Press release
Minister Donohoe announces Government approval for the publication of the Finance Bill
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Published on
Last updated on
The Minister for Finance, Paschal Donohoe TD, today (Wednesday 16 October), announced Cabinet approval for the publication of the Finance Bill 2019 following the government meeting yesterday.
Finance Bill 2019, which will be published on Thursday 17 October, runs to 75 sections and underpins the government’s determination to prudently manage and protect the economy against the backdrop of Brexit. It includes the necessary legislative provisions to provide for the tax changes announced in the Budget as well as introducing some necessary anti-avoidance and technical changes to the tax code.
Income tax measures announced on Budget Day applying increases to the Home Carer’s Credit and the Earned Income Tax Credit are provided for in the Bill as well as a number of significant enterprise taxation supports by way of broadening access to the KEEP (Key Employee Engagement Programme) scheme, the Employment Investment Incentive (EII) and the Research and Development Tax Credit. The Special Assignee Relief Programme and the Foreign Credit Deduction were both extended to end 2022 following formal external review. The Bill also provides for the extension of the Help to Buy scheme to the end of 2021.
The Bill also provides for the implementation of a range of important tax changes in support of the government’s Climate Action Plan. In addition to the carbon tax increase as announced in the Budget, the Bill provides the legislative basis for a suite of tax measures intended to shift the economy to a more environmentally friendly and sustainable model. These measures include:
The Bill makes further changes as required by the EU Anti-Tax Avoidance Directive (ATAD) and enhances Ireland’s position internationally with reforms in relation to transfer pricing in line with OECD guidelines.
The Bill also provides for the application of the 13.5% rate of VAT on food supplements* as well as anti-avoidance measures in relation to REITS and property funds.
Commenting on the publication of the Bill, Minister Donohoe stated that:
"The Finance Bill 2019 sets out the legislative provisions to bring effect to the tax measures announced in Budget 2020 against the background of uncertainty posed by Brexit. Nevertheless we are safeguarding the hard won progress of recent years in stabilising the public finances. The Finance Bill implements a range of targeted tax changes including specific measures to support business and to address climate change. The Bill also contains a number of anti-avoidance and administrative changes to the tax code in order to protect and enhance the integrity of our tax base. I look forward to bringing this important legislative instrument through the Oireachtas over the coming weeks."
More details of the Bill are set out in the accompanying Notes to the Editor.
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The Finance Bill 2019, which runs to 75 sections, implements the taxation changes announced on Budget Day as well as introducing some necessary anti-avoidance measures and technical changes to the tax code.
Measures announced on Budget Day include:
Income Tax
Home Carer Tax Credit
The Finance Bill 2019 provides for an increase in the Home Carer Tax Credit from €1,500 to €1,600.
Earned Income Credit
The Finance Bill 2019 provides for an increase in the Earned Income Credit from €1,350 to €1,500.
SARP and FED
Special Assignee Relief Programme (SARP)
SARP was introduced in Finance Act 2012. The aim of the programme is to reduce the cost to employers of assigning skilled individuals in their companies from abroad to take up positions in their Irish based operations, thereby facilitating the creation of jobs and the development/expansion of business.
There is no exemption from USC and PRSI is payable where the individual is not liable to social insurance contributions in their home country. School fees of up to €5,000 and one trip home per year are exempt from tax where they are paid for by the individual's employer.
For the tax years 2012, 2013 and 2014, SARP provided relief from income tax on 30% of salary between €75,000 and €500,000. In 2015, the upper salary threshold of €500,000 per annum was removed. In Finance Act 2018, a cap was re-imposed at the level of €1m. This is effective from 1 January 2019 for new beneficiaries and from 1 January 2020 for those already availing of the relief.
Foreign Earnings Deduction (FED)
FED is designed to support firms who endeavour to expand their exports into new markets. It provides relief from income tax on up to €35,000 of salary for employees who travel out of State to certain qualifying countries on behalf of their employer. In order to qualify for FED, an employee must spend a minimum of 30 days abroad in a year and each trip must consist of at least three consecutive days in a qualifying country.
Reviews of the measures
In April 2019 the Minister for Finance commissioned Indecon Economic Consultants to undertake reviews of both FED and SARP. The reports of these reviews were published on Budget day in the Report on Tax Expenditures Incorporating outcomes of certain Tax Expenditure and Tax Related Reviews completed since October 2018 (http://www.budget.gov.ie/Budgets/2020/2020.aspx).
Finance Bill 2019 Measures
Finance Bill 2019 provides for the extension of both FED and SARP to the end of 2022, three years from end-2019.
Key Employee Engagement Programme (KEEP)
Under the KEEP incentive, gains realised on the exercise of qualifying share options granted between 1 January 2018 and 31 December 2023 by employees and directors, will not be subject to income tax, USC or PRSI. In order to qualify for KEEP, an option must be exercised within 10 years of grant. The gain will however be subject to Capital Gains Tax on subsequent disposal of the shares.
In Finance Act 2018 the following changes were made to KEEP:
Finance Bill 2019 Measures
Further changes are being brought forward to encourage take up of the incentive. The measures in Finance Bill 2019 will be subject to a commencement order as it will be necessary, in accordance with state aid rules, to notify the European Commission of the change. The changes include:
Help-to-Buy
Help to Buy (HTB) was introduced in Budget 2017. It is an income tax relief designed to assist first time buyers in obtaining the deposit required to purchase or build their first home, with a view towards increasing the supply of new housing. The relief is only be available in respect of new builds.
The relief takes the form of a rebate of income tax, including DIRT, paid over the previous four tax years. However, it is open to claimants to select all or any of the previous four tax years for the purposes of calculating the refund available to them. The maximum rebate is the lower of:
The maximum relief is capped at €20,000 per property and the maximum property value on which relief is available is €500,000. Purchasers must be first-time buyers.
Current statistics on HTB may be found at:
https://www.revenue.ie/en/corporate/documents/statistics/tax-expenditures/help-to-buy-stats.pdf
Reviews of HTB
Following on from its commencement in 2017, HTB has been subject to an independent impact assessment (2017) and a Cost Benefit Analysis (2018), both carried out by Indecon Economic Consultants. These are available on the Department of Finance website.
Both examinations came to the conclusion that the incentive had had a moderately positive impact on housing supply and affordability, while rising prices were attributed more to the overall misalignment between supply and demand in the market.
Finance Bill 2019
Finance Bill 2019 provides for the extension of HTB in its current form to the end of 2021.
Living City initiative
The Living City Initiative (LCI) was first provided for in Finance Act 2013 and commenced on 5 May 2015. It is a tax incentive aimed at the regeneration of the historic inner cities of Dublin, Cork, Galway, Kilkenny, Limerick and Waterford. The scheme offers tax relief for qualifying expenditure incurred in refurbishing/converting qualifying buildings which are located within pre-determined 'Special Regeneration Areas'.
The owner-occupier residential element of the scheme provides 100% tax relief on expenditure on refurbishment or conversion where a taxpayer meets the relevant requirements. This tax relief is available as a deduction from their total income for each of 10 consecutive years of an amount equal to 10% of the qualifying expenditure.
The commercial element of the scheme allows relief in the form of an accelerated capital allowance for “qualifying expenditure” on refurbishment or conversion of premises within the special regeneration areas. Unlike the residential element of the relief, the commercial/retail element is not restricted to pre-1915 buildings. The capital allowance is given at the rate of 15% of qualifying expenditure for each of 6 years and 10% in year 7.
Review of LCI
LCI was reviewed in 2016, with a number of changes being introduced in Budget 2017.
Finance Bill 2019
Currently, the incentive is due to terminate in May 2020. Finance Bill 2019 provides for the extension of LCI in its current form to the end of 2022.
Employment and Investment Incentive (EII)
The Employment and Investment Incentive (EII) replaced the Business Expansion Scheme in 2011. It is an income tax incentive scheme that provides tax relief for investment in certain corporate trades and is targeted at job creation and retention. The scheme replaced the Business Expansion Scheme (BES) which had been in place from 1984.
As currently structured, the incentive allows an individual investor to obtain income tax relief on investments, up to a maximum of €150,000 per annum, in each tax year up to 2021.
Prior to Budget 2020 relief was available to an individual up to a maximum of 30% of the amount invested. A further 10% tax relief was available where it has been proven that employment levels have increased at the company at the end of the specified period (three years), or where evidence is provided that the company used the capital raised for expenditure on research and development.
EII is available to the majority of unlisted small and medium sized trading companies.
Finance Bill 2019
Finance Bill 2019 provides for:
The above enhancements to the relief are being introduced to further encourage investment in SMEs under the scheme.
Capital Gains Tax
The current scheme provides for capital gains tax relief where an individual disposes of and purchases land and/or exchanges land with another farmer in order to consolidate an existing farm. The scheme which is due to expire on 31 December 2019 is being extended to 31 December 2022 subject to state aid approval.
Capital Acquisitions Tax
The Group A tax-free threshold, which broadly applies to transfers between parents and their children, will be increased from €320,000 to €335,000. The increased threshold will apply for gifts and inheritances received on or after 9 October 2019.
Corporation Tax
Transfer Pricing
Transfer pricing is the practice used by multinational enterprises to set a price for transactions carried out between different associated business entities. Ireland’s transfer pricing rules, introduced in 2010, are being updated to extend their scope and application. The legislation makes a number of changes to Ireland’s transfer pricing rules, including directly referencing the latest OECD Transfer Pricing Guidelines into Irish legislation, introducing enhanced transfer pricing documentation requirements, and extending the scope to cover certain non-trading and capital transactions. The legislation will also be extended to cover SMEs, with reduced documentation requirements, but due to the uncertain business environment this is subject to a Commencement provision.
ATAD Anti-Hybrid Rules
The Finance Bill introduces anti-hybrid rules as required by The European Anti-Tax Avoidance Directives. The ATAD directives were agreed to ensure that EU Member States implemented certain OECD BEPS rules in a coordinated way. The purpose of anti-hybrid rules is to prevent arrangements that exploit differences in the tax treatment of a financial instrument or an entity under the tax laws of two or more jurisdictions to generate a tax advantage. ATAD anti-hybrid rules apply to arrangements between associated enterprises and they apply to all corporate taxpayers, there is no de-minimis threshold.
Research and Development Tax Credit (Section 766) and Allowances for capital expenditure on scientific research (Section 765)
The Research and Development tax credit is being amended to provide enhanced supports to micro and small companies, subject to State aid approval. It is proposed that the 25% R&D credit be increased to 30%, and provides for an enhanced method to be used to calculate the payable element of the R&D tax credit, based on twice the current year payroll liabilities, in respect of small and micro companies. There is also a new provision planned to allow micro and small companies conducting pre-trading R&D to claim the credit before trading commences, limited to offset against VAT and payroll tax liabilities only. Finally, in respect of all claimants, the current limit on outsourcing to third level institutes of education will be increased from 5% to 15%.
A number of other technical amendments are being made in the Finance Bill to ensure the effective and efficient administration of the R&D tax credit. It will provide that grants funded by any State and/or the European Union must be deducted from qualifying R&D expenditure. A company which outsources to third parties must now notify in advance of, or on the day of, payment, if that company intends to make a claim for the R&D tax credit. It aligns the penalty application in respect of an R&D tax credit overclaim to the penalty procedures for other credit overclaims. Finally, it clarifies that where a payable amount or amount surrendered to a key employee is later withdrawn, then it is not permissible to use any offset of losses or credits to shelter the clawback of such an amount.
Section 765 of the Taxes Consolidation Act 1997 provides for accelerated capital allowances for capital expenditure on scientific research. An anomaly has been identified whereby there is potential that the interaction of this provision with the research and development tax credit and other provisions may result in unintended additional claims to relief. Corrective amendments will be included in the Finance Bill to allow capital expenditure on buildings or structures, which are themselves scientific research, qualify for an allowance. Where a company may qualify for a scientific capital allowance and the R&D tax credit, then both reliefs cannot be claimed in respect of the same expenditure. The Bill also provides for a number of technical amendments involving the correction of incorrect or obsolete references.
Irish Real Estate Funds (IREFs)
The Bill makes a number of anti-avoidance amendments to the taxation of Irish Real Estate Funds (IREFs).
The relevant section amends the calculation of the amount on which IREF withholding tax is levied to ensure that any gains which are reflected in the market value of the unit, but which are not reflected in the accounts of the IREF, are subject to IREF withholding tax.
Two restrictions on deductions that can be made by an IREF in arriving at the surplus available for distribution were introduced via Financial Resolution on Budget night. These were an interest restriction and a general restriction. The interest restriction has two aspects. The first places a debt cap on the IREF, with any interest on debt in excess of that cap giving rise to an adjustment. The second places a financing cost ratio on the IREF, with any interest costs in excess of that amount giving rise to an adjustment. In both cases, the adjustment is that the excess amount is charged to tax in the hands of the IREF. The general restriction requires that any other amount expensed in the accounts of the IREF is incurred wholly and exclusively for the purposes of the IREF business and any excessive amounts are charged to tax in the hands of the IREF.
The Bill contains a number of additional technical provisions, to ensure the tax regime operates as intended. These include the introduction of a charge to tax at the fund level in certain holder of excessive right situations and a provision to place the IREF return filing requirement on an annual footing. The Bill also makes an amendment to Schedule 29 to provide for a penalty for non-compliance with the IREF return requirements.
Real Estate Investment Trust (REITs)
The Bill makes a number of amendments to the Real Estate Investment Trust (REIT) regime, introduced by Finance Act 2013.
Distributions comprising the proceeds of property disposals are to be subject to dividend withholding tax, in the same manner as distributions comprised of rental income. The Bill provides that the REIT must either reinvest the proceeds of a property disposal in the REIT property business or distribute the proceeds within a 24 month period. Amounts not so reinvested or distributed will fall to be treated as part of the REIT’s property income, 85% of which must be distributed annually. The Bill also provides that, on the cessation of being a REIT or group REIT, a deemed disposal and re-acquisition of REIT assets will occur only where the REIT or group REIT has been in existence for at least 15 years. These measures took effect from Budget night by way of a financial resolution.
The Finance Bill also inserts a requirement that any expense deducted when calculating the REIT profits available for distribution must be incurred wholly and exclusively for the purposes of the REIT business and any excessive amounts are charged to tax in the hands of the REIT.
Stamp Duty
The Finance Bill 2019 provides for an increase in the Levy on certain financial institutions (the Bank Levy), which was approved by Dáil Éireann on 8 October 2019 by way of a financial resolution. The bank levy rate will increase from 59% to 170%. This new rate, combined with the new 2017 base year, will preserve the existing contribution of €150 million paid by the affected financial institutions.
This amendment was signalled in advance with an Information Note published on the Department of Finance website on 2 May last, which set out that the Minister would adjust the levy so that it is calculated at 170% of DIRT payments made in 2017 so as to ensure the €150 million yield is met.
While the increase in the stamp duty rate on non-residential property transfers from 6% to 7.5% takes effect from 9 October 2019, transitional arrangements to avail of the 6% rate are provided for purchasers with binding contracts in place before 9 October 2019 and where the instrument for the transfers are executed before 1 January 2020. The instrument must contain a statement to this effect in such form as Revenue specifies.
In relation to land purchased for the development of housing, consequential amendments are also being made to the stamp duty refund scheme (where the land involved is subsequently used for residential development), so as to ensure that the rate of stamp duty chargeable after a full refund remains at 2%.
A number of stamp duty related reliefs which reduce the applicable rate on agricultural land for qualifying acquisitions remain in place and are available to the farming sector. These include Farm Consolidation Relief, the Young Trained Farmer Stamp Duty Relief and Consanguinity Relief.
This measure imposes a stamp duty charge where there is an agreement to acquire a (target) company and the target company enters into a Court-approved scheme of arrangement involving the cancellation of its shares in accordance with the Companies Act 2014. Under such arrangements the target company would cancel its existing shares and re-issue new shares to the acquiring company. In such a situation stamp duty did not apply as there is no transfer or conveyance on sale of shares. This measure provides that Stamp duty is now payable at the rate of 1% of the consideration paid to the shareholders for the cancellation of their shares as if the shares were being directly purchased. The stamp duty is payable by the acquirer. This measure provides for a level playing field with respect to transactions that have a similar outcomes (i.e. sale and acquisition of a company) being subject to similar tax treatments and came into effect on 9 October 2019 by way of a financial resolution.
Some of the additional measures in Finance Bill 2018, not announced on Budget Day, include:
Income Taxes
Living Donors
Section 204B of the Taxes Consolidation Act 1997 provides that the reimbursement of expenses by the HSE to an individual for donation of a kidney for transplantation (under conditions defined by the Minister for Health) are exempt from income tax and are not reckonable in computing income for the purposes of the income tax acts. The purpose of this amendment is to extend the relief to those living donors who donate the lobe of a liver.
Magdalen Payments
Section 205A of the Taxes Consolidation Act 1997 provides for the exemption from income tax of a range of payments made by the Minister for Employment and Social Protection including payments made under the Magdalen Laundry ex-gratia scheme. The purpose of this amendment is to provide additional clarity that a qualifying person for the relief must, in all circumstances has received a payment under the Magdalen Restorative Justice Ex-Gratia Scheme.
Tax Treatment of Certain Payments
On foot of a continuing review of the tax treatment of various payments from public funds to individuals, a number of payments have been identified as technically within the charge to tax but in relation to which tax has not traditionally been collected. The review was undertaken in light of the continuing Revenue PAYE modernisation process.
A number of social welfare measures were exempted from taxation in Finance Act 2018. Finance Bill 2019 proposes to exempt:
Capital Taxes
Capital Acquisitions Tax
Section 48 of CATca 2003 is being amended to allow Revenue to make regulations prescribing the detail of the eProbate process and allowing for Revenue to develop IT systems for filing documents as part of the eProbate process. This includes allowing for the online filing of the Inland Revenue Affidavit, which provides an account of the deceased person’s estate. The Affidavit will be renamed and will no longer be required to be sworn. This will make the collection and the transfer of data between Revenue and the Probate Office more efficient.
Section 86 of CATCA 2003 is being amended to confirm the appropriate operation of the dwelling house exemption. The dwelling house exemption in general applies where a person who inherits a dwelling house was the person’s main home for the last three years; the person did not own a home or an interest in a home and this will be the person’s residence for the next 6 years. The change follows a High Court judgment in 2018 the result of which was that a beneficiary could inherit a CAT exempt house at the same time as inheriting other houses from the same estate. In order to reinstate the original policy objective, the conditions of the relief are being amended to ensure that all properties inherited from the same estate are considered when assessing eligibility for the dwelling house exemption.
Corporation Tax
DAC6 – Mandatory Disclosure Rules
The Bill also transposes EU Directive DAC6, (Directive on Administrative Cooperation) which delivers on BEPS Action 12, by introducing a mandatory disclosure regime for certain cross-border transactions that could potentially be used for aggressive tax planning. The new provisions introduce a requirement for intermediaries, and taxpayers in some circumstances, to make a return to the Revenue Commissioners of information regarding cross-border arrangements with certain hallmarks of aggressive tax planning.
Section 110
The Bill amends section 110 of the Taxes Consolidation Act 1997 which deals with the taxation of securitisation companies. Revised transfer pricing rules are being introduced in Finance Bill 2019, however the profit participating note in section 110 companies cannot be made subject to the new transfer pricing rules without introducing a direct conflict in legislation. They are therefore being carved out from transfer pricing rules, but additional anti-avoidance provisions are being introduced in the Bill in tandem with this provision in order to strengthen the existing protections against abuse of the regime. These amendments broaden the definition of a specified person to increase the number structures that will be subject to section 110 anti-avoidance provisions. The amendments also place the tax avoidance main purpose test on an objective basis.
Value Added Tax
VAT rate of 13.5% applies to food supplement products
The Finance Bill 2019 includes a provision that, with effect from 1 January 2020, food supplements will be subject to Value-Added Tax at a rate of 13.5 per cent.
Shortly after the introduction of VAT, Revenue applied a concessionary zero rating to certain vitamin, mineral and fish oil products. As the market developed over the years this treatment resulted in the zero rating by Revenue of further similar products, including products other than vitamins, minerals and fish oils. The scope of the relatively narrow original zero rating of food supplement products permitted by Revenue broadened progressively over time to the point that it had become increasingly difficult to maintain an effective distinction between food supplements that could benefit from the zero rate and those that were standard rated. This caused difficulties for both Revenue and industry.
Following complaints from the Irish Health Trade Association (IHTA), Revenue conducted a comprehensive review of the VAT treatment of food supplements, including getting an expert report on the definition of food for the purposes of the VAT Consolidation Act. On the basis of this review, Revenue concluded that the status quo was no longer sustainable. Following the review, Revenue engaged with the Department of Finance concerning policy options that might be considered in the context of Finance Bill 2018. The relevant legislation was not changed in Finance Bill 2018 and therefore Revenue issued new guidance in December 2018 which removed the concessionary zero rating of various food supplement products with effect from 1 March 2019. The removal of the concession would only apply on a prospective basis and would not be applied retrospectively by Revenue.
Following representation from Deputies and from the industry, the Minister for Finance wrote to Revenue outlining his plans to examine the policy and legislative options for the taxation of food supplement products in the context of Finance Bill 2019. Revenue responded by delaying the withdrawal of its concessionary zero rating of the food supplement products concerned until 1 November 2019. This allowed time for the Department [of Finance] to carry out a public consultation on the taxation of food supplement products.
The public consultation ran from 18 April to 24 May 2019 and sought input from a wide range of interested parties, including from health and nutrition experts and the Minister for Health to ensure that any legislative changes brought forward was evidence based. The results of the consultation were included in the 2019 VAT Tax Strategy Group paper as part of the Budget 2020 process.
The implementation of a 13.5% rate will provide certainty to industry in respect of food supplement products and will apply prospectively.
It is important to clarify that certain products will not be impacted by the change introduced in this Finance Bill (e.g. foods for specific groups, vitamins and minerals such as folic acid licensed as medicines by the HPRA, and fortified foods). These products will continue to benefit from the zero rating for VAT purposes.
Next steps
Finance Bill 2018 Dáil Second Stage scheduled to begin on Tuesday 22 October 2019.
Under the regulations known as the “Two-Pack” which were formally adopted on 30 May 2013, a common budgetary timeline was introduced for all Euro Area member states. In light of these requirements, the government decided, from 2013 onwards, to bring Budget Day forward from the first week in December to on or before 15 October. This means that Budget 2020 was presented and published on Tuesday 9 October this year.
The government also decided that the Finance Bill should complete its passage through the Oireachtas by 31 December each year. This means also that, as this Finance Bill is published in 2019, it is called “Finance Bill 2019” even though it relates to Budget 2020.
The full text of the Bill and the Explanatory Memorandum will be published on Thursday 17 October. The full Finance Bill timetable is available at www.gov.ie/en/publication/661790-finance-bill-2019-timetable/.
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