Finance Bill 2017 was passed by the Dáil at the end of last month and at the time of writing is being debated in the Seanad. Below is an update on the key measures of concern to members.

Report Stage debate in the Dáil

During the debate relating to section 135 Taxes Consolidation Act (TCA) 1997 and the tax treatment of certain share disposals involving two companies, Minister Michael Darcy commented “that amendment, which now forms section 22 of the Finance Bill, has no impact on bona fide management buy-outs, buy-ins or third party SME company purchases.”

Minister Darcy said, amongst other things:

“Bona fide financing arrangements entered into by the purchaser to fund the purchase of the shares are outside of the scope of the new provisions. Therefore, on the basis that the proposed amendment to section 135 does apply to bona fide management buy-out transactions, I do not propose to accept this amendment. I am advised that Revenue will be issuing comprehensive guidance once the provision has been enacted and that should meet the Deputy’s concerns.”

Seanad debate

Senator Kieran O’Donnell also raised the amendment to section 135 TCA 1997, and noted the potential impact of this “amendment intended as an anti-avoidance measure” for bona fide MBOs. Minister Michael D’Arcy responded that “bona fide management buy-out transactions will not be affected but there is a tax avoidance scheme in operation and we want to deal with that”.

Section 23 of Finance Bill amends section 135 Taxes Consolidation Act 1997 and the tax treatment of certain share disposals involving two companies. Responding to Senator O’Donnell’s comments, Minister D’Arcy said:

“Sections 23 and 30 together form a package of anti-avoidance measures being introduced in order to deal with a number of specific tax avoidance schemes which have been uncovered by Revenue. Essentially, the schemes involve converting what should be taxable income payments into capital payments in order to avail of the lower capital gains tax, CGT, rates.”

Section 30 of the Bill amends the CGT reliefs – Revised Entrepreneurs Relief (section 597AA TCA 1997) and Retirement Relief (section 598 TCA 1997).

The Minister goes on to say that:

“The potential charge to capital gains tax is then often avoided by the use of CGT reliefs such as retirement relief and entrepreneurial relief, resulting in funds being extracted by shareholders entirely tax free or at a significantly reduced tax liability.”…“ The Minister is therefore taking steps to counter these avoidance schemes.”

We have been communicating with Revenue and government officials on members’ concerns on the wide impact of this measure. We have requested that the “comprehensive guidance” promised from Revenue is issued immediately.

Amendment to EII scheme

Individuals connected with a company through the ownership of share capital, loan capital or voting rights of that company are now excluded from the Employment and Investment Incentive (EII). The incentive was amended with effect from 2 November 2017 by a Committee Stage amendment to Finance Bill 2017.

A statement on the amendments from the Minister for Finance tells us that the change to the EII effected by a Committee Stage amendment to Finance Bill 2017, was needed as the incentive did not comply with the EU Regulations. The Regulations known as the European Commission General Block Exemption Regulations (GBER) require that schemes like the EII should not provide relief to persons with close connections to the company. The incentive is provided for by section 492 of the Taxes Consolidation Act 1997.

According to the statement, “the EII will continue to be available to first time investors and investors who have already made an EII investment”.

A Revenue eBrief on the matter tells us that all shares issued under the EII prior to 2 November will continue to be processed by Revenue under the current rules.

Additional stamp duty measure

Following Seanad Committee Stage, a new section 62 “Shares deriving value from immovable property situated in State” has been inserted into Finance Bill 2017. This new stamp duty anti-avoidance section applies the 6 percent stamp duty rate on the disposal of certain shares deriving their value from non-residential property. Generally the rate on shares is one percent.

This new measure applies to instruments executed from 6 December 2017. Transitional measures apply for instruments executed before 1 March 2018.

Process

The Finance Bill is expected to be passed by all Houses of the Oireachtas by 15 December and pass to the President for signing into law. We are expected the Bill to be enacted as Finance Act 2017 before Christmas.