THE FUTURE FINANCE BILL 2018 - OCTOBER 2018 - PWC
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PROTECTING THE FUTURE FINANCE BILL 2018 October 2018
CONTENTS
Overview 2
Policy / International Outlook 7
EU ATAD Measures - Controlled Foreign Company Rules / Exit Tax 9
Private Business / Individuals 13
Domestic and International Large Corporates 17
Agri-Sector 20
Employment Taxes / Individual Taxes 23
Property 26
VAT 28
Trade and Customs 30
Tax Administration and Revenue Powers 33
1
Overview
Finance Bill 2018 sets out the proposed legislative changes required to implement many of the Budget Day
announcements of 9 October last. The most significant measures are the introduction of the CFC regime
which applies to accounting periods beginning on or after 1 January 2019 and the new 12.5% Exit Tax which
became effective for transactions on or after 10 October 2018.
The existing provisions governing tax relief from income tax for investment in corporate trades have been
simplified and consolidated whilst the Bill also sees the introduction of a new relief, Start-up Capital Incentive
(“SCI”) which is aimed at allowing tax relief to certain persons who invest in early stage start-up ventures.
In line with prior years, the Bill proposes a number of targeted anti-avoidance provisions. Other
housekeeping measures include proposed amendments to the provisions governing the tax appeal
procedure, these are made with a view to improving the tax appeals process.
Stephen Ruane Fiona Carney Paul Wallace Patrick Lawless
Leader - Tax Solutions Centre +353 1 792 6095 +353 1 792 7620 +353 01 792 8595
+353 1 792 6692 fiona.carney@pwc.com paul.wallace@pwc.com patrick.lawless@pwc.com
stephen.ruane@pwc.com
2
Corporation Tax Further details on these measures are included Personal and Employment Tax
on pages 7 and 9.
New 12.5% Exit Tax Finance Bill 2018 contains a number of changes
Intellectual property to the taxation of certain employer provided
The surprise measure announced on Budget day benefits. It also provides further information and
was the introduction of a new 12.5% Exit Tax The Finance Bill introduces a technical clarification in relation to the changes to the
regime which became effective for transactions amendment to Ireland’s IP tax amortisation PAYE system in advance of the introduction of
on or after 10 October 2018. Although Ireland provisions which brings the legislation in line Real Time Reporting, which comes into effect
was required to change its Exit Tax regime under with Revenue’s Tax and Duty Manual guidance from 1 January 2019.
the EU Anti-Tax Avoidance Directive (“ATAD”) in on the operation of the IP tax amortisation
advance of 1 January 2020, the suddenness of provisions that issued in January 2018. Further A number of adjustments have been made to the
this change took many by surprise last week. detail on this measure is set out on page 18. tax bands, tax credits and USC rates which
While better signaling of the proposed change to provide modest income tax savings for
taxpayers would have been welcome, it is Other Capital Allowances individuals.
positive that there is now certainty that the Exit The regime governing wear and tear allowances From an employer perspective, the next phased
Tax will be at the established Corporation Tax for certain energy efficient equipment is being increase to the employer PRSI charge from
rate of 12.5%. Details of the exit tax provisions streamlined with a view to making it more 10.85% in 2018 to 10.95% is effective from 1
are included on pages 7 and 11. administratively effective. The Bill also January 2019. This will further increase to
introduces accelerated wear and tear allowances 11.05% in 2020, which will result in increased
Controlled Foreign Company (“CFC”) Regime
for gas vehicles and refuelling equipment used employer payroll costs.
Finance Bill 2018 also sees the introduction of for trading purposes.
Further details of these measures are included at
Ireland’s Controlled Foreign Company (“CFC”)
A new accelerated capital allowances regime was pages 23 to 25.
regime effective for accounting periods
proposed in Finance Act 2017 to grant employers
beginning on or after 1 January 2019, again
capital allowance relief on the capital cost of Property Measures
following the EU’s ATAD. The policy approach
constructing and equipping qualifying fitness or
adopted by Ireland is broadly in line with our Rented residential accommodation – 100%
childcare facilities provided for use by employees
recommended approach at consultation stage. interest deductibility
of the employer but did not commence. An
However, it is disappointing not to see the
amended regime is now set to commence from The proposed accelerated reinstatement of a full
inclusion of a substance-based exemption.
1 January 2019. interest deduction from 1 January 2019 in
respect of rented residential accommodation is a
positive development for the rental sector.
3
Rent-a-room relief and will hopefully encourage take-up through a
simplified approval process. However, not all of
Finance Bill sees a proposed tweak to the long
the recommendations made during the
established “rent-a-room” relief. The relief, which
consultation process have been legislated for in
provides an exemption from tax on payments up
the Bill.
to €14,000 in a year received by homeowners in
respect of renting out a room in their own home, The Bill also introduces a new Start-Up Capital
is being limited to lettings in excess of 28 Incentive (SCI) targeted at early stage micro-
consecutive days in duration. The amendment is companies. A significant feature of SCI is that it
aimed at ensuring the relief does not apply to provides the possibility for relatives of the
short-term lettings which are business or leisure founder to make a qualifying investment. This is
related. a very welcome provision since both friends and
family can be key sources of starter finance for
Disposal of site to a child relief companies during their infancy. Further details
A practical tweak is proposed to the capital gains of these reliefs are included at page 14.
tax relief available on disposal of a site to a child.
The Bill proposes a technical amendment which Key Employee Engagement Programme
will allow both a child and his or her spouse/civil (KEEP)
partner to avail of the relief in respect of KEEP is a tax efficient share option plan which
disposals made to a child and his or her spouse was introduced with effect from 1 January 2018
on or after 1 January 2019. As things stand, the and broadly applies to unquoted trading
relief only applies where the site is transferred companies. Since its introduction, there has been
directly to the child. a very limited uptake of the scheme due to the
Further details of property-related measures are restrictive nature of the various conditions. The
included at page 26. changes as currently proposed in the Finance Bill
do little to address many of these issues and are
Reliefs for Investment in Corporate Trades unlikely to result in an increased uptake in the
scheme. The changes are subject to a
The amendments to the Employment and commencement order by the Minister for
Investment Incentive Scheme (EIIS) follow from Finance. Further details of these reliefs are
a recent consultation process. They are welcome included at page 15.
4
Film Relief VAT Measures The 1% VRT surcharge mentioned in the Budget
is confirmed and will apply to all diesel vehicles
As flagged on Budget day, the Finance Bill As announced in the Budget, goods and services
across all VRT bands, apart from diesel hybrid-
extends the sunset date for Film Relief from what which were previously subject to VAT at 9% will
electric and diesel plug-in hybrid electric
was currently 2020 to 2024. This change gives be subject to VAT at 13.5% (with certain
vehicles.
certainty to film investment projects, many of exceptions) with effect from 1 January 2019.
which take a number of years to bring to Goods and services impacted by this change The Bill eliminates the current repayment
production. The Bill also provides for an include restaurants, hotels, holiday scheme for the VAT element of VRT on leased
additional tax credit if production of a qualifying accommodation, certain printed matter and vehicles. It also introduces a scheme that allows
film takes place in areas designated under State admissions to cinema, theatre or other cultural for a proportionate payment of VRT where a
Aid Regional Guidelines. events. The 9% VAT rate will be extended to the vehicle has been leased from another Member
supply of electronic publications. State and brought into Ireland for the lease
Start-Up Relief period (for a period of between 1 and 48
Amendments are also proposed in relation to
months). Further details are included at page 31.
The three year relief from corporation tax for certain sales of residential property by receivers.
certain start-up companies which was due to Other VAT measures are dealt with on page 29.
Time Limits
expire in 2018 has been extended to 31
December 2021. Sugar-sweetened drinks tax (“sugar tax”) The Taxes Acts contain statutory time limits
which prohibit a Revenue Officer from making or
The Bill proposes amendments to the “sugar tax”
Agri Measures amending an assessment outside of a four year
regime introduced last year. Previously,
period. The Bill proposes allowing the making or
The Bill contains three measures that are specific beverages with any calcium (or equivalent)
amending of an assessment outside this period
to the Agri Sector; the relaxation of the rules for content were exempt from the tax. The latest
when it relates to a bi-lateral Mutual Agreement
income averaging and the extension of existing changes mean that beverages will now have to
Procedure (“MAP”) reached between Ireland
stock relief and Stamp Duty reliefs were all have a specified minimum calcium content in
and a competent authority with which Ireland
flagged in the Budget. However, there are order to qualify for the exemption. Further
has a Double Tax Agreement.
changes which propose placing a cap of €70,000 details are included at page 31.
on the amount of relief that may be claimed in The Finance Bill also proposes an amendment to
aggregate under the Stock Relief, Succession Vehicle Registration Tax (“VRT”) the standard four-year time limit in which
Farm Partnerships and Stamp Duty provisions. Revenue may make enquires and authorise
The Finance Bill provides for an extension of VRT
Further details are included at page 20. inspections into a Capital Acquisitions Tax
reliefs for electric, hybrid-electric and plug-in
(“CAT”) return. Further details are included at
hybrid electric vehicles until 31 December 2019.
page 34.
5
Conclusion
The headline measures introduced in Finance
Bill 2018 are concrete evidence of the changed
international tax landscape resulting from
agreements reached at international level in
recent years. As Ireland continues on the journey
set out by it in the Corporate Tax Roadmap these
agreed measures are likely to be a feature of
Finance Bills for a number of years to come. We
would hope that the timelines for
implementation of any future significant changes
are well signalled to avoid unnecessary surprises
for taxpayers.
The new relieving measures introduced in the
Finance Bill are modest. However, in relation to
existing measures it is positive to see some of the
recommendations made in recent consultations
being adopted. Continued consultation with
stakeholders with a view to improving and
adapting measures should assist in achieving
desired policy aims and contribute to securing
Ireland’s future.
6
Policy / International
Outlook
The implementation of the reform programme which started with the OECD’s BEPS
project is well and truly under way in Ireland. Finance Bill 2018 currently includes two
internationally agreed measures which move Ireland further along our path of reform.
These two measures are exit tax (applicable from Budget night) and Controlled Foreign
Company (“CFC”) legislation (applicable for accounting periods beginning on or after 1
January 2019) with the likely inclusion of the multilateral instrument (“MLI”) at a later stage
of the Bill.
In the Minister’s Budget speech he referenced Ireland’s Corporate Tax Roadmap which
was released at the start of September. This document shows the items that Ireland will
be covering in the coming months and years as we proceed on our reform journey by
implementing measures from BEPS, Anti Tax Avoidance Directive (“ATAD”) and those
suggested in the Coffey report. Clearly it’s going to be a busy time on Merrion Street.
Exit Tax it gives certainty in relation to the rate of tax on
exit and doubles down on the 12.5% brand.
The surprise measure announced on Budget day
Hence, while more notice may have been
was the introduction of a new exit tax regime.
welcome, the positive message should not be lost.
While clearly change had to come in advance of
More detail on the technical aspects of the exit
the 1 January 2020 deadline imposed by ATAD,
tax provisions of the Bill are included on page 11.
the suddenness of this change took many by
surprise. Unfortunately, surprise is contrary to
CFC Rules
Peter Reilly the foundations of certainty upon which our
regime is built and those foundations that the Ireland’s new CFC rules that are laid out in the
Tax Policy Leader
roadmap, released only a month before, were Bill have their origins in BEPS but their timing
+353 1 792 6644
trying to reinforce. However, overall, we must has been driven by the ATAD.
peter.reilly@pwc.com remember that the exit tax message is positive as Under the Directive Ireland was required to
7
implement these rules no later than 1 January of the MLI could impact existing treaty
2019 and as such they have been much arrangements.
anticipated. After a period of consultation Ireland
flagged that they had chosen the “Option B” Future changes
approach outlined in the Directive. This
These three items will be followed by a number
approach focusses on non-genuine arrangements
of other reforms over the coming years. The
that have been put in place for the essential
roadmap points to a busy year in 2019 for the
purpose of obtaining a tax advantage. More
Department of Finance. Consultations relating to
detail on the technical aspects of our CFC rules
interest deductibility & hybrids, transfer pricing
are outlined on page 9. From a policy perspective,
and moving to a territorial regime are all due to
the choice of an Option B approach is in line with
be released in the coming months with
our approach that we set out to the Department.
legislation expected on hybrids, mandatory
However it is dissapointing not to see the
disclosure and transfer pricing with other
inclusion of a substance based exemption, a key
possibilities also in the mix.
recommendation of ours. As a result the rules do
not offer certain safe harbours we were hoping Ireland is clearly not the only country that is
majority of other EU member states however will
for but there is some degree of flexibility in the undergoing a period of reform. Indeed all EU
be introducing these rules from 1 January next
approach that can be taken which is welcome. member states are obliged to adopt the rules set
year meaning that the rules governing interest
out in the ATAD in line with the prescribed
deductibility in member states could be changing
MLI timelines. Along with CFC, the other headline
significantly in 2019. As such groups need to
2019 change as a result of ATAD is the
The third global reform item which may end up consider their current financing structures to
introduction of an interest to EBITDA rule.
being tabled in this year’s Bill is the final phase of assess whether they are optimal in light of these
Ireland believes that the derogation in the
the process for ratifying the MLI. The Dail changes.
Directive for countries with rules that are equally
approved an order earlier this month which
effective at targeting BEPS applies in Ireland’s Hence, when a group is undergoing any
should enable the MLI to be included in the Bill at
case and as such will not be introducing the rules planning, from M&A activity to internal
a later stage of the process. Once ratified and
from January. However, per the roadmap there restructurings, it is important to consider what
deposited with the OECD the provisions of the
does appear to be pressure on this and as such changes are coming down the tracks to ensure,
MLI will begin, over time, to come into force for
the previously assumed effective date of 1 where possible, that planning is future proofed.
the vast majority of Ireland’s treaties. As such it is
January 2024 may no longer be viable. The
necessary to determine whether the provisions
8
EU ATAD Measures - Controlled
Foreign Company Rules / Exit Tax
Finance Bill 2018 contains a number of measures to give effect
to a number of internationally agreed measures under the EU’s
Anti-Tax Avoidance Directive, as discussed on page 7.
Controlled Foreign Company (“CFC”) rules are introduced into
Irish tax law for the first time and will apply for accounting
periods beginning on or after 1 January 2019. A new exit tax
regime was also introduced, replacing the entirety of the
existing exit tax provisions. This new exit tax regime took effect
from 10 October 2018.
Controlled Foreign Company (“CFC”) rules
The primary aim of a CFC regime is to counteract
targeted tax planning involving groups with companies
located in low or no tax jurisdictions and in which a
significant part of the business is carried on in Ireland.
At a high level, the Irish CFC rules effectively treat a
Denis Harrington Peter Reilly portion of the income of a CFC company as taxable in
EU Tax Leader for Ireland Tax Policy Leader Ireland (regardless of whether an actual distribution to
the Irish company took place). The impact of the CFC
+353 1 792 8629 +353 1 792 6644
charge is to ensure an appropriate level of tax is paid
denis.harrington@pwc.com peter.reilly@pwc.com where the significant people functions are located.
9What is a CFC? CFC’s legal and beneficial ownership of the assets
or the assumption and management of the risks.
A ‘CFC’ is defined as a non-Irish resident
The meaning of SPFs and the KERT functions is
company controlled by an Irish company,
aligned with the 2010 OECD Report on Profit
branch or agency.
Attribution to Permanent Establishments.
The Bill adopts a wide definition of control which
The chargeable company is the company in
is largely based on the definition of control
which these “relevant Irish activities” are
included in the existing close company rules with
performed. The tax rate applicable is either
some additional tests relating to the ability to
12.5% where the undistributed income should be
control the composition of the board of directors
chargeable to tax under Case I or 25% where the
of the company and other criteria. Interestingly,
undistributed income should be chargeable to tax
the extent to which a company may be deemed to
under Case III, Case IV or Case V. To ensure that
control a CFC under the Bill, exceeds the
the income is not double taxed, a credit for the
minimum requirement set out under ATAD
foreign tax paid should be available against the
Article 7.
CFC charge.
Charge to CFC
Exemptions
A CFC charge exists where a CFC has
There is widespread recognition that Irish groups
undistributed income which can be reasonably
with companies located in low tax jurisdictions
attributed to “relevant Irish activities”.
do not pose a risk of substantial tax base erosion.
Undistributed income for the period is taken to
In light of this, the bill provides for a number of
mean the accounting profits for the period less
exemptions to the CFC charge. These exemptions
any “relevant distributions”. Further details in
can be broadly categorised into two main groups:
relation to qualifying distributions are contained
(i) those that exclude a company completely from
within the Bill.
the CFC charge (thus requiring no need to look at
The Bill broadly defines “relevant Irish activities” the CFC’s undistributed income) and (ii) those
as being significant people functions (“SPFs”) or exemptions that are applied to specific income
key entrepreneurial risk-taking (“KERT”) streams of the CFC.
functions performed in Ireland on behalf of the
CFC. The relevant functions must relate to the
10(i) Full exemptions include: Groups should bear this in mind, even where Exit tax
the headline tax rate in the CFC jurisdiction is
• Essential Purpose exemption: to the extent The Finance Bill introduces significant changes
close to, equal to or higher than the Irish
that the CFC did not at any time (within the to Ireland’s exit tax rules, replacing the entirety
headline tax rate.
relevant accounting period) hold assets or of the existing exit tax provisions. The new
bear risks under an arrangement where the • Other full exemptions include: provisions took effect from 10 October 2018,
essential purpose of the arrangement was to ahead of the 1 January 2020 deadline for
–– Low profit margin exemption:
secure a tax advantage, then no CFC charge transposing Article 5 of the Anti-Tax Avoidance
should apply in that accounting period. –– Low accounting profit exemption: Directive into Irish tax law. In a positive
development, the rate to be applied to any
• Non Genuine Arrangement test: to the –– Exempt period exemption:
taxable gain arising as a result of these provisions
extent that the CFC did not have non-genuine
(ii) Specific Income stream exemptions include: is 12.5% (subject to anti-avoidance measures),
arrangements in place, no CFC charge should
rather than the 33% rate that currently generally
apply in that accounting period. A company is • Transfer Pricing exemption: to the extent applies to taxable gains.
considered to have non-genuine arrangements that the CFC has undistributed income arising
in place where: from arrangements that are subject to Irish How the exit tax applies
–– the CFC would not own the asset or would transfer pricing rules, or it is reasonable to
The new exit tax rules are wider reaching than
not have borne the risks which generate all conclude that such arrangements should be
the exit tax provisions they have replaced. The
or part of, its undistributed income but for entered into by persons dealing at arm’s
rules apply not only to the migration of tax
relevant Irish activities undertaken in length, no CFC charge should apply to that
residence of a company from Ireland, but also in
relation to those assets & risks, and income.
respect of certain transfers of assets from Ireland
–– it would be reasonable to consider that the • Essential Purpose test: to the extent that the to other countries where the same company
“relevant Irish activities” were CFC has undistributed income arising from retains legal or economic ownership of those
instrumental in generating that income. arrangements and the essential purpose of transferred assets. The provisions deem that a
those arrangements is not to secure a tax company disposes of and immediately reacquires
• Effective Tax Rate exemption; If the foreign advantage, then no CFC charge should apply at market value:
tax paid or borne by the CFC for an accounting to that income.
period effectively equates to more than 50% 1. assets transferred by a company that is tax
of the tax that would be payable in Ireland for NOTE: The new CFC rules are complex, contain resident in an EU country (other than Ireland),
that accounting period, then no CFC charge a lot of defined terms and a number of targeted from a permanent establishment in Ireland to
should apply. It is important to note that the anti-avoidance rules. It is important that specific its head office, or to a permanent
calculation of the effective tax rate is tax advice be sought in relation to particular establishment in another country;
computed by reference to the Irish rules. groups or structures.
112. assets transferred by a company that is tax held for the purposes of the PE – remains. days of the end of each of the five calendar years
resident in an EU country (other than Ireland) specifying whether the company is resident in an
The exit tax charge will also not apply in respect
on the transfer of a business carried on by a EU or qualifying EEA territory throughout the
of assets (1) which relate to the financing of
permanent establishment in Ireland to preceding period.
securities, (2) given as security for a debt, or (3)
another country; or
transferred in order to meet prudential capital The ability to defer payment will cease, and
3. all of an Irish tax resident company’s assets requirements or for liquidity purposes where the payment of the exit tax charge (together with
(with some exceptions) where it migrates its assets are due to the revert to the Irish interest) will become immediately due, in any of
tax residence to another country. permanent establishment within 12 months of the following circumstances:
the transfer.
In these scenarios, the company is entitled to • the assets or business transferred are
deduct the tax base cost held in the migrated Further exemptions are made for “specified” subsequently sold or disposed of;
assets in calculating the gain arising. In a assets that remain within the charge to Irish CGT
• the assets transferred are subsequently
welcome move, the tax rate applicable to any post migration, such as Irish land and buildings,
transferred to a non-EU/qualifying EEA
chargeable gain arising is 12.5%. However, an and unquoted shares deriving the greater part of
country;
anti-avoidance rule will tax at 33% any deemed their value from such assets.
gain which arose as part of a transaction to • the taxpayer’s tax residence or the business of
dispose of an asset and the purpose of which is to Deferral of the exit tax charge the permanent establishment is subsequently
ensure the gain is taxed at the 12.5% rate rather A company subject to the exit tax charge may, on transferred to a non-EU/qualifying EEA
than the general 33% rate on asset disposals. election in their tax return, spread the payment country;
of the charge over six equal instalments (but • the taxpayer becomes bankrupt or is wound
Exemptions from the exit tax charge
with interest arising over the repayment period). up; or
The exemption from the exit tax charge The first payment is due on the date of the first
previously available to “excluded companies” is tax return after the relevant transaction is due, • the taxpayer fails to honour its instalment
no longer available under the new provisions. with the remaining five instalments due on the obligations and does not correct the position
However, an exemption from the exit tax charge 12 month anniversary of that date. The option to within 12 months.
in respect of “excepted assets” – being assets defer payment is available where the transfer of The provisions give Revenue the power to
which immediately after the migration of a the assets, business or residence, as the case may recover any underpaid tax from another Irish tax
company’s tax residence out of Ireland remain be, is to an EU territory or a qualifying EEA resident group company or an Irish resident
situated in Ireland and are used for the purposes country. controlling director.
of a trade carried on in Ireland through a
Where an election is made, the company will
permanent establishment (“PE”), or are used or
need to make a statement to Revenue within 21
12Private Business / Individuals
The most interesting provisions from the perspective of start-up or
scale-up businesses were the amendments to the Employment
and Investment Incentive Scheme (EIIS) and Start-Up Relief for
Entrepreneurs (SURE). Both schemes operate by granting income
tax relief to individuals for amounts invested in new shares in
eligible companies. Overall the changes are an improvement and
will hopefully both encourage take-up and simplify the overall
Revenue approval process, thus addressing many of problem
areas flagged during the recent consultation process. However, it
is perhaps disappointing to note that some of the
recommendations (e.g. full year 1 entitlement to the relief, more
attractive CGT treatment) in the Indecon Report were not included.
The new Start-Up Capital Incentive (SCI) targeting early stage
companies is a welcome addition. While tax incentives are
important to encourage investment in private companies,
overarching commercial considerations are likely to have the
greatest part to play when it comes to the final investment
decision.
While the amendments made to the Key Employee Engagement
Programme (KEEP) are welcome, the scheme remains restrictive
Colm O’Callaghan Declan Doyle
in nature. The changes made in the Bill are unlikely to result in an
+353 1 792 6126 +353 1 792 8702
increased uptake in the scheme.
colm.ocallaghan@pwc.com declan.doyle@pwc.com
13Relief for Investment in Corporate Trades very early stage of their life cycle. Finance Act
2017 introduced measures needed to comply
Finance Bill 2018 enacts some of the
with EU State Aid Rules (General Block
recommendations in the recent report by Indecon
Exemption Regulations (“GBER”)) that
International Economics Consultants (“the
effectively disqualified relatives from qualifying.
Indecon Report”). This review was
The most significant feature of SCI is that it
commissioned by the Minister and included a
provides the possibility for relatives of the
public consultation process and a survey of
founder to make a qualifying investment. This is
companies that had availed of the incentives. The
a very welcome provision since both “friends and
principal aim of these changes is to establish a
family” are key sources of starter finance for
more focused regime of tax relief for investors
companies during their infancy.
and to streamline the administrative process.
The table below sets out a summary of the
A new relief, the Start-up Capital Incentive
different schemes.
(“SCI”), is introduced for micro companies at the
Comparison of Schemes Up to 2018 From 2019 From 2019
Scheme “Old” EIIS “New” EIIS “New” SCI
Relief Rate 30% in Y1; 10% after 4 years 30% in Y1; 10% after 4 years 30% in Y1; 10% after 4 years
Largely applied a commencement to trade Spend min. of 30% of amount raised on a qualifying Spend min. of 30% of amount raised on a
Eligibility Test
requirement purpose qualifying purpose
Company Limit €5m p.a. subject to €15m lifetime cap €5m p.a. subject to €15m lifetime cap €500,000 lifetime cap
Investor Limit €150k p.a. €150k p.a. €150k p.a.
Micro, small and medium sized enterprises apart Micro, small and medium sized enterprises apart Micro enterprises i.e. less than 10 employees and
Qualifying companies
from those carrying on excluded trades from those carrying on excluded trades either turnover or balance sheet totals less than €2m
Approval process Revenue certify Self-certify Self-certify
Minimum holding period 4 years 4 years 4 years
Capital Gains Normal rules but losses are restricted Normal rules but losses are restricted Normal rules but losses are restricted
End date 31 December 2020 31 December 2021 31 December 2021
14It is disappointing to note that there is no change The SURE incentive broadly benefits founders in The Finance Bill introduced amendments to the
to remove the anomaly that gains on share circumstances where they leave PAYE definition of a “qualifying share option” such that
buybacks occurring between the fourth and fifth employment to set up their own company. It the total market value of the share options
anniversary of the investment are subject to operates by allowing them to shelter income granted to any one employee/director cannot
income tax rather than capital gains tax earned during any of the previous 6 years by the exceed the following:
treatment. amount invested in new shares. No changes on
1. €100,000 in any one year of assessment,
the SURE tax regime was announced but it will
It is proposed that a self-certification process will
hopefully benefit from the wider administrative 2. €300,000 in all years of assessment, or
apply for both the applicant company and the
improvement, including the new self-
individual investor. The applicant company can 3. 100% of the annual emoluments in a year of
certification process.
self-certify “company conditions” (e.g. that their assessment in which the qualifying option is
share capital is fully paid up, any subsidiaries Overall the changes will go some way towards granted.
they have are qualifying etc.) but if they are addressing many of the problems areas flagged in
This change has removed the cap of 50% which
incorrect the cost of any claw-back of relief the Indecon Report. However, it remains to be
applied to annual emoluments and has increased
claimed by investors will be for the company’s seen what it will do for the backlog of cases that
the upper limit from €250k to €300k. Note that
account. Investors can now self-certify that they are reported to be currently with Revenue for
this upper limit previously applied to a 3 year
meet their own “investor conditions” but if they processing/approval.
period but is now a lifetime limit per employee/
incorrectly claim relief then the relief will be
director. The increase from 50% to 100% for
clawed back from them. It is hoped that this will Key Employee Engagement Programme
annual emoluments is very positive, in particular
reduce processing delays which the recent (KEEP)
for early stage businesses paying small salaries
consultation confirmed as a major problem for
KEEP is a new tax efficient share option plan who wish to compensate employees with share
applicant companies over recent times. Provision
which was introduced with effect from 1 January based remuneration, and the increased limit to
is, however, included to enable companies apply
2018 and broadly applies to unquoted trading €300k is a welcome change. However, it is not
to Revenue for confirmation that they satisfy the
companies that are incorporated in an EEA state helpful that this upper limit has been changed to
EU State Aid Rules (“GBER”). This is welcome
and are Irish resident (or resident in the EEA but a lifetime limit as it is not clear how this will be
given the complexity of the GBER.
carry on a business in Ireland through a branch monitored in practice and places further
There were also a number of technical changes or agency). restrictions on an already restrictive scheme.
that specifically impact investments made via
designated funds.
15Since the introduction of KEEP there has been a Anti-avoidance - Close Companies
very limited uptake of the scheme due to the
An amendment was made to the close company
restrictive nature of the various conditions. The
legislation that deals with loans advanced to
changes in the Finance Bill do little to address
participators/shareholders. Where a company
many of these issues and are unlikely to result in
advances a loan to a participator/shareholder an
an increased uptake in the scheme. The changes
amount equal to 20% of the re-grossed (at the
are subject to a commencement order by the
standard rate) advance becomes payable to
Minister for Finance.
Revenue. Finance Bill 2018 has sought to extend
this anti-avoidance measure to cover
Film Relief
arrangements the main purpose or one of the
As flagged on Budget day, the Finance Bill main purposes of which is to avoid the
extends the sunset date for Film Relief from what requirement to withhold this tax.
was currently 2020 to 2024. This was designed
to give certainty to film investment projects Capital Acquisitions Tax - Group thresholds
many of which take a number of years to bring to
The Bill also gives effect to the Budget
production. The Bill also provides for an
announcement to increase the Group A tax-free
additional tax credit where production of a
threshold from €310,000 to €320,000. This is the
qualifying film takes place in areas designated
group threshold that applies primarily to gifts
under State Aid Regional Guidelines.
and inheritances from parents to their children.
The increased threshold applies to gifts and
Start-Up Relief
inheritances taken on or after 10 October 2018
The three year relief from corporation tax for and marks a welcome advance toward the
certain start-up companies which was due to Programme for Government’s commitment to
expire in 2018 has been extended to 31 incrementally increase this threshold to
December 2021. €500,000 over the lifetime of the Government.
16Domestic and International
Large Corporates
Finance Bill 2018 introduces amendments to Ireland’s IP tax amortisation provisions in relation to
the application of the 80% cap where a company has acquired qualifying IP both before and on
or after 11 October 2017. Further amendments have been made to the energy-efficient capital
allowance provisions whilst a new provision is introduced which provides accelerated capital
allowances on expenditure incurred on gas propelled vehicles and refuelling equipment.
Harry Harrison Paraic Burke
+353 1 792 6646 +353 1 792 8655
harry.harrison@pwc.com paraic.burke@pwc.com
17While the Finance Bill has introduced several The proposed amendment states that, where a
amendments to the corporation and capital gains company has acquired qualifying IP both before
tax provisions in the Taxes Consolidation Act, the 11 October 2017 and on or after 11 October 2017,
main provisions likely to affect domestic and the company shall be treated as having two
international large corporates include the separate IP trade income streams. The “first
introduction of Controlled Foreign Companies income stream” is the IP trading income derived
legislation together with the amendments to the from the capital expenditure incurred on
provisions of the Exit Tax provisions. Details of acquiring the qualifying IP before 11 October
these measures can be found on page 9. 2017 and the “second income stream” is the IP
trading income derived from the capital
Specific changes to the capital allowances
expenditure incurred on acquiring the qualifying
provisions have been included in the Finance Bill
IP on or after 11 October 2017.
and these are outlined below.
In the case of qualifying IP acquired before 11
Intellectual property related changes October 2017, the tax amortisation and related
interest costs on this IP will be capped at the total
The Finance Bill introduces a technical
income of the first income stream for an
amendment to Ireland’s IP tax amortisation
accounting period. In the case of IP acquired on
provisions in order to give additional clarity on
or after 11 October 2017, the tax amortisation
the aggregate amount of tax amortisation and
and related interest costs on this IP will be
related interest expense which may be offset
restricted to 80% of the second income stream
against a company’s IP trading income in an
for an accounting period. The subsection also
accounting period in a scenario where a company
clarifies that the income streams should be
has acquired qualifying IP both before and on or
apportioned on a “just and reasonable basis” and
after 11 October 2017. This brings the legislation
that the income allocated to the first income
in line with Revenue’s Tax and Duty Manual
stream shall not exceed an arm’s length amount.
guidance on the operation of the IP tax
The company should have the requisite records
amortisation provisions which issued in
available in order to support the allocation made.
January 2018.
The above amendments are deemed to have
An 80% cap on IP tax amortisation and related
applied from 11 October 2017, i.e. the date from
interest was reintroduced in Finance Bill 2017
which the 80% cap was reintroduced.
for qualifying IP acquired on or after 11
October 2017.
18Capital allowances based on energy efficient criteria. This should Employee childcare and fitness centre facilities
allow for greater scope to ensure that the list of
Energy efficient equipment Finance Act 2017 inserted section 285B which
eligible products is up-to-date which in turn
provides for the introduction of a new capital
The Finance Bill also contains amendments to should provide taxpayers more certainty as to
allowances regime which would grant employers
section 285A TCA 1997 which provide whether an asset should qualify for a scheme.
capital allowance relief on the capital cost of
accelerated wear and tear allowances for certain constructing and equipping qualifying fitness or
Gas vehicles and refuelling equipment
energy efficient equipment. childcare facilities provided for use by employees
The Bill also introduces section 285C of the employer (or in the case of a company the
The section clarifies and inserts language into
“Acceleration of wear and tear allowances for gas employees of a connected company). However
section 285A to provide that the energy-efficient
vehicles and refuelling equipment”. This section the commencement of the regime was subject to
equipment must be unused and must not be
provides for accelerated capital allowances for a Ministerial Order. Qualifying childcare or
second-hand.
capital expenditure incurred on gas-propelled fitness equipment used in qualifying facilities
The measure also provides for enhanced vehicles and refuelling equipment used for will be granted accelerated capital allowances of
administrative effectiveness. A new definition of trading purposes. The provision takes effect for 100% in year 1 (instead of being granted over 8
energy-efficiency criteria now provides a expenditure incurred between 1 January 2019 years under the normal rules).
framework for which the criteria can be specified and 31 December 2021 at a rate of 100% (in
via Statutory Instrument by the Minister for year 1). The Finance Bill has amended section 285B to
Communications, Climate Action and ensure that the relief is available to all employers
The section provides for capital allowances on including those who provide childcare services or
Environment, on approval of the Minister for
expenditure for both the vehicle and the fitness facilities, and to stipulate that the facilities
Finance. This will allow for the Sustainable
refuelling equipment (which is installed at a gas provided are not accessible or available for use by
Energy Authority of Ireland to publish a list of
refuelling station) to encourage the use of the general public.
products eligible under the scheme on their
gas-propelled commercial vehicles.
website and to amend this list as appropriate The Finance Bill provides a commencement date
for the relief of 1 January 2019.
19Agri-Sector
The Bill contains three measures that are specific to the Agri Sector; the relaxation of the
rules for income averaging and the extension of existing stock relief and Stamp Duty
reliefs were all flagged in the Budget. But, there is a nasty surprise in the detail of the
changes which places a cap on the amount of relief that may be claimed in aggregate
under the Stock Relief, Succession Farm Partnerships and Stamp Duty provisions. We
have previously commented that it was disappointing that the Minister did not do more for
the Agri Sector in his Budget on 9th October and there was some hope that some
measures might have been included in the Finance Bill (particularly around income
volatility) – but that has proven not to be the case.
Income Averaging
In times of extreme volatility in farm incomes, income averaging is deferred until the following
the ability to base taxable income on an average year. But, the income averaging facility was still
of multiple years’ profits (extended to five years denied to farmers with a shareholding of more
in 2015) is a huge help. In 2016 the Minister than 25% in a company or who (or whose
introduced some flexibility to the income spouse/civil partner) had separate income from
Jim McCleane averaging system by introducing an opt-out another trade or profession. That restriction has
facility that allows a farmer to pay tax on actual now been removed in the Bill so that such
+353 51 31 7718
profits in a particularly difficult year. In such a farmers will now be able to avail of income
jim.mccleane@pwc.com case, the tax that would have been due under averaging.
20It was disappointing, however, that the Finance It seems that almost every year, the Minister of
Bill did not contain any measures to provide a the day announces an extension to the stock
more targeted and individualised income relief regime. While the extension included in the
volatility measure for farmers. Farming Finance Bill is for three years this time around, it
organisations have been lobbying for a number of would be a welcome move to change the
years now for the introduction of a deposit type legislation once and for all to introduce stock
scheme which would allow farmers to set aside relief on a permanent basis.
an element of profits in a good year and draw
down those funds in a difficult year with tax Stamp Duty Relief
being paid only when the funds are drawn down.
Subject to a Commencement Date to be
Such schemes are already in place in a number of
announced by the Minister, the Bill also confirms
countries and it was disappointing that a similar
the Minister’s Budget day commitment to extend
scheme is still not being considered for the Irish
the relief from Stamp Duty for young trained
Agri sector, particularly after the very difficult
farmers for another three years until 31
year suffered by many farmers.
December 2021. When introduced, this will
allow the transfer of land to qualifying farmers
Stock Relief
by way of sale or gift without Stamp Duty.
Stock relief has been a feature of the taxation of
But, the Bill introduced two new conditions for a
farm profits for many years and provides an
young trained farmer seeking to make a
important incentive to farmers to increase their
retrospective claim for repayment of Stamp Duty
investment in stock. The general scheme
already paid:
provides relief based on 25% of the increase in
stock values; for registered farm partnerships the • he/she must file a business plan to Teagasc,
relief is 50% of the increase and for young and
trained farmers the relief (subject to some limits)
• he/she must meet the definition of being a
is 100% of the increase in stock values for the
microenterprise or small enterprise as defined
first three years of trading. These reliefs were due
under EU Regulations for State Aid to the
to expire on 31 December 2018. In his Budget
agriculture and forestry sectors (the limits are
speech, the Minister announced that these reliefs
less than 50 employees and turnover or
were being extended for a further three years
balance sheet value of less than €10m and
– the Bill confirms that these reliefs are being
most Irish farm enterprises would meet these
extended to 31 December 2021.
criteria).
21Aggregate Limit on Relief It would appear that Consanguinity Relief
(which, subject to certain conditions, reduces the
The unexpected change in the Bill is the
Stamp Duty rate to 1% for transfers of farm land),
imposition of an aggregate limit of €70,000 on
has not been affected by any changes in the
the amount of relief that may be claimed by a
Finance Bill and is not caught by this new
farmer under Section 667B TCA (the 100% stock
aggregation cap of €70,000.
relief for young trained farmers), Section 667D
TCA (the income tax credit of €5,000 for
Farm Restructuring Relief
Succession farm partnerships) and section 81AA
SDCA (Relief from Stamp Duty for young trained There is a small change in the rules for farm
farmers). Given that average land prices are in restructuring relief. Where relief is available to
the region of €10,000 or higher, the limit of an individual, he/she must provide certain
€70,000 would be used up in its entirety in information to Revenue relating to the land that
relation to the Stamp Duty relief alone (120 x has been sold/exchanged.
€10,000/acre x 6%). In fact, some element of
For all cases involving relief for years up to and
Stamp Duty may be payable in those
including 2018, the information is to be provided
circumstances. That would also mean that a
to Revenue with the tax return for 2018. For
young trained farmer might not be able to avail
years from 2019 onwards, the information is to
of the 100% stock relief provision.
be provided at the same time as the tax return for
It’s not clear from the Finance Bill whether this the relevant year.
€70,000 cap is limited to the year in which the
land is transferred or applies over a longer
period. However, the EU State Aid regulation
that imposes this cap places a limit of five years
on the period during which State Aid of this
nature may be delivered to the farmer.
22Employment Taxes
/ Individual Taxes
The Finance Bill 2018 contains a number of changes to
the taxation of certain employer provided benefits. It
also provides further information and clarification in
relation to the changes to the PAYE system in advance
of the introduction of Real Time Reporting, which comes
into effect from 1 January 2019.
Similar to Finance Bill 2017, the most positive
developments from an individual perspective were
further reductions in the USC rates and another €750
increase to the standard rate income tax band.
From an employer perspective, the next phased
increase to the employer PRSI charge from 10.85% in
2018 to 10.95% is effective from 1 January 2019. This will
Keith Connaughton Liam Doyle
further increase to 11.05% in 2020, which will result in
+353 1 792 6645 +353 1 792 8638
increased employer payroll costs.
keith.connaughton@pwc.com liam.doyle@pwc.com
23Income Tax and USC ‘Home Carer’ and ‘Earned Income’ tax credits
The standard rate income tax band for all earners Finance Bill 2018 confirms the increases to the
will increase by €750, meaning the amount of ‘home carer’ tax credit to €1,500 for 2019 (up
income taxable at the 20% tax rate for a single from €1,200 in 2018) and the ‘earned income tax
person increases from €34,550 to €35,300 and credit’ for self-employed individuals to €1,350
from €43,550 to €44,300 for a married couple (up from €1,150 in 2018).
with one spouse earning.
Increase in employer contribution to
The USC rates and bands for 2019 (with a
National Training Fund levy and weekly
comparison to 2018) for those aged under 70
income threshold for the higher rate of
are as follows:
Employer PRSI
From 1 January 2019, the weekly income
2019 Bands Rate threshold for the higher rate of employer PRSI
will increase from €376 to €386, which aligns
€0 to €12,012 0.5% with the increase in the minimum wage (from
€12,012.01 to €19,874 2% €9.55 to €9.80 from 1 January 2019).
As announced in Budget 2019, the National
€19,874.01 to €70,044 4.5%
Training Fund Levy (payable by employers in
€70,044.01+ 8% respect of employees in Class A and Class H
employments) will increase by 0.1% per annum
€100,000 and above* 11%
from 2018 to 2020, bringing the Levy from 0.7%
to 1%. The employer PRSI rate from 1 January
2019 is 10.95%.
2018 Bands Rate
€0 to €12,012 0.5%
€12,012.01 to €19,372 2%
€19,372.01 to €70,044 4.75%
€70,044.01+ 8%
€100,000 and above* 11%
*Self-employed income only
24Company cars and vans in a similar manner to the PRD deductions (i.e. PAYE Modernisation – Real Time Reporting
from gross pay) and the amounts will not count
Finance Act 2017 introduced a BIK exemption for PAYE Modernisation comes into effect on 1
towards the annual age related pension limits.
employer provided electric vehicles (cars and January 2019. It introduces a new requirement
vans) for 2018 only. Finance Bill 2018 extends on employers (and pension and retirement
Key Employee Engagement Programme
this exemption for electric vehicles made annuity payors) to operate Real Time Reporting
(KEEP)
available in the period from 1 January 2019 to 31 of payments in scope of PAYE. The majority of
December 2021, which is welcome. However, in Finance Bill 2018 provides for a number of the changes required to give effect to PAYE
order to qualify for a complete exemption, the improvements to the Key Employee Engagement Modernisation were introduced in Finance Act
Original Market Value (OMV) of the vehicle must Programme (KEEP), which was introduced in 2017.
not exceed €50,000. Electric vehicles with an Finance Act 2017. Further details are contained
Finance Bill 2018 updates the Taxes
OMV in excess of €50,000 will trigger a BIK in the Private Business section.
Consolidation Act for references to the new
charge, but only on the excess over €50,000.
Income Tax (Employments) Regulations which
Week 53 Payday
were published earlier this year and which give
Pension changes for public servants
Employees who are paid on a weekly or effect to PAYE Modernisation.
The Pension Related Deduction (PRD), which fortnightly basis may have an extra payday in a
The specific updates in this year’s Finance Bill
applies to the remuneration of pensionable public tax year if the pay date falls on 31 December (or
introduce a statutory requirement for a monthly
servants under terms set out in the Financial 30 December in a leap year). This is commonly
employer USC return to be filed on the 14th of
Emergency Measures in the Public Interest Act referred to as a ‘Week 53 payday’ and can result
the month following the return period. This
2009 (FEMPI) legislation is to be replaced from 1 in an underpayment of tax at year end, as
aligns with the requirement already introduced
January 2019 with a new arrangement. The PRD standard rate tax bands and credits are only
in relation to income tax (PAYE), both to come
was deducted from civil servants’ gross pay granted for 52 weeks. Provisions have been
into effect from 1 January 2019. There is no
before tax and did not count towards the annual introduced to avoid impacted employees having
change to the current pay dates. The reporting
age-related pension limits for employee an underpayment of tax at year-end by
requirements regarding pensions and the PRD
contributions. effectively increasing their tax bands and credits
(replaced by ASC) have also been updated for
by 1/52nd where they are paid weekly, and
The new Additional Superannuation Real Time Reporting.
1/26th where they are paid fortnightly.
Contribution (ASC) comes into effect from 1
January 2019. The ASC deductions will operate
25Property
The property related measures included in the Finance
Bill are broadly in line with the changes announced in
last week’s Budget. Following two years where there
were significant regime changes with respect to
investment in Irish-based real estate, the Bill reflects the
fact that this taxation regime is now stable.
No significant amendment to the Irish stamp duty
regime has been provided for, nor have any
amendments to the Irish Real Estate Fund (“IREF”)
regime been included. The proposed reinstatement of a
full interest deduction in respect of rented residential
accommodation is a positive for the rental sector and
should assist in unlocking much needed supply. We
welcome the certainty of regime which is key to ensuring
Ilona McElroy Tim O’Rahilly
the continued deployment of capital investment in the
Real Estate Tax Leader +353 1 792 6862
Irish property market.
+353 1 792 8768 timothy.orahilly@pwc.com
ilona.mcelroy@pwc.com
26Interest deductibility site by a parent (or both parents simultaneously)
to a child of the parents or one of the parents or
As announced in Budget 2019, Finance Bill 2018
on the transfer of a site by a civil partner (or both
contains provisions restoring a 100% tax
civil partners simultaneously) to a child of either
deduction for interest expenses incurred on loans
civil partner, where the transfer is to enable the
used to purchase, improve or repair residential
child to construct his or her principal private
property for rental purposes. The removal of the
residence on the site. The area of the site must not
restriction will be effective from 1 January 2019.
exceed one acre and the value of the site must not
Where applicable, this reinstates a full interest
exceed €500,000. The Bill proposes an
deduction two years sooner than previously
amendment to allow both a child and his or her
legislated for.
spouse/civil partner to be eligable for the relief in
respect of disposals made on or after 1
Rent-a-room relief
January 2019.
Section 216A TCA 1997 provides for an
exemption from tax on payments up to €14,000 Dwelling house exemption
in a year received by homeowners in respect of
The Bill introduces a change to the Capital
renting out a room in their own home. The Bill
Acquisitions Tax dwelling house exemption. This
proposes to limit the availability of this relief in
relief essentially exempts an inheritance of the
cases of short-term lettings less than 28
family home from Capital Acquisitions Tax where
consecutive days in duration. This provision is
certain conditions are met. One of these
aimed at lettings which are business or leisure
conditions disallows the exemption where a
related. It should not therefore apply in cases
successor has a beneficial interest in another
such as those involving respite care, exchange
dwelling house at the date of the inheritance.
language students or five day a week digs. This
The proposed amendment introduced by the Bill
provision will have effect in respect of the year of
effectively ensures that successors will be
assessment 2019 and subsequent years.
deemed to have a beneficial interest in a dwelling
house where that dwelling house is subject to a
Disposal of site to child
discretionary trust that they have established
The Bill proposes a technical amendment to and where the trust property may be applied for
section 603A TCA 1997. This section provides their benefit.
relief from Capital Gains Tax on the transfer of a
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