Finance Bill 2018 was published on Thursday 18 October and contains the tax measures announced in the Budget speech delivered by the Minister for Finance on 9 October 2018 along with a number of additional measures.

Proposed Committee Stage amendments to Finance Bill 2018 were published on 7 November. The Bill is expected to move to Report Stage on 20–21 November to pass to the Seanad on 27 November.

At the time of writing this article the Bill was at Committee Stage in the Dáil.

Corporation Tax measures

Finance Bill 2018 covers a number of corporation tax measures which include Controlled Foreign Company rules, the new Exit Tax rules taxing unrealised gains of assets located in Ireland at 12.5 percent, amendments to capital allowances on energy efficient equipment and capital allowances on childcare and fitness facilities and the three year start up relief for companies.

Controlled Foreign Company (CFC) Rules

As outlined on budget day and in Ireland’s Corporation Tax Roadmap, the Bill introduced CFC rules with effect from 1 January 2019. The CFC rules are an anti-tax abuse measure, designed to prevent the diversion of profits to offshore entities in low- or no-tax jurisdictions and are required by the EU’s Anti-Tax Avoidance Directive (ATAD) rules.

The rules operate by attributing undistributed income of CFCs to the controlling company in Ireland for taxation purposes where the income arises from non-genuine arrangements put in place for the purpose of avoiding tax to the controlling company in Ireland for taxation, where that controlling company has been carrying out ‘significant people functions’ (SPFs) in Ireland i.e. the Irish company bears the risks and economic ownership of the assets.

For CFC purposes a company is considered to have control of a subsidiary where it has direct or indirect ownership of or entitlement to more than 50 percent of the share capital, voting power or distributions.

The Bill provides a number of exemptions to CFC rules:

• Exemptions for CFCs with low profits or a low profit margin.
• Exemption where the CFC pays a comparatively higher amount of tax in its territory than it would have paid in Ireland.
• A one year grace period is allowed in respect of newly-acquired CFCs where certain conditions apply.
• CFC rules will not apply where the arrangements under which SPFs performed have been entered into on an arm’s length basis.

A credit will be available against the CFC charge for foreign tax paid on the same income.

Exit Tax

As announced on Budget day a new exit tax regime of 12.5 percent operates on any unrealised capital gains arising when companies migrate or move assets offshore. This came into effect from midnight on Budget night 9 October 2018.

The new exit tax rules are similar to the old rules where that exit event triggers a deemed disposal of assets at market value for CGT purposes, resulting in a potential CGT charge. The rules include an anti-avoidance provision where the 33 percent rate rather than the 12.5 percent rate will apply if the event that gives rise to the exit tax charge forms part of a transaction to dispose of the assets and the purposes of the transaction is to ensure that the gain is charged at the lower rate. The rules also include transitional provisions relating to the administration of the pre-existing exit charge.

Accelerated allowances for employer provided childcare and fitness facilities

The Bill introduces sections 285B and 843B TCA 1997 to provide for a scheme of accelerated capital allowances for equipment and buildings used by employers for the purposes of providing childcare services or a fitness centre to employees.

The relief will now be available to all employers by removing the restriction that the relief is only available to trades consisting wholly or partly of the provision of childcare services or fitness facilities.

A restriction is now placed on the relief, such that the facilities provided cannot be accessible or available for use by the general public. It is intended that the relief will take effect from 1 January 2019.

Capital allowances for intangible assets

The Bill has made a technical amendment to Section 291A TCA 1997. The amendment clarifies the operation of the 80 percent cap, introduced in Finance Act 2017, on the total amount of capital allowances and related interest expense that may be offset against trading income of the relevant trade on capital expenditure incurred on a specified intangible assets on or before 11 October 2017.

Extension of start-up relief for companies to 2021

The Bill extends the three year tax relief for start-up companies under Section 486C TCA 1997 to 2021.

Professional Services Withholding Tax (PSWT)

Section 59 of the Bill amends Schedule 13 TCA 1997 to remove six entities that are no longer accountable persons required to operate PSWT; being the Harbour Authority, Dublin Docklands Development Authority, Irish Sports Council, National Sports Campus Development Authority, Railway Procurement Agency, and The National Consultative Commission on Racism and Interculturalism. The amendment also adds four entities that are now accountable persons; those being Policing Authority, Educational Research Centre, Sport Ireland and “a company to which section 7 of the Harbours Act 1996 applies”.

Anti-avoidance – loans to participators

Section 18 of the Bill, as published, contains what is referred to in the Explanatory Memorandum as an anti-avoidance provision which extends the income tax charge under section 438 TCA 1997 to loans made by companies controlled by close companies.

The draft clause also catches scenarios where a company subsequently comes under the control of a close company, where such loans would otherwise not give rise to a charge under section 438.

This section therefore inserts a new anti-avoidance provision into section 438A to ensure that certain tax avoidance arrangements, which are not currently caught, will fall within the scope of the section 438 charge.

Investment tax supports

Finance Bill 2018 introduced measures aimed at supporting the limited number of tax reliefs still in place under the Irish tax code; KEEP, start-up company investment incentives (EII and SURE) and film relief.

KEEP

The Budget day measures announced for Key Employee Engagement Programme (KEEP) are reflected in amendments to section 128F TCA 1997 subject to a Ministerial order following State Aid approval. The Bill provides that the total market value of shares that can be granted by a company to an employee is now subject to a life-time cap of €300,000 and is limited to 100 percent of the employee’s emoluments in a year of assessment.

These measures are subject to a Ministerial Order. It is not entirely clear if these amendments will have the desired effect of stimulating participation in KEEP. One of the main problems faced by SME companies in terms of employee share incentive schemes is the challenge of a ready market should the employee wish to exit the company. The linking of CGT treatment under share buy-back provisions to KEEP is essential if this incentive is to reach its full potential.

Employment Incentive and Investment Scheme

On Budget Day, Minister Donohoe noted his intention to bring forward a package of measures in the Finance Bill to address the problems identified with the Employment Incentive and Investment scheme (EII) and the Start-up Relief for Entrepreneurs (SURE) during a review of the reliefs conducted earlier this year. And so it came to pass; with the details of the package set out in the Bill the complex conditions underpinning the legislation, the text of Part 16 of TCA 1997 is replaced with a revised and consolidated text. Only time will tell if this attempt at simplification will revive this tax incentive. The new text introduces the following:

• A new Start-up Capital Incentive aimed at early stage start-up ventures
• A self-certifying capability for the company raising investment and for the investor
• A single trigger point for when claims can be made i.e. when 30 percent of the funds raised are spent for qualifying purposes
• Clarification on the qualifying uses of the funds raised
• Preference redeemable shares are no longer prohibited for the purposes of EII
• Definitions of professional services and unlisted companies are aligned to similar definitions under KEEP
• Companies who raise funds via EII can now float on the stock exchange four years after claiming the EII
• Designated funds can now invest in qualifying companies for EII purposes
• Requirements are placed on holding companies to return capital to investors on sales of subsidiaries which EII is claimed.

The EII, SURE and the new Start-up Capital Incentive (SCI) are set to operate until 31 December 2021.

Film relief

Film relief, in the form of a corporation tax credit under section 481 TCA 1997 is extended until December 2024 and will operate on a self-assessment basis. The Bill also provides a time-limited tapered percentage uplift in relief for productions in State Aid approved regions of the country. The uplift is tapered over four years and is applied at a rate of five percent in years 1 and 2, three percent in year three and two percent in year 4. The tapered uplift is subject to State Aid approval.

Agri-tax measures

The Bill introduced a life-time cap of €70,000 on the aggregate of certain Stamp Duty and CGT tax reliefs available to young farmers. The measure is framed in the context of meeting anti-State aid provisions set out by the EU. A number of technical corrections to align Irish laws with EU regulations were also made to the young trained farmers relief and farm consolidation relief which do not impact the sustenance of these reliefs.

Income averaging

Farmers or their spouse/civil partner with an off-farm income from a trade or profession can avail of the five-year income averaging relief per section 657 TCA 1997 as announced on Budget day while stock relief (section 666 TCA 1997) and young farmer stamp duty relief (section 81AA SDCA 1999) are extended to 2021.

Farm restructuring

The rules for CGT relief on farm restructuring under section 604B TCA 1997 are amended to specify when Revenue should receive information supporting a claim for this relief. For claims between 1 July 2016 and 31 December 2018, the information must be returned to Revenue in the 2018 income tax return and for claims for 2019 onwards, the information should be provided in the individual’s corresponding income tax return for the relevant year of assessment.

Property related tax measures

In addition to the measures introduced on Budget day which granted landlords a 100 percent deduction against rental income for interest on qualifying loans, the rules for claiming rent-a-room relief have been amended to put beyond doubt that income from Airbnb lettings does not qualify for the exemption. Other stamp duty measures introduced include some procedural changes when dealing with “resting in contract” scenarios and a right to appeal in relation to stamp duty repayments.

Airbnb

The amendment to section 216A TCA 1997 stipulates a minimum rental period of 28 days to expressly exclude short-term lettings from benefiting from rent-a-room relief. Helpfully, the amendments to the section state that income from the provision of accommodation for respite care purposes, along with income from exchange students or five day week digs qualifies for rent-a-room relief.

While the amendments take effect from 1 January 2019, Revenue issued Tax and Duty Manual, Part 04-01-20 setting out its position on the taxation of income from Airbnb earlier this year and also wrote to 12,000 recipients of Airbnb income in September as part of a tax compliance initiative.

Landlord interest deduction

The Case V deduction for a 100 percent interest deduction for landlords on residential letting was also formally reinstated under the Bill and will apply from 1 January 2019.

Resting in contract

Section 31 and 31A SDCA 1999 are amended to provide for some procedural changes to the payment of stamp duty for “resting in contract” scenarios. In these instances, the payment of stamp duty arises on the signing of a contract rather than on an actual conveyance or transfer on sale. A ‘credit’ for stamp duty paid is then provided for in the event that there is a subsequent conveyance or sale. Instead of transferring the stamp duty paid on the contract to the executed instrument, Revenue will now issue a stamp certificate stating that the later instrument is not chargeable to stamp duty.

Right of appeal – repayment of stamp duty

The Bill amends Section 21 SDCA 1999 to insert a right of appeal for the taxpayer to the Appeal Commissioners against a decision made by Revenue in relation to a claim for a stamp duty repayment. This technical change is required in order to make a valid appeal under section 949J TCA 1997.

Capital taxes

In addition to the increase in the CAT Group A threshold to €320,000 announced on Budget day, Finance Bill 2018 included an extension of CGT relief on the transfer of a site by a parent to a child to a spouse or civil partner, some anti-avoidance legislation for dwelling house relief and some tidy up administration measures to account for Companies Act 2014.

Disposal of a site to a child relief

Section 28 of the Finance Bill provides that the relief from CGT that is available on the transfer of a site by a parent to a child to enable them to build their home is now extended to the spouse or civil partner of the child for disposals made on or after 1 January 2019. The area of the site must not exceed 1 acre and the value of the site can’t exceed €500,000.

Trusts ceasing to be resident

Section 579B TCA 1997 imposes a CGT charge where the trustees of a trust become neither resident nor ordinarily resident in Ireland. The Court of Justice of the European Union recently ruled that the equivalent UK legislation was incompatible with freedom of establishment as it required immediate payment of CGT. Section 27 of the Bill amends section 579B TCA 1997 to allow trustees to opt to pay tax under the section in instalments over 5 years.

CAT thresholds

As was announced as part of the Minister’s Budget speech, the Group A CAT threshold which applies for gifts or inheritances from a parent to a child has increased by €10,000 to €320,000. This increase is small, particularly given that the threshold was €542,544 at its highest point in April 2009 and will do little to reduce the tax burden for children inheriting the family home. The revised threshold applies to gifts or inheritances taken on or after 10 October 2018.

Dwelling house exemption

One of the conditions to avail of dwelling house exemption, a mechanism to relieve a charge to CAT on the inheritance of certain property, is that the person receiving the benefit doesn’t have a beneficial interest in any other residential property at the date of the inheritance.

Section 50 of the Bill introduces an anti-avoidance measure which says that the beneficiary will be treated as having an interest in a residential property at the date of the inheritance if the property is in a discretionary trust that they have established and where the trust property may be applied for their benefit.

Time limits for Revenue enquiries

Revenue can generally make enquiries about a tax return during the four years after the return is received. There are a number of CAT reliefs such as business property relief or agricultural relief which can be clawed back if conditions are not met for a longer period than four years. Schedule 1 of the Bill allows Revenue to make enquiries during the four year look back period which starts on the latest date on which all of the conditions for the relief were required to be met.

Surcharge for late filings

Schedule 1 of the Bill applies a surcharge where discretionary trust tax returns are not filed by the due date which is within four months of the valuation date.

Payment of tax following an appeal

Schedule 1 of the Bill provides that any additional CAT that is due following the outcome of an appeal before the Appeal Commissioners is due on the original due date unless the tax paid before the appeal was made was at least 90 percent of the tax due. In these cases, the taxpayer has one month after the date of the determination to pay the tax due.

Income tax measures

While the Minister noted his intention to introduce a BIK exemption for members of the Defence Forces on Budget day, Finance Bill 2018 brought in tax exemption measures for recipients of redress compensation schemes and for child care support payments due to come into operating in 2019.

Defense forces

Members of the Defence Forces are exempt from BIK for 2018 and subsequent years where they are provided with living accommodation and health care under section 120B, which is a new section to the Taxes Consolidated Act 1997.

Compensation payments

Section 191 TCA 1997 extends the exemption in place on compensation payments made by the Hepatitis C Tribunal in Ireland to payment made under similar schemes in other EEA countries to compensate individuals infected with Hepatitis C and HIV.

Section 205A TCA 1997 is also extended to exempt redress payments to women resident in adjoining institutions in the Magdalen Restorative Justice Ex-Gratia Scheme.

Affordable childcare

The Single Affordable Childcare Scheme is due to come into operation in 2019. The scheme will contribute towards crèche fees for families meeting the means test criteria and will provide for a limited universal state contribution to families who do not qualify under the means tested assessment. The Bill provides introduces a new section 194AA TCA 1997 which exempts income paid under this scheme from tax.

Planes, trains and automobiles…

Well maybe not quite, but automobiles and vehicles of many types featured in the draft Bill.

Benefit in kind on electric vehicles

Section 9 of the Bill amends sections 121 and 121A of the TCA 1997, which provide for a benefit-in-kind in respect of employer provided cars and vans. This amendment extends the exemption for electric vehicles, which was due to expire at the end of 2018, until 31 December 2021.

It also applies a cap of €50,000 on the exemption so that an electric vehicle with an original market value exceeding €50,000 will be subject to a benefit-in-kind on the amount in excess of €50,000 where a car or van is made available during the period 1 January 2019 to 31 December 2021. This would appear to mean that the €50,000 cap for the exemption is not retrospective and the benefit in kind only applies to the excess over €50,000.

Gas vehicles and refuelling equipment – accelerated capital allowances

As announced as part of the Budget speech, Section 16 of the Bill provides for a new accelerated capital allowances scheme for capital expenditure incurred on gas propelled vehicles and refuelling equipment used for the purposes of carrying on a trade which, according to the Bill, includes hire to or the carriage of members of the public in the ordinary course of a trade.

A wear and tear allowance is available for capital expenditure incurred between 1 January 2019 and 31 December 2021 at a rate of 100 percent.

Diesel passenger cars and light commercial vehicles – vehicle registration tax

Section 35 of the Bill amends section 132 of the Finance Act 1992 by providing for an increase on diesel passenger cars and light “commercials” that are in VRT Category A by applying a 1 percent increase on each of the CO₂ bands that are currently applied. Vehicles other than diesel remain at the lower rate. This section also provides that diesel hybrid electric and plug-in hybrids remain in the lower CO₂ bands.

VAT measures

As announced on Budget day, section 41 of the Bill amends section 46(1) (ca) VATCA 2010 to increase the rate of VAT on tourism from 9 percent to 13.5 percent, except for the provision of sporting facilities and the supply of newspapers and other periodicals.

This section also provides for the 9 percent rate to apply to the supply of electronic publications and also inserts a new paragraph 7A into Schedule 3 of VATCA which defines electronic publications, to include the electronic supply of newspapers, periodicals and books. These measures will take effect from 1 January 2019.

Committee Stage Amendments:

The proposed Committee Stage amendments to Finance Bill 2018 were published on 7 November. The main proposals include amendments to section 126 TCA 1997 (tax treatment of certain benefits payable under Social Welfare Acts), film relief, Employment Incentive and Investment (EII) scheme, Controlled Foreign Companies (CFC) legislation and an amendment regarding the Multilateral Convention to Implement Tax Treaty Related Measures Order 2018 to bring the order into law.

Minister, Paschal Donohoe, also announced that he proposes to bring forward amendments to the operation of the SARP at the Report Stage of Finance Bill 2018. The changes proposed include placing a €1m ceiling on eligible income for SARP recipients.

Finance Bill 2018 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 2018.

Bríd Heffernan is Tax Manager with Chartered Accountants Ireland

Email: Brid.Heffernan@charteredaccountants.ie