Introduction

The Finance Bill 2007 was referred to the Select Committee on Finance and the Public Service by the Dail on 7 February 2007. The Committee was required to report on the completion of its consideration of the Bill not later than Thursday, 22 February 2007.

The Committee amendments, of which there are 140 in total, were published on 19 February. Approximately 71 of those amendments have been proposed by the Minister for Finance, with the remaining amendments being proposed by Opposition Parties.

The vast majority of the amendments proposed by the Minister relate to the tidying of the provisions included in the Finance Bill, as initiated. Unusually for Committee Stage amendments, but most welcome from the Chartered Accountants point of view, there are very few significant amendments being proposed.

New Provisions

Exemption in respect of certain expense payments [Amendment no. 12]

This amendment inserts a new section 195A into the Taxes Consolidation Act 1997 (TCA 1997).

It is proposed that payment to a member of a noncommercial body in respect of travel and subsistence expenses in relation to attendance at meetings of that body will be exempt up to the civil service limits.

The exemption will only apply to a member of the body provided emoluments from the office do not exceed €14,000 in the year of assessment (or 24,000 if chairperson of the body).

This provision is not as generous as it might appear at first glance.

Capital Allowances for qualifying residential units associated with registered nursing homes [Amendment no. 52]

This amendment proposes a change to section 268 TCA 1997, in relation to the meaning of “qualifying residential unit” associated with a registered nursing home.

The period for expenditure qualifying for capital allowances is being extended from 31 July 2008 to 30 April 2010, for contracts entered into on or after 1 May 2007. Where such expenditure is incurred by a company, then the expenditure qualifying for capital allowances is restricted to 75%; and for an individual, the expenditure is restricted to 50%. Such expenditure must be written off over a 20 year period.

In addition, the amendments provide that the residential units can be leased to a spouse of an individual who requires such care by reason of old age or infirmity, provided the person or their spouse are not connected with the lessor. This is a pragmatic approach which is to be welcomed. Previously the residential unit could only be leased to the individual

who actually required such care by reason of old age or infirmity.

The amendments also provide specific conditions to be met in order for a “house” to be treated as a “qualifying residential unit”.

Relief from double taxation [Amendment no. 71]

This amendment proposes a significant change to subsection 1 of section 826 TCA 1997.

The new subsection 1 is similar to the old legislative provision, i.e. double taxation agreements made by the Government are to have the force of law by the making of an Order. In the new subsection, capital gains tax is specifically mentioned.

The proposed new subsection 1A deals with arrangements made by the Government in relation to affording relief from double taxation of air transport undertakings and their employees.

Finally, the proposed new subsection 1B deals with arrangements made by the Government, which specifically deal with exchange of information for the prevention and detection of tax evasion. While the new subsection 1 includes exchange of information in such circumstances, it is in the context of a double taxation agreement. It would seem that the specific provision is necessary to provide the proper statutory basis for Tax Information Exchange Agreements.

Implementing the change in the threshold for the cash receipts basis for accounting for VAT.[Amendment no. 113]

It is proposed to amend section 14 of the VAT Act by changing the threshold for operating the cash receipts basis of accounting for VAT from €635,000 to €1,000,000. This had been announced by Minister Cowen in his Budget 2007 speech on 6 December 2006, but had not been included in the Finance Bill, as initiated.

Stamp duty anti-avoidance. [Amendment no. 135]

Three specific anti-avoidance provisions are proposed in these amendments. The commencement is subject to Ministerial Order/Orders.

Resting in Contract

This relates to the sale of land where the seller enters into a contract or an agreement with the buyer, but does not present the conveyance or transfer for stamping. If the payment amounts to 25% or more of the consideration and the conveyance has not been presented within 30 days, then the contract shall be charged with ad valorem duty.

Licence Agreements

This relates to an agreement to enter land to carry out development on that land whereby the holder of the land receives payment of 25% or more of the market value of the land. The agreement is chargeable to ad valorem duty within 30 days of receipt of the payment.

Agreements for lease for more than 35 years

An agreement for a lease of more than 35 years in relation to letting of any lands, tenements or heritable subjects, shall be treated as an actual lease, where 25% or more of the consideration has been paid.

Amendments to Provisions, as initiated

High Income Individuals [Amendment no.s 37 and 38]

These are minor amendments to the considerable provisions included in the Finance Bill in relation to high income individuals. The amendments relate to references in the formula for determining the amount of excess losses carried forward under section 384 TCA 1997 (relief under Case V for losses).

Taxation of stallion profits and gains [Amendment no. 50]

Again, another minor amendment which provides that the initial value of the stallion is not deductible where the stallion dies or is disposed of in a chargeable period.

Payments to sub-contractors [Amendment no. 61]

In the Finance Bill, it was proposed that bodies established by or under royal charter were to be treated as principal contractors. As the definition was wide-ranging and unintentionally resulted in certain institutions, such as the Institute of Chartered Accountants in Ireland, being treated as principals, the amendment restricts the meaning to those bodies that are funded wholly or mainly out of monies provided by the Oireachtas.

Offshore Funds [Amendments 74 to 85]

ICAI, under the umbrella body of CCAB-I, made a submission to the Minister for Finance on this issue and so welcome the proposed amendments.

The application of the legislative provisions for offshore funds is increased to include certain companies which are formed under the law of an offshore state, similar to an authorised investment company, hold authorization issued by authorities of that state and is an investment company; and certain unit trust schemes.

The key amendment being proposed relates to the provisions not being retrospective in nature. If the investment vehicle would have been treated as an offshore fund, but for the introduction of provisions in the Finance Bill (including Committee Stage amendments) and it does not fall to be treated as a “personal portfolio investment undertakings”, then any income or gains arising from investments made in such vehicles prior to 20 February 2007 will still be treated as income or gains from offshore funds.

The taxation of personal portfolio undertakings does not apply where the investment vehicle is either an investment undertaking or an offshore fund, where the property in the vehicle and the terms offered meets certain conditions.

Group Preliminary tax payment [Amendment no. 93]

The offset of preliminary tax payments in a group situation will only apply provided 100% of the tax payable by the claimant company is paid by the return date.

Transfer of Business Assets [Amendment no. 102]

The original proposal in relation to the retirement relief on farm land which had been leased in the Finance Bill, as initiated, has been replaced by this amendment. It deals with the use of the land over a 15 year period ending with the disposal of the land.

Farm Consolidation [Amendment no. 120]

The original proposal in relation to stamp duty relief for farm consolidation in the Finance Bill, as initiated, has been replaced by this amendment.

Stamp duty relief for first time buyers [Amendment no. 124]

First time buyers relief available for separated spouses or divorced persons will also be available where the person has purchased a house in the six month period before the decree, in anticipation of that decree.

Relief for clearing houses [Amendment no. 134]

The original proposal in relation to stamp duty relief for clearing houses in the Finance Bill, as initiated, has been replaced by this amendment.

CAT dwelling house exemption [Amendment no. 136]

The Finance Bill, as initiated, proposed changes to prevent possible abuse of this provision by wealthy individuals transferring expensive houses to their children by ensuring that any period during which a child of a disponer, in relation to a gift, occupied a house that was during that period the disponer's only or main residence will not be treated as a period of occupation in the 3-year period prior to the date of the gift.

The all-encompassing nature of this anti-avoidance provision resulted in genuine cases of gifting in the case of old age or infirmity being liable to CAT. This proposal amends the anti-avoidance provision to allow exemption where the disponer is compelled by reason of old age or infirmity to depend on the services of the donee.

It is important to note that the parent to child element of the anti-avoidance provision has been removed, so the new provision deals with all situations involving the gifting of a dwelling house.