Finance Bill 2009, which implements the Supplementary Budget announcements together with further measures not announced in the Budget, was published on 7 May 2009.

Commentary on specific provisions which impact Chartered Accountants in their work is available in Section 2.01.

The Finance Bill 2009 is available at http://www.finance.gov.ie/documents/publications/FinanceBill%202009/finbill2009.pdf.

ICAI, under the umbrella body CCAB-I, had made a Pre Finance Bill 2009 submission to the Minister for Finance. The submission consists of three separate documents – CCAB-I Pre Finance Bill 2009 Submission; CCAB-I Pre Finance Bill 2009 Submission – Intellectual Property; CCAB-I Pre Finance Bill 2009 Submission – Remittance Basis. The submissions are reproduced in Section 2.02.

In addition to the Pre Finance Bill 2009 submission to the Minister for Finance, ICAI provided commentary on the two main contentious issues prior to the publication of the Finance Bill.

Income Levy arrangements

As with all professions, there are certain expressions in the tax world that can raise the hackles depending on your point of view. “Amnesty” is one such term. “Retrospection” is another.

The doubling of the income levy, combined with the alteration of the bands at which the levies are to apply, has led to the notion of a composite rate for the 2009 year of assessment. In a nutshell, irrespective of the timing of the income receipt, the composite rate will apply. So the 1% levy of 1 cent paid on 1 euro of income received prior to 1 May will not in the final reckoning suffice. It will, under the composite arrangement, be 1.67 cent. Retrospective taxation?

This doesn't look right, and the initial reaction of many practitioners who looked at the Financial Resolution in detail was that a mistake had been made. Multiplication shouldn't take precedence over addition, and the anomaly was a drafting error which doubtless would be corrected in the Finance Bill. Not so, according to Revenue when we discussed the matter with them at TALC on April 17. This was done as an anti-avoidance measure, designed to catch accelerated payments made to avoid the imposition of a higher levy rate after 1 May.

The particular downside here is that for many employees in our declining economy, income for 2009 will be higher in the first four months of the year than in the last eight. There's neither acceleration nor avoidance involved, just the harsh economic reality.

As a blunt instrument for tax collection, the Income Levy must be wielded very carefully, and perhaps this composite rate approach needs more careful thought. There's also the wider reputational issue for Ireland Inc of the application of retrospective taxation.

It can be argued that the composite rate might not be regarded as retrospective insofar as it applies within the same year of assessment. But this doesn't really wash, not least because the Financial Resolution quite easily distinguishes between the first four and last eight months of the year for the purposes of the weekly threshold. The composite rate charge doesn't have to be applied this way.

Nor does the justification that this is an anti avoidance measure ring true. In the past, anti avoidance measures have featured in Finance Bills, and have had retrospective effect. But these were signalled in advance, usually in a public statement by the Minister for Finance, that measures to address a particular situation would be applied in a forthcoming Bill.

Ongoing confusion on Mortgage Interest Relief and Income Levy damages the reputation of Ireland's tax collection systems

The Institute of Chartered Accountants in Ireland (ICAI) said that extra effort will be needed to ensure the tax changes from the April Budget are applied consistently and fairly.

“There is needless complication over the way changes to Mortgage Interest Relief and the Income Levy are to be applied. The Mortgage Interest Relief change should be straightforward, yet we find that Revenue are to withhold relief to many thousands of taxpayers who retain their entitlement, until Revenue get their records sorted out. This is unprecedented. Tax changes must be applied fairly” according to ICAI Director of Taxation Brian Keegan.

“In the past, where a tax change has had to be made quickly, Revenue would give the taxpayer the benefit of any doubt and make adjustments subsequently as required.”

ICAI points out that there is also confusion over Income Levy changes. “Two levies were increased in the April Budget. The Income Levy was doubled, but with retrospective effect to 1 January 2009. The Health Contribution was also doubled, but without retrospective effect. This means that a PAYE taxpayer earning, say a higher rate of pay, or who took a redundancy payment prior to 1 May becomes liable for an additional Income Levy. They won't though pay an additional Health Contribution”.

While changes made during a tax year are more complicated than changes at the start of a year, the Institute maintains that effectiveness could be achieved. “It's normal for Revenue to have only a few weeks between Budget Day and the effective date of a tax change. There is still a window of opportunity to correct these anomalies before the Finance Bill is published next week” said Keegan.