Finance Bill 2017 was published on Thursday 19 October 2017 and contains the tax measures announced in the Budget speech delivered by the Minister for Finance on 10 October 2017 along with a number of additional measures. The Bill contains some positive elements including personal tax reliefs for workers and transitional arrangements for stamp duty on non-residential property transfers.

Proposed Committee Stage amendments to Finance Bill 2017 were published on 6 November. The Bill is expected to move to Report Stage on 21–22 November and to the Seanad on 28 November.

At the time of writing this article the Bill passed Committee Stage in the Dáil. The measures covered in this article are therefore subject to change.

Personal tax measures

The Bill gives us the details of the new employee share option scheme, known as the Key Employee Engagement Programme or KEEP, which was first promised in Budget 2017 and confirmed in Budget 2018. The Bill also includes details on the new tax treatment of electric vehicles provided to employees. New provisions to tax any free or discounted health or dental insurance policy given to certain employees are in the Bill. As expected, reductions to the USC charge and the increase in the standard rate band as well as changes to the Earned Income Credit and the Home Carer credits are legislated for in the Bill.

KEEP

The aim of this new share option incentive is to enable SMEs reward, motivate, and retain employees in a tax efficient manner.

The main conditions to avail of the incentive are:

• The company must be an unquoted, trading company, Irish incorporated and Irish resident or resident in the EEA but carry on a business in Ireland through a branch or agency. A quoted company listed on the Enterprise Securities Market (ESM) of the Irish Stock Exchange or listed on a similar market to the ESM in a country with which Ireland has a Double Taxation Agreement or an EEA State may also qualify.
• The company must come within the definition of an SME:
• employ fewer than 250 people,
• have an annual turnover not exceeding €50 million, and/or
• an annual balance sheet total not exceeding €43 million.
• Share options up to a total market value of €3m can be granted with the total market value of the share options granted to any one individual not exceeding €100k in any one tax year, €250k over three consecutive years or 50 percent of the individual’s annual emoluments.
• Employees must be full time or directors who spend a minimum of 30 hours per week working for the company. The individual (either alone or with connected persons) must not control directly or indirectly more than 15 percent of the ordinary share capital of the company.
• The share options must be granted to the employees at market value and the main purpose of the scheme must be to recruit or retain employees.
• The share options must be held for a minimum of 12 months before being exercised (with limited exceptions e.g. on death or a sale of the company), and must be exercised within 10 years of the date of grant.
• The shares received on the exercise of the options must be ordinary shares and they must not carry any preferential rights.

The tax treatment of the share options will be:

• Any gain realised on the exercise of an option granted on or after 1 January 2018 and before 1 January 2024 will be exempt from income tax.
• Capital gains tax will apply on any gain arising on the disposal of the shares. The gain will be the difference between the amount paid for the shares on exercise and the market value on disposal.

The Bill inserts a new section into the Taxes Consolidation Act (TCA 1997) after section 128E TCA 1997 to provide for the KEEP.

Provision of electric motor vehicles to employees

An exemption from the general benefit in kind is being introduced for employer provided electric vehicles (cars and vans). The exemption as provided for in the Bill is due to apply for one year only from 1 January 2018. However, later comments from the Minister tell us that the exemption will apply for a minimum of three to five years.

Any expense incurred by the employer in providing electrical charging points for use in the workplace for charging electric vehicles will also be exempt from a BIK charge, provided all employees and directors of the company can avail of the facility.

The Minister for Finance told us as part of Budget 2018 that these interim measures are intended to allow time for a comprehensive review of the taxation of employer provided vehicles. We may see further changes to the tax treatment of motor vehicles provided to employees in next year’s Finance Bill.

Employees of health or dental insurer

Under a new section 112AA inserted into the TCA 1997, employees of health or dental insurers who are provided with a free or discounted health or dental insurance policy will now be taxable on the market value of the policy. Any tax relief at source that would have been available and any amount paid by the employee will reduce the taxable value. Where a family member of an employee receives a similar free or discounted policy, the value of such will be a taxable emolument for the employee.

Preferential loans to employees

The Bill introduces a technical amendment to ensure that a loan given to an employee where no interest is paid is regarded as a preferential loan and thereby treated as a benefit in kind under section 122 TCA 1997.

Employment and Investment Incentive

A Committee Stage amendment provides that individuals connected with a company through the ownership of share capital, loan capital or voting rights of that company are now excluded from the Employment and Investment Incentive (EII). The incentive was amended with effect from 2 November 2017.

A Revenue eBrief on the matter tells us that all shares issued under the EII prior to 2 November will continue to be processed by Revenue under the current rules.

Farm Leasing Income

A Committee Stage amendment to the condition for a qualifying lease for the purpose of farm leasing income clarifies that the relief is prevented from applying in circumstances where: (i) the lessee of the farmland (the “original farmland”), or a person connected with that lessee, is also a lessor of other farmland, and the lessee of that other farmland is the lessor of the original farmland, or (ii) the lessee of the original farmland is also a lessor of other farmland, and the lessee of that other farmland is the lessor of the original farmland or a person connected with that lessor.

Domicile Levy

The Bill amends the legislation contained in section 531AA TCA 1997 which deals with the domicile levy. The domicile levy applies to Irish domiciled individuals who own Irish assets valued in excess of €5 million, have a world-wide income in excess of €1 million and how have paid less than €200,000 in income tax in the relevant year. A new subsection is introduced to clarify that worldwide income for the purposes of the domicile levy is income before deducting capital allowances and losses. This could potentially increase the number of taxpayers who fall within the charge to the domicile levy. The definition of ‘final decision’ has also been removed and this has consequences for the definition of “liability to income tax”.

Employment taxes

The Bill provides the detail of Real Time Reporting in the context of the PAYE Modernisation programme which applies from January 2019. To support the move to real time reporting a change to the basis of taxing employment income and a new provision to deal with the ‘grossing up’ of income that was not correctly subject to PAYE are also included.

Real Time Reporting

This means that employers will update and report their employees’ pay and deductions to Revenue as they are being paid i.e. in real time. Revenue will use the up-to-date payroll information in its compliance activities and risk analysis according to supporting documents to the Bill.

Schedule 1 of the Bill tells us that from 1 January 2019 the following will be the main features of the real time PAYE system:

• Employers will submit monthly returns detailing pay, tax and deductions to Revenue before or at the time of making the payment to the employee.
• The relevant tax liabilities will be due for payment by the 14th or 23rd of the following month.
• Revenue will issue a revenue payroll notification or “RPN” which essentially will contain the same information as the current P2C.
• The submission date for the small and irregular benefits return has been brought forward by 23 days (from 15 February to 23 January)
• In the case of non-operation of PAYE by the employer, Revenue will raise an assessment rather than raising an estimate.
• Provisions are included for exceptional circumstances outlining the obligations on an employer in the event of a persistent technology systems failure.

Change in tax treatment

Prior to the introduction of Real Time Reporting in January 2019, the Bill provides for changes to the basis of assessment of Schedule E income, which is the tax treatment of employment income. Currently such income is taxed, under income tax rules, in the year in which it is earned, irrespective of when it is paid. The Bill tells us that employment income will be taxed on a receipts basis, which means when it is received by the individual. This change will apply to Schedule E income from 1 January 2018. Transitional arrangements are included for income which may have been taxed in 2017 on an earnings basis but are then received in 2018. Practically this will have the greatest impact on bonus payments made in 2018 which relate to employment duties performed in 2017 and therefore the income will have been “earned” in 2017.

Unpaid income tax

Where PAYE is not correctly operated by an employer a new provision (new section 986A TCA 1997) will treat the payments made to employee as net of any tax amounts. This applies from 1 January 2018.

Corporation Tax measures

Tax treaty and double taxation measures

The Bill represents the first step in the procedure required to give effect in Irish law to the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI). The MLI provides for the modification of bilateral tax treaties to eliminate double taxation in accordance with the recommendation of the BEPS initiative. This means that each of Ireland’s tax treaties will be modified once Ireland and its treaty partner states sign and ratify the MLI. Ireland was among 60 signatories to the MLI on 7 June 2017. Tax rules dealing with double tax agreements and relief for double taxation are covered in section 826 TCA 1997 and Schedule 24A respectively and these sections will be amended to reflect the provisions in the Bill once a Ministerial Order is granted.

Restrictions to section 110 companies

The Bill adds to the list of Irish property profits subject to restriction provisions under section 110 TCA 1997. Interest paid on or after 19 October in respect of certain shares deriving value from Irish land will be restricted.

KDB technical amendment to loss relief

A technical amendment is introduced to the loss relief provision for a company claiming relief under the Knowledge Development Box (KDB). The Bill states that the amount of relief that can be claimed for a loss incurred in the KDB trade cannot be greater than the loss itself.

Accounting standards

The Bill makes a number of amendments to section 76A TCA 1997 to deal with the replacement of former Irish generally accepted accounting practice (GAAP) standards (including FRSs and SSAPs) with current Irish GAAP accounting standards (FRS 100 to FRS 105). The technical amendment requires a company to calculate a “transitional adjustment” upon a change of accounting framework. This transitional adjustment is then taxed or deducted (as the case may be) over a five year period following the transition. The technical amendment in the Bill also incorporates existing practice regarding changes of accounting policy and correction of errors. The “spreading” provisions have also been extended to the adoption of a new standard within the same accounting framework in anticipation of the further development of IFRS and Irish GAAP. A number of technical adjustments were made at Committee Stage, mainly to the meaning of ‘relevant period, ‘relevant amount’ and ‘material error’.

Relief for loans applied in acquiring an interest in companies

The Bill amends section 247 TCA 1997 which is an important tax relief mechanism for interest on a loan used to acquire, or lend to, directly or indirectly a trading company. The changes introduced under the Bill give statutory effect to the administrative approach taken by Revenue to allow interest relief on investments held indirectly through one or more intermediate holding companies. Consequential changes have been made to section 243 TCA 1997 and section 249 TCA 1997 on foot of the amendments to section 247. The amendments to section 247 apply to loans made on or after 19 October.

Restriction of tax relief for intangible assets

As announced on Budget Day, tax relief under section 291A TCA 1997 for capital allowances for intangible assets, and any related interest expense, is limited to 80 percent of the relevant income arising from the intangible asset in an accounting period. This restriction applies to expenditure incurred on or after 11 October 2017. Section 291A is also amended to clarify that relief under this section applies irrespective of whether the company wholly or partly carries on qualifying trading activities.

iXBRL for investment undertakings

The Bill inserts a new section 739FA into TCA 1997 which will require investment undertakings to provide financial statements electronically to Revenue. This measure will be introduced on a phased basis through regulations made by the Revenue.

Life assurance companies

The Bill makes a number of amendments to the taxation of life products. Firstly it provides that a life company cannot use foreign tax arising on income that forms part of its ‘policy holder business’ to claim double tax relief against its taxable profits. Secondly it provides that the assignment of a life policy as security for a mortgage to a qualifying company, within the meaning of section 110 TCA1997 will not be a chargeable event which triggers an exit tax charge on the policy holder.

Irish Real Estate Fund

The Bill makes a number of amendments to the Irish Real Estate Fund (IREF) regime, introduced by Finance Act 2016. Under the latest provisions, IREFs do not have to operate withholding tax on payments to Approved Retirement Funds, Approved Minimum Retirement Funds and vested Personal Retirement Savings Accounts. A number of other technical provisions are in the Bill.

Property measures

The Bill gives further detail to the provisions announced on Budget Day where the rate of stamp duty on non-residential property was increased to 6 percent and also provides details of transitional arrangements where binding contracts were entered into prior to 11 October 2017. A stamp duty refund scheme in relation to land purchased for the development of housing is promised at Committee Stage. In a move to protect the position where family farms are transferred, consanguinity relief is being extended for another three years at a fixed rate of 1 percent and the 67 years age restriction for the relief has been removed.

Transitional rules for stamp duty

The rate of stamp duty on non-residential property, including agricultural land and non-residential lease premiums increased from 2 percent to 6 percent with effect from 11 October 2017. The Bill did introduce transitional measures which state that stamp duty at a rate of 2 percent will apply to binding contracts that were entered into before 11 October 2017 once the instrument effecting the transfer is executed before 1 January 2018. The instrument must contain a statement (in a form specified by Revenue) stating that a binding contract was entered into before 11 October 2017. If an incorrect statement is furnished, this will be regarded as a Revenue offence under section 1078 TCA 1997.

These transitional measures will not become law until the Finance Bill is enacted, which in recent years is at the end of December. In the meantime Revenue has put administrative arrangements in place for these transitional measures.

Revenue has confirmed the following arrangements per their eBrief No. 94/2017:

A person who files a stamp duty return before the enactment of the Finance Bill and who is satisfied that the transitional measures would apply if the Finance Bill was enacted, has two options. He or she may-

1. File a return through the e-stamping system, pay stamp duty at the rate of 6% and be issued with a stamp certificate. On enactment of the Finance Bill, the filer can then request a refund of the difference in the stamp duty paid between the 2% and 6% rates by amending the return and submitting the relevant documentation to Revenue, or
2. File a return through the e-stamping system and pay the stamp duty at the rate of 2%, in which case a stamp certificate will not be issued. On enactment of the Finance Bill, Revenue will publish information on how the postponed stamp certificate can be obtained.

Stamp duty on transfers of certain agricultural property

While the transfer of agricultural land is now liable for stamp duty of 6 percent, the Bill amends the relief from stamp duty for certain transfers of agricultural property between relatives, known as consanguinity relief. Before Finance Bill 2017, consanguinity relief reduced stamp duty on such transfers by half to 1 percent. The relief was due to expire on 31 December 2017 but the Bill has extended consanguinity relief for three years to 31 December 2020 and has fixed the rate of stamp duty that applies to qualifying transfers to 1 percent. This is despite the increase in the stamp duty rate on transfers of non-residential property to 6 percent. In addition, the condition that the person disposing of the land must be under 67 years of age has been removed.

The changes to consanguinity relief (other than the rate change) will come into effect on the enactment of the Bill.

Stamp duty refund scheme

In order to address housing supply challenges, the Minster had announced on Budget Day his intention to introduce a stamp duty refund scheme where commercial land is purchased for the purposes of housing development. This was not included in the Finance Bill. The Department of Finance has said that the scheme will be introduced at the Committee Stage of the Bill.

Residential leases

Currently residential leases for a term of less than 35 years are exempt from stamp duty where the rental income is less than €30,000 per annum. The Bill extends this threshold to €40,000 and this change will take effect on the enactment of the Finance Act.

Miscellaneous technical stamp duty amendments

The Bill also makes some technical amendments to the stamp duty legislation including:

1. clarifying that, where a surcharge applies as a result of the late filing of a stamp duty return, the surcharge is part of the stamp duty assessment;
2. specifying that, in the case of a stamp duty relief which requires that qualifying conditions are met, the four-year time limit within which Revenue must make enquiries and assessments will commence on the latest date on which all of the conditions were required to be satisfied;
3. provision for the recovery of certain tax-geared penalties outside of the standard six-year time limit. This aligns stamp duty with the practice for other taxes and duties; and
4. Revenue delegation powers when carrying out routine functions.

Other property measures

Mortgage interest relief

The legislative basis for measures announced on Budget day to extend mortgage interest relief to the end of 2020 on a tapered basis were included in the Bill. This means that the relief for 2018, 2019 and 2020 will be 75 percent, 50 percent and 25 percent respectively of the existing relief available in 2017.

Pre-letting expenses

A new section 97A has been inserted into the TCA 1997 to legislate for the availability of a deduction against rental income of expenses which are revenue in nature and were incurred in respect of a residential premises which has been vacant for at least 12 months prior to the property first being let. The premises must be let between the date of the passing of the Finance Act and 31 December 2021. If the landlord who incurred the expenses ceases to let the property as a residential premises within four years the relief will be subject to clawback. The clawback will occur in the year the property ceases to be let as a residential premises.

CGT – 7 year exemption

As announced on Budget day, the seven year CGT relief is amended to allow the owners of qualifying land or buildings to sell those assets between the fourth and seventh anniversaries of their acquisition and still enjoy a full relief from CGT on any chargeable gains as per section 604A TCA 1997. This will apply to sales from 1 January 2018. It appears that the relief as it originally applies will continue to apply to a disposal after the seventh anniversary of the acquisition date.

Capital Gains Tax measures

The Bill contained a number of new measures that were not announced on Budget Day including the extension of the definition of a CGT group to include countries with which Ireland has a double tax agreement. There were also some anti-avoidance measures introduced to section 29 TCA 1997 where non-resident persons dispose of shares, and into section 626B TCA 1997 regarding the rules to determine if shares derive their value from land and buildings for the purposes of the relief.

CGT groups

The Bill extends the definition of a company in determining the members of an Irish CGT group for the purposes of section 617 TCA 1997 (which exempts certain transfers of assets other than trading stock within a qualifying group) to include countries with which Ireland has a double tax agreement. Currently, only companies resident in Ireland, another EU member state or an EEA member state can be included in a capital gains group. This change means that the definition of a group for Irish CGT purposes is aligned with the definition of a group for Irish corporation tax loss relief.

Farm restructuring

The Bill makes an amendment to capital gains tax relief for farm restructuring which applies to the sale, purchase or exchange of certain agricultural land between 1 January 2013 and 31 December 2019.

Individuals who have benefited from the relief are now required to provide certain information to Revenue to enable the calculation of the amount of capital gains tax that would have been paid if the relief had not applied. This information is required so that Ireland complies with State Aid publication requirements. The information must be supplied for disposals made on or after 1 July 2016.

Leasing land for solar panels

The Bill confirms that the leasing of agricultural land for the use of solar panels will be treated as a qualifying agricultural activity for the purposes of capital acquisitions tax and CGT reliefs once the infrastructure does not exceed 50 percent of the total farmland.

2017 Voluntary Home Owners Relocation Scheme

The Bill provides that any compensation obtained under the 2017 Voluntary Homeowners Relocation Scheme is exempt from CGT.

CGT anti – avoidance measures

Disposal of shares by non-residents

The Bill amends section 29 TCA 1997 which exempts non-resident persons from CGT on certain share sales. The change means that this exemption will only apply where the shares sold are actively and substantially traded on the stock exchange. The amendment applies to disposals made on or after 19 October 2017.

Entrepreneur Relief and Retirement Relief

Anti-avoidance measures are introduced at Committee Stage to deny the reliefs in certain cases involving disposals of goodwill and shares in certain connected party sales.

Relief is also restricted where the individual claimed Transfer of Business Relief.

Close Company Share Transactions

New anti-avoidance provisions were introduced at Committee Stage to deal with certain share disposals where consideration for the shares is paid directly or indirectly from the company making the disposal.

Section 626B TCA 1997

The Bill introduces a further anti-avoidance provision in section 626B TCA 1997 which gives an exemption from corporation tax on chargeable gains arising when a parent company sells shares in its subsidiary and the shares do not derive their value from Irish land. This new provision will clamp down on cases where money or other assets are transferred to a company prior to a disposal of shares in that company in an attempt to show that shares do not derive their value from Irish land or buildings. No account will be taken of such transferred assets when establishing where the shares derive their value on disposal where the main reason for doing so is the avoidance of tax. This amendment applies to disposals made on or after 19 October 2017.

Companies Act 2014

A number of provisions in the Stamp Duty Consolidation Act, Taxes Consolidation Act and Capital Acquisitions Taxes Act were updated to reflect the provisions of the Companies Act 2014. The Companies Act 2014 was signed into law almost three years ago so the updates to tax rules impacted by this Act are long overdue.

The Bill amends section 79 SDCA 1999 to take account of a ‘merger by absorption’ introduced in the Companies Act 2014. Section 80 SDCA 1999 deals with the stamp duty exemption for property transfers in a company reconstruction or amalgamation. This section is now updated to recognise a merger in accordance with the Companies Act 2014.

The Bill provide for a number of amendments to the TCA 1997, CATCA 2003 and SDCA 1999 for the purpose of updating reference to previous Companies Acts in tax legislation to the appropriate references in the Companies Act 2014.

A new Chapter and Section are inserted in Part 21 of TCA 1997 to also deal with merger and division transactions. The new chapter in TCA 1997 deals with tax payment, filing and reporting obligations and liabilities following a merger or division and a new section 638A TCA 1997 also permits a company involved in a merger or division to take an appeal. Section 865 TCA1997 is amended to allow tax repayments to a successor company following a merger or division undertaken in accordance with Part 9 of the Companies Act 2014. These provisions apply with effect from 1 June 2015, being the date of the enactment of Companies Act 2014.

VAT measures

VAT on Education Services

The Bill clarifies and provides for the introduction of regulations in respect of the long standing Revenue practice of applying a VAT exemption for vocational training and retraining. Some uncertainty had arisen in this space recently. Furthermore there were a number of technical amendments which clarify the application of a VAT exemption to certain education services.

Charities VAT Refund Scheme

The Bill does not include measures to introduce the VAT Refund Scheme for charities, which was announced on Budget Day.

Sugar tax

The Bill provides more detail on the new tax known as the Sugar Sweetened Drinks (SSD) tax, which was announced in Budget 2017, and pledged in Budget 2018.

The SSD tax is due to be introduced from 1 April 2018; however, the measure is subject to approval by the European Commission and the minister’s commencement order.

The tax will be charged on the first supply of SSD in the State. Suppliers of such drinks will be liable to register with Revenue in advance of their first supply to which the tax applies.

Rate	Sugar content
€0.30 per litre	Drinks with a sugar content of 8 g or more per 100 ml
€0.20 per litre	Drinks with a sugar content of greater than 5 g but less than 8 g per 100 ml.

The introduction of the SSD tax is intended to align with the proposed introduction of a similar regime in the UK, also from April next. This alignment is to minimise any enticement for illegal and cross-border sales of SSD, and consequently any negative impact on the Exchequer revenues.

Process

Finance Bill 2017 is expected to pass the Dáil by the end of November and is likely to be with the president for signing mid-December. As in recent years, the Bill is due to be enacted into law by the end of the year as Finance Act 2017.

Kimberley Rowan is Tax Manager with Chartered Accountants Ireland

Email: kimberley.rowan@charteredaccountants.ie