The main provisions of Finance (No. 2) Bill 2011 which I will deal with can be summarised as follows:

1. Introduction of an annual pension fund levy.
2. Reduction in VAT on certain goods and services such as Restaurant / Catering and Accommodation.
3. Suspension of Air Travel Tax.
4. Refinement of the R & D System.

(i) Pension Fund Levy

The employment initiatives introduced by Finance (No. 2) Bill are to be financed through the imposition of an annual levy at a rate of 0.6% on pension funds. This levy is to remain in place for four years.

The attractiveness of making pension contributions in order to fund retirements has reduced significantly with the restrictions already introduced in Finance Act 2011. These restrictions included a reduction in maximum tax-free lump sums on retirement to €200,000, the reduction of maximum pension fund to €2.3 million and a reduction in tax relief for pension contributions.

This Finance Bill has introduced an annual levy of 0.6% for the next four years on the market value of pension funds. The levy will apply to:

1. PRSA pensions (excluding PRSA that have already vested).
2. Retirement Annuity Contracts.
3. Occupational pension schemes provided by the private sector

The levy will not apply to approved retirement funds (ARF).

The pension levy is one of the more controversial measures introduced. Although introduced to finance the Government's Jobs Initiative, it is likely to result in a reduction in pension contributions going forward.

(ii) Reduction in VAT Rates

A 9% rate of VAT will apply to the following:

1. Restaurant and Catering Services.
2. Cinemas and amusement parks.
3. Hotel and Holiday accommodation.
4. Hairdressing and Printing

It is hoped that this reduction will stimulate demand and activity in these sectors.

(iii) Air Travel Tax

The air travel tax has been suspended.

(iv) Reform of R & D System

The main changes brought to the R & D system is that R & D credits can now be repaid by reference to two years payroll liabilities (previously this was limited to either the Corporation Tax paid for previous 10 years or on the basis one years payroll taxes).

This should assist certain companies in accelerating the refunds of R & D credits and increase the attractiveness of the R & D system.

Jobs Initiative

Certain PRSI measures have been proposed as part of the Jobs Initiative which will partly reverse earlier decisions made in Finance Act 2011. These measures are expected to be brought into force as part of a Social Welfare Bill. Te provisions can be briefly summarised as follows:

1. Changes to employers PRSI on employee share incentives.
2. PRSI reliefs for certain employees.

(i) Employer PRSI on Employee Share Incentives

The Finance Bill has reversed the imposition of any employers PRSI on share based remuneration. This measure has been introduced with retrospective effect to 1 January 2011.

The USC and employee PRSI will remain payable on share incentives. The Finance Bill brought in a measure of relief however, whereby the USC and employee PRSI will not be payable where the shares awarded where the subject of a written agreement entered into before 1 January 2011.

(ii) PRSI Relief for Certain Employees

1. A reduced rate of employers PRSI of 4.25% will apply to earning of less than €356 per week with affect from 1 July 2011.
2. The existing PRSI exemption for employing an unemployed person is to continue until the end of the year.

Conclusion

Overall Finance (No. 2) Bill brought in some measures that may stimulate certain sectors such as tourism, however the imposition of the pension levy is controversial and a reform of the entire pension system should be considered in the future.

Finance (No. 2) Bill 2011 did not include any of the tax measures needed to deal with the Civil Partnership Act; it is therefore likely that we will have a third Finance Bill this year.

Paul Dillon is a Tax Partner with Duignan Carthy O'Neill in Dublin

Email: pauldillon@dcon.ie