Finance Bill 2014 Published

Finance Bill introduces changes to income tax and USC that will benefit all income tax payers.
“Road Map for Ireland’s Tax Competitiveness” outlines reform of Corporation tax system.

The Minister for Finance, Michael Noonan TD, today (23rd October 2014) published Finance Bill 2014. The Bill gives effects to taxation measures announced in Budget 2015.

Commenting on the publication of the Finance Bill, Minister Noonan stated:

“Budget 2015 is about securing this recovery, building for the future and broadening it to families across the country. Finance Bill 2014, which I am publishing today, gives effect to the tax measures that underpin our budgetary strategy."

"The changes to the Income Tax and Universal Social Charge set out in the Bill are designed to support employment and job creation. They will benefit every individual and family paying income tax and USC. These measures further improve the progressiveness of our income tax and USC system, remove 80,000 lowest earners from the USC and result in the top 1% of earners paying 21% of all income tax and USC while the bottom 76% pay 20%."

"The Bill sets out the legislative provisions and changes to our Corporation Tax offering that underpin our “Road Map for Ireland’s Tax Competitiveness” published on Budget day. This plans sets out key action points to position Ireland to take advantage of the opportunities that are being created internationally and will provide certainty to investors. Included are measures to enhance Ireland’s offering for the development of intangible assets, research and development, income tax and tax administration. The changes to Company Residency rules announced on Budget day are also set out."

"The Bill also includes measures arising from the Agri-taxation Review, published on Budget Day, and which are intended to support the farming and agri-food sectors. Other measures for these areas include an increase in the farmers’ flat rate addition for farmers not registered for VAT and an increase in the annual excise relief production ceiling for microbreweries."

"A number of anti-avoidance measures are also included in the Bill. In particular, I am making changes to the general anti-avoidance and Mandatory Disclosure regimes."

"Finally, although the revenue-raising measures in the Budget will contribute over €167 million to the Exchequer in the coming year, I would point out that there are no increases in taxes on alcohol, petrol or diesel. Nor is there any increase envisaged in motor tax or Vehicle Registration Tax. We are now in the enviable position of being able to fund the costs of these Budget reforms and incentives through improved tax revenues arising from economic growth.”

The Bill, as usual, also contains details of a number of further changes not yet announced, including many of a technical or administrative nature.

Details of the Bill are set out in the Notes to the Editor below.

ENDS

Notes to the Editor:

Measures announced on Budget Day:

Finance Bill 2014 gives effect to the taxation-related measures announced on Budget Day.

These include:

the Income Tax and USC changes announced on Budget Day. Section 3 of the Bill deals with the Income Tax changes while section 2 deals with the USC changes
the Minister announced in the Budget that tax relief for water charges will be introduced. The relief would be available at the standard rate of 20%, on water charges paid, up to a maximum of €500 per annum, which may result in tax relief up to €100 per household per annum
officials are working closely with their colleagues in the other relevant departments and Agencies, in the development of the processes that will be employed to deliver the relief. It is envisaged that any necessary legislative provision will be brought forward at Committee stage of the Finance Bill
the Special Assignee Relief Programme is being amended and extended for a further three years until the end of 2017. The cap on qualifying salary is being lifted. The requirement to be tax resident In Ireland and not resident elsewhere is being removed such that the only requirement will be tax residence in Ireland. The performance of work-related duties outside of the State will be permitted and the requirement to have been employed abroad by the same employer will be reduced from 12 months to 6 months
the Foreign Earnings Deduction is being amended and extended for a further three years until the end of 2017. The number of qualifying countries is being increased to include Japan, Singapore, South Korea, Saudi Arabia, UAE, Qatar, Bahrain, Oman, Kuwait, Indonesia, Vietnam, Thailand, Chile, Mexico and Malaysia in line with the government’s strategy on Trade, Tourism and Investment. The overall number of days required to be working abroad is being reduced from 60 to 40 and travel time to a qualifying country, between qualifying countries and return travelling time to Ireland will be deemed to be time spent in a qualifying country. The minimum stay abroad is being reduced to 3 days and if an employee is engaging in a multi-state trip, the 3-day minimum stay requirement can be accumulated among qualifying countries
the Employment and Investment Incentive and Seed Capital Scheme are being amended. In relation to the EII, the minimum holding period is being increased to four years and the scheme is being extended to include medium-sized companies in non-assisted areas. The company annual limit is being increased from €2.5m to €5m and the lifetime limit from €10m to €15m. Internationally traded financial services, providing they are certified by Enterprise Ireland, may avail of the scheme and the inclusion of hotels, guest-houses and self-catering accommodation is being extended for a further three years. In addition, the operation or management of nursing homes will be included for a period of three years. These changes are subject to State Aid approval. The amendments to the SCS will see the scheme re-branded as “Start-up Refunds for Entrepreneurs” (SURE)
the current exemption from Income Tax, PRSI and USC on rent received where a homeowner rents out a room or rooms in his or her principal private residence and the rent received does not exceed €10,000 per year is being increased to €12,000
the Home Renovation Incentive is being extended to include rental properties whose owners are liable to income tax. The current minimum qualifying spend of €5,000 and maximum qualifying spend of €30,000 will apply per property or unit within a property. The HRI will be available to landlords for work carried out from Budget night until the end of 2015
CGT retirement relief is available to farmers on, among other things, the disposal of land that has been leased in certain circumstances. On foot of the Agri-taxation Review, section 598 of the Taxes Consolidation Act 1997 is being amended so that, subject to other conditions, land that has been leased for up to 25 years in total (increased from 15) ending with disposal will qualify for the relief. Amendments are also being made to provide (in the case of land disposals outside the family) that land currently let under conacre arrangements which end with disposal by 31 December 2016 or which (before 31 December 2016) is instead leased out for minimum periods of 5 years to a maximum of 25 years ending with disposal will, subject to other conditions, also qualify for CGT retirement relief
section 604B Taxes Consolidation Act 1997 (TCA) provides for a capital gains tax relief for farm restructuring where the first transaction in the restructuring (e.g. sale, purchase or exchange of land) is carried out by 31 December 2015 with the restructuring to be completed within 24 months. As a result of the Agri-taxation Review, the deadline for the completion of the first restructuring transaction is being extended to 31 December 2016. Teagasc certification guidelines are being amended to enable whole farm replacement to be eligible for the relief subject to meeting the conditions laid down by Teagasc. The amendment of the guidelines does not require amendment of the TCA
CAT relief is available in respect of gifts and inheritances of agricultural property including land, subject to certain conditions. On foot of the Agri-taxation Review, changes are being introduced to target the relief so that agricultural property is actively used for agricultural purposes. From 1 January 2015, and subject to other conditions, the relief will be available only in respect of agricultural property gifted to or inherited by active farmers and to individuals who are not active farmers but who lease out the property on a long-term basis for agricultural use to such farmers
a relief from DIRT on savings used by first time house buyers is being introduced in the context of tightening loan–to-value mortgage requirements being imposed by the Central Bank. This will enable a first time buyer purchasing a home to apply for a refund of the DIRT they paid on the interest earned on savings used towards the deposit on a home
consanguinity relief, which applies to transfers of non-residential property to certain relatives, is due to expire on 31 December 2014. This relief, which halves the applicable rate of Stamp Duty, will be extended for a period of three years in certain circumstances where the transferee is an active farmer
section 38 of Finance Bill 2014 will amend Ireland’s company tax residence rules to provide that all companies that are incorporated in Ireland will be automatically tax resident here (unless otherwise determined under a bilateral tax treaty which supersedes domestic law). The change will come into effect for new companies from 1 January 2015 while a transition period will apply until 2020 for existing companies. This change will bring Ireland’s rules into line with the rest of the OECD

Ireland’s current regime for intangible assets provides capital allowances for expenditure incurred on the provision of certain intangible assets for use in an Irish trade. This measure is being enhanced in Section 35 of the Finance Bill:

the use of such allowances is currently restricted to a maximum of 80% of the income from the relevant trade in which the acquired assets are used. Any related interest expense deduction in respect of relevant borrowings incurred on such an acquisition is similarly restricted. This restriction on aggregate allowances (and interest) will be removed in the upcoming Finance Bill
the Bill will also amend the definition of ‘specified intangible asset’ contained in this provision to explicitly include customer lists

These measures will apply in respect of accounting periods commencing on or after 1 January 2015.

the R&D tax credit applies to the amount of qualifying R&D expenditure by a company in a given year that is in excess of the amount spent in 2003, which is the base year for the regime. As recommended in the 2013 Review of Ireland’s R&D Tax Credit, the base year restriction will be removed in Section 23 of the Finance Bill. This will apply to accounting periods commencing on or after 1 January 2015. In addition, section 23 makes a technical amendment to ensure a provision made in the Finance Act 2010 operates as intended
the relief from corporation tax on trading income (and certain capital gains) of new start-up companies in the first 3 years of trading was due to expire at the end of 2014 and is being extended to the end of 2015 in Section 33 of the Bill. A review of the operation of this measure will take place in 2015
a measure is included to encourage companies to invest in energy efficient equipment. It allows them to deduct 100% of expenditure incurred on eligible equipment (that meets specified energy efficient criteria) in computing taxable trading profits in the year of purchase rather than over the usual eight-year period for plant and machinery. This measure was due to expire at the end of 2014 and is being extended to the end of 2017 by section 33 of the Bill, following a review of the measure that was undertaken in 2014 by the Department of Communications, Energy and Natural Resources
as regards VAT, the farmers’ flat-rate addition is being increased from 5% to 5.2% with effect from 1 January 2015. The flat-rate scheme compensates unregistered farmers for VAT incurred on their farming inputs. The flat-rate addition is reviewed annually in accordance with the EU VAT Directive and the increase to 5.2% in 2015 achieves full compensation for farmers
the excise duty on a packet of 20 cigarettes in the most popular price category was increased by 40 cent (including VAT), with a pro-rata increase on other tobacco products, while the excise duty on a 25g packet of roll-your-own tobacco was increased by a further 20 cent (including VAT)
the VRT relief available for the purchase of hybrid electric vehicles, plug-in hybrid electric vehicles, plug-in electric vehicles, and electric motorcycles is being extended to 31 December 2016
the special relief reducing the standard rate of Alcohol Products Tax by 50% on beers produced in microbreweries which produce not more than 20,000 hectolitres per annum is being extended to apply to microbreweries which produce not more than 30,000 hectolitres per annum
mineral Oil Tax and Carbon Tax legislation is being amended to provide for Natural Gas and BioGas as a transport fuel with the excise rate at the current EU Minimum rate
a 30-day on average deferral of excise duty is provided for mineral oil. This brings mineral oil in line with other excisable products that benefit from a deferral. To allow for Revenue to revise the collection system, this measure will be subject to a commencement order

All items contained in Finance Bill 2014 are described in the Appendix to this Press Release.

Measures not announced on Budget Day:

Some of the additional measures in Finance Bill 2014, not announced on Budget Day, include:

a commitment was given by the Minister earlier this year to provide for an exemption from CGT on any chargeable gains arising from the disposal by farmers of payment entitlements under the Single Payment Scheme where all of those entitlements were fully leased out and where the owners, because of the change in CAP regulations, were advised by the Department of Agriculture, Food and the Marine, to transfer their entitlements to an “active” farmer by 15 May 2014. The Bill includes provisions to give effect to this commitment
the Bill includes provisions which would treat “returns of value” payments of €1,000 or less made by Vodafone plc to its Irish shareholders as capital receipts for tax purposes unless shareholders specifically opt to have the returns treated as income. Since many small Irish investors are shareholders in Vodafone plc on foot of an original investment in Eircom, and are carrying capital losses for tax purposes as a result of that original investment, the effect of the Finance Bill provisions would be that no tax would be due on the returns of value affected
Finance Bill 2014 includes amendments to close off a number of tax avoidance schemes which are linked to the use of Approved Retirement Funds and “vested” Personal Retirement Savings Accounts. PRSAs are referred to as “vested” when benefits have commenced to be drawn down from them
the Bill includes provisions for a reduction from 5% to 4% in the rate of the annual imputed or notional distribution of the assets of ARFs and “vested” PRSAs in cases where the owner of the ARF or “vested” PRSA is aged between 60 and 70 years and the aggregate value of assets in ARFs or “vested” PRSAs in the ownership of such individuals is €2 million or less. The purpose of the change is to reduce the risk that the owners of ARFs in these circumstances will outlive their retirement funds. The provisions also allow for a maximum annual withdrawal, subject to taxation at the marginal tax rate, of 4% of the value of assets in an AMRF in place of the existing access to the accrued income and gains from the investment of those assets
the Bill also provides for a number of provisions relating to the practical operation of the new section 481 (film relief) which is due to commence in January 2015. These details have been worked out in a technical group set up by Revenue to tease out any operational issues with film industry representatives
the general anti-avoidance legislation in the Taxes Consolidation Act 1997 is amended by replacing the existing sections 811 and 811A with new sections 811C and 811D. The new Section 811C provides that where a person enters into a transaction and it would be reasonable to consider, based on a number of specific factors, that the transaction was a tax avoidance transaction, that person shall not be entitled to benefit from any tax advantage arising from that transaction. Section 811D provides that where a person enters into a tax avoidance transaction and claims the benefit of a tax advantage, contrary to section 811C, an additional payment in the form of a surcharge will be due and payable. In order to provide protection to taxpayers, a taxpayer who enters into a transaction, and who has a concern that section 811C could apply, may file a ‘protective notification’
in respect of Mandatory Disclosure, a new section introduces a requirement that the Revenue Commissioners assign a unique Transaction Number to each scheme notified. In addition, any transaction that seeks to avoid tax through the use of a discretionary trust is now a disclosable transaction for the purposes of the Mandatory Disclosure regime. This section also inserts a new chapter into Part 33 providing for payment notices. Where the Appeal Commissioners make a determination relating to a tax avoidance transaction under section 811C, in relation to one of the specific anti-avoidance provisions or in relation to a transaction that was a disclosable transaction under the Mandatory Disclosure regime, then the Revenue Commissioners may issue a payment notice to that taxpayer requiring payment of tax due on foot of the determination of the Appeal Commissioners
an anti-avoidance measure will allow Revenue to require a business to issue a receipt to all customers presenting themselves as not registered for VAT, containing all of the particulars of an invoice. The measure would apply to persons who generally supply to trade customers and is aimed at deterring the practice of suppliers not issuing VAT invoices where they are aware that their customer is registered for VAT. It would also help identify the non-compliant customers
in accordance with Article 205 of the EU VAT Directive, provision is being introduced to make persons joint and severally liable for VAT in relation to the supply of goods or services, excluding imports from outside the EU, where those persons knew or were reckless in participating in VAT evasion. This is an anti-avoidance measure which is expected to deter persons from engaging in transactions that they might consider to be fraudulent
member-owned golf clubs are currently liable to charge VAT at 9% on green fees charged to non-members, and in a small number of cases on membership fees. From 1 March 2015, however, all green fees and membership fees charged by member-owned golf clubs will be exempt from VAT, in compliance with the judgment in the Bridport & West Dorset Golf Club Ltd ECJ case (C-495/12)
the definition of unprepared tea, for the purposes of the application of the zero rate of VAT, is being revised to reflect other variations of teas available on the market, such as herbal teas and fruit infusions. As herbal and fruit teas are marketed in the same manner as black tea, and treated as such by consumers, it was decided to include them in the definition of unprepared tea
provision has been made to extend the power of entry of authorised officers to any premises within which, they reasonably believe, a betting exchange is operating. This provision is subject to the commencement of the Betting (Amendment) Bill 2013
provision has been made to extend the information Revenue may request in the mineral oil traders licence application. Provision has also been made to refuse or revoke applications where false information is provided and to refuse applications where an applicant was refused previously and this was upheld on appeal

All items contained in Finance Bill 2014 are described in the Appendix to this Press Release.

Timing of the Finance Bill:

Under the regulations known as the “Two-Pack” which were formally adopted on 30th May 2013, a common budgetary timeline was introduced for all Euro Area member states.

In light of these requirements, the government decided, from last year (2013) onwards, to bring Budget Day forward from the first week in December to on or before 15th October. This means that Budget 2015 was presented and published on Tuesday, 14th October this year.

The government also decided that the Finance Bill should complete its passage through the Oireachtas by 31st December each year. This means also that, as this Finance Bill is published in 2014, it is called “Finance Bill 2014” even though it relates to Budget 2015.

Details of all the various measures in Finance Bill 2014 are provided in the attached list.

The list is also available, along with the text of the Bill, the Explanatory Memorandum and this press release, at gov.ie/finance.

Next steps:

Finance Bill 2014 Dáil Second Stage begins Tuesday, 4th November 2014.