Ireland: Details of Newly Published Finance (No. 2) Bill 2013
On October 24, 2013, the Irish government published the Finance (No. 2) Bill 2013. Some of the main measures included in the Bill, which were not announced in the Budget of October 15, 2013, are as follows:
- Exit Tax: Section 627 of the Taxes Consolidation Act (TCA) provides for an ‘exit tax’ on certain companies that cease to be resident for tax purposes in Ireland. Such companies are deemed to have disposed of their capital assets at market value (other than assets which are used for the purposes of a continuing trade in Ireland). In response to recent decisions of the Court of Justice of the European Union in relation to the ‘exit tax’ regimes of other Member States, the Bill amends Ireland’s regime. The amendments provide for an optional scheme of deferred payment of the ‘exit tax’ in cases where a liability arises on unrealized gains on the migration of a company from Ireland to another EU or EEA Member State.
- Double Tax Relief: Section 28(1)(c) of the Bill will enhance double taxation relief in respect of leasing income by providing for the carry-forward of unrelieved foreign tax against future taxable profits from the same source of income. This measure will be of particular benefit to the aircraft leasing industry. Section 28 also makes two additional separate unrelated amendments to Schedule 24 of the TCA 1997.
- Trading Losses: The Bill provides for the removal of the 50% restriction on the amount of prior year trading losses a NAMA participating institution (PI) can set off against trading profits. The remaining PIs comprise AIB and Bank of Ireland, of which the State owns 99.8% and 15% respectively. This amendment protects the value of deferred tax assets at the banks, improving capital ratios under the new Basel III rules and enhancing the valuation of the State’s equity holdings in the two banks.
- Relief for “key employees” engaged in R&D activities. Since 2012, a company with an entitlement to the R&D Tax Credit can surrender a portion of the credit to employees who meet the definition of a ‘key employee’ as set out in Section 472D TCA 1997. Subject to certain conditions, the employee can use the benefit of the tax credit to reduce their own income tax liability. Budget 2014 announced some modest amendments to the relief to remove barriers to take-up. Specifically, Section 13(f) of the Bill removes the claw-back liability from an employee where a company has made an incorrect claim for the R&D tax credit and surrendered an amount of that credit to a key employee. This amendment operates in conjunction with Section 21 of the Bill which provides that the tax foregone can be recovered from the company instead. Section 13 also contains a number of other technical amendments to the scheme to ensure that it operates as intended.
- VAT deductibility: The Bill restricts the deductibility of VAT payable in respect of services related to the transfer of a business. Under the amendments, the deductibility will be allowed only for services that relate to the transfer of a taxable business. Consequently, no deduction for input VAT is granted in respect of services related to the transfer of an exempt business.
- Benefits: As the legislation relating to benefit-in-kind is still determined in miles it has been necessary for employers and payroll providers, in correctly calculating the notional pay associated with the use of a company car, to carry out additional calculations to convert distances and usage into miles. An amendment is proposed to rectify this.
You may notice that Ireland’s Finance Bill is a bit early this year. Under the regulations known as the “Two-Pack*” which were formally adopted on May 30, 2013, a common budgetary timeline is being introduced for all Euro Area* member states. Specifically:
- the draft budget for central government and the main parameters of the draft budgets for all the other sub-sectors of the general government must be published by the 15th of October each year;
- draft budgetary plans in a common format must be submitted by all Euro area Member States not in a program of assistance; and
- the budget for the central government must be adopted or fixed upon and published by the 31st of December each year.
*The “Two pack” is part of the EU's economic governance revamp. It joins other instruments such as the European Semester, the "six pack" and the Fiscal Compact in ensuring that the EU's economic and monetary union is less fragmented and that its component countries run fiscally sound policies. Euro area member states (aka the Eurozone) are Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia (as of 1.1.2014), Luxembourg, Malta, The Netherlands, Portugal, Slovenia, Slovakia, Spain. The following members of the European Union do not use the euro: Bulgaria, Czech Republic, Denmark, Croatia, Lithuania, Hungary, Poland, Romania, Sweden and the United Kingdom.