The Bill passed by Dáil Eireann and moved to debate in the Seanad earlier this month. The Bill is expected to be signed into law by mid-December; therefore it is possible that by the time you are reading this issue of tax.point the Bill will be enacted as Finance Act 2014.

The Bill was initiated on 23rd October; a summary of the key new features in the Bill, not announced on Budget Day, was included in the November issue of tax.point. The Bill moved to Committee Stage in the Dáil in November and Report Stage concluded at the end of last month. Below we report on the key Committee Stage and Report Stage amendments and comments made during Dáil debates on the Bill.

Amendments

The Committee Stage amendments to Finance Bill 2014 included revisions to the company residence rules, general anti-avoidance and Agricultural Relief. Changes to the tax code for the administration of pensions, the CGT participation exemption and tax relief for kidney donation are also included.

Some of the key Committee Stage amendments by the Minister for Finance are in the following areas:

• A new tax relief for compensation for kidney donation payable in certain circumstances (item 7)
• Special Assignee Relief programme, the “not resident elsewhere” condition is re-drafted (items 13–14)
• Pension administration (items 18–42)
• New definitions for the repayment of DIRT to first-time buyers (item 44)
• Technical amendments to Film Relief (items 50–52)
• A new section 891F providing for reporting of information by financial institutions (item 56)
• Life assurance companies, unit trusts and offshore funds regimes (item 60)
• Effective date of company residence rules where there has been a change in ownership and a major change in the nature and conduct of the business of the company (item 61)
• Amendment to the CGT participation exemption, see further report below (section 626B Taxes Consolidation Act 1997) (item 64)
• Meaning of agricultural land for relief for farm restructuring (item 66)
• Stamp duty consanguinity relief for farm transfers (item 79)
• Definition of farmer for CAT Agricultural Relief and clawback of the relief (item 83 and item 85)
• Several technical amendments to the anti-avoidance legislation (items 87–91)
• Mandatory disclosure regime and obligation for marketers (item 92)

Close Companies – attribution of gains – section 590 TCA 1997

According to the Minister, section 626B TCA 1997 (the CGT participation exemption) is being invoked by “individuals” to avoid a charge under section 590 and thus putting “considerable tax at risk in respect of the cases of which Revenue is aware at present”.

Chartered Accountants Ireland was in correspondence with officials on the amendment to section 626B TCA 1997, primarily in the context of Ireland’s offering as an excellent holding company environment for Foreign Direct Investment. We understand that this amendment received particular consideration, not least in the light of the very recent judgment in Case C-112/14 in the European Court of Justice. In that Case, the comparable provision in UK law to section 590 was struck down. It was considered to be incompatible with EU Treaty Freedoms and not proportionate as an anti-avoidance measure (see here).

There was a Report Stage change to the amendment as proposed at Committee Stage. Section 44 of the Bill (as passed by Dáil Eireann) reads as follows:

Section 626B of the Principal Act is amended by inserting the following after subsection (3):

“(3A) (a) In this subsection ‘relevant treatment of a gain’ means the treatment, provided by this section or section 626C, of a gain as not being a chargeable gain.

Notwithstanding any provision of section 590, the relevant treatment of a gain shall not apply for the purposes of section 590, but this is subject to paragraph (c).

(c) The relevant treatment of a gain shall apply for the purposes of section 590 where the participator (within the meaning of that section) is a company.”.

(2) This section applies as respects disposals on or after 18 November 2014.

Dáil Debates

Debates in the Dáil Select Subcommittee on Finance provided some further details on amendments made at Committee Stage and Report Stage. Among these included comments on the changes to Agricultural Relief, the Minister for Finance noting that guidance is due to issue from Revenue on the new measures and what Revenue will accept as “normal working time” for the purpose of the “active farmer” test.

We cover here comments made on Agricultural relief, SARP, AMRF, Carers, Company Residence, Domicile Levy and Directors Travel Expenses.

CAT Agricultural Relief – According to the Minister for Finance, “Revenue will accept that normal working time, including on-farm and off-farm working time, approximates to 40 hours per week. This will enable farmers with off-farm employment to qualify for the relief provided that they spend a minimum average of 20 hours working per week on the farm”. If normal working time is less than 40 hours a week then 50% will be applied to the actual hours worked.

SARP – It emerged that the annual Statistical Report of the Revenue Commissioners is to include information about SARP, and subsequently the material will then be updated on an annual basis.

AMRF provisions – Deputies expressed concern at the technical nature of the changes to the AMRF provisions, and a Q&A style document is to be prepared to clarify their intent. Apparently some 90% of AMRFs are valued at €250,000 or less.

Employment of a carer for an incapacitated individual – The Minister introduced at Report Stage an increase to the maximum qualifying amount under TCA97 s467, from €50,000 to €75,000.

Company Residence – Changes to the residency rules provoked considerable debate. Deputy Michael McGrath, a Chartered Accountant, observed that “Last year’s Finance Bill made a change in respect of stateless companies and now there is a change on the double Irish. I do not believe that our competitors, our rivals for international investment, the critics of our corporation tax rate, will stop at this; they will move on to the next issue. I believe they will keep chipping away until they have eroded and undermined our corporation tax offering. That is my concern in respect of this amendment. We are making a significant unilateral move and I do not see other countries making complementary moves. The BEPS process is in mid-stream and the final report has not yet been received. In my view, anything that lessens Ireland’s attractiveness as a country for inward investment is a negative thing. We must retain a competitive advantage in respect of corporation tax.”

Domicile Levy – The Minister provided some statistics on activity –

In 2010, 28 returns were filed. Three of them were for nil amounts.

In 2011, 26 were filed and two were for nil amounts.

In 2012, 20 were filed and four were for nil amounts.

In 2013, 12 were filed and one was for a nil amount.

Most years a few additional returns were filed after “compliance campaigns”. “The total paid in 2010 was €3,067,027. The following year it was €3,054,795. In 2012 it was €2,097,405 and in 2013, €1,565,345.”

Directors – Travel Expenses – In response to an amendment tabled by Deputy Michael McGrath which would have made specific legislative provision for tax relief on travel expenses paid to non resident company directors, the Minister observed:

“I understand the Revenue Commissioners will commence a broad review of the tax treatment of travel expenses in early 2015. As part of this review, they will look at the tax treatment of travel expenses incurred by non-executive directors in travelling to attend board meetings, including expenses incurred by those who travel from outside the State. The review will take account of the longstanding principles governing the taxation of travel expenses, existing guidance issued by the Revenue Commissioners and the need to re-examine such principles and guidance to ensure consistency of treatment as between taxpayers. The review will also have regard to implications for the Exchequer. Consultation with stakeholders will also form part of the review.”

The Bill as passed by Dáil Eireann is published on the Oireachtas website. Comments made during Committee Stage and Report Stage Dáil Select Subcommittee on Finance debates are also available on the Oireachtas website.

Chartered Accountants Ireland will be discussing with Revenue the amendments made to Agricultural Relief, the new anti-avoidance and mandatory disclosure measures and other Finance Bill provisions over the coming weeks. We report of developments in the January issue of tax.point.