companies. KPMG tax professionals have an unrivalled understanding of business and industry issues, adding real value to tax based decision making. Corporate Tax Private Client Practice Global Mobility Services Employment Tax VAT International and Cross Border Tax For further information on Finance Act 2014 log on to: kpmg.ie/financeact2014

3 TaxingTimes Finance Bill Introduction The Government published Finance Bill 2014 on 23 October The bill contains the taxation measures announced in the Minister for Finance s Budget speech on 14 October 2014 as well as a number of measures not previously announced. Conor O Brien Partner Personal Tax 2 The bill contains a number of very welcome provisions which were announced on Budget day. These measures include: Elimination of the base year limitation for the Research and Development tax credit. Significant improvements to the capital allowances regime for intellectual property. Significant improvements to the income tax regime for workers coming from abroad to work in Ireland. These measures, together with the strong reaffirmation of the Government s commitment to the 12.5% rate of corporation tax and the commitment to introduce a best in class Knowledge Box regime at a low, competitive and sustainable rate, mean that Ireland retains its position as one of the most attractive countries in the world to locate a business. Other measures which ought to stimulate growth and employment include: The lowering of the income tax burden on low and middle income earners The abolition of the 0.6% pension levy The abolition of the 80% rate of capital gains tax on rezoned land The retention of the 9% tourism VAT rate Improvements to the EII scheme (income tax relief for investment in certain trades) Phasing out of the base year limitation for the short life asset leasing regime The bill also contains measures to eliminate the so called double Irish structure. Existing operations will have until 2021 to restructure and it is expected that it will be possible to restructure so that the corporation tax treatment of Irish operations will remain very competitive. Given the foregoing we believe the bill is to be welcomed. The main area where we would suggest that more should have been done is the taxation treatment of domestic entrepreneurs. The failure to reduce the top rates of tax of 52% for the employed and 55% for the self-employed (which includes income tax, USC and PRSI) and the indication that those rates will be kept at these levels is disappointing. These rates are very high by international standards as is the Irish capital gains tax rate of 33%. It means that the taxation environment for domestic entrepreneurs compares very unfavourably with that in other jurisdictions. It is hoped that in the future, taxation policy will take account of the risks taken by business creators along with the societal benefits that they generate. It is a commendable achievement that the Irish State has managed to retain the key planks of its business tax offering notwithstanding the enormous pressure endured during one of the worst financial crises ever and has now started to upgrade and enhance that offering. It demonstrates that Ireland s determination to remain attractive to international business which has endured for 60 years remains extraordinarily strong. Conor O Brien Head of Tax and Legal Services Employee Issues 4 & Pensions Business Tax 8 Research & Development 15 Financial Services 16 Property & Construction 18 Indirect Taxes 20 Revenue Powers 22 Base Erosion and Profit 24 Shifting (BEPS) update for Irish businesses A new era for Foreign 30 Direct Investment into Ireland Tax Rates 33 & Credits 2014

4 2 TaxingTimes Finance Bill 2014 Personal Tax Robert Dowley Partner Tax relief for water charges Measures for the introduction of tax relief on water charges announced in the Budget are not included in the Finance Bill. It is understood that details of the relief will be confirmed at the Committee stage of the bill. Restriction on losses Where a trading loss is incurred by a partnership, the extent to which a non-active partner can offset that loss against their other income in the year for tax purposes is restricted to 31,750. The bill introduces a provision bringing loss relief for an individual spending less than an average of 10 hours per week personally involved in a trade or profession on a noncommercial basis into line with that applying to a non-active partner in a partnership, by restricting the loss offset to a maximum of 31,750. This provision applies for 2015 and subsequent years of assessment. A separate anti-avoidance provision concerning loss relief was also introduced to completely restrict loss relief claims where the loss arises on an artificial or tax-motivated basis. Agricultural relief On Budget Day, the minister announced a change to the qualifying conditions for agricultural relief for capital acquisitions tax purposes to introduce an active farmer test. For gifts or inheritances taken on or after 1 January 2015, an individual will only qualify for the relief where he/she meets the existing 80% asset test and either (i) spends at least 50% of his/her normal working time farming agricultural property on a commercial basis with a view to the realisation of profits from that agricultural property for a period of at least six years, or (ii) leases the whole or substantially the whole of the agricultural property for a period of at least six years to an individual who would qualify under (i) above. Where an individual initially qualifies as a farmer under this revised definition but ceases to do so within the subsequent six-year period, any agricultural relief previously granted will be clawed back. Business property relief Business property relief reduces the taxable value of certain gifts or inheritances by 90% provided certain conditions are met. The relief extends to land, buildings, machinery or plant used by a trading company for the purpose of its business, provided the company was controlled by the disponer. In family-run trading companies, spouses or civil partners may each hold 50% of the share capital in the company. Without a change to the legislation, relief might not apply to land, buildings, machinery or plant used by such a company, as neither spouse nor civil partner can control a majority of the votes and therefore neither of them controls the company. The bill addresses this issue by allowing shareholdings held by spouses or civil partners to be aggregated in determining whether the disponer had control of the company. This change takes effect from 23 October Mortgage interest relief Mortgage interest relief was previously only available in respect of family homes situated in Ireland, Northern Ireland and Great Britain. Amid concerns that these territorial limits would be in breach of EU law, the bill contains a provision to extend the scope of the relief to residences in other European countries (members of the European Economic Area). This additional relief will come into effect on 1 January The relief only applies to loans taken out on or before 31 December 2012 (subject to a transitional measure for certain loans agreed before 31 December 2012 which were drawn down in 2013). The relief is due to be phased out by the end of Temporary non-residents Irish tax law includes provisions designed to counter the avoidance of capital gains tax by individuals who become temporarily non-resident (for less than five years) for tax purposes. These provisions operated by deeming that certain types of assets disposed of by the individual in any years of nonresidence be treated as being disposed of and immediately reacquired at their market value on the last day of the year the individual left Ireland to reside

5 TaxingTimes Finance Bill elsewhere, thus imposing a capital gains tax charge. The bill provides that where there is an increase or decrease in the market value of the assets between the last day of the year of departure and the date they were disposed of, the market value of assets on the date they were actually disposed of will be used for the purposes of the capital gains tax charge. Domicile levy The bill provides the Revenue with the right to issue a notice requiring an individual to file a domicile levy return and pay the appropriate levy within 30 days of the notice. Where the individual fails to do so, or makes an incorrect return, penalties may be charged. The measure will come into effect after the passing of the Finance Act. Support and maintenance payments Under current legislation, payments during the lifetime of the disponer made for the support, maintenance or education of children of the disponer, or children of the civil partner of the disponer, are exempt from capital acquisitions tax regardless of the age of the child. The bill introduces an age limit such that the exemption will only apply to children under the age of 18, or those between the ages of 18 and 25 who are in full-time education. At present there is a similar exemption for payments made to orphaned minor children. The bill extends that exemption to orphaned children up to the age of 25 who are in full-time education to ensure that children of living parents and orphaned children are treated equally for capital acquisitions tax purposes. The changes are effective for gifts made after the passing of the Finance Act. Trusts for permanently incapacitated individuals Trusts established for the benefit of permanently incapacitated individuals are afforded relief from income tax provided they satisfy certain conditions. One of these conditions is that any funds remaining in the trust at the date of death of the permanently incapacitated individual have to be applied for charitable purposes. This condition is to be amended such that the trust deed can also provide for the remaining funds to be distributed to the estate of the permanently incapacitated individual where he/she is survived by a child, spouse or civil partner. This measure will come into operation on 1 January 2015 for newly created trusts and for existing trusts that amend the terms of their trust deed to provide for the distribution of remaining funds to the estate of the permanently incapacitated individual. Charitable discretionary trusts Charities are often structured as discretionary trusts. In general, discretionary trusts are subject to a once-off capital acquisitions tax charge of 6% of the trust s assets and an annual charge of 1% thereafter. However, discretionary trusts created exclusively for charitable or public purposes in Ireland or Northern Ireland were granted an exemption from these discretionary trust taxes. The terms of this exemption will now be amended such that there will be no territorial limit on the charity s activities, provided the purpose of that trust would be regarded as public or charitable under Irish law. In addition, an anti-avoidance provision has been introduced to ensure the exemption from discretionary trust tax does not apply to a discretionary trust established for public or charitable purposes if it is at any time a party to an arrangement, of which the main purpose is to secure a tax advantage for any person. These amendments will apply from the date of the passing of the Finance Act. Return of value on Vodafone shares As part of a return of value and share consolidation exercise in February 2014, Vodafone plc issued C shares to shareholders. The Finance Bill provides that return-of-value special dividends made in respect of these shares will be treated as a capital receipt for tax purposes where the payment does not exceed e1,000. However, a shareholder will be able to opt to have the payment treated as income. As a result, Irish shareholders who received this payment on foot of an original investment by them in eircom will have no tax liability where they are still carrying capital losses as a result of their original eircom investment.

6 4 TaxingTimes Finance Bill 2014 Employee Issues & Pensions John Bradley Partner Special Assignee Relief Programme The Special Assignee Relief Programme (SARP) is a tax relief, introduced in 2009, intended to encourage the relocation of key talent to Ireland. Such a scheme is essential for Ireland to remain competitive on the international stage and to continue to attract key skills. SARP provides relief in the form of a tax deduction from employment income for qualifying employees relocating to Ireland. Under the current programme (which applies to individuals arriving in Ireland in 2012, 2013 and 2014), tax relief is granted by allowing for a tax deduction equal to 30% of the difference between e75,000 and the total of the individual s employment income (subject to a ceiling of e500,000). Therefore the maximum relief allowed is e52,275, i.e. e127,500 (e425,000 x 30%) at the current marginal income tax rate of 41%. Restrictive features in the current scheme have resulted in low take-up. In 2012, only 15 employees availed of the relief (2013 data not yet available). The Finance Bill changes will allow for SARP to be available to a larger group of key talent relocating to Ireland. The new features include: An extension of SARP for individuals arriving in Ireland up to the end of 2017 Removal of the e500,000 ceiling for the tax years 2015 onwards (individuals who have arrived in Ireland prior to 1 January 2015 may also benefit from the removal of this ceiling) The following changes apply to individuals arriving in Ireland from 1 January 2015: The requirement to be tax-resident in Ireland only has been removed. This will allow employees to avail of this relief even if they retain tax residence in their home country. Where employees are required to perform duties outside of Ireland, the relief will still apply. The requirement for the employee to be hired by the relevant employer prior to their relocation to Ireland for 12 months has been changed to 6 months. While the above amendments are welcome, we would like to see the relief made more competitive by increasing the 30% deduction, extending it to cover USC, and permitting it to apply to new hires. By way of example: An employee is assigned to Ireland from the UK on 1 May 2015 for two years. The employee is Irish tax-resident but also retains UK tax residence up to 31 December The employee commenced employment with the relevant employer in the UK 14 months prior to assignment. Base salary of e250,000 with 40 workdays in the UK up to 31 December Although the employee is taxresident in the UK in 2015, the new measures introduced in relation to residence mean that the employee is not precluded from qualifying for SARP relief from 1 May Furthermore, the employee will continue to qualify for SARP in the year of departure. The fact that the employee works abroad during the assignment will no longer disqualify him/her from SARP relief. Administrative changes The bill introduces a requirement for employers to notify the Revenue of an employee s entitlement to SARP within 30 days of the employee s arrival in Ireland. It appears that failure to meet this condition will mean that the employee cannot avail of the relief. This condition is onerous and we would like to see the time period extended. There is also a requirement on the employer to deliver certain information in respect of the employee to Revenue by 23 February following the end of the relevant tax year. This is in line with the P35 filing deadline. Overall impact The most welcome feature of the SARP proposals is the removal of the e500,000 earnings ceiling for those qualifying for SARP, irrespective of whether the individual arrives in Ireland on or before 1 January However, onerous conditions continue to apply for those who have arrived in Ireland prior to that date. The proposed legislation appears to include a drafting error whereby the income qualifying for the relief is apportioned twice in the year of arrival or departure. This applies where the individual arrives in or leaves Ireland

7 TaxingTimes Finance Bill during the tax year. The result is that less relief will be available under SARP in those tax years. It is assumed that this was not intended and will be corrected in future drafts of the bill. Foreign Earnings Deduction Foreign Earnings Deduction (FED) is a tax relief available to employees of Irish companies who spend time working abroad in certain qualifying countries. The relief was introduced in Finance Act 2012 to support efforts by Irish companies to expand into emerging markets. The relief is available to Irish-resident individuals who spend at least 60 qualifying days working outside Ireland in any of the qualifying countries in a continuous 12-month period. Currently, a qualifying day is one of at least four consecutive days throughout the whole of which the individual is performing duties in any of the qualifying countries. The relief is calculated by applying the following formula: Qualifying employment income X Number of qualifying days in a year Number of days in year that the employment is held The bill introduces improvements to the relief, including a reduction in the minimum number of qualifying days in a 12-month period from 60 to 40. In addition, the requirement to spend four consecutive days in a qualifying country has been reduced to three days, and certain travel time can be included. Finally, the relief has been extended to 31 December By way of example, under the current rules, an employee who leaves Ireland every Monday and returns every Friday would not qualify for FED as that employee would not have four consecutive qualifying days when travel time is excluded. Under the new rules, that employee could have up to five qualifying days in each week travelled. The level of deduction available to an individual employee remains capped at e35,000 for any one year. This means that, while the maximum relief available in 2014 is e14,350 41%), the maximum relief available in 2015 will be e14,000 40%) due to the reduction in the marginal income tax rate. While raising the e35,000 cap on the relief would have been welcome, the relief has been extended such that more employees should qualify for the relief. The qualifying countries are as follows: Qualifying Countries - FED 2012 Additional qualifying countries in 2013 & 2014 Additional qualifying countries from 2015 to 2017 Brazil Egypt Senegal Japan Singapore Republic of Korea Russia Algeria Tanzania Saudi Arabia UAE Qatar India Nigeria Kenya Bahrain Indonesia Vietnam China Ghana Democratic Republic of Congo Thailand Chile Oman South Africa Kuwait Mexico Malaysia According to latest figures available from Revenue, only 83 FED claims were made during 2012, at a cost to the Exchequer of e0.6 million.

8 6 TaxingTimes Finance Bill 2014 Share scheme administration The bill provides for Form RSS1, which is the annual return of share options and other rights, to be filed electronically. It is expected that this will apply to returns for the 2014 tax year onwards. PAYE taxpayers with interest subject to DIRT Currently, individuals with deposit interest are required to file a tax return where that deposit interest was not coded onto their tax credit certificate. The bill excludes an individual with deposit interest that has been subject to DIRT from the definition of a chargeable person and relieves the requirement to file a personal tax return. This applies where the individual has total non-paye income of not more than e3,174 and any non-deposit interest is coded onto the individual s tax credit certificate. Pensions Deemed ARF and vested PRSA distributions The level of deemed minimum annual distributions from an Approved Retirement Fund (ARF) or vested Personal Retirement Savings Account (PRSA) are to change to the following from 2015: (a) Where the value of the fund is not greater than e2 million: - 4%, or - 5% where the individual is aged 70 years or over for the whole of the tax year, or (b) 6% where the value of the fund is greater than e2 million Unless distributions of at least this amount are actually made, the Qualifying Fund Manager is obliged to account for PAYE on the deemed minimum distributions. Withdrawals from an AMRF Previously, it was not possible to make withdrawals of the capital deposited in an Approved Minimum Retirement Fund (AMRF) until the AMRF converted to an ARF, e.g. at age 75. The bill provides that from 1 January 2015, an AMRF holder may draw-down up to 4% of the value of the assets in the AMRF each year, subject to PAYE. Tax charge on pension funds at retirement Where an individual s pension fund exceeds the higher of: a personal fund threshold (PFT) agreed with Revenue by the individual, or e2 million, a tax charge on the excess arises at retirement. The bill provides for the reduction of the applicable rate from 41% to 40% in line with the reduction in the higher rate of income tax. This reduction will apply in respect of retirements on or after 1 January Tax charge on pension funds at retirement In cases of separation and divorce, pension funds can become subject to a pension adjustment order (PAO), whereby a portion of the fund is designated for the party to the relationship who is not a member of the pension fund. The bill includes provisions to ensure that any tax charge on the excess over the member s Pension Fund Threshold (PFT) or e2 million, whichever is higher, is to be shared between the member and non-member parties

9 TaxingTimes Finance Bill i.e. discharged pro rata from that part of the fund retained for the member and that part of the fund subject to the PAO. Detailed administrative procedures to deal with the foregoing are included. This amendment takes effect from 1 January Anti-avoidance pension investments The definition of a distribution from an ARF, a vested PRSA and an occupational pension is being extended to include instances of assignments of the fund and joint investments with pension funds owned by connected parties where the connected party s return or unit value is or could be attributable to the investment. The bill includes provisions to ensure that such uses of assets are: regarded as distributions that are liable to PAYE, and deemed to be made by the Qualifying Fund Manager or scheme administrator, who is responsible for operating PAYE. Furthermore, the scheme trustees or administrators are to be chargeable to tax in respect of any income or gains arising from the use of the assets for joint investments with pension funds owned by connected parties. These changes take effect from 23 October NUI Galway employees The bill proposes relief for additional contributions to the NUI Galway pension scheme paid by an individual who was a fixed-term employee of NUI Galway during the period 14 July 2003 to 30 June The contribution can be made up to 31 December The usual four-year time limit on obtaining a tax refund in respect of a tax year is replaced with an extended time limit of four years from the end of the year in which the special additional contribution is paid. This amendment has effect from 1 January Pension levy As legislated for under Finance (No 2) Act 2013, the levies of 0.6% and 0.15% on pension fund assets will expire as follows: 0.6% levy at the end of % levy at the end of 2015 The combined levy of 0.75% that applied for 2014 will therefore reduce to 0.15% for 2015, with no pension levy for subsequent years.

10 8 TaxingTimes Finance Bill 2014 Business Tax Anna Scally Partner Employment and Investment Incentive (EII) The bill includes amendments to the tax regime for income tax relief for investments made in certain qualifying companies. EII relief was introduced into law in late 2011 to replace Business Expansion Scheme (BES) relief which was viewed by many as being too restrictive in scope and overly burdensome from an administrative perspective. The aim of EII relief is to provide small and medium enterprises (SMEs) with an alternative source of finance by providing income tax relief for individuals who subscribe for new shares in qualifying SMEs. There are a number of conditions which must be satisfied in order for the relief to be claimed and the Revenue Commissioners must certify that the relief applies in each case. The amendments proposed by the bill follow a consultation process undertaken by the Department of Finance with practitioners and industry representatives. The objective of the consultation process was to gain an understanding of potential improvements which could make the relief more attractive for companies and investors. The amendments proposed in the bill are as follows: An increase in the amount of finance which can be raised by qualifying companies. The existing 12-month threshold will be increased from e2.5 million to e5 million and the amount of finance which can be raised over the lifetime of a company will be increased from e10 million to e15 million. These proposed amendments should improve the position for those companies who require large amounts of capital to grow their businesses. An increase in the minimum holding period for which investors are required to hold their shares to avoid a clawback of the relief from three years to four years. This should improve the position for companies who may have otherwise been under pressure to redeem investors shareholdings after the initial three year period had elapsed. An extension of the scope of the relief to include medium-sized companies operating in non-assisted areas (such as Dublin and Cork city), companies involved in the management and operation of nursing homes, and internationally traded financial services. It should be noted that companies involved in internationally traded financial services must obtain certification from Enterprise Ireland in order to qualify for the relief. An amendment which requires that any claim for EII relief will not be allowed unless, at the time the claim is made, the company in which the investment is made qualifies for a tax clearance certificate. It appears that the intention is that a company which applies for certification as an EII company will be denied the necessary certification if it would not meet the requirements to obtain a tax clearance certificate. The relief is given by means of a tax deduction which is granted in two tranches. The first tranche is provided in the year in which the share investment is made with the second tranche provided in the year after the date on which three years of the fouryear holding period have elapsed. As the law currently stands the amount of the first tranche of the relief is 30/41sts of the amount invested. The second tranche is 11/41sts of the amount invested. A technical amendment is included to bring the calculation of both tranches in line with the proposed income tax rate so that the first tranche will be 30/40ths of the amount invested and the second tranche will be 10/40ths of the amount invested. This change is proposed to take effect from tax year 2015.

11 TaxingTimes Finance Bill Apart from the technical amendment in relation to the calculation of the tranches of relief, the other amendments highlighted above require a Ministerial Order to take effect as EU State Aid approval will be required. It is not yet known whether the above amendments will impact on any shares which are issued in 2014 or whether the changes will only impact on shares issued from 2015 onwards. Capital allowances for specified intangible assets The bill provides for enhancements to the capital allowances provisions for specified intangible assets. At present there is an 80% cap on the aggregate amount of capital allowances and any related interest expense that may be offset in any accounting period against related income (with any restricted amount carried forward for use in future years). The bill provides for the removal of this restriction. This will enable many companies to use the allowances and related interest over a shorter period and removes some of the complexity in calculating the allowances. The list of specified intangible assets on which capital allowances are available has been extended to include customer lists acquired as part of the transfer of a business as a going concern. This is an unexpected restriction and is likely to significantly limit the application of the relief to this class of asset. These two amendments are to have effect for accounting periods commencing on or after 1 January The bill also provides that, where intangible assets on which allowances have been claimed are sold on or after 23 October 2014, no balancing charge will arise where the sale takes place more than five years after the beginning of the accounting period in which the asset was acquired. Prior to this amendment the period could have been as long as 15 years, depending on when the asset was acquired. Another welcome amendment is that, where the acquirer is connected with the seller, the acquirer will be entitled to allowances on the capital expenditure incurred in acquiring the intangible asset. Where the capital expenditure incurred by the acquirer exceeds the amount of the seller s unclaimed allowances, the allowances of the acquirer will be restricted to the unclaimed allowances of the seller company. Company residence The Finance Bill confirms the amendments announced in the Budget to the company residence rules. These changes, designed to address concerns about the Double Irish structure, provide that a company incorporated in Ireland will, by default, be treated as resident in Ireland for tax purposes. There is one exception to this new rule. If a company is regarded as resident in another country under the terms of a tax treaty between Ireland and that other country, it will not be considered to be resident in Ireland. The bill also confirms that the changes do not prevent a non-irish incorporated company that is managed and controlled in Ireland from being resident for tax purposes in Ireland. These amendments apply from 1 January 2015 for companies incorporated on or after 1 January 2015, and from 1 January 2021 for companies incorporated before 1 January Entrepreneur s relief Finance Act (No 2) 2013 introduced a relief from capital gains tax (CGT) for individual entrepreneurs who reinvest the proceeds of previous asset disposals in new business ventures. The introduction of this relief was subject to obtaining EU State Aid approval. Such approval is not required where the relief complies with the EU General Block Exemption Regulation (GBER), which came into force on 1 July The Finance Bill amends the entrepreneur s relief to comply with the GBER so that EU State Aid approval is no longer required. Other amendments have been made in an effort to improve the effectiveness of the relief. However, it remains to be seen whether the relief will be effective in its proposed form.

12 10 TaxingTimes Finance Bill 2014 Pat McDaid Partner The bill provides for a CGT tax credit where the proceeds of disposals made on or after 1 January 2010, on which CGT has been paid, are applied in acquiring certain chargeable business assets during the period 1 January 2014 to 31 December The tax credit equals the lower of the CGT paid on the original asset disposed of (capped at the initial risk finance investment and in proportion to whether the full proceeds have been reinvested), or 50% of the CGT due on the subsequent disposal of the chargeable business assets. Initial risk finance investment means funding not exceeding e15 million, provided in full within six months of the commencement of the new business. To avail of the relief, an entrepreneur must have made a disposal of an asset on which he/she paid CGT in the period since 1 January This essentially restricts the cohort of entrepreneurs who might be capable of qualifying for the relief. Chargeable business assets for the purposes of the relief are defined as assets costing at least e10,000 which are either used wholly for the purposes of a new business, or comprise new ordinary shares in a qualifying company carrying on new business (or a 100% parent of such a company) where the individual claiming the relief owns at least 15% of the ordinary share capital and is a full-time working director of the qualifying company. A qualifying company is a qualifying enterprise that at the time the investment is made, is not listed on a stock exchange. A qualifying enterprise is one that qualifies as a micro, small or medium-sized enterprise under EU Commission recommendations (i.e. fewer than 250 employees and either annual turnover of less than e50 million or a balance sheet total of less than e43 million). The enterprise (or a person connected with the enterprise) must not have been carrying on the new business prior to 1 January 2014, and the enterprise must not have been carrying on a business, trade or profession for seven years or more. To qualify for the relief, the chargeable business assets must be held for more than three years. Subsequent disposals are capable of qualifying for the relief. Where, for bona fide commercial reasons, a person making the disposal of chargeable business assets first transfers the asset to a wholly owned company immediately prior to making a sale of the shares in that company, the tax credit should continue to be available. The provisions are to have effect retrospectively from 1 January Farming and Agribusiness Income tax A relief from income tax is currently available in respect of rental income from the lease of farmland by one individual to another. The relief exempts the lessor from income tax on progressively increasing amounts linked to the duration of the lease. The Finance Bill improves the relief by increasing the exemption thresholds by 50% and introducing a fourth threshold for lease periods of 15 years or more. The bill also removes the pre-condition for a lessor to be either 40 years of age or over, or permanently incapacitated. The bill provides for the relief to be extended to include income from the lease of land to a company that uses the land for the purpose of farming. However, the relief will not apply if the company is connected to the lessor. Under the current rules, there is an income averaging system which gives the farmer the option to average his/ her farming income over a threeyear period for tax purposes. The bill extends this period to five years. It also extends the averaging regime to allow income-averaging by farmers who derive income from another trade or profession as a result of on-farm diversification. Special transitional measures are included for those farmers who opted into the income averaging system in 2014 or opted out of it for 2015 or Capital gains tax Under the current rules for capital gains tax (CGT) retirement relief in relation to farm land, the individual concerned must have owned and farmed the land for the 10-year period prior to its

13 TaxingTimes Finance Bill disposal. Where the land has been leased by the individual, in order to qualify for the relief the individual must have owned and farmed the land for a 10-year period immediately prior to the lease and the land cannot have been let for a period in excess of 15 years. To help ensure that farms are transferred to the next generation of farmers, the relief is being extended to apply to farm land which has been leased out for periods of up to 25 years prior to disposal. The bill provides for retirement relief on a disposal of land currently let under conacre agreements and which is disposed of on or before 31 December The bill also provides that, where individuals switch land from conacre letting to long-term leasing (i.e. leases of not less than five years) before the end of 2016, the disposal of the farm land will also qualify for CGT retirement relief, subject to certain conditions. CGT relief for qualifying farm restructuring was introduced in Finance Act The bill provides for the completion date for the first part of the restructuring to be extended by 12 months, to 31 December While the Budget speech indicated that the relief would extend to the replacement of an entire farm, this is not included in the bill as published. The bill also provides for an exemption from capital gains tax for chargeable gains arising from the disposal by farmers of payment entitlements under the Common Agricultural Policy Single Payment Scheme, subject to certain conditions. Stamp Duty The Finance Bill legislates for the Budget Day announcement on exempting from stamp duty the granting of leases of agricultural land for a term of five to 35 years. Such leases would otherwise be subject to stamp duty at a rate of 2% of any premium and 1% of the average annual rent reserved under the lease. The exemption is subject to the lessee using the land exclusively for commercial farming or forestry purposes. The lessee must farm the land for a minimum of 50% of his/her normal working time from the date on which the lease is executed. The bill also provides for a clawback of the relief if the lessee fails to satisfy this condition throughout the first five years of the lease term. Consanguinity relief is a relief from stamp duty which reduces the stamp duty rate by half (from 2% to 1%) on the transfer of non-residential property between certain relatives. This relief will expire on 31 December Further to the announcement in the Budget, the bill provides for the retention of this relief until 1 January 2018 for transfers of land where the transferor is under 66 and the transferee spends at least 50% of his/ her normal working time farming land (which must include the transferred land) on a commercial basis for a period of at least five years after the transfer. The bill adds the Bachelor of Science (honours) in Sustainable Agriculture to the list of eligible qualifications required to meet the definition of a young trained farmer. A qualifying young trained farmer can avail of stamp duty relief on transfers of farm land where certain conditions are satisfied. Start-up relief for entrepreneurs The minister announced in the Budget that the Seed Capital Scheme will be rebranded as Start-up Relief for Entrepreneurs (SURE). This follows public consultation on the Seed Capital Scheme during Details of proposed changes were not included in the bill but are expected to be released in the coming months. The minister did, however, confirm after the Budget that the relief will apply to individuals who have been unemployed for up to two years.

14 12 TaxingTimes Finance Bill 2014 Conor O Sullivan Partner Start-up companies 3-year relief The three-year relief from corporation tax on trading income and capital gains on certain capital assets used in trade, introduced in 2009, will be extended to new companies which commence a new trade in The measure relieves a company from corporation tax where its annual corporation tax liability on qualifying income and gains does not exceed e40,000 (marginal relief is also available where the corporation tax liability is between e40,000 and e60,000). The relief is capped at the amount of employer s PRSI contributed in the period. A review of the operation of the measure will take place in Energy-efficient equipment The bill gives effect to the Budget Day announcement on extending the scheme for accelerated capital allowances for certain energyefficient equipment (due to expire at the end of 2014) for three years, to the end of This incentive was introduced as a means of encouraging businesses to invest in energy-efficient equipment. The scheme provides for a 100% deduction in the first year for expenditure incurred on qualifying equipment. In addition, the categories of technology which may qualify for accelerated capital allowances have been amended to be brought up to date with technological developments. The taxpayer still needs to ensure that the particular equipment complies with the relevant criteria and is included on a list maintained by the Sustainable Energy Authority of Ireland. Film relief The bill makes a number of amendments to the provisions which provide relief for investments in films. The provisions previously required a qualifying company to exist for both the production and distribution of a qualifying film. The bill removes the requirement for the company to distribute the film. It broadens the tax compliance requirements to include companies controlled by applicants for the relief. The bill also amends the minimum expenditure requirements to bring the provisions into line with EU rules on State Aid to this sector. To qualify, the eligible expenditure amount must now be at least e125,000, or the total cost of the production must be at least e250,000. Finally, the bill removes the requirement for applications to be made in advance of the commencement of principal photography, first animation drawings or first model movements. This is to allow for the contracting of elements of a production to a qualifying company in Ireland after the overall production of a film has commenced. Double taxation treaties The bill ratifies new double taxation agreements with Botswana and Thailand, as well as new protocols to existing treaties with Belgium, Denmark and Luxembourg. Relief for microbreweries Currently, microbreweries producing up to 20,000 hectolitres of beer per annum qualify for a special relief which reduces their Alcohol Products Tax liability by 50%. The bill provides that, from 1 January 2015, the relief will be extended to microbreweries which produce not more than 30,000 hectolitres of beer per annum. In addition, where beer is brewed by one

15 TaxingTimes Finance Bill Eoghan Quigley Partner qualifying brewery for another under a licence (or other arrangement), relief is still available, provided that, in the previous calendar year, the quantity of beer brewed in each of the breweries did not exceed 30,000 hectolitres and the combined total quantity of beer brewed did not exceed 60,000 hectolitres (an increase from the previous limits of 20,000 and 40,000 hectolitres respectively). Accounting standards Irish tax legislation contains certain transitional provisions which apply where a company s taxable profits begin to be calculated under International Financial Reporting Standards (IFRS) or equivalent Irish Generally Accepted Accounting Practice (GAAP) standards. The purpose of the rules is, in the case of revenue recognition and gains and losses on financial assets and financial liabilities, to ensure that, on the move to IFRS, no amounts are doublecounted for tax purposes and that no amounts fall out of the charge to tax. The provisions also contain rules for bad debts and bad debt provisions to ensure that, where a bad debt is written off against a provision that has not been deducted for tax purposes, the write-off of the debt will be deductible for tax purposes. The bill extends the transitional arrangements to companies that are changing their accounting standards in order to comply with the new Irish and UK Financial Reporting Standards (FRS) that will take effect from 1 January Capital gains tax and de-grouping The bill includes a technical amendment to the capital gains tax de-grouping provisions. It clarifies that any gain will be a chargeable gain in the accounting period in which the company owning the asset ceases to be a member of the group. Wasting assets A gain on the disposal of a wasting asset is exempt from capital gains tax. The bill amends the definition of a wasting asset to ensure that certain works of art do not qualify for the exemption. Capital gains tax relief time limits To date, the time limits applicable to the amending of assessments which relate to capital gains tax retirement relief and relief on disposals of assets to the State or to a charity have been different to those generally applicable to capital gains tax. The bill deletes these time limits. As a result, the general four-year time limit for making or amending an assessment will now apply. Non-commercial statesponsored bodies Certain non-commercial statesponsored bodies are exempt from certain tax provisions. The bill expands the relevant section to include the Credit Union Restructuring Board and the Health and Social Care Professionals Council. The exemptions take effect from the date that the bodies were established.

16 14 TaxingTimes Finance Bill 2014 Accounts information Irish tax legislation now requires accounts and accounts information to be provided to the Revenue in electronic format. The bill updates some older provisions in this respect. Obligation to keep certain records Irish tax legislation requires that certain records must be kept, in general, for a period of six years. The bill extends the retention period of records where an inquiry, investigation, appeal, judicial process or claim is ongoing until such time as the inquiry, investigation, appeal, judicial process or claim has been completed. An obligation to retain records of a deceased person is also imposed on the personal representatives of the deceased person. Personal representatives will need to be aware of this obligation as there are penalties for failing to comply. Professional Services Withholding Tax (PSWT) The Finance Bill amends the list of Accountable Persons for Professional Services Withholding Tax (PSWT) purposes. PSWT applies to payments made by accountable persons to individuals and companies in respect of professional services. Four entities have been removed from the list of accountable persons: An Foras Áiseanna Saothair; Arramara Teoranta; Forfás, and any county Enterprise Board within the Schedule to the Industrial Act, In their place, three entities have been added to the list: Child and Family Agency; An tseirbhís Oideachais Leanúnaigh agus Scileanna (SOLAS), and any regional assembly established under the Local Government Act, 1991.

17 TaxingTimes Finance Bill Research & Development Ken Hardy Partner Ireland s Research and Development (R&D) regime currently operates on an incremental basis. This means that the 25% R&D tax credit is available on current-year qualifying expenditure to the extent that it exceeds the qualifying R&D expenditure incurred in 2003 (this is known as the base year ). As indicated by the Minister for Finance in the Budget, the Finance Bill provides for the complete removal of the 2003 base year restriction. This change will enable companies to claim the R&D tax credit on a volume basis; i.e. they will be entitled to claim credit for all current-year qualifying expenditure. The change both enhances and simplifies the R&D regime. It will apply for relevant periods (usually the same as a company s accounting year) commencing on or after 1 January The cost of removing the base year is expected to be 50 million annually, according to the Budget documents. The fact that the Government is willing to invest this amount clearly indicates the importance of the R&D tax credit to Ireland s corporation tax offering. The bill includes a further technical amendment to the R&D tax credit provisions relating to the cessation of activities at R&D centres. This change will not affect R&D credit claims made in respect of relevant periods commencing on or after 1 January 2015.

18 16 TaxingTimes Finance Bill 2014 Financial Services Colm Rogers Partner Investment funds The bill amends the tax regime for non- Irish funds to ensure that neither a non- Irish UCITS (Undertaking for Collective Investment in Transferable Securities) nor a non-irish AIF (Alternative Investment Fund) will be considered chargeable to Irish tax solely by reason of the fund being managed by a management company or Alternative Investment Fund Manager, or by an Irish branch or agency of an AIFM authorised in another European Economic Area (EEA) state. This change will be implemented by the replacement of an existing provision which applies only to UCITS. It should be noted that, if the UCITS or AIF would otherwise be chargeable to Irish tax by virtue of an entitlement to Irish source income, the new provision will not operate to exclude the fund from the charge to Irish tax on that income. The new measures will take effect from 1 January Short-term leases of plant and machinery Under the special regime for shortterm leases of plant and machinery, certain lessors of assets with a useful economic life of not more than eight years can, in broad terms, elect to be taxed based on their accounting profits. Under the regime, the acquisition cost of qualifying assets may be deducted by lessors in line with accounting depreciation computed in accordance with generally accepted accounting practice (instead of standard capital allowances). While the regime originally applied to finance lessors only, it was extended to operating lessors by Finance Act As this extension was designed to apply to new portfolios of assets, a threshold restriction was introduced for operating lessors who elected into the regime where the lessor (or its affiliates) had existing leasing portfolios. The bill removes the threshold restrictions on a phased basis. This should bring about parity between operating lessors established pre- and post-2010, who have elected into the regime. The new measures will take effect from 1 January Stamp duty exemptions The bill provides that neither the National Treasury Management Agency (NTMA) nor the Minister for Finance (in relation to a function exercised by the minister which is capable of being delegated to the NTMA under section 5 of the NTMA Act 1990) will be an accountable person for stamp duty purposes. This provision replaces an existing exemption. The bill also provides that certain types of securities, including debt securities, issued by the Minister for Finance or the NTMA acting on behalf of the Minister for Finance or the Minister for Agriculture will be exempt from stamp duty. The new measures will take effect from the passing of the Finance Act. Bank levy The bill contains a technical amendment to enable Revenue to raise a stamp duty assessment where a financial institution has failed to deliver a full and proper bank levy return. The new measures will take effect from the passing of the Finance Act. Reporting of interest payments Currently, certain financial institutions, such as banks, investment funds and assurance companies, are required to make annual returns electronically

19 TaxingTimes Finance Bill Gareth Bryan Partner to the Revenue relating to customers to whom they have made payments of interest and certain other types of payments. The bill extends the scope of this requirement to include an agent appointed by the NTMA to carry out certain functions of the NTMA in respect of State savings products. For this purpose, the term State savings products means savings products offered by the Minister for Finance through the NTMA, including Post Office Savings Bank accounts and prize bonds. Incentives for certain aviation services facilities Finance Act 2013 introduced provisions to grant industrial buildings allowances for capital expenditure incurred on the construction of buildings or structures used for the purposes of a trade which consists of the maintenance, repair or overhaul of commercial aircraft or the dismantling of commercial aircraft for the purpose of salvaging or recycling parts or materials. This could include aircraft hangars, maintenance sheds and tear-down facilities. The bill includes restrictions to the proposed scope of the incentive to comply with EU State Aid requirements, and provides that certain information must be provided when making a claim for allowances. Industrial buildings allowances will now only be available where qualifying buildings are constructed in regionally assisted areas (such as Shannon Airport) and comply with EU Regional Aid Guidelines. The commencement of the relief remains subject to the issue of a Ministerial Order. Securities issued by Bord Gáis Éireann gas network company The Gas Regulation Act 2013 provided for the establishment of a subsidiary company of Bord Gáis Éireann, to be responsible for the ownership and operation of the gas network. The bill provides that interest on any securities issued by the new gas network company may be paid without deduction of withholding tax and that such securities will not be chargeable assets for capital gains tax purposes. The new measure takes effect as respects any securities issued by the new gas network company on or after 23 October Transfers of right to receive interest from securities Where the owner of a security transfers the related right to receive interest, without transferring the security, the owner may nonetheless remain liable for tax on the interest, despite not receiving the interest. The bill includes provisions to disapply this treatment if: (i) the interest would not have been chargeable to tax in Ireland had it been received by the owner at any time between the date of transfer of the right to receive the interest and the date the interest was paid, or (ii) where the proceeds from the transfer of the right to receive the interest are taken into account in computing the income of the owner for income tax or corporation tax purposes under principles applicable to Case I or Case II of Schedule D. The new measure applies to a transfer which takes place after 23 October OECD Common Reporting Standard (CRS) The bill was expected to include measures to permit entities within the scope of the OECD Common Reporting Standard (the new global initiative for the automatic exchange of information for calendar year 2016 onwards) to begin collecting certain information for account holders from 1 January Since the measures were not included in the bill, it is expected that they will be introduced at Committee Stages. The measures will be of significant importance to the financial services sector which will want to minimise the administrative cost and burden of collecting account-holder tax information for FATCA, CRS and other similar exchange of information initiatives.

20 18 TaxingTimes Finance Bill 2014 Property and Construction Jim Clery Partner Expiration of seven-year capital gains tax exemption As expected, given the recent increase in levels of activity in the property sector, the bill has not extended beyond 31 December 2014 the capital gains tax exemption for gains on land or buildings purchased and owned for a period of seven years. If an unconditional contract for the acquisition of the property is signed before 31 December 2014, the exemption should be available on a subsequent gain on a disposal of that property that meets the conditions. Abolition of windfall tax The bill confirms the abolition of the windfall tax provisions introduced in 2009 that applied an 80% rate of tax to certain profits or gains from disposals, where those profits or gains were attributable to a relevant planning decision. The 80% tax rate will be abolished for disposals on or after 1 January This measure should remove a disincentive to the sale of certain land holdings. Home renovation incentive extended Finance (No.2) Act 2013 introduced a new incentive (a 13.5% tax credit) for individuals who were owner-occupiers and who renovated or improved their principal private residence located in Ireland in 2014 or 2015, using the services of a tax-registered and taxcompliant builder/contractor. The bill introduces measures to extend this incentive to include rental properties owned by individual landlords, where the property is occupied under a tenancy registered with the Private Residential Tenancies Board (PRTB), or which is intended for occupancy under a tenancy registered with the PRTB, and is occupied within six months of completion of the qualifying work. The new relief is available for work carried out from 15 October 2014 until 31 December Transitional rules will apply in certain cases for expenditure incurred from 15 October 2014 to 31 December 2014, and from 1 January 2016 to 31 March 2016, which will deem the expenditure to be incurred in 2015 for the purposes of the new relief. If the work involves conversion of the residential premises into more than one unit, relief is available for work on each of those units. There has been no change to the minimum spend amount, which remains at 5,000 (inclusive of VAT). The maximum credit available is 4,050 per residential property. In addition to the reporting requirements already in place through the Revenue s online system, the contractor will now be required to notify Revenue where the work is being carried out on a rental property and the number of units the rental property is being converted into, if relevant. The property owner will have to make similar confirmations when claiming the relief. Living City Initiative The Living City Initiative is aimed at the regeneration of retail and commercial districts, and encouraging families to live in historic buildings in six cities. The relief is subject to European Commission approval, but discussions are at an advanced stage and it is hoped that the local authorities in Dublin, Cork, Limerick, Waterford, Galway and Kilkenny will be in a

21 TaxingTimes Finance Bill position to suggest final proposals for eligible areas that will qualify for the relief later in 2014, with full rollout of the initiative in early The relief is intended to include regeneration works on any residential buildings built prior to 1915, and now includes single-storey buildings. The bill introduces measures to ensure that a claim for relief is made electronically and that certain information is provided to Revenue with the claim, including details of the aggregate of all qualifying expenditure incurred in respect of the qualifying premises. In relation to the conversion or refurbishment of certain commercial premises, the bill incorporates new limits on the amount of qualifying expenditure on which relief can be claimed. These are 1,600,000 in the case of a company, and 400,000 in the case of an individual. To comply with EU State Aid rules, the bill also incorporates provisions which ensure that, where expenditure is incurred by two or more persons, the maximum amount of expenditure on which relief is available does not exceed 200,000. Similar to the above provisions for residential buildings, the bill introduces measures to ensure that certain information must be provided to Revenue electronically before the first claim for relief is made, including details of the aggregate of all qualifying expenditure incurred in respect of the qualifying premises and a brief description of the nature of the retail or other services provided/or to be provided in the qualifying premises. Rent-a-room relief The threshold for exempt income under the Rent-a-Room Scheme has been increased to 12,000 per annum from 10,000 per annum for the tax year Relevant contracts tax Amendments have been made to the Relevant Contracts Tax (RCT) legislation to introduce a revised range of penalties to be applied where a principal contractor fails to operate RCT on payments to subcontractors. The penalties, based on the amount of the payment, vary between 3% and 35% depending on the subcontractor s profile and will apply from 1 January Where a penalty arises due to the non-operation of RCT on a payment, the bill introduces a new requirement for a principal contractor to submit an unreported payment notification to Revenue. The details of what will be required in this notification will be set out in regulations to be issued by the Revenue. Refund of DIRT for firsttime purchasers The bill provides for a refund of deposit interest retention tax (DIRT) deducted from interest on savings used by first-time purchasers to buy a house or apartment for use as their place of residence. First-time purchaser is defined as an individual who has not, either individually or jointly, previously purchased or built any other house or apartment. The bill provides for a refund of DIRT to be made to a first-time purchaser on making a claim. Details of how claims can be made will shortly be published by the Revenue. The refund applies to DIRT deducted from interest paid on savings by the first-time purchaser (up to a maximum of 20% of the consideration paid for the dwelling) at any time in a 48-month period ending on the date of the conveyance into the name of the firsttime purchaser. The relief applies to the conveyance of a house or apartment on or after 14 October 2014 and prior to 31 December It does not apply to self-builds or the purchase of sites. Given the current low rates of interest being earned on deposits, the relief, while helpful, is unlikely to materially change a buyer s circumstances.

22 20 TaxingTimes Finance Bill 2014 Indirect Taxes Terry O Neill Partner Anti-fraud VAT measures The Finance Bill contains a number of measures to counteract the fraudulent evasion of VAT. It is proposed that the Revenue will have the power to make a person jointly and severally liable for unpaid VAT due to the Revenue by another person. This may arise in circumstances where the person is involved in a transaction or series of transactions and that person knows, or is reckless as to whether or not, the transaction (or series of transactions) was connected with the fraudulent evasion of VAT. In addition, the Revenue may serve a notice on a taxpayer to issue a document (or documents) similar to a VAT invoice in circumstances where the supplier would otherwise not be obliged to issue a VAT invoice. This would only apply for the purposes of an enquiry or investigation where the Revenue believe that the notice may assist in the prevention and detection of tax evasion. An example of where this may apply would be sales to unregistered customers where an obligation to issue an invoice would not (otherwise) exist. The maximum period covered by a notice is two months. The Revenue will be entitled to impose a penalty of 4,000 where the person fails to comply with the notice. These provisions will take effect on the passing of the Finance Act. Farmer flat-rate addition The bill provides for the increase in the flat-rate farmer addition from 5% to 5.2% with effect from 1 January The flat-rate scheme compensates unregistered farmers for irrecoverable VAT incurred on their farming inputs. Pension schemes The bill contains measures to extend the VAT exemption for the management of qualifying funds to defined contribution pension funds (other than one-member defined contribution pension funds). Up to now, services consisting of the management of defined contribution pension funds in Ireland would have been subject to standard rate VAT (currently 23%). The measure will take effect from 1 March However, as the change follows a ruling by the Court of Justice of the European Union, there is the possibility for suppliers and recipients of such services to revisit the VAT treatment applied to such services in prior years. Golf clubs The bill introduces measures to place on a statutory footing the VAT exemption for green-fees payable at member-owned golf clubs. This measure will take effect from 1 March 2015, although the Revenue had already accepted that exemption applies following a recent Court of Justice of the European Union VAT ruling, which confirmed that greenfees qualify for VAT exemption in such circumstances. Previously, VAT at the rate of 9% applied. Childcare The exemption from VAT which applies to the care of children and young persons is being extended with effect from the passing of the Act to include fostering services (as defined in childcare legislation), including services provided by certain bodies on a profitmaking basis. Herbal tea The bill introduces a measure to ensure the same VAT treatment applies to herbal tea as to other tea products, with effect from the enactment of the bill. Aircraft and vessels services The bill contains measures to clarify the scope of the VAT zero rating for supplies of certain intermediary services provided in respect of aircraft and aircraft parts used by qualifying international airlines, and in respect of seagoing vessels and parts for such vessels.

23 TaxingTimes Finance Bill Niall Campbell Partner These measures will take effect from the passing of the Finance Act. Duty to keep records The bill introduces a requirement to retain documents that show calculations linking relevant accounts and returns to the underlying VAT records. The requirement to keep such documents is already in place in respect of other taxes. The bill also provides that records (including linking documents) must be retained for a period of six years from the date of the transaction to which they relate and, in cases where the transaction is subject to a dispute with Revenue or other proceedings, the records must be retained until that dispute or proceedings have been finally determined. These provisions will take effect when the bill is enacted. Excise The following excise-related measures are included in the bill: Confirmation of the increase announced in the Budget in excise duty on tobacco products from 15 October 2014 including (when VAT is taken into account) a 40 cent increase on a pack of cigarettes in the most popular price category The application of mineral oil tax, including carbon tax, to natural gas and biogas used as vehicle fuel and related registration requirements (subject to Ministerial Commencement Order) Licensing requirements for mineral oil traders (with effect from the passing of the Act) and provision for deferred payment of mineral oil tax subject to Ministerial Commencement Order) The extension of Vehicle Registration Tax (VRT) reliefs available for the purchase of certain electric vehicles and electric motorcycles to 31 December This measure will take effect from the passing of the Finance Act.

24 22 TaxingTimes Finance Bill 2014 Revenue Powers Kevin Cohen Partner Anti-Avoidance legislation New anti-avoidance legislation The bill introduces two new sections to replace the general anti-avoidance provisions included in section 811 and section 811A. The new measures do not significantly move away from the principles of the existing anti-avoidance provisions, but the process by which Revenue has the power to withdraw a tax advantage has been simplified. A new section, 811C (replacing section 811), removes the requirement for the Revenue to form and issue an opinion that a transaction constitutes a tax avoidance transaction in order to withdraw a tax advantage. Under the new provisions, Revenue may make any adjustment (e.g. raise or amend an assessment) solely on the basis that it would be reasonable to consider that the transaction gives rise to a tax advantage and that obtaining the tax advantage was the purpose of the transaction. The new provisions also specifically disapply all time limits on the Revenue s ability to withdraw a tax advantage unless they have received a protective notification within 90 days of the commencement of the transaction. The new provisions are to apply in respect of transactions entered into after 23 October The new section 811D (replacing section 811A) increases from 20% to 30% the surcharge on tax which becomes payable as a result of the Revenue denying a tax advantage under the general anti-avoidance provisions. The new provisions also extend the scope of the surcharge which becomes payable under other specific anti-avoidance provisions, as specified in a schedule to the bill. Under the existing provisions, a taxpayer could make a protective notification that would protect them from the surcharge. This option is still available but the taxpayer is required to satisfy additional conditions, including the submission of (i) all documentation pertaining to the transaction and (ii) an opinion by the taxpayer (or someone on their behalf) as to why the general antiavoidance provisions do not apply. Where a taxpayer decides to make a disclosure in relation to a transaction after the expiry of the time limits for making a protective notification but before the Revenue commences enquiries into the transaction, the taxpayer can avail of a reduced surcharge. In addition, a reduced surcharge would apply where a taxpayer makes a disclosure at any point before the hearing of an appeal by the Appeal Commissioners. To avail of these reduced surcharges, the taxpayer must make a full signed disclosure of all details and pay all tax and interest due. Amendment to existing anti-avoidance legislation Under provisions included in the bill, taxpayers will have the opportunity to make a disclosure of tax avoidance transactions which commenced on or before 23 October The benefits of such a disclosure include the non-imposition of the 20% surcharge and a reduction of 20% in the statutory interest chargeable. It appears that such disclosures could be made whether or not the Revenue had already formed an opinion that a transaction is a tax avoidance transaction. Mandatory disclosure The bill introduces a number of measures to add to existing mandatory disclosure provisions. Under the updated rules, the Revenue will assign a unique reference number to all disclosable transactions within 90 days of receipt of the relevant disclosure. Similar to the system in place in the UK, all promoters or

25 TaxingTimes Finance Bill marketers of disclosable transactions will have to provide this unique reference number to all taxpayers involved in the transaction, and all of those taxpayers must quote the reference number on each return or tax declaration affected by the transaction in question. This will allow Revenue to easily identify those taxpayers from whom additional tax must be sought, if they find that the transaction resulted in an underpayment of tax. The bill also introduces a new type of disclosable transaction, being all transactions to which a trustee of a discretionary trust is a party unless the transaction is of a type specified in the regulations. Draft regulations have not yet been released. The bill amends the mechanism by which Revenue seek payment of liabilities arising from the denial of tax advantages and the timing of the payments. Where the Appeal Commissioners have determined an appeal of the decision by the Revenue to deny the tax advantage and that determination is not fully in favour of the taxpayer, Revenue will have the right to issue a payment notice to the taxpayer requiring the immediate payment of the tax arising. This payment is required even though the issue may not be fully decided due to the taxpayer having a right to (i) have the appeal reheard in the Circuit Court, or (ii) have a case stated by the Appeal Commissioners and sent for the opinion of the High Court. Where it is ultimately found that the payment made on receipt of the payment notice exceeds the tax properly due, the taxpayer will be entitled to interest from the Revenue on the repayment. The current rate of interest applicable to refunds of tax is 0.011% per day (c. 4% per annum). Other measures The bill provides that a taxpayer will be liable to a surcharge where the taxpayer deliberately or carelessly submits a timely but incorrect return and does not rectify the error before the return deadline. However, the taxpayer will not be subject to a surcharge where the taxpayer submits a timely but incorrect return and pays the full amount of any penalty for making the incorrect return. The bill also provides for the introduction of an electronic tax clearance system to improve the efficiency of the process. The tax compliance status of the applicant may be reviewed by the Revenue on an ongoing basis and may result in certificates being rescinded. The new tax clearance procedures will come into operation from a date to be specified by Regulations.

26 24 TaxingTimes Finance Bill 2014 Base Erosion and Profit Shifting (BEPS) update for Irish businesses Conor O Sullivan Partner Background Since the release of the BEPS Action Plan by the Organisation for Economic Co-operation and Development (OECD) over 12 months ago, there has been much speculation and debate (not all of it well informed) as to the potential impact this review will have on businesses, and the timing of any changes. The BEPS project has threatened to overhaul the international tax landscape by reforming the rules around key areas such as access to double tax treaties, creating a taxable presence (permanent establishment) and transfer pricing, thereby altering the taxable profits allocated to your business operations across the jurisdictions in which you operate. The key focus of BEPS is to move towards a tax system where the taxation of profits is based on substance and economic activity. There is also a stated aim to limit some of the opportunities for tax planning adopted by multinational companies (MNCs) that result in non-taxation of profits anywhere. The task is not an easy one given the long-established and generally well understood current rules and the need to achieve consensus across the various OECD member countries. The BEPS Plan set out 15 actions on which the OECD would report. Reports on seven of these actions were released on 16 September 2014 and are discussed briefly below. Reports on the remaining eight actions are due over the next 12 months. While some progress has been made, there are many areas where further work is required and where reaching consensus on implementing specific measures will be challenging. It is difficult to identify an outcome on any of these items which will not be potentially disruptive to business models or the status quo. While a deadline of the end of 2015 has been set to conclude on the actions, even where high-level agreement is reached, the process of implementing detailed measures into local law is likely to take some time to complete. It is very unlikely that Ireland will take steps to implement detailed measures arising from the Action Plan until the overall picture has become clearer. Is the BEPS Plan achieving consensus? While some consensus has been reached, there are also differences in views between the participating countries. As the detailed proposals emerge, a number of the larger economies are realising that they have as much to lose as to gain from some of the proposals. Inevitably, such matters will have to be addressed politically. What seems likely from the outputs to date is that differences in views of participating countries will lead to proposals which offer a menu of options for countries to adopt in order to achieve consensus on a common direction. In our view, this is likely to lead to more complexity in future for taxpayers, as businesses operating in multiple jurisdictions may have to cope with local country adoption of measures which range across a menu of broad-based options. There

27 TaxingTimes Finance Bill is concern that the risk of greater complexity arising from the need to cope with multiple local country variations in implementing measures will inhibit, rather than support, taxpayers efforts to expand through cross-border trade. The following sets out in summary form the broad thrust of the recent announcements. Action 1: Tax Challenges of the Digital Economy Concerns have been raised that businesses operating in the digital economy have exploited the mobility inherent in the use of technology to avoid the creation of a taxable presence in their customers markets. The report acknowledges that the digital economy is pervasive throughout business and that it does not make sense to create a new and different framework for companies operating in the digital economy. As such, much of the work in this area will fall within the parameters of other actions, in particular the ongoing work on intangibles (Actions 8 to 10) and on permanent establishments (Action 7). One area of specific focus identified is the potential to adopt a destinationbased VAT model for Business-to- Consumer (B2C) supplies, where the place of supply for VAT purposes is deemed to be the location of the customer. Such an approach would appear to be the most practical and appropriate way of addressing concerns in this area and would be familiar to Irish companies due to the impending EU VAT changes on 1 January The final outcomes may lead to changes in the current international framework for recognising taxable presences and the basis of attribution of profits to activities in different jurisdictions. For example, an Irishbased head office with centralised or remote sales functions, combined with on-the-ground activities in the customer market, could find that changes to the rules for recognising a permanent establishment could lead to taxable presences in markets where it currently does not have any. Activities currently considered to be ancillary and below the scope of a taxable permanent establishment in the local market might, under future guidance, be considered to be core and could, therefore create a taxable permanent establishment. Similarly, the extent to which in-market activities (including the provision of digital supplies) could create a taxable presence through a local permanent establishment will also be considered. In circumstances where your business already has a local business presence, outcomes from the combined effect of BEPS actions may result in a greater attribution of profits under transfer pricing principles to the activities conducted in those markets. Action 2: Hybrid Mismatches This report addresses the issue of double deductions for payments (i.e. deductions in two countries for the same expense) and non-taxation of profits anywhere that can arise from planning that takes advantage of Hybrid Mismatch Arrangements. The report sets out recommended measures for countries to adopt in local law and in tax treaties to neutralise such opportunities. The treaty measures also propose to change the manner of applying a tie-breaker test to a dual resident company to replace the effective management tie-breaker test for companies with a competent authority agreement. These mismatches in treatment can result in a deduction for a payment with no taxable income recognised anywhere, or in double deductions for a single payment. The recommended approach is to align the tax treatment

28 26 TaxingTimes Finance Bill 2014 of an instrument or entity with the tax outcomes in the counterparty jurisdiction to ensure the payment is treated consistently. For example, if a hybrid arrangement results in a deduction for a payment with no taxable income recognised, either the deduction is denied in the country of the payor if the payment is not taxed in the country of the recipient, or the country of the recipient would tax the receipt where there is a tax deduction taken. The use of hybrid entities, such as partnerships which can be viewed as opaque entities and taxed at the partnership level in one country but as transparent with partnership income taxed on the partners in another country, are also within the scope of this action. The EU has already moved to adopt anti-hybrid measures in the EU-Parent Subsidiary Directive by the end of 2015, by introducing measures to deny a participation exemption for dividends in the country of the parent where the payor has obtained a tax deduction for the payment. Groups with tax planning arrangements that take advantage of current mismatches in the tax treatment of instruments and legal entities to achieve double deductions for expenses or non-taxation of income will likely be affected by these measures. These rules, should they be implemented, will require you to review the treatment of your intragroup payments. Ireland already has a number of domestic anti-avoidance measures which serve to protect its tax base from the effects of these mismatches, but Irish-headquartered groups will also need to consider the impact of foreign measures on existing structures. Our view is that these measures are not likely to affect the common use of interest-free loans by Irish companies. Action 5: Countering Harmful Tax Practices The overall focus of this action is to improve substance (to better align taxability of profits with substance and economic activity) and transparency (through exchange of information). From an Irish perspective, the report makes it clear that countries are free, broadly speaking, to set their own tax rates and therefore Ireland s 12.5% corporation tax rate on trading income is not in any way under review. In addition, tax incentives for R&D are not in themselves considered harmful. Of interest to many groups will be the future findings under this action of the review into the preferential tax regimes currently in existence for intellectual property (IP), such as patent/innovation boxes. These findings will heavily influence the framework for Ireland s Knowledge Development Box, which is to be introduced in The action refers to the need for substantial activity to avail of any regime, but what exactly this entails has not yet been agreed. Through the work of the Code of Conduct group, the EU is also currently carrying out a review of certain IP regimes within the EU. Action 6: Preventing the Misuse of Tax Treaties This action aims to design measures to be adopted in tax treaties and domestic law to prevent the inappropriate use of tax treaties through treaty shopping. A number of proposals have been put forward to address this concern, chiefly the inclusion of a Limitation on Benefits (LOB) clause in tax treaties, and/or the

29 TaxingTimes Finance Bill inclusion of a general anti-abuse rule, referred to as a Principal Purposes Test, which would seek to deny treaty benefits if it is reasonable to conclude that obtaining treaty benefits was one of the principal purposes of entering into the transaction. While many businesses may be familiar with LOB clauses from the Ireland-US tax treaty, the draft wording for this LOB clause is different and could potentially result in quoted Irish-headquartered groups failing to satisfy the requirements if their primary listing is outside Ireland. The report acknowledges this difficulty, and one would expect a future draft to relax these provisions. There are also proposals to allow treaty access where a company has its primary place of management and control in that country or where it has an active business. How these terms are defined will be important for Irish businesses to ensure future access to tax treaties. By its nature, a Principal Purposes Test would be quite subjective, which could lead to difficulty interpreting this requirement, and more worryingly, varying approaches adopted by different jurisdictions. Depending on the outcome of the negotiations, this action has the potential to be significantly disruptive. Action 8: Transfer Pricing Aspects of Intangibles The third Discussion Draft on Transfer Pricing Aspects of Intangibles ( 2014 Intangibles Draft ) was released in September in an evolving series covering how to define, attribute ownership to, and value intangible assets of a multinational enterprise. The 2014 Intangibles Draft needs to be read in conjunction with other actions under the Plan (Actions 9 and 10) addressing attributions to risk or capital and high-risk transactions which include work on profit splits for companies with closely integrated global value chains. The key themes in the 2014 Intangibles Draft include whether: (i) there should be a broader definition of intangibles; (ii) local markets, location savings, assembled workforce and group synergies should be treated as rising to the level of intangible assets; and (iii) economic ownership, rather than legal or contractual ownership, should define how to attribute income from an intangible. Guidance on economic ownership is the most controversial and contentious element, where only those parties performing the important functions related to intangibles are entitled to their associated returns. It is clear from the 2014 Intangibles Draft that the mere funding of intangible creation would be insufficient to attribute more than a limited return on an investment. The report also suggests the use of a profit-split approach to the allocation of profits may be appropriate in certain circumstances. Certain larger countries are likely to have difficulty agreeing to such principles which, arguably, are not based on the arm s length principle. On the other hand, some of the principles expressed are already de facto in place (e.g. tax authorities arguing for profit splits where key decision-making is divorced from the ownership of intangibles).

30 28 TaxingTimes Finance Bill 2014 Whilst work is ongoing, if there continues to be an emphasis on economic ownership and important functions as key factors in pricing the attribution of profits to intangibles, this would have a very significant impact on Irish businesses. Further work is to be done to provide simpler and clearer guidance on the application of transfer pricing methods, including profit splits in the context of global value chains and, particularly, those structures that attribute profits to entities that own intangibles and related risks but do not have economic substance. These areas are directly relevant to many multinationals. Action 13: Re-examination of transfer pricing documentation A document titled Guidance on Transfer Pricing and Country-by-Country reporting ( the draft guidance ) has been released. The content should be of interest to any group operating internationally. A three-tiered approach to transferpricing documentation has been recommended: (i) the masterfile, (ii) the local file and (ii) the country-by-country (CbyC) reporting template. The masterfile is described as a blueprint for the group and is intended to provide a high-level overview of the group in order to place the group s transfer pricing practices in their global economic, legal, financial and tax context. The local file is to provide more detailed information relating to specific intercompany transactions, while the CbyC template requires details of the global allocation of profits, taxes and other indicators by the location of economic activity. Such information would give tax authorities much of the information needed to conduct more thorough transfer pricing audits, and work is ongoing on the mechanisms which might be used to share the documentation content with taxing authorities. While it appears that agreement has been reached on the content of the documentation, there is still some way to go before the mechanics of implementation can be finalised and enacted into local law by participating countries. One of the main consequences of the potential adoption of the CbyC template would be increased transparency. Tax authorities would be able to compare the revenues, profits and taxes in each entity of the group and the number of employees (or substance) that are generating those revenues/profits.

31 TaxingTimes Finance Bill For an Irish-headquartered company, it will be necessary to consider the implications of this, in particular where high profits are generated in entities with little or no substance. In addition, consideration will need to be given to whether all of the detail specified in the guidance is included in the masterfile, such as details on the group s strategy for intangible assets and financing policies. Therefore, further documenting of transfer pricing policies is likely to be required. For an Irish subsidiary of a multinational, the implications of information included in the CbyC template, which could potentially be shared with the Irish Revenue, should be considered. In addition, the prescriptive detail required in the local file, together with details of the amounts of all intercompany payments each year, signifies a change to what is normally included in local documentation and may well require substantial time and resource to prepare. Action 15: Multilateral Instrument This report addresses the tax and public international law issues associated with the development of a multilateral instrument to adopt treaty-based BEPS actions whilst respecting each country s autonomy in tax matters. It appears likely that recommendations will arise from the BEPS Action Plan to amend existing provisions in the OECD model treaty to achieve some of the targets. Given the large amount of tax treaties in place, the OECD sought to explore whether a multilateral instrument could be developed to streamline the adoption of agreed measures and to ensure consistent adoption in participating jurisdictions. This multilateral instrument would have the effect of making changes to existing bilateral treaties. The report concludes that such a multilateral instrument is technically feasible. However, further work is required to reach consensus amongst countries to support this proposal. Whilst the BEPS measures to be adopted by way of the multilateral instrument are yet to be finalised, the likely issues to be addressed include anti-abuse provisions, changes to the definition of permanent establishment, and perhaps the transfer of country-bycountry reporting information between tax authorities. Businesses operating in multiple jurisdictions and which frequently avail of treaty provisions will need to monitor the extent to which adoption of a multilateral instrument might accelerate the adoption of treaty-based measures which arise from the BEPS plan. Whilst the use of a multilateral instrument will not provide Irish businesses with additional access to treaty benefits in countries with which Ireland has not concluded a bilateral treaty, one potential benefit to the use of the instrument could be more rapid adoption of improved measures to resolve multi-country disputes between competent authorities. Conclusion Many are surprised at the progress made to date. There is consensus emerging in areas such as countryby-country reporting and hybrid mismatches. However, many contentious areas remain which have the potential to be disruptive to business. There is also uncertainty as to whether consensus can be reached about such politically sensitive matters. Business needs to stay close to the debate and stay informed as the debate progresses.

32 30 TaxingTimes Finance Bill 2014 A new era for Foreign Direct Investment into Ireland Anna Scally Partner The international tax landscape is changing fundamentally. Discussions on corporate tax have become part of public debate like never before. While there was much unease about what Ireland would or would not do in relation to the Double Irish structure, the Budget and Finance Bill tackled that thorny issue in a reasonable fashion and made a number of positive changes to our tax regime. We believe Ireland continues to be excellently positioned to benefit from renewed and ongoing investment from the FDI community. Last year the Minister for Finance introduced his International Tax Strategy paper which stressed the core pillars on which Ireland s corporate tax offering is built: Rate, Regime and Reputation. In this year s Budget he built on these core pillars and delivered a Road Map for Ireland s Competitiveness in FDI. Certainty Certainty and competitiveness are of paramount importance to decision-makers. We believe that the statements made by the minister on Budget Day and the legislation issued in the Finance Bill delivered on these requirements. In the Budget the minister reconfirmed that the 12.5% tax rate will not change. This was never in question, but the minister felt it was appropriate to put it beyond doubt. Independent research was also published on Budget Day which supports the importance of the rate to a successful FDI regime. Residence The Double Irish structure will be abolished by adjusting our Irish company residence rules. New Irishincorporated companies incorporated on or after 1 January 2015 will be Irish tax-resident (unless resident in a treaty location). Existing Irish-incorporated companies resident in non-treaty locations will be given until the end of 2020 to transition to the new rules. The inclusion of a reasonable transition period of over six years is critically important to enable companies to restructure their activities in a controlled and sensible manner. This timeframe will also enable companies to factor in the output of international tax reform (in particular any US tax reforms). Arguably, investors now have more certainty in relation to the Irish tax regime than they have in relation to any of the other regimes with which they interact many of which will change in the short to medium term. Intangible Assets The Budget also included changes to Ireland s capital allowances regime for intangible assets. In the legislation issued, the 80% cap on the aggregate amount of capital allowances and any related interest expense, which may be offset in any accounting period against profits from the use of intangible assets, has been removed. Essentially this will simplify the calculation of the benefit of any allowances and accelerate the ability to use the allowances for taxpayers which might otherwise have faced an annual cap and delay on the relief. The definition of specified intangible assets was expanded to include customer lists. The change is likely to only have modest impact, as a simultaneous restriction was introduced to prevent allowances being available on customer lists where they are acquired in connection with the transfer of a business as a going concern. This is disappointing as it will limit the applicability of the extension of the definition. In addition, it would have been helpful to see the definition enhanced to include customer relationships and marketing intangibles, without restriction in the case of business transfers. The bill also makes improvements to the position where intangible assets,

33 TaxingTimes Finance Bill on which allowances have been claimed, are sold. Essentially it aligns the period after which no clawback applies to five years after the beginning of the accounting period in which the asset was acquired. This makes sense and is a good and practical change in the operation of the provisions. In addition, improvements are to be made which will allow a company to sell intangible assets after the five-year period has elapsed to a connected party, and that connected party will be entitled to claim allowances on the cost incurred or the unused allowances of the seller. Again, a helpful and practical change. Research & Development Our R&D tax credit regime has been improved, particularly for more mature companies that were doing R&D in Ireland in Removing the base year restriction and making our R&D tax credit regime volume-based, means that certain companies that were not eligible for the R&D credit in the past will now qualify. In addition, companies will find it much easier to price R&D investment decisions knowing they no longer have to get above a base year threshold in order for the credit to count. This should lead to an overall increase in the volume of R&D undertaken in Ireland and make it easier for companies to pitch more competitively for R&D investment projects. Knowledge Box One matter that will be included in next year s Finance Bill, if not addressed before that, is the best-inclass Knowledge Development Box which the Government has committed to introduce. This will be designed to ensure Ireland is an even more attractive location for the development of intangible assets and will deliver an ongoing effective tax rate lower than 12.5%. Public consultations on the development of the regime will commence in late 2014, with legislation expected in 2015, once the OECD and EU have completed their reviews and deliberations on existing regimes in other countries. The Knowledge Development Box is expected to be available from While the consultation process is due to commence in the next few weeks, it will be important to ensure that in designing the Box, we recognise the breadth of endeavour and intangibles that it should accommodate. We also need to ensure it works in a seamless and cohesive fashion with our allowances-based regime and our R&D tax credit to ensure that Ireland s package of measures is clearly compelling. Personal Tax Our personal tax regime as a means to attract the talent necessary to establish and develop global businesses in Ireland has been enhanced in the Finance Bill. The changes proposed

34 32 TaxingTimes Finance Bill 2014 will help to make the Irish regime more competitive in Europe, and will hopefully have the desired result of attracting senior leaders to Ireland who have significant capacity to create jobs here. The requirement for an international secondee to have been working with the company or group has been relaxed from 12 to six months, and the salary cap has been removed. Hopefully, we will start seeing companies using the provisions to bring senior leaders to Ireland now that the cost is more competitive than it might have been in the past. Reputation Reputation is important to us and to international investors who choose to invest in Ireland. The minister announced a number of other measures to help support Ireland s reputation. Ireland has committed to strengthening its resources and ability to robustly defend companies operating in Ireland in transfer pricing disputes. This is really important to multinational companies locating in Ireland. In addition, Ireland has committed to further enhancing our tax treaty network, which should assist companies doing business internationally, and some new and renegotiated treaties were brought into force in Finance Bill Ireland has reiterated its commitment to maintaining a transparent tax regime. We are also committed to our regime being sustainable. We are a member of an OECD group of early adopters on common reporting standards and are recognised as best in class in relation to our implementation of procedures on exchange of information arrangements. We are also one of the first countries worldwide to commence a spillover analysis, which assesses the impact of our tax system on developing economies, again underlining our commitment to transparency and sustainability. In 2013, Forbes placed Ireland as the number one location in the world for business. In 2013, The IBM Global Location Trends Report confirmed Ireland as the number one destination in the world for inward investment, by quality and value of investment projects. Ireland is keen to remain number one in these and many other areas. Number One We firmly believe that the measures introduced in this year s Budget and Finance Bill mean that Ireland can unashamedly claim to have a worldbeating regime for international investment. Our regime is competitive, transparent and sustainable. We look forward to a new and even more successful era for FDI in Ireland.

35 Tax Rates and Credits 2015 TaxingTimes Finance Bill Personal income tax rates (rates and bands changed) At 20%, first At 40% Single person 33,800 Balance Married couple (one income)* 42,800 Balance Married couple (two incomes)* & ** 67,600 Balance One parent/widowed parent* 37,800 Balance * Applies to civil partnership/surviving civil partner also ** 42,800 with an increase of 24,800 maximum Personal tax credits Single person 1,650 Married couple* 3,300 Single person child carer credit 1,650 Additional credit for certain widowed persons* 1,650 Employee credit 1,650 Home carer credit 810 Water charges credit** 100 Rent credit - single and under 55 years (reduced)*** 120 * Applies to civil partnership/surviving civil partner also ** Available at the standard rate up to a maximum of 500 per household per annum, prior year basis *** Rent credit will be phased out by reduction in 2015 for a single person Tax relief capped on medical insurance premia : premium of 1,000 per adult, 500 per child, per annum. Home Renovation Incentive Scheme Income tax credit split over 2015 and 2016 for homeowners who carry out renovation/ improvement works on their principal private residence from 25 October 2013 to 31 December 2015 (or to 31 March 2016 where planning permission for the work is required and granted before 31 December 2015). The credit is calculated at a rate of 13.5% on all qualifying expenditure over 4,405 (ex VAT). The maximum credit is 4,050. With effect from 15 October 2014, this scheme is extended to landlords of rental properties who are liable to income tax. Home loan interest relief granted at source on principal private residence* First time buyers loan taken out from 2009 to 2012 Years 3-5 Married/widowed** Lower of 4,500 or 22.5% of interest paid Years 6-7 Married/widowed** Lower of 4,000 or 20% of interest paid After year 7 (where applicable up to and including 2017) Married/widowed** Lower of 900 or 15% of interest paid Other mortgages, loans taken out from 2004 to 2012 Married/widowed** Lower of 900 or 15% of interest paid First time buyers loan taken out from 2004 to 2008 Remainder of first 7 years of mortgage Married/widowed** Lower of 6,000 or 30% of interest paid After year 7 and up to and including 2017 Married/widowed** Lower of 1,800 or 30% of interest paid Single persons Thresholds set at 50% of those outlined above for married/widowed persons. * Loans taken out on or after 1 January 2013 do not qualify for Mortgage Interest Relief. The relief will be abolished completely from 2018 and subsequent tax years ** Applies to civil partnerships/surviving civil partner also Local Property Tax (varying rates)**** Market Value less than 1,000,000* Market Value greater than 1,000,000: - First 1,000,000 - Balance 0.18% 0.18% 0.25% * Market Value less than 100,000 - calculated on 0.18% of 50,000. Market Value 100,000-1,000,000 - assessed at mid-point of 50,000 band (i.e. property valued between 150,001 and 200,000, assessed on 0.18% of 175,000) ** Applies to residential (not commercial) properties. Exemptions for houses in certain unfinished estates and newly constructed but unsold property. Exemption until 31 December 2016 for new and unused houses purchased between 1 January 2013 and 31 December 2016 and second hand property purchased between 1 January 2013 and 31 December 2013 *** Certain payment deferral options may be available for low income households ****From 2015 onwards, local authorities can vary the basic LPT rates on residential properties in their administrative areas. These rates can be increased or decreased by up to 15% PRSI contribution, Universal Social Charge % Income Employer 10.75% No limit 8.50% If income is 356 p/w or less Employee** (class A1) PRSI 4% No limit* Universal Social Charge 1.5% 0 to 12,012** 3.5% 12,013 to 17,576 7% 17,577 to 70,044*** 8% > 70,044 * Employees earning 352 or less p/w are exempt from PRSI. In any week in which an employee is subject to full-rate PRSI, all earnings are subject to PRSI. Unearned income for employees in excess of 3,174 p.a. is subject to PRSI ** Individuals with total income up to 12,012 are not subject to the Universal Social Charge *** Reduced rate (3.5%) applies for persons over 70 and/or with a full medical card, where the individual s income does not exceed 60,000 Self-employed PRSI contribution, Universal Social Charge % Income PRSI 4% No limit* Universal Social Charge 1.5% 0 to 12,012** 3.5% 12,013 to 17,576 7% 17,577 to 70,044*** 8% 70,044 to 100,000 11% > 100,000 * Minimum annual PRSI contribution is 500 ** Individuals with total income up to 12,012 are not subject to the Universal Social Charge *** Reduced rate (3.5%) applies for persons over 70 and/or with a full medical card, where the individual s income does not exceed 60,000 Tax relief for pensions - Tax relief for pensions remains at the marginal income tax rate. - The Defined Benefit pension valuation factor is an age related factor that will vary with the individual s age at the point at which the pension rights are drawn down. - Except where a Personal Fund Threshold applies, the Standard Fund Threshold is 2m. Capital gains tax (rate unchanged) Rate 33% Annual exemption 1,270 Capital acquisitions tax (rate and thresholds unchanged) Rate 33% Thresholds Group A 225,000 Group B 30,150 Group C 15,075 Corporation tax rates (no change) Standard rate 12.5% Residential land, not fully developed 25% Non-trading income rate 25% Value Added Tax (9% rate retained) Standard rate/lower rate/second lower rate 23%/13.5%/9% Flat rate for unregistered farmers* 5.2% Cash receipts basis threshold 2m * From 1 January 2015 Deposit Interest Retention Tax (rate unchanged) DIRT 41%* & ** * Also applicable to exit taxes on financial products ** Refund of DIRT incurred in previous four years on savings (up to 20% of the purchase price) used by first time buyers to purchase a dwelling. This scheme will be in place from 14 October 2014 to the end of 2017 Stamp duty - commercial and other property (unchanged) 2% on commercial (non residential) properties and other forms of property, not otherwise exempt from duty. Stamp duty - residential property (unchanged) 1% on properties valued up to 1,000,000 2% on balance of consideration in excess of 1,000,000 Exemption for Enterprise Securities Market share transfers (date TBA)

36 34 TaxingTimes Finance Bill 2014 Notes

37 Tax insights on the move Download our multi-platform app and stay in touch with all the latest tax developments for you and your business See kpmg.ie for details kpmg.ie/financeact KPMG, an Irish partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. The KPMG name, logo and cutting through complexity are registered trademarks of KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. Printed in Ireland.