The Finance Bill, which was published on 22 October, contains details of measures announced in Budget 2016 and includes many measures not previously announced.

Personal Tax

The Bill gives effect to the personal tax measures announced on Budget Day such as the cuts to the USC bands and rates, the increase in the Home Carer Credit and the extension of the Home Renovation Incentive. Details on the earned income credit announced on Budget Day are included; a new measure which provides a tax exemption for vouchers given to employees and a tax exemption on vouched expenses paid to non-resident, non-executive directors also feature.

Earned Income Credit (section 3)

The earned income credit will be provided for under section 472AB TCA 1997. The tax credit is capped at €550 and applies to an individual’s earned income other than income which qualifies for the PAYE tax credit. Where the individual has income which qualifies for both the PAYE credit and the new earned income credit, the total credit is capped at €1,650.

Tax Free Vouchers (section 10)

Employers may give a qualifying voucher to an employee free of income tax, PRSI and USC. That voucher cannot exceed €500 in value, and it cannot be exchanged in part or in full for cash. It cannot be part of any salary sacrifice arrangement. This increase was due to come into effect on 1 January 2016 however, during Second Stage debate on the Bill the Minister said that an amendment at Committee Stage will enable this measure to apply from 22 October – just in time for Christmas.

Non-resident, non-executive directors (section 6)

Vouched expenses of travel and subsistence incurred by a non-resident non-executive director will not be subject to Irish income tax or the USC under what will be section 195B TCA 1997 on the passing of Finance Act 2015. The expenses must be incurred solely for the purpose of attendance at meetings by a qualifying director.

Chartered Accountants Ireland participated in the Department of Finance’s review of the tax treatment of directors expenses and argued for the introduction of such an exemption as set out in the Bill. This measure will strengthen Ireland’s Foreign Direct Investment in these competitive times.

Corporation Tax

Much anticipated details on the workings of the Knowledge Development Box (KDB) are covered in the Bill. Other corporation tax measures in the Bill deal with Country by Country Reporting and the extension of the corporation tax relief for start-ups.

Knowledge Development Box (section 30)

This initiative was first mooted in the Minister for Finance’s Budget speech last year. Since then, a consultation has been conducted by the Department of Finance (in which Chartered Accountants Ireland participated) on the KDB and the KDB legislation has also been written in the shadow of the BEPS initiative. It’s fair to say that this is a well scrutinised tax relief ever before it gets a chance to operate.

The KDB will give an effective 6.25% corporate tax rate on profits from patented inventions and copyrighted software earned by an Irish company to the extent that such income relates to Research and Development undertaken by that company. The relief is available to companies for accounting periods beginning on or after 1 January 2016 and before 31 December 2020.

Country by Country Reporting (section 31)

This is a product of the OECD initiative on Profit Shifting and Base Erosion (BEPS). Ireland is one of the first states to introduce this measure. The Bill enables Revenue to make regulations to give effect to the manner and form in which country-by-country reporting is to be provided.

The regulations will require Irish resident parents of large multinational groups to provide annual reports to the Revenue Commissioner detailing information such employee numbers, stated capital, retained earnings, tangible assets and the group’s profit before income tax and income tax paid and accrued. It is intended that these reports with be shared with other tax jurisdictions to assess if the multi-national is involved in base erosion and profit shifting.

Corporation Tax Relief for Start-Ups (section 28)

The three year corporation tax relief for start-ups under section 486C TCA 1997 will be extended until to include trades commencing in 2016, 2017 and 2018.

Capital Taxes

The Bill gives us details on the new capital gains tax (CGT) Entrepreneur Relief announced on Budget Day and a new CGT clearance (CG50) threshold of €1 million in the case of disposals of apartments and houses. The increase to the Group A threshold for capital acquisitions tax (CAT) purposes as announced in the Budget is confirmed. Mark Doyle writes on the capital taxes measures in Finance Bill 2015 in his article here.

Anti Avoidance

A series of measures described as anti-avoidance, mainly to do with capital gains tax (CGT) rules feature.

The measures include:

• Section 19 – The transfer of assets abroad rules are extended so that in the future they will apply to individuals who are Irish resident but not Irish domiciled.
• Section 32 – Inserts a general anti avoidance rule to mirror changes to the EU Parent/Subsidiary directive
• Section 34 – Tightens the definition of shares deriving their value from specified Irish assets used in determining the CGT charge to tax for non-residents.
• Section 35 – Limits the effectiveness of restrictive covenants as consideration on the disposal of a business

Some existing anti-avoidance provisions are being modified to ensure that they do not exceed the parameters of the EU treaties, specifically the freedom of establishment and the free movement of capital provisions (Section 19).

Value Added Tax

A number of administrative changes to the VAT regime feature in the Finance Bill, along with a reframing of what constitutes educational activities for VAT purposes following recent appeal decisions at both European and domestic level.

Among the changes are:

• Sections 53 and 55 permit Revenue to cancel VAT registration numbers, and also to publicise situations where cancellation has taken place.
• Time limits for refund claims for VAT paid on foot of estimated demands have been tightened up.
• Revenue can make a determination that a specified educational activity is subject to VAT where its exemption creates a “distortion of competition”.

Administration

There is a raft of changes in the Bill concerning how the tax system is administered, but there are three perhaps which stand out as having most general application.

Section 12 changes the definition of chargeable person; Section 959B TCA 1997 will be amended to change the level of non-PAYE income which can be coded against tax credits from €3,174 to €5,000, and this in turn changes one of the tests for determining if an individual is a chargeable person for self-assessment purposes. However, guidance from the Department of Finance provided with Finance Bill 2015 proposes to also reduce the current gross limit for non-PAYE income of €50,000 to €30,000 which is also a test to determine self-assessment. This measure does not require legislative change according to the Department of Finance’s publication. Therefore the overall effect of the two measures will most likely result in little change to the number of individuals subject to self-assessment.

Section 69 amends the record keeping requirement. In future records will have to be retained for five years after the date of cessation of a trade.

Section 74 changes the penalty system to ensure Revenue can impose penalties for incorrect returns where no tax was at issue. It seems that this amendment was triggered by an incorrect claim for a refund of RCT, but no penalty was applicable because no tax was owed by the taxpayer.

Timeline

The Second Stage of Finance Bill 2015 is scheduled for 4–5 November with Committee Stage 17–19 of November and followed by Report Stage on 24–25 November. The Bill is expected to be signed into law in December.