Special TaxFax

Finance Bill 2013

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Wednesday, 13 February 2013

Special TaxFax – Finance Bill 2013 and “LPT” Bill 2013

Finance Bill 2013 was published this afternoon and TaxFax provides an overview of the main measures contained therein.

A separate Bill, the Finance (Local Property Tax) (Amendment) Bill 2013 was also published today.  This Bill proposes some amendments in relation to the Local Property Tax (LPT).


Both Bills, Explanatory Memoranda and other Department of Finance documentation are available on the Institute’s dedicated Finance Bill 2013 webpage.


The Finance Bill 2013 Seminar Tour will run from 5 March to 15 March at locations around the country and online. These comprehensive seminars will provide you with detailed analysis of the key elements of the Bill and the implications for you and your clients. The seminars will be presented by Marie Bradley (Bradley Tax Consulting), John Cuddigan (RDJ Solicitors) and David Fennell (Ernst & Young).


Click here for dates and venues and to book online.

 

Irish Tax Institute Reaction to Finance Bill 2013
 

Responding to the publication of the Finance Bill, Irish Tax Institute President Martin Phelan welcomed the introduction of Real Estate Investment Trusts.  He also welcomed the measures contained in the 10-Point Tax Reform Plan for SMEs which he said “should help with some of the day to day challenges for business”.


Finance (Local Property Tax) (Amendment) Bill 2013

The Finance (Local Property Tax) (Amendment) Bill 2013 has made a number of refinements to the LPT, including the following:

  • An obligation on the vendor of a property to disclose to the purchaser the value declared to Revenue for the purposes of the LPT
  • A technical amendment to the provisions relating to the income tax or corporation tax surcharge to ensure that they operate as intended
  • An exemption for properties affected by “pyritic heave”
  • Deferrals for personal representatives of a deceased person’s estate and persons who have entered into Debt Settlement Arrangements or Personal Insolvency Arrangements
  • Reliefs for disabled persons and certain properties owned by charitable bodies
  • Special provisions for properties owned by local authorities and approved housing bodies
  • Anti-avoidance provisions applicable where property is being sold

Finance Bill 2013

New Measures not contained in the Budget


A number of measures not contained in the Budget have been included in today’s Finance Bill:


Living City Initiative


Section 29 of the Bill provides for the introduction, by Ministerial Order, of an incentive for certain urban regeneration activity.  The incentive applies to the refurbishment of Georgian houses for owner-occupier residential purposes (income tax deduction amounting to 10% of qualifying expenditure), and also for the refurbishment of certain commercial properties (qualifying premises to be deemed industrial buildings).  The areas covered are to be prescribed by order of the Minister for Finance and the relief will apply to qualifying expenditure incurred within 5 years of commencement of the scheme.


Research & Development


Under the current definition of “key employee” for the R&D tax credit surrender option, introduced in Finance Act 2012, the employee must spend at least 75% of their time working on R&D activities.  This requirement is being reduced to 50% in Section 5 of the Bill.


The Department of Finance has also launched a consultation on the R&D tax credit, which will run until 29 March 2013.  The Institute will be responding to this consultation, and further details on how to participate will be provided to members in due course.


Employment and Investment Incentive Scheme (EIIS)
 

Section 21 provides that hotels, guesthouses and self-catering accommodation will qualify for the EIIS where they meet certain conditions.  This has effect in respect of shares issued on or after 1 January 2013.  In our Finance Bill 2013 submission, the Institute sought changes to remove the EIIS from the scope of the High Earners’ Restriction to stimulate greater interest in the scheme by investors.  We will continue to make representation on this issue for Committee and Report Stage. 


Intangible assets
 

Section 34 provides for a welcome reduction in the claw-back period from 10 years to 5 years in respect of intangible assets on which capital allowances have been claimed.


Debt Forgiveness and Property Dealing and Development


Section 17 deals with those engaged in land dealing/development, in relation to debt forgiveness and the use of trading losses.

If a debt incurred to finance the purchase or development of land is released, the amount released shall be treated as an taxable income receipt in the tax year the release is effected.  Losses carried forward can be offset against this receipt.

 

Loss relief claims under S381 will not be allowed where:

      1.  Less than 50% of the individual’s total income for the tax year and the previous
           two years derives from dealing in/developing land and

      2.  The loss being claimed has arisen as a result of:

           
            - a deduction for interest on the borrowings, which is unpaid; and/or

 

            - deductions attributable to the write down of the value of the land (rather
              than a loss realised on disposal).


This section applies from 13 February 2013.


Use of Case III Losses


Section 70 of TCA 1997 is amended by Section 15 of the Bill, to specifically provide that rental losses from the letting of foreign property (Case III losses) cannot be offset against other types of profit chargeable under Case III e.g. foreign dividends etc. There is a longstanding Revenue practice to allow foreign rental losses to be offset against foreign rental profits and this practice will continue. 


New Self-Assessment Regime – Expression of Doubt


As highlighted at our recent Members’ Tour, the Institute has been engaging with Revenue on the changes to the Self-Assessment regime set out in Finance Act 2012. In particular, we had concerns that the legislation as originally enacted in 2012 would have precluded the making of an Expression of Doubt claim in circumstances where Revenue had issued their own general guidelines on the matter.  Schedule 1 to the Bill has been amended so general Revenue Guidelines may be taken into account in considering a claim.


In addition, the original provisions in 2012 only allowed for the amending of a “self-assessment” within a 12 month period. This has been extended to 4 years. 

We are continuing to engage with Revenue on the practicalities of the new self-assessment regime and will be updating members over the coming months.


Ex-gratia Payments


Section 13 has made a number of amendments to the tax treatment of termination/ex-gratia payments, in particular:

  • It extends the €200,000 cap on tax-free lump sums, to cover payments made on death or disability as well as termination/ex-gratia payments.
  • “Foreign Service Relief” is abolished with effect from the passing of the Act.  Foreign Service Relief had provided that a retirement lump sum could be exempt or partially exempt from tax where an employee had worked abroad for their employer, provided certain conditions were met.
  • Section 13 has also been amended for the changes to Top Slicing Relief announced in the Budget.

Universal Social Charge


Section 2 contains an amendment to ensure that where the disposal of an asset results in a balancing charge, and capital allowances on the asset had been allowable for the calculation of USC, then USC will be payable on the balancing charge.


At TALC, the Institute highlighted that the “effective rate” Double Taxation Relief calculation did not take account of USC or the income levy. Thus, if the foreign effective rate was higher than the Irish rate, full credit for foreign tax was not available.  An amendment has been made in Section 25 of the Bill such that credit for any foreign unrelieved tax will be available against an individual’s charge to USC on that income. This applies from 2011. Provisions have also been enacted to account for the income levy for 2009 and 2010.


Amendment of the Personal Insolvency Act

A number of changes have been made in the Bill relating to the Personal Insolvency Act 2012.  Revenue is not bound by the Personal Insolvency Act but can opt to partake in the debt arrangements provided for under the Act.  Section 97 of the Bill amends the Personal Insolvency Act to specifically require the payment of all tax liabilities due during the administration of the arrangement. These tax liabilities are to be paid in priority to other creditors and failure to do so will constitute a breach of the arrangement.


The Bill also clarifies that the transfer of assets to a personal insolvency practitioner will not be an event for CGT purposes. Where a debtor’s property is transferred to a trust held for creditors this will not trigger a balancing event. Tax will continue to be due on rental income earned from the property and on foot of any section 23 clawback or balancing charge.


The operation of the Personal Insolvency Act will be covered in detail by Michael McAteer and Bernard Doherty at our upcoming Annual Conference on 12 and 13 April.


Remittance Basis


Anti-avoidance measures have been introduced in sections 6 and 43 in respect of income and gains which are subject to the remittance basis of taxation and which are transferred to a spouse or civil partner.


Charitable Donations – enduring certificate


In addition to the amendments to charitable donations announced in the Budget, the Bill also provides for simplification of the procedures for claiming the relief.  An “enduring certificate” will be available to donors which will last for up to 5 years.  Where an enduring certificate is completed, the charity or approved body will no longer require an annual certificate to be completed by a donor for the purposes of claiming relief.


Stock Relief for Young Trained Farmers


As part of the State Aid process, certain conditions are being attached to the special 100% rate of stock relief for young trained farmers.  Section 19 provides details of these changes, which are subject to a Commencement Order.


Other Income Tax Measures
 

Maternity, Adoptive and Health & Safety Benefit


The Budget provided that maternity benefit would be treated as taxable income from 1 July 2013.  Section 8 of the Bill legislates for this change and also extends taxable treatment to adoptive benefit and health and safety benefit, payable by the Department of Social Protection.


Health insurance relief


Section 14 makes a technical change to Section 470 TCA 1997 to ensure that the standard rate income tax relief for health insurance payments is calculated on the premium net of the “risk equalization” credit.


Civil Partnerships


Section 100 provides that maintenance payments for the support of children made between separated civil partners will not be treated as income in the hands of the adult who has custody of the child (in line with the treatment of married couples).  CGT exemption will also be available on transfers between civil partners separating under a “deed of separation”.

 

Employee Benefit Trusts
 

Payments, including loans, to employees out of Employee Benefit Trusts which are provided or funded by an employer will be considered income within the charge to income tax (Case IV) and subject to the USC.  This shall apply to payments or benefits received on or after 13 February 2013 (Section 11).


VAT


Receivers and Liquidators


The main VAT changes introduced in the Finance Bill relate to receivers and liquidators and follow from proposals in the Department of Finance Consultation on the Tax Treatment of Receiverships here


Section 66 of the Bill clarifies that receivers (and similar) who supply taxable lettings while carrying on the business of the borrower, will be accountable to Revenue for the VAT arising.  This legislative position had been clear to date as regards supplies of goods but not services.  In responding to the Department’s Consultation on Receiverships, the Institute agreed that this regime works in practice and we welcome the clarification in today’s Bill.


Similarly section 69 amends the Capital Goods Scheme (CGS) provisions in relation to receivership situations. Where a CGS adjustment arises, the receiver (and similar) will be subject to a portion of the cost or benefit based on a detailed formula that is contained in the section. The Institute raised concerns with original proposals that the receiver would be responsible solely for any adjustment, on the basis of EU law which seems to limit liability in such cases to “joint and several liability”. 


Full details of the Institute’s response to the consultation paper can be viewed here


Exempt financial services


Section 73 contains a number of amendments to the list of exempt financial services and related agency services contained in Schedule 1 to the Value Added Tax Consolidation Act 2010.


Sporting etc activities by public bodies


Section 73 also provides that public bodies will have to account for VAT at the reduced rate on sporting and physical education activities where the VAT services threshold is exceeded.  This has been introduced to ensure equality of treatment with other providers of similar services.


Stamp duty


A number of stamp duty amendments were included in the Bill:

  • New “resting in contract” provisions are introduced to replace existing provisions which were included in Finance (No.2) Act 2008 but were never commenced.  The new provisions, in Section 76 to the Bill, apply to instruments executed on or after 13 February 2013.
  • Section 80 provides for increased Health Insurance Levy rates for new contracts entered into or renewed from 1 January 2013 and further increased rates from 1 April 2013.
  • A technical amendment is made to ensure that exemptions currently in place will apply where the consideration for the acquisition or disposal of certain stocks or marketable securities comprises stocks or marketable securities of “securitisation companies”.
  • The relief from stamp duty on transfers of agricultural land to young trained farmers has been extended to 31 December 2015.
  • Some technical amendments have also been made arising from the introduction of self-assessment for stamp duty.

Other Capital Taxes


Discretionary Trust Tax


Two changes have been made in relation to Discretionary Trust Tax (DTT) which are in Section 83 and Section 84 of the Bill:

  • Interest on late payment of DTT will arise both for “once-off” charges and annual charges and this interest will apply from the valuation date. This applies to inheritances taken by the Discretionery Trust on or after passing of the Act.
  • A 4 year time limit applies for repayment claims.  This runs from 4 years of the valuation date or from the date of payment of the tax (where the tax has been paid within 4 months of the valuation date).

Exemption of Capital Redemption Policies

These policies will be exempt from CAT where neither the disponer nor beneficiary is resident or domiciled in Ireland (Section 85).

Vested PRSAs – Post-death Transfers


Section 87 extends the exemption which applies to post death transfers of assets from ARFs to adult children, to similar transfers from “vested PRSAs”.

Capital gains tax


Section 45 makes some technical refinements to the Finance Act 2012 amendments relating to CGT Retirement Relief.


Sundry Corporation Tax Issues

The Bill introduced some corporation tax amendments of a technical nature including the following:

  • Section 28 provides for an exemption from interest withholding tax on payments to exempt approved pension schemes.
  • An amendment is made to section 396B(5) TCA 97 to restore the correct computation of the amount of trading losses than can be carried forward where a value-basis claim has been made under that section.
  • Section 37 amends the provisions in 411 TCA 97 relating to when a company may be considered a 75% subsidiary of another company for the purposes of group relief.

General Anti-Avoidance


Section 811 is amended to include the USC and remove the references to Residential Property Tax, with effect from 13 February 2013.


Section 811A (1C) previously altered the burden of proof at the Appeal Commissioners under section 811(9)(a)(i) where a Protective Notification had not been received. This disparity has been removed by Section 94 of the Bill in respect of any transaction undertaken or arranged on or after 19 February 2008.


Section 817D (Mandatory Disclosure) is amended to exclude the income levy and include the USC, with effect from 13 February 2013


Tax Administration


PSWT


A number of measures in relation to tax administration are included in the Bill. Two of these relate to Professional Services Withholding Tax (PSWT).

  • Section 90 sets out the apportionment and offset of Professional Services Withholding Tax (PSWT) in partnership cases.
  • A number of changes to the list of “accountable persons” have been made.

Revenue Valuations / Use of Third Parties


Section 98 provides for the replacement of section 911 TCA 1997, which gives Revenue powers to inspect assets for valuation purposes.  The Bill provides that these powers will also apply to external valuers.  Where the asset is land, the authorised person (Revenue officer/inspector or external valuer) may enter on the land for the purposes of valuing it.  However, an authorised person cannot enter any premises occupied wholly and exclusively as a private residence without the consent of the occupant, unless they have a warrant from a District Court Judge authorising them to do so. 


Section 99 provides that persons other than Revenue officers engaged by Revenue to carry out work relating to the administration of any taxes or duties are subject to the same confidentiality requirements as Revenue officers.


iXBRL Filing – Branches

Section 92 is a provision to enable iXBRL filing via ROS.  It specifies the particulars required when filing statements for non-resident companies trading in Ireland through a branch or agency.  The Institute has been engaging with Revenue through TALC on the introduction of iXBRL filing and we will be issuing further updates to members on this and related matters.


Other tax administration issues

  • The Bill also provides for the legislative right of  the Collector General to issue “final demands” for payment through ROS to those who are registered on ROS or who are subject to mandatory efiling.
  • Section 91 provides that CAT and stamp duty must be paid in order for a tax clearance certificate to issue.
  • A technical amendment has been made to Section 886 regarding the retention of records.

Other measures

  • The threshold for tax relief on 3rd level fees is being increased to €2,500 for 2013, €2,750 for 2014 and €3,000 for 2015.
  • Tax relief for the donation of heritage properties is reduced from 80% to 50% of the market value of the property donated.
  • The Revenue Job Assist scheme is to be terminated with effect from a date to be determined by Ministerial Order. A new “PlusOne” Initiative was announced around the Budget, which will replace both the Revenue Job Assist and Employer Job (PRSI) Incentive.
  • A number of technical amendments are made to the Investment Limited Partnership framework to provide for a tax-transparent structure.
  • A minor amendment is made to the definition of “investment certificates” to address an issue related to Islamic bonds.
  • Certain amendments are made to ensure that the final ratification procedures are completed in respect of Double Taxation Agreements and certain other international agreements which Ireland has signed.
  • Section 31 of the Bill provides for the final ratification procedures in respect of the Inter-Governmental Agreement for the implementation of FATCA signed by Ireland and the US at the end of 2012.  The section also provides that Revenue, with the consent of the Minister for Finance, may make regulations requiring financial institutions to report information on certain accounts held by them.  Revenue are also enabled to exchange this information with the US, as provided for under the Inter-Governmental Agreement.

Confirmation of Budget Measures


The Bill confirms a number of measures announced in December’s Budget. These include the 10-Point SME Tax Reform Plan, pre-retirement access to AVCs, amendments to the scheme of tax relief for charitable donations and amendments to capital taxes.  Details of the provisions in the Bill which give effect to these originally announced measures are provided here


New information on these Budget measures which is contained in the Finance Bill is outlined below.


REITs


Section 39 of the Bill provides for the introduction of Real Estate Investment Trusts (REITs) from 1 January 2013.  The following are the main provisions concerning REITs:

  • The REIT company will be exempt from tax in respect of the income and chargeable gains of a property rental business, subject to certain criteria.  These include a requirement to distribute 85% of its property income by way of property income dividend.
  • The REIT must derive 75 % of its aggregate income from the property rental business. It may carry on other ‘‘residual’’ business, but the tax exemption applies only to the income and chargeable gains of the property rental business.
  • Property income dividends paid by the REIT will be subject to dividend withholding tax, and will be taxable in the hands of the shareholders.
  • The REIT will be obliged to make an annual electronic return to Revenue.

Film Relief


Film relief is to be extended to 2020 subject to EU approval.  However, as announced in the Budget, the operation of the relief will be significantly changed, subject to Ministerial Order.  The relief will no longer be available to the investors in a qualifying film. Instead a film corporation tax credit of 32% will be paid directly to a Producer Company.  Section 20 of the Bill contains detailed information on when and how the tax credit can be claimed and the administrative requirements that will apply to the new regime.  Further details and explanation will be included in TaxFax on Friday.


Carried interest


The carried interest provisions in section 541C TCA have been reformed with a view to assisting companies involved in innovation activities to access investment from venture capital funds. The reforms, contained in section 44, are as follows:


    1. The scope of the relief is expanded so that it is not limited to investment in
        companies at the start-up phase.
    2. The relief is linked to the overall performance of the venture capital investment
        portfolio and not to separate individual investments as was previously the case.
    3. The previous requirement for the investment in target companies to be held for a
        period of 6 years is reduced to 3 years.
    4. The Bill extends the carried interest relief currently available to companies and
        partnerships to individual venture fund managers.
 

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