The Minister for Finance, Michael Noonan, delivered the new Government Jobs Initiative last month. As part of the Government's strategy to kick-start economic activity, the measures announced under the Jobs Initiative are intended to assist in employment generation, provide opportunities for those who have lost their jobs, and thus generate confidence in the economy. Finance (No. 2 Bill) 2011 was published shortly afterwards and gives legal effect to the tax measures announced as part of the Jobs Initiative.

The key tax announcements as part of the Jobs Initiative were:

Corporation Tax Rate

As part of his opening address, the Minister reaffirmed the Government's commitment to Ireland's 12.5% Corporation Tax rate; stating that “our 12.5% rate of corporation tax is here to stay, it is central to our industrial policy and is an integral part of our international brand”.

Private Pension Charge

A new levy of 0.6% will be applied to the market value of assets under management in pension funds and pension plans approved under Irish tax legislation. The levy will apply for 4 years from 2011 and is expected to raise €470 million per year.

Published guidance from the Department of Finance confirms that the levy will be administered by the Revenue Commissioners and will be payable in two tranches for each of the four years of its operation, including 2011. Assets of pension funds in respect of the provision of retirement benefits to non-resident members will be excluded from the levy. Also, the levy will not apply to pension funds that have already passed a resolution (before 10 May 2011) to wind-up a pension scheme and where the employer sponsors are insolvent and no longer in business.

New 9% Reduced Rate of VAT

Introduction of a second reduced VAT rate of 9% for the period 1 July 2011 to 31 December 2013. This new 9% rate will apply mainly to goods and services provided by the Tourism Sector. Revenue's recently published guidance note http://www.revenue.ie/en/tax/vat/rates/rate-changes-jobs-initiative.html on this new measure sets out the goods and services liable at new 9% rate, confirms those goods and services which remain liable to the 13.5% rate and deals with some frequently asked questions from businesses relating to the change in VAT rate. This second reduced rate of VAT will be provided for in the forthcoming Finance (No. 2) Bill 2011.

Research and Development Tax Credit Scheme

The R&D tax credit legislation will be amended to enhance flexibility for companies in how they account for the credit, giving the option to account for it above or below the line. The Minister did not announce how this flexibility is to be achieved; the specific details are expected to be set out in the legislation included as part of the Finance Bill.

Employer PRSI on Share Based Remuneration

The introduction of a charge to employer PRSI on share based remuneration by the former Government will be reversed. The Minister stated that that “the imposition of this charge on employers needlessly increases the costs of doing business in Ireland and would have the potential to negatively affect current employment levels and future investment decision”. Therefore, employer PRSI will not apply to share based remuneration with effect from 1 January 2011. However, the employee PRSI charge which now applies to share based remuneration will remain.

The changes introduced by Finance Act 2011 to share based remuneration were reviewed by Pat Mahon in the May issue of tax.point.

Employer PRSI Rate

The lower 8.5% rate of employer PRSI on jobs paying up to €356 per week will be halved up to the end of 2013. This new lower rate of employer PRSI will take effect from 1 July 2011.

Air Travel Tax

The €3 per passenger air travel tax will be abolished as part of a deal with airlines to restore lost routes and increased passenger numbers. This will take effect on a date to be fixed by Order.

Finance (No. 2 Bill) 2011 gives effect to the following measures announced as part of the Jobs Initiative:

• Enhancement to the R&D tax credit regime
• Temporary reduction in the 13.5% rate of VAT to 9% in respect of certain items
• Introduction of a 0.6% pension levy
• Abolition of the €3 passenger air travel tax

Section 1 of the Bill amends section 766B TCA 1997 to increase the excess R&D credit amount which can be refunded to the company. The Bill increases the maximum amount of refund payable to the company by allowing the payroll liabilities of the current year and the prior year to be taken into account. The Bill also extends the definition of payroll liabilities to include the Income levy, USC and Parking levy.

Section 2 of the Bill provides for the abolition of the air travel tax by amending section 55 of Finance (No. 2) Act 2008.

The temporary reduction in the 13.5% VAT rate is provided for by section 3 of the Bill. This section amends section 46 of the Value-Added Tax Consolidation Act 2010 (VATCA2010) to provide that a lower rate of 9% will apply to good and services of a kind specified in certain paragraphs of Schedule 3 to the VATCA 2010. These are:

Paragraph 3 – Food and Drink for human consumption

Paragraph 7 – Books, newspapers and other printed matter

Paragraph 8 – Shows, exhibitions, cultural facilities, etc.

Paragraph 11 – Hotel, Holiday Accommodation

Paragraph 12 – Sporting Facilities

Paragraph 13(3) – Hairdressing Services

As many of the Schedule 3 items have caveats and conditions, it will be necessary for businesses to look at the precise wording of the Schedule to ensure their activities are covered by the new rate.

Section 4 of the Bill inserts a new section 125B into the Stamp Duties Consolidation Act 1999. This new section titled “Levy on pension schemes” applies a Stamp Duty levy of 0.6% to the market value of assets under management in certain Revenue approved pension funds. The levy must be paid twice in each year, the first payment for 2011 is due 25 July and the second payment is due by 25 October. For 2012, 2013 and 2014, the payments dates are 25 March and 25 September of the year concerned.

Other Measures Not Included

The PRSI measures, as announced as part of the Jobs Initiative, do not feature in the Bill. At the time of writing such measures are expected to be included in the Social Welfare Bill, due later this month. Also legislation to give effect to the taxation changes arising from the Civil Partnership Act are not included; a third Finance Bill will be required in this regard. It is expected that Finance (No. 3) Bill 2011 will be published before the Dáil breaks for the summer.