The 2006 Finance Bill was published on 2 February, to be presented to the Dail on Tuesday 7 February.

Running to some 225 pages, this year's Finance Bill is noteworthy both for its technical complexity and for the wide range of issues which it addresses. Frequently there are modifications to some proposals at least which were outlined on Budget Day, but this year the Budget Day proposals largely stand. This note comments on some of the new provisions being introduced.

UITF 40 – Valuation of Work in Progress

Where there has been a one-off uplift in taxable profits from a re-valuation of Work in Progress on certain contracts as a result of applying the UITF Abstract 40 rules, the charge to tax will be spread over five years instead of charging it all in the year of change. This measure has been of some concern to members since it first arose. The approach taken by the Minister is similar to that adopted in the UK and follows representations and liaison between the Institute and the Department of Finance and the Revenue Commissioners.

IFRS

There are further measures to facilitate transition to IFRS. The existing transitional provisions are extended to situations where companies make a gradual move to IFRS, the normal tax treatment of finance leases is confirmed, and relief for certain royalty payments that are revenue in nature will not be denied because they are included in the cost of an asset for IFRS treatment purposes.

Film Relief

The percentage of expenditure that is eligible for tax relief is being raised to 80% for all films. The ceiling on qualifying expenditure for any one film is being increased from €15 million to €35 million.

Interest Relief on Rented Residential Properties

Eligibility for mortgage-interest relief on rental properties is being linked to registration of landlords with the Private Residential Tenancies Board

Patent income

It will be no longer possible to categorise certain franchise licence fees as patent royalty payments. The amount of exempt patent royalty distributions that may be made by a company is being limited to the aggregate of its R & D spend over a three year preiod.

Pensions and SSIAs

A complex incentive, restricted to SSIA holders who are taxable at 20% or exempt from tax is being introduced. A contribution of €1 for every €3 transferred from an SSIA to an AVC, Standard PRSA or retirement annuity contract will be made. A proportion of the exit tax paid on maturity of the SSIA will also be paid into the fund – this amount will be computed relative to the proportion of the SSIA which is re-invested in the pension product.

Pensions

The Bill provides for additional restrictions in terms of the categories of assets that can be used effectively in Small Self Administered schemes.

There are to be increased tax relief limits for pension contributions by individuals aged 55 or over - 35%, and aged 60 or over - 40%.

Otherwise the restrictions introduced in the Budget are largely unchanged

Relevant Contracts Tax

New provisions will make it harder for subcontractors to obtain C2s. Revenue can impose a limit on the amount which can be paid without deduction of tax, above which tax must be withheld as if the subcontractor were uncertified.

Anti Avoidance

The Bill contains a series of Anti-avoidance provisions, including an amendment to s811, the general anti-avoidance rule. Schemes which “fail” by virtue of s811 will attract a surcharge on the tax becoming payable of 10%. This surcharge can be avoided through the provision of details of the nature of the avoidance scheme before a determination under s811 is made.

VAT

The VAT “Cocktail” rule has effectively been removed. Certain self-supplies of services will become chargeable by Regulation, and Revenue's powers to compel the formation of a VAT group have been extended.

The Bill and Explanatory Memorandum has been published to the Department of Finance website at www.finance.irlgov.ie/viewdoc.asp?DocID=3768.

A full list of the new measures, as published by the Department of Finance, is reproduced at Section 2.01 below.