The 75 sections and one Schedule of Finance Bill 2019 (the Bill), published on Thursday 17 October, includes the legislative provisions to provide for the tax changes announced as part of Budget 2020 as well as introducing some necessary anti-avoidance and technical changes to Irish tax law. The Budget 2020 tax changes are covered in the October issue of tax.point. In this article I focus on the new measures in the Bill not announced as part of Budget 2020. Most of such measures were expected, few were a surprise. It is the surprises that generated the most discussions with Revenue at the TALC forum.

Finance Bill 2019 income tax payments

The Bill introduces exemptions for certain income tax payments and an amendment to clarify the exemption for a range of payments under the Magdalen Restorative Justice Ex-Gratia Scheme.

The exemptions introduced cover:

• the reimbursement of expenses by the HSE to an individual for donation of a kidney for transplantation (under conditions defined by the Minister for Health).
• Certain foster care related payments made by TUSLA, Certain training allowances paid by or on behalf of the Minister For Education and Skills.
• Certain student support payments awarded by SUSI, Education and Training Boards, or Local Authorities.

The Bill also introduces an amendment to clarify the availability of the income tax exemption on a range of payments made by the Minister for Employment and Social Protection including payments made under the Magdalen Laundry ex-gratia scheme. The amendment is to clarify that a qualifying person for the relief must, in all circumstances have received a payment under the Magdalen Restorative Justice Ex-Gratia Scheme.

Tax-deductible expenditure

The Bill includes changes to the general rules applying to tax deductible expenditure. Firstly, a tax deduction is not available for “any taxes on income”. This is particularly relevant in the context of Irish companies that suffer foreign withholding tax on their business profits. The second amendment aligns the tax deduction for doubtful debts with impairment losses under the relevant accounting standards.

Pension deduction

The Bill amends the tax code to provide tax relief for pension contributions made by a company to occupational pensions schemes set up for employees of another company in certain defined circumstances. This amendment is to accommodate cases of a merger, division, joint venture, reconstruction or amalgamation where an issue could arise as to whether contributions are being made in respect of employer’s own employees. The contributions made in these cases will qualify if:

• they are made on foot of a legally binding agreement between two or more companies, under a scheme of reconstruction, under a merger, under a division or under a joint venture;
• the scheme members are current or former employees of the parties to the agreement, or parties which are subject to the agreement; and
• the contributions would be deductible under section 774(6) TCA if the person making the contribution was the employer of the scheme members in respect of whom the contributions are paid.

Mandatory disclosure of cross-border arrangements

The Bill implements EU Council Directive on Administrative Cooperation, DAC6, which introduces a mandatory disclosure regime for certain cross border transactions. Reporting of transactions will begin from 1 July 2020 but will capture transactions entered into on or after 25 June 2018. Mandatory disclosures received by Revenue from intermediaries and taxpayers will be shared with other EU Member States.

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. The Bill amends the exemption following the High Court decision in the Deane case in 2018. The Bill amends the conditions of the relief such that all properties inherited from the same estate are to be considered. A clawback is provided for where a beneficiary subsequently inherits an interest in any other dwelling house from the same disponer.

Amendments to Probate process

The Bill provides for changes to the information to be provided to the Revenue Commissioners and the Probate Office in respect of the estate of a deceased person and the method for providing that information. This change will facilitate the collection and transfer of the data between Revenue and the Probate office. A new online system will be introduced, which will facilitate CA24 applications made to Revenue in the first instance via ROS or MyAccount. The timeline for the CA24 online system is likely to be in the second half of 2020. The changes are subject to a ministerial commencement order and the issue of regulations by Revenue.

Value Added Tax

The Bill introduces a provision that, with effect from 1 January 2020, food supplements will be subject to VAT at 13.5 percent. A concessionary zero rating has applied to these products. The change from zero to 13.5 percent VAT rate follows a comprehensive review by Revenue of the VAT treatment of food supplements, engagement with the Department of Finance in 2018 concerning policy options, publication of Revenue guidance in December 2018 and a public consultation in May of this year. Revenue will not, as previously was announced, apply a 23 percent VAT rate to these products.

There was no change to the rate in Finance Bill 2018, but Revenue did issue guidance in December 2018 which removed the concessionary zero rating of various food supplement products with effect from 1 March 2019. However, the withdrawal of Revenue’s concessionary zero rating of the food supplement products had been delayed until 1 November 2019 to allow time for the Department of Finance to carry out a public consultation on the taxation of food supplement products. This consultation ran to 24 May 2019 and the results of the consultation were included in the 2019 VAT Tax Strategy Group paper as part of the Budget 2020 process. Now, Revenue will not apply VAT at 23 percent from 1 November 2019. The zero rate continues until 31 December 2019. From 1 January 2020, the 13.5 percent rate will apply.

The change introduced in the Bill will not impact certain products, these are:

• Foods for specific groups are well established and defined categories of food that are essential for vulnerable groups of the population. These products include infant formula, baby food, food for special medical purposes and total diet replacement for weight control.
• Human oral medicines that are licensed or authorised by the HPRA are zero rated for VAT purposes under a different provision. This includes certain folic acid and other vitamin and mineral products for oral use. Once such products are licensed / authorised by the HPRA as medicines they are zero rated for VAT purposes.
• Fortified foods are foods that are enriched with vitamins and/or minerals. Examples include fortified cereals or yoghurts.

Brexit measures

The Bill introduces several changes to the tax code to maintain the status quo in the event of Brexit, the aim of the changes is as follows:

• Allow qualifying UK residents to retain entitlement to certain personal allowances, deductions and reliefs.
• Ensure that a capital tax group remains in place where there are UK companies.
• Ensure that the 1 percent life assurance levy and the 3 percent non-life levy will continue to apply to policies issued by Gibraltar insurers to Irish policyholders.

Company acquisitions

The Bill imposes a stamp duty charge on arrangements involving ‘cancellation schemes’ used in the acquisition of a company where there is an agreement to acquire a (target) company and the target company enters into a Court approved scheme of arrangement involving the cancellation of its shares in accordance with the Companies Act 2014. Stamp duty is payable at the rate of 1 percent of the consideration paid to the shareholders for the cancellation of their shares as if the shares were being directly purchased. The stamp duty is payable by the acquirer. This measure came into effect on Budget night.

Other related matters

The rate of dividend withholding tax (DWT) will increase from the standard rate of income tax of 20 percent to a rate of 25 percent from 1 January 2020. This increase was announced as part of Budget 2020 along with the introduction of a new DWT regime from 1 January 2021. A public consultation, launched by Revenue, on how the new dividend withholding tax (DWT) regime will work is underway. The consultation will run until 12 December.

The Bill provides the legislation enhancing the operation of the Employment and Investment Incentive (EII) as announced by the Minister as part of Budget 2020 and the enhancements to the Key Employee Engagement Programme (KEEP); both of which will be of interest to SMEs.

Next steps

At the time of writing Committee Stage amendments to Finance Bill 2019 were being debated before the Select Committee on Finance, Public Expenditure and Reform, and Taoiseach. The key amendments proposed include technical changes to the new anti-hybrid and transfer pricing rules.There are also amendments to the IREF and REIT measures and the R&D regime. Under the new DWT regime due to be operational from January 2021, an obligation on companies and intermediaries to collect certain information on the dividend recipient in advance of that date is proposed.

The requirements of the European Union’s Two-Pack budgetary schedule a common budgetary timeline applies to all EU Member States. As a result, there is a considerably short timeline of 65 to 70 days in the finance act process. Finance Bills complete passage through the Oireachtas by 31 December each year. Therefore, Finance Bill 2019 will be enacted as Finance Act 2019 sometime around the Christmas festivities.

Kimberley Rowan is Tax Manager with Chartered Accountants Ireland

Email: kimberley.rowan@charteredaccountants.ie