Income Tax

The Bill includes details on the main new income tax reliefs; the Home Renovation Incentive and the Start Your Own Business Relief. The Bill gives legislative effect to these reliefs and the other income tax measures announced in the Budget. A number of further income tax measures are included in the Bill.

Professional Service Withholding Taxes and Medical Practitioners

PSWT legislation is amended to clarify that an authorised insurer can make a payment on which PSWT is operated on to an employer rather than directly to the medical practitioner, where a medical practitioner is providing medical services as an employee rather than as a self-employed practitioner. The definition of “accountable persons” for PSWT purposes has also been extended to include bodies such as joint ventures which are under the control of accountable persons listed in Schedule 13, TCA 1997.

High Income Earners’ Restriction

Schedule 24 is amended to provide clarification on how double tax relief applies in the case of individuals who are subject to the High Income Earners’ Restriction. The Bill provides that the calculation of the Irish effective rate is computed by including the High Income Earner restriction thereby increasing the Irish effective rate of tax.

Clarification on the prospective application of this measure is required from Revenue. The impact for other paragraphs in Schedule 24 (which deals with double tax relief for tax applied in other jurisdictions) also needs to be identified. It is possible that a refinement of this measure will be included in the Committee Stage amendments or if not, by way of Revenue guidance.

R&D Relief for Key Employees

A number of amendments have been made to the provision introduced in Finance Act 2012 which allows companies in receipt of the R&D credit to use a portion of this credit to reward key employees. In relation to the clawback of the relief given to the key employee, the Bill has moved the liability from the employee to the employer. Where an employee claims the relief they will be a chargeable person for the year of claim and for all years in which the relief is carried forward. Other minor technical amendments to this provision have also been introduced.

Pension Taxation

Amendments to the Standard Fund Threshold and the extension of the Pension Levy as announced on Budget day were reflected in the Bill. A number of other technical amendments were also reflected in the Bill including a measure to facilitate AVC drawdown.

Tax Treatment of State Pension

A new paragraph is inserted into section 126 TCA 1997 which confirms that the beneficiary of a state pension is taxable on both the amount of their own pension and any increase in the pension amount for a qualified adult dependent. This provision appears to be in response to uncertainty about the tax treatment of the additional qualified adult payment following the exchange of pension payment information between Revenue and the Department of Social Protection in 2012.

Corporation Tax

Change to Tax Residency Rules for Stateless Companies

The main Budget day announcement relating to corporation tax was the move to change Ireland's corporation tax residency rules to make “stateless” companies Irish tax resident. Irish corporation tax residency rules are amended to ensure that an Irish incorporated company cannot be ‘stateless’, in terms of its place of tax residence, as a result of a mismatch between Ireland's company residence rules and those of a treaty partner country.

The amendment provides that where an Irish incorporated company that is managed and controlled in a treaty country but would not otherwise be regarded as resident for tax purposes in any territory because:

• is not incorporated in that treaty country, and
• it is not managed and controlled in Ireland, then the company will be regarded as resident in Ireland for tax purposes.

This amendment will apply from 24 October 2013 for companies incorporated on or after that date, and 1 January 2015 for companies incorporated before 24 October 2013.

Provisions where Companies cease to be resident in the State “Exit Tax”

In response to decisions of the Court of Justice of the European Union, Ireland's exit tax regime is amended to offer deferred payment options to a company migrating to another EU or EEA Member State after 1 January 2014.

If the company migrates to another EU or EEA Member State after 1 January 2014 then an election can be made to defer the immediate payment of the tax arising. Interest is payable on the deferred payment of the relevant tax. An immediate crystallisation of tax will arise in the event of the appointment of a liquidator to the migrating company, the company ceasing to be tax resident in an EU or EEA Member State, or the company failing to pay tax by the date that it is due and payable. The migrating company can make the election for deferral in its final corporation tax return and must also submit annual statements to Revenue.

Double Tax Relief

Unilateral credit relief on foreign-sourced leasing income is amended to allow for the carry-forward of unrelieved foreign tax against future taxable profits from the same source of income.

Amendments were also made to specify that for the purposes of corporation tax, the reduction available to a company for excess foreign tax arising on royalties or interest cannot exceed the amount of the Irish measure of that foreign income.

Capital Gains Tax

Debt Write-offs

The basic rules for determining the expenditure to be allowed as a deduction in computing chargeable gains are amended so that if a person borrows money to acquire or enhance an asset and is subsequently released from some or all of that debt, then a deduction cannot be claimed for the amount of the debt forgiven in the calculation of chargeable gains or losses arising on a subsequent disposal of the asset in question. If the debt is forgiven after the asset is disposed of, then the debt release will be deemed to be a chargeable asset in that year and CGT may arise accordingly.

According to Revenue, the purpose of this amendment is to ensure that no CGT loss is available to the taxpayer when there is no economic loss. A number of related issues arise such as the impact on inter group debt write offs, treatment of exempt disposals, and connected party disposals. Amendments to this provision are expected to feature at Committee Stage of the Bill.

Remittances of Capital Gains

The Bill amends the anti-avoidance measure which provides that a non-domiciled individual is subject to Irish CGT on remittances made by his/her spouse to Ireland out of chargeable gains which were originally made by the individual on a disposal of a foreign asset.

The amendment clarifies that the non-domiciled individual will be subject to tax on a gain if the proceeds (rather than the chargeable gain) from the disposal of a foreign asset is transferred to a spouse who remits the funds to Ireland on or after 24 October 2013.

There is some question around the application of this measure to cases where assets are transferred to a former spouse under a divorce settlement. Clarification is expected to issue from Revenue in due course.

VAT Measures

Repayment of Input VAT

The Bill introduces a new section into VAT legislation which requires a business to repay VAT claimed on purchases where they have not paid the supplier within a six month period. Where payment is subsequently made, the amount of the VAT deductible can be increased accordingly in the period payment is made. According to Revenue this is an anti-fraud measure aimed at tackling the shadow economy. While the six month period would seem quiet short in practice, Revenue claims that the majority of taxpayers will not be impacted by this measure. If there are legitimate commercial arrangements affected by this measure Revenue's advice is that taxpayers can contact their Local Tax District.

This amendment has effect in respect of tax deducted in taxable periods commencing on or after 1 January 2014.

Supply of Horses and Greyhounds

In compliance with the judgement in the European Court of Justice Case against Ireland the VAT rate applying to; the supply of live horses, the supply of greyhounds, and the hire of horses, is being increased from 4.8% to 9% from 1 May 2014. However the 4.8% rate will continue to apply to livestock being; cattle, sheep, goats, pigs, deer and those horses intended for use in the preparation of foodstuffs or in agricultural production.

A note published by the Department of Finance states that “the 13.5% rate will apply from 1 May 2014 to supplies of all animal insemination services, including livestock, greyhound and horses, whether normally intended for use in the preparation of foodstuffs or in agricultural production, or not”.

It is also stated in the Department of Finance note that “the delayed introduction of the new VAT treatment will facilitate a proper consultation between Revenue and the industry concerned in relation to this leaflet. It is intended to introduce the legislation by way of commencement order with effect from 1 May 2014”.

Capital Goods Scheme and Receivers

The provision whereby receivers became accountable under the VAT capital goods scheme for obligations of the defaulter under that scheme, for the duration of the receivership only related to receivers appointed after the passing of Finance Act 2013 (27 March 2013). This measure is extended to apply to receivers who were appointed before Finance Act 2013, so that the same obligations, liabilities and entitlements should apply to all receivers. This measure is being introduced with effect from 1 May 2014 to allow a period of transition to the new arrangement.

Administration and Revenue Powers

As is customary in recent Finance Bills the Miscellaneous Part of the Bill makes a number of technical amendments to tax administration provisions and Revenue powers. The main amendments concern the “new” self-assessment provisions in Part 41A TCA 1997, Revenue powers in relation to the mitigation of fines and penalties and the Collector General's power in the area of electronic notice of assessments. The non-disclosure confidentiality rules that apply to Revenue officers are amended to ensure that they also apply to external service providers engaged by Revenue.

Current Consultations

While not specifically a Finance Bill measure, it is worth noting that a consultation has been launched on the reform of the appeal system, including a reform of the role, functions and structure of the Appeal Commissioners. A short consultation on proposals to bring forward the Pay and File deadline was also launched.

As a consequence of the earlier scheduling of Budget Day in response to our Euro area obligations, the Department of Finance announced last month their intention to bring forward the self-assessment deadline date for income taxpayers. The Department issued a consultation paper on 11 October 2013 which contained further details and a number of alternative dates (more on this issue of tax.point). The closing date for responses under the consultation was 9 November. At this stage, indications are that amendments providing for any change will be introduced at Committee Stage.

The Minister first announced reforms to the appeals process and the function of the Appeal Commissioners during his Budget speech last month. In the subsequently published consultation notice, Minister Brian Hayes states that he intends to introduce changes to the Appeal Commissioners from 2014 following consideration of a number of recommendations and proposals made by representative bodies, reports and tribunals in recent years. The consultation process is opened until January and it is fair to expect some changes to the appeal process next year.

Conclusion

Finance (No.2) Bill is expected to move to Committee Stage in the Dáil on 26 November and thereafter to Report Stage on 4 December. Once the Bill finishes at Committee Stage there is unlikely to be any further new tax measures in this Bill. The Bill will move to the Seanad and is anticipated to pass to the President for signature by mid-December. We can expect to have Finance (No.2) Act 2013 before the Christmas holidays.

Kimberley Rowan is Tax Manager with Chartered Accountants Ireland

Email: kimberley.rowan@charteredaccountants.ie