Getting the balance right? Finance Act 2015 - www.pwc.ie/financeact - December 2015
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www.pwc.ie/financeact
Getting the
balance right?
Finance Act 2015
December 2015
>
Table of contents Welcome 3 Introduction 4 Private Business 6 Foreign Direct Investment (FDI) 8 Large Irish Corporates and PLCs 10 Country by Country Reporting 12 Agri Sector 14 Property 16 Pensions 18 Employment Taxes/Individual Taxes 20 Financial Services 22 Oil and Gas 24 VAT 26 Excise Duty 28 Tax Compliance & Administrative Matters 30
Welcome
Joe Tynan
+353 1 792 6399
joe.tynan@ie.pwc.com
The recent publication by the OECD of its From the perspective of indigenous
final BEPS papers is a reminder of the business the incentives for entrepreneurs
context in which Finance Bill 2015 was and the Knowledge Development Box
drafted and the pace at which the global should encourage domestic business
tax system continues to undergo growth.
unprecedented change. There is a general
The Finance Bill confirms the Budget
move towards seeking better alignment
announcement signalling an
of taxing rights with substance and with
improvement for the tax situation for
this in mind, Ireland has sought to
workers, particularly low to middle
continue to position itself as being an
income earners. The relatively high
attractive jurisdiction with a tax system
marginal rate of tax on income remains
that is globally accepted as being open,
in place for now. However, it is to be
transparent, fair and competitive.
welcomed that the position in relation to
This ambition is demonstrated by the directors travelling expenses has now
addition of the world’s first BEPS been clarified.
compliant Knowledge Development Box
Finance Bill 2015 demonstrates that the
(KDB) to the existing suite of corporate
BEPS era brings challenges to both tax
tax measures, however the potency of
policy makers and global businesses
this new relief fell somewhat short of
alike. However, it also presents
expectations. The introduction of
opportunities for countries such as
legislation providing for Country by
Ireland to put itself forward as an
Country Reporting (CbCR) is likely to
attractive proposition from which to do
present challenges for multinational
business on the global stage.
groups with periods beginning from 1
January 2016 and early engagement is
key.
3
Introduction
A new Petroleum Production Tax has been
introduced for oil and gas exploration
authorisations awarded on or after 18 June
2014. Combined with corporation tax, this
effectively increases the maximum rate of
tax payable on profits from productive
fields from 40% to 55%. In addition,
changes to be made to the Relevant
Contracts Tax (RCT) provisions will
broaden its scope to include work
undertaken on the Irish Continental Shelf.
This is a significant change which will
Fiona Carney Stephen Ruane bring petroleum companies and
+353 1 792 6095 +353 1 792 6692 companies in a range of other industries
fiona.carney@ie.pwc.com stephen.ruane@ie.pwc.com (such as telecommunications and offshore
windfarms) that perform work on the
Continental Shelf within the scope of RCT.
The OECD recently published its final
BEPS papers and the coming years will see
a move to the implementation phase at
This year’s Finance Bill is short but it does The measures brought in to assist country level. Ireland has engaged in this
contain a number of significant measures entrepreneurs are consistent with the process at an early stage. To enhance the
additional to those announced by Minister Government’s stated objective of transparency of the Irish tax system, and
Noonan in last week’s Budget. promoting entrepreneurship. These in line with OECD recommendations, the
measures include a decrease in the CGT Government has introduced Country by
From a personal tax perspective, the
rate from 33% to 20% for business Country Reporting (CbCR) obligations in
principal changes are in the form of
disposals. However, this is subject to a this Finance Bill, applying to Irish-
adjustments to the USC thresholds and
lifetime limit of €1 million which is far parented multinational groups with
rates. Additional measures were included
lower than similar incentives provided consolidated revenues of €750 million or
in the Finance Bill to provide an exemption
overseas. The Finance Bill also enacts the more. These provisions (together with the
from USC for employees on employer
commencement of measures previously wider OECD Transfer Pricing
contributions to a PRSA, which is very
announced in respect of the Enterprise Documentation requirements) will
welcome news and brings the treatment of
Investment Incentive Scheme to comply fundamentally change the way in which
such contributions into line with employer
with State Aid rules while also confirming multinational groups must document
contributions to occupational pension
that expansion works to existing nursing intercompany transactions and will create
schemes. The Bill also provides for
homes will qualify for relief under the a significant administrative burden for
exemption from income tax, USC and PRSI
scheme. The corporation tax relief for them. It will also contribute to the growing
for vouched travel and subsistence
start-up companies has also been extended trend towards the sharing of information
expenses incurred by non-resident
for a further three years. between tax authorities.
non-executive directors attending
meetings in their capacity as directors.
4
The Knowledge Development Box (KDB), The introduction of a provision specifying
introduced in this Finance Bill, is the first who qualifies for the VAT exemption in
and only innovation box in the OECD respect of educational services, and which
region which is BEPS compliant. It enables Revenue to make a determination
provides an effective 6.25% corporation that a specified educational activity should
tax rate on profits arising from qualifying be subject to VAT where its exemption
assets (including copyrighted software creates a distortion of competition, may
and patented inventions) where some or add a further layer of uncertainty in an
all of the related R&D is undertaken by the already complicated area. There has also
Irish company. The regime is expected to been an extension of the VAT exemption
be of most benefit to companies for certain bets and commissions in the
undertaking significant R&D in Ireland. online gambling industry.
The Finance Bill also contains a number of Overall, the Finance Bill contains
anti-avoidance provisions which are measures which should stimulate the
targeted at perceived abuses of existing domestic economy and which demonstrate
legislative measures in the areas of Capital our ongoing policy of engagement with the
Gains Tax and VAT. The measures include international tax agenda.
the expansion of the existing “transfer of
assets abroad” anti-avoidance legislation, a
The Bill was amended in a number of
new bona fide test for company
respects prior to its enactment on 21
amalgamation or reconstruction relief and
December 2015. The amendments
measures altering the tax treatment of
made are highlighted in dark red text
restrictive covenant payments made to
throughout this document.
non-Irish residents. With regard to VAT,
measures relating to the Capital Goods
Scheme (“CGS”) are being introduced
which will extend the connected party
anti-avoidance rules under the CGS to
include the supply of developed, but
incomplete, immovable property. The
inclusion of this provision will be seen as
addressing a current gap in the legislation
but what is not clear from the Finance Bill
is whether the “stepping into the shoes”
relief provision, which currently applies to
the other CGS connected party anti-
avoidance provisions, will be extended to
this new provision.
5
Private Business
The Finance Bill includes more changes impacting on private businesses than were
originally anticipated based on Budget Day announcements. The introduction of
the Knowledge Development Box, changes to CGT Entrepreneur Relief, and the
introduction of an earned tax credit for non-PAYE workers were well flagged
welcome developments that will encourage entrepreneurship and assist private
businesses in Ireland. The Bill also includes some technical adjustments to Film Relief
and the expansion of the Employment and Investment Incentive Scheme. Finally, the
Bill amends a number of existing anti-avoidance provisions (particularly
concerning the area of CGT) in order to prevent perceived abuses of existing
legislative measures that Private Businesses will need to be aware of.
Colm O’Callaghan
Employment and Investment CGT Entrepreneur Relief
+353 1 792 6126 Incentive (‘EII’)
colm.ocallaghan@ie.pwc.com The Bill revises the provisions of the
The Finance Bill has the effect of enacting existing entrepreneur relief to introduce a
the provisions included in Finance Act new reduced rate of Capital Gains Tax
2014 with respect to share issues made on (20%) which will apply to disposals of
or after 13 October 2015. Broadly, these chargeable business assets from 1 January
increase the annual and overall investment 2016 up to a lifetime limit of €1m. This is a
limits for a company to €5million and welcome move from the Government;
€15million respectively and extend the however, we would have liked to have seen
required minimum holding period from 3 a higher cap.
years to 4 years. The Bill also expands the
Restrictions apply in order to ensure that
availability of the relief to allow companies
beneficiaries of the relief are genuine
that already own and operate nursing
business persons. A qualifying business for
homes to raise funds for the purposes of
the purposes of the relief excludes
expanding their existing facilities.
businesses which consist of the holding of
The legislation contains new requirements investments, the holding of development
for a qualifying company to meet certain land or the development or letting of land.
conditions set out in the EU Regulations. The assets must have been owned for
Any company which had received outline a continuous period of not less than
approval for EII prior to 13 October 2015, 3 years in the 5 years immediately prior
but had not raised EII funding by that date, to their disposal. Where the business is
must now consider whether or not it is a carried on by a private company, an
qualifying company under the amended individual holding no less than 5% of the
scheme as the outline approval received shares in the company may qualify for the
may no longer be valid. Existing relief. The individual must have been a
companies, particularly those in existence director or employee of the company,
for longer than 7 years, will need to spending not less than 50% of their
consider the EU Regulations which working time in the service of the company
underpin the new relief in more detail in a managerial or technical capacity for
to determine if they are eligible. a continuous period of 3 years in the
period of 5 years immediately prior
to the disposal.
6
The relief can also apply to shares in a Attribution of income to Irish individuals assets. Revenue indicated in the eBrief that
holding company whose business consists following a transfer of assets abroad the intention of the relief is to provide for a
wholly or mainly of holding at least 51% The Finance Bill expands the remit of the deferral of the CGT liability as opposed to
of the shares in one or more companies “transfers of assets abroad” anti-avoidance the elimination of the charge to tax arising
carrying on a qualifying business legislation contained in Section 806 TCA on the ultimate disposal of the assets. They
(a ‘qualifying group’). The individual 1997 so that it now also applies to non- also noted that where the relief was
must have been a director or employee domiciled individuals who are chargeable claimed as part of a scheme to avoid CGT,
as above of one or more members of to income tax on the remittance basis. the transactions may be challenged under
the qualifying group. the general anti-avoidance provisions in
This section is designed to counteract the legislation.
Start Up Companies Relief schemes by individuals (resident or
ordinarily resident in the State) who seek The Finance Bill now formally introduces
This relief, which was due to expire at a new anti-avoidance measure. The CGT
to avoid a liability to income tax by means
the end of 2015, has been extended for a relief referred to above will not apply
of transferring assets (usually income
further 3 years such that it will apply to unless it can be shown that the
generating assets) overseas, the result of
new business start-ups which commence reconstruction or amalgamation is
which is that income becomes payable to
in 2016, 2017 and 2018. effected for bona fide commercial reasons
a non-resident (usually a non-resident
corporate) while the resident individual and does not form part of an arrangement
Earned Income Tax Credit
continues to retain the power to enjoy the main purpose or one of the main
The Bill introduces legislation to enact the the income. purposes of which is the avoidance of tax.
new earned income tax credit. The The change will apply to disposals made
measure provides for a tax credit, capped Attribution of gains made overseas to Irish on or after 22 October 2015.
at €550, which applies to an individual’s shareholders
earned income i.e. income which does not Restrictive covenants
Section 590 TCA 1997 enables Revenue
qualify for the employee (PAYE) tax credit. attribute gains made on a disposal of The Finance Bill amends Section 541B
Where an individual has employment assets by a non-resident company (which TCA 1997 which ensures that payments
income also, the aggregate tax credits are is deemed to be closely held – i.e. broadly, made under restrictive covenant-type
capped at €1,650. owned by 5 or fewer shareholders or arrangements (a payment in exchange for
participators) to the company’s Irish an individual accepting / agreeing to a
Film Relief restriction as to the conduct of their
resident shareholder(s). This has the
The Finance Bill has increased the effect of subjecting the Irish resident activities) are subject to CGT if they do not
cap on qualifying eligible expenditure who controls the company to CGT on come within the scope of income tax.
to €70million, together with making a the disposal made by the non-resident The amendment is aimed at circumstances
number of technical amendments around company. whereby CGT is avoided on a payment
the definition of ‘broadcaster’ for the made to a non-resident person in return for
The Finance Bill has now amended the
purposes of the relief and the level of an Irish resident person entering into a
section such that it will not apply to gains
information that needs to be disclosed restrictive covenant. The chargeable gain
where the disposal was made for ‘bona
to bring it in line with EU guidelines. is now regarded as accruing to the Irish
fide’ commercial reasons.
CAT resident person and not the non-resident
Company reconstruction or amalgamation person with the result that it is subject to
The Finance Bill legislates for an Currently, where a company is involved in Irish CGT.
increase in the Group A tax free any scheme of reconstruction or
threshold which applies primarily for amalgamation which involves the transfer
gifts / inheritances from parents to their of the whole or part of a company’s
children. The lifetime threshold has been business to another company (comprising
increased from €225,000 to €280,000 for assets which are Irish chargeable assets),
gifts and inheritances taken on or after relief is available which defers the Capital
14 October 2015. Gains Tax (CGT) liability until such time
Anti-Avoidance that the assets are disposed of to an
unconnected third party.
Finally, the Finance Bill amended a
number of existing anti-avoidance Revenue recently released eBrief 82/2015
provisions in order to prevent perceived which is aimed at countering the perceived
abuses of existing legislative measures. In misuse of the section, in conjunction with
particular a number of these may impact other provisions of the legislation, where
Private Business. the relief is used as part of a scheme to
avoid CGT on the ultimate disposal of the
7
Foreign Direct Investment (FDI)
Following on from Minister Noonan’s Budget 2016 announcement, the introduction
of the Knowledge Development Box meets the standards of the OECD’s modified nexus
approach and is the first fully compliant box in the world.
The Knowledge Development Box provides for an effective 6.25% corporation tax
rate to income arising from copyrighted software and patented inventions, where
some or all of the related R&D is undertaken by an Irish company.
The regime will be of most benefit to those companies that undertake significant R&D
in Ireland.
Knowledge Development Box ‘Qualifying expenditure on qualifying
Harry Harrison
assets’ is a key driver of the calculation of
+353 1 792 6646 The Finance Bill introduces the Knowledge
the profits that qualify for the relief. The
harry.harrison@ie.pwc.com Development Box (KDB), a tax relief that
definition of this qualifying expenditure is
will result in an effective 6.25%
broadly aligned to the definition of
corporation tax rate to certain profits
‘expenditure on research and
arising from qualifying assets (including
development’ for the purposes of the R&D
copyrighted software and patented
tax credit. In this regard, where a company
inventions), for accounting periods which
develops, improves or creates a qualifying
commence on or after 1 January 2016.
asset through qualifying R&D activities
Qualifying profits on which the relief can and the company makes R&D tax credit
be claimed are intended to reflect the claims in relation this, the expenditure
proportion that the company’s R&D costs underpinning these claims should be
bear to its overall expenditure on the broadly aligned to the ‘qualifying
qualifying asset, with some tweaks to expenditure on qualifying assets’ for the
reflect the agreed “Modified” nexus purposes of the relief.
approach. The profits are calculated using
There is an exception to the above in terms
the following formula:
of expenditure incurred by a company in
engaging a third party to carry on R&D
QE + UE x QA activities on behalf of the company.
Payments made to such third parties are
regarded as qualifying expenditure for the
OE purposes of calculating the relief whereas
Where: such payments are restricted for the
QE is the qualifying expenditure on the purposes of the R&D tax credit.
qualifying asset
Qualifying expenditure is calculated by
UE is the uplift expenditure
reference to all qualifying expenditure on
OE is the overall expenditure on the
qualifying asset the qualifying asset incurred in the
previous 4 years or, from 2020, all
QA is the profit of the trade relating to
the qualifying asset before taking qualifying expenditure incurred after 1
account of any allowance available January 2016.
under this section
8
Costs outsourced to affiliates or costs Double tax agreements EU Parent Subsidiary Directive
incurred on the acquisition of the IP are - Anti-Avoidance Measures
The Taxes Consolidation Act 1997 includes
not regarded as qualifying expenditure,
a schedule which lists all the international Section 32 of the Finance Bill seeks to give
however, such costs are allowed as “uplift
double tax agreements and tax legal effect to recent changes made at EU
expenditure” up to a combined maximum
information exchange agreements entered level to the Parent Subsidiary Directive
of 30% of qualifying expenditure.
into by Ireland. which saw the introduction of an anti-
The tax relief provides for an allowance of avoidance measure to the regime. The EU
The schedule has been amended to (i) add
50% of the qualifying profits to be treated Parent Subsidiary Directive provides for a
Ethiopia as a territory with which Ireland
as a trading expense of the company, common system of taxation on dividends
has a double tax agreement (ii) add new
resulting in an effective 6.25% tax rate on received by parent companies from their
double tax agreements with Pakistan and
such profits. subsidiaries resident in other EU Member
Zambia (iii) reflect a new Protocol to an
States.
Qualifying assets are to be treated existing double tax agreement with
separately for the purposes of the KDB Germany and (iv) new tax information Generally speaking, the Directive requires
calculations. However, if a number of exchange agreements with Argentina, the Member States to allow subsidiaries pay
qualifying assets are so interlinked that it Bahamas and St Kitts & Nevis. dividends to their parent company free of
would be impossible to provide a withholding tax. Furthermore, in order to
The Finance Bill also includes an
reasonable allocation of income and eliminate the double taxation of profits,
amendment to enable arrangements to be
expenses, then provision is made for using the Directive also provides for a tax credit
entered into with a non-governmental
a “family of assets” and treating the to be available to the parent company for
representative authority for the purpose of
combined assets as a qualifying asset. underlying taxes paid by the subsidiary on
preventing double taxation and providing
the profits out of which the dividend is
Where an R&D tax credit claim has been for the exchange of information, subject to
paid.
utilised to shelter the corporation tax approval by Dáil Ėireann.
liability of a company for the current and The recent amendment to the Directive at
preceding accounting periods and an Capital gains tax for non- EU level saw the introduction of a General
excess credit still remains, a claim for residents Anti-Avoidance Rule (GAAR) and Section
monetisation of this excess credit can be Non-residents are generally only liable to 32 of the Finance Bill implements that
made. The Finance Bill provides that the capital gains tax on the disposal of certain change. This brings Ireland in line with a
KDB relief cannot increase the claim for specified assets. These include Irish land number of other EU Member States who
monetisation of an excess R&D tax credit, and buildings, Irish mineral rights, have already adopted the changes into
therefore, the relief cannot be taken into exploration and exploitation rights in the their domestic legislation.
account for the purposes of the Continental Shelf and unquoted shares The proposed measure seeks to exclude
monetisation calculations. deriving the greater part of their value dividends paid by subsidiaries resident in
Where a company incurs a loss on the from these assets. The Finance Bill Ireland from the exemption from
activities that qualify for the KDB relief, contains a provision to counter situations withholding tax under the Directive where
the loss would be available on a value basis whereby prior to a sale by a non-resident, the payment forms part of an arrangement
against other profits. cash is transferred to a company which or series of arrangements the main
holds such specified assets (typically Irish purpose of which, or one of the main
Scientific research land or buildings), so that at the time when purposes of which, is obtaining a tax
the shares are disposed of less than 50% of advantage that defeats the object or
The Finance Bill contains two technical
the value of those shares are derived from purpose of the Directive and is not genuine
amendments to allowances for capital
specified assets. The effect of the provision having regard to all the facts and
expenditure on scientific research. The
is that, where the main purpose or one of circumstances. An arrangement or series
first is to ensure assets are in use for the
the main purposes of the transfer is the of arrangements will be regarded as not
purposes of scientific research to qualify
avoidance of tax, the value of the cash is genuine to the extent that it is not put into
for the allowances and the second provides
not taken into account in determining place for valid commercial reasons which
that capital allowances cannot also be
whether the shares derive the greater part reflect economic reality.
claimed on the same expenditure under
of their value from specified assets. The
any other section. Similarly, the entitlement under the
amendment applies to disposals made on
or after 22 October 2015. Directive to underlying tax credit on
dividends received by the parent is also
withdrawn where the dividend is received
as part of any such arrangements.
The change is due to come into effect in
Ireland on the date of the passing of the
Act and at an EU level from 1 January
2016.
9
Large Irish Corporates and PLCs
Finance Bill 2015 gives effect to a number of measures that are unlikely to be of surprise
for Irish corporates, with most of the measures of interest to Irish business being well
flagged in advance.
The introduction of a Knowledge Development Box - while intended to boost Ireland’s
tax competitiveness - is unlikely to be of significant benefit to the corporate domestic
sector due to the onerous conditions applying.
In line with the approach agreed as part of the OECD’s BEPs project, the introduction of
Country by Country reporting will be a real compliance burden for large Irish
businesses, and is likely to result in increased scrutiny on corporate structures by
Revenue authorities.
The exemption from income tax on vouched expenses for non-resident, non-executive
Paraic Burke directors is a welcome change overall for Irish Plc’s but it will remain an issue for
expenses paid to Irish resident non-executive directors.
+353 1 792 8655
paraic.burke@ie.pwc.com
As announced by the Minister on Budget the information required to be filed. It is
day, the measures introduced by Finance intended that the reports will ultimately be
Bill 2015 are primarily focused on shared with other tax authorities on a
improving the tax situation for workers confidential basis. Companies who will
with the objective being to ensure that the have to file CbC reports will need to
benefits of a growing economy are felt by consider their overall tax strategy in light
every family in the country. With this of this new filing obligation.
stated focus, one could be forgiven for
The Knowledge Development Box will
thinking that Irish business has been
provide for a 6.25% rate of corporation tax
largely ignored. However, there are a
to apply to the profits arising from
number of areas that will impact on how
qualifying intellectual property which is
Irish corporates operate and which should
the result of qualifying R&D carried out by
mean that Ireland’s corporate tax regime is
the company. While welcome, it is
aligned with developments as part of the
expected that the regime will be of limited
OECD’s BEPS project.
benefit to the domestic corporate sector
The introduction of legislative proposals given the significant costs associated with
for Country by Country (CbC) reporting, investing in and generating the qualifying
with effect from 1 January 2016, should be intellectual property, as well as the
of limited surprise for Irish corporates. As a requirement to engage in substantive
result of the Finance Bill provisions, Irish operations that have a high ‘value add’ for
headquartered multinational groups will the Irish economy.
be required to file CbC reports of their
income, activities and taxes with Revenue.
The Finance Bill enables Revenue to make
regulations setting out further details of
10The introduction of a bona fide test where
an Irish resident company is involved in
any scheme of reconstruction or
amalgamation which involves the transfer
of the whole or part of a company’s
business to another Irish resident company
is intended to close out a perceived abuse
of a Capital Gains Tax relief.
Following on from the recent consultation
on the tax treatment of expenses, the
Finance Bill makes provision for vouched
expenses, incurred by non-resident,
non-executive directors travelling in the
course of their duties to be exempt from
income tax. The focus of the provisions on
non-resident, non-executive directors,
means that Irish Plcs will still need to
consider the tax treatment of expenses
paid to Irish resident non-executive
directors but the confirmation in respect of
non-resident, non-executive directors is a
welcome development nevertheless.
11Country by Country Reporting
Finance Bill 2015 includes legislation introducing Country by Country Reporting
(CbCR) for Irish parented multinational enterprises. The proposed legislation requires
Irish parented multinational enterprises (MNEs) with consolidated annualised group
revenue of €750 million or more to comply with the CbCR requirements.
Under the proposed legislation, MNEs will be required to prepare a CbC report to
include specific financial data covering income, taxes and other key measures of
economic activity by territory. The first CbC report should be prepared for fiscal years
beginning on or after 1 January 2016, and filed within 12 months of the year end.
Failure to provide a CbC report or the provision of an incorrect or incomplete report
will trigger a penalty of €19,045 and in some instances a further penalty of €2,535 for
Ronan Finn each day that failure continues.
+353 1 792 6105 The requirement to file a CbC report will have major implications for how MNEs
ronan.finn@ie.pwc.com establish and support their intra-group arrangements. Preparation in the form of dry
runs and initial analyses of the output is key.
In July 2013, in response to political and The proposed legislation will require
economic pressures, and in a growing compliance by Irish parented
climate of austerity and focus on the multinational enterprises with
contribution from business, the consolidated annualised group revenue of
Organisation for Economic Co-operation €750 million or more. CbCR requires
and Development (OECD) issued its Action organisations to file a report annually with
Plan regarding Base Erosion and Profit the Irish Revenue authorities, disclosing
Shifting (BEPS). The two key pillars of the the following data points for each tax
BEPS action plan are Substance and jurisdiction in which they operate:
Transparency. From a transparency • The amount of revenue, profit before
perspective, the BEPS action plan means a tax, and income taxes paid and accrued.
hugely significant increase in the level of • Capital, retained earnings and tangible
Transfer Pricing Documentation (TPD) assets, together with the number of
required, of which CbCR forms a key employees.
component. • Identification of each entity within the
Many countries, including the UK, group doing business in a particular tax
Australia, Spain, Netherlands, Mexico and jurisdiction, with a broad indication of
Denmark, have already started to legislate its economic activity.
for the introduction of CbCR. Ireland has The first CbC report should be prepared for
now introduced similar legislation in this fiscal years beginning on or after 1
year’s Finance Bill. January 2016, and filed within 12 months
of the year end.
12The proposed legislation also enables Irish
Revenue to make regulations to include
secondary filing mechanisms that could
apply in certain circumstances, and to give
effect to the manner and form in which a
CbC report is to be provided.
Failure to provide a CbC report or the
provision of an incorrect or incomplete
report will trigger a penalty of €19,045 and
in some instances a further penalty of
€2,535 for each day that failure continues.
CbCR, and the wider changes to TPD, will
fundamentally change the way Irish
multinational enterprises must document
intercompany transactions, and create a
significant administrative burden.
Consideration should be given to how this
information and data will be reported,
whether finance systems have the
necessary capabilities to gather the
required data and what ongoing additional
resources are needed to implement and
manage CbCR. Preparation in the form of
dry runs and initial analyses of the output
is key.
Tax transparency is of increasing
importance for multinational
organisations, and is no longer just an
issue for the Head of Tax. Engagement at
Board level early on will be crucial in
ensuring that CbCR (and wider TPD
requirements) are implemented effectively
and in line with the organisation’s tax
strategy and approach to transparency.
13Agri Sector
On Budget Day, Mr Noonan announced that there would be a continuation of the
measures targeted at encouraging the transfer of the farm to the next generation.
This would involve an extension of all stock reliefs and the Stamp Duty relief for
Young Trained Farmers to 31 December 2018. He also announced the introduction
of a new succession farm transfer partnership initiative to encourage the lifetime
transfer of family farms which involves an additional tax credit of up to €5,000
to be shared by the partners. The bill contains each of these measures. However,
because this new succession initiative has been linked to new rules related to existing
registered farm partnerships, there will be a significant number of conditions to
be met in order to be able to avail of this relief. The bill also contains anti-avoidance
measures aimed at perceived abuses of the income tax exemption for leasing
Ronan Furlong of farm land.
+353 53 915 2421
ronan.furlong@ie.pwc.com
Succession Issues The conditions to qualify for this relief
include the following:
One of the key recommendations arising
from the Agri-taxation review in 2014 was • The partnership can have 2 or more
to introduce tax measures to encourage members, must be established for a
the transfer of farms to young farmers. specified period of between 3 and 10
A number of these recommendations were years and at the end of this specified
introduced in last year’s budget. One issue period, at least 80% of the farm assets
however that can cause a delay in the must be transferred to the younger
lifetime transfer of farms is the need for farmers.
both parties to derive an income stream • The younger farmer must not be aged
from the farm. To help overcome this issue, over 40 when the farm partnership
the Government is introducing a new is set up, must have an appropriate
succession farm partnership incentive. agricultural qualification and must be
The Finance Bill provides for an extension entitled to at least 20% of the profits.
of the existing registered farm partnership In addition, he/she must be personally
rules to allow for succession farm involved in the farming activities for an
partnerships to be included on a register average of at least 10 hours per week.
to be set by the Minister for Agriculture, • The younger farmer cannot receive
Food and the Marine. any share of the tax credit after
40 years of age.
The new proposals will allow for an • The partnership can include a spouse
income tax credit worth up to €5,000 per or civil partner of the younger farmer
annum for up to five years to be allocated who is not an active farmer
to the partnership and split according to • If the transfer does not go ahead at the
the profit-sharing agreement. If there are end of the specified period, there would
no profits in the year of assessment, be a clawback of the income tax credits.
no tax credit would be available.
The difficulty with this new relief is
that,each succession farm partnership
would first need to meet all the criteria
of a registered farm partnership and, as
discussed below, the Finance Bill contains
14a very significant expansion of the • New rules to allow the appointment Anti-avoidance
conditions that must be met before of Inspectors to ensure that a farm
Income tax exemption in relation to
a farm partnership can be included partnership is operating in accordance
leasing of farm land has been a feature
on the register. with the conditions for registration.
of agri-tax for many years. Last year, the
This new incentive is subject to The Bill also introduces provisions for exemption for leases of 15 years or more
EU state aid approval. a right to appeal any decision by the was increased to €40,000. With effect
Minister to refuse to enter a farm from 1 January 2016, a lease will no longer
Transfers of farm assets to the next partnership on the register of farmer be a qualifying lease for the purpose of the
generation will benefit from the extension partnerships or to remove a farm exemption if the lessee is also a qualifying
of stamp duty exemption for Young partnership from the register. The lessor in relation to farm land let under a
Trained Farmers to 31 December 2018 and Minister will be require to set out his different lease. This is aimed at perceived
the retention of the 90% agricultural relief reasons in writing to the precedent acting abuses of the exemption.
from CAT. These transfers will also benefit partner and that decision can be appealed
from the increase in the gift/inheritance within 21 days. The appeal will be heard by Productivity Issues
tax (CAT) threshold from Parent to Child a specially appointed Appeals Officer (not
from €225,000 to €280,000. This should Stock relief is an important incentive for
the Appeal Commissioners). The decision
mean that even large farm enterprises farmers who are building up their stocks,
of the Appeals Officer may be further
could transfer to the next generation particularly now that milk quotas have
appealed to the High Court on a point of
without incurring a CAT liability when been abolished. All available stock reliefs
law but that is as far as the appeal process
you factor in the agricultural relief of 90%. were extended for a further three year
can go. The Bill set out the rules for the
period up to 31 December 2018.
Registered Farm Partnerships appointment of an Appeals Officer and the
qualifications that the person must have to Forestry Income
The Finance Bill contains a very significant serve in that role.
expansion of the conditions that must be Forestry Income has been removed
met for a farm partnership to be included The tax advantage of having a registered from the High Income Earners
on the register of farm partnerships farm partnership under current rules Restriction category.
maintained by the Minister for Agriculture was an increased level of stock relief. In
addition, registered farm partnerships can Income Volatility
Food and the Marine. Among the main
changes are: benefit from non-tax benefits including No additional measures were introduced
access to higher levels of grant assistance. in this Finance Bill to combat income
• Each member of the partnership must While the introduction of the succession
spend at least 10 hours per week on volatility. Income Averaging for farmers
farm partnership credit has been broadly was increased from three to five years in
average personally engaged in the welcomed by the agriculture sector, it must
farm activities last year’s Finance Act and this came into
be remembered that the succession tax effect on 1 January 2015. Whilst this
• No partner can be a director or credit for families is just €5,000 per year
shareholder in a company that is should have a long term positive impact
to be shared between all the partners. In by providing a longer timeframe over
also a partner in the partnership addition, because of the increased level of
• The partnership agreement must which income volatility can be smoothed,
conditions that must be met to be first as a this may have a short-term negative
be in writing, must comply with the registered farm partnership it remains to
Partnership Act 1890 and must impact on farmers in 2015 due to the
be seen what the uptake will be. significant drop in farm income currently
commit the partners to operating
as a partnership for at least 5 years being experienced.
(conflicts with the Succession Farm
Partnership rules which stipulate a
minimum of 3 years)
15Property
Home Renovation Incentive (HRI) CGT Losses on “section 23”
Properties
The Budget announced the extension to
the Home Renovation Incentive (HRI) A technical amendment has been made to
which was first introduced in Finance Act the interaction between the restriction of
2013. The HRI offers a tax incentive of up capital gains tax (CGT) loss relief and
to approx. €4,050 for homeowners wishing “section 23” property relief to ensure that a
to renovate a property. This was extended CGT loss incurred on the disposal of a
in Finance Act 2014 to apply to landlords “section 23” property will not be
renovating residential properties, with the unnecessarily restricted where the
€4,050 limit applying to each property. property is sold within a 10 year period
This relief was due to expire at the end of and a claw back of the income tax relief is
Tim O’Rahilly 2015 but the Minister announced that this suffered. This will ensure equitable
will now be extended to the end of 2016 treatment for those who have sold
+353 1 792 6862
and this has been confirmed by the properties within a 10 year period and
timothy.orahilly@ie.pwc.com Finance Bill. This is a welcome extension have been subject to a claw back of their
to an incentive which has been successful income tax relief.
and generally regarded as beneficial to the
construction sector. Returns by Lessees and Agents
As expected there were minimal changes
There has been an amendment made to
in the Finance Bill in relation to property CG50 Tax Clearance Certification
the provisions which allow Revenue to
measures. Broadly these were in line An amendment has been made to increase obtain information on let properties. The
with the changes announced in this the threshold for obtaining a CG50 tax new provisions require property agents to
month’s Budget together with a few clearance certificate from €500,000 to include, in a return of information, the tax
minor, and mostly welcome, additions. €1,000,000 for houses only. The CG50 reference number of each property owner
The Home Renovation Incentive has been clearance provisions provide for a and the Local Property Tax (LPT) number.
extended for a further year whilst the deduction of 15% from the purchase price In addition there is a requirement for
increased threshold for CG50 clearance of certain property related assets, to be Government bodies paying rent or rent
in respect of houses should reduce costs paid over to the Revenue Commissioners, supplement to include, in the return of
and delays in relation to residential in circumstances where a tax clearance is information, the LPT number in respect
property sales. Technical amendments not provided by the person disposing of the of each residential property. The
were introduced in relation to CGT losses assets. However, there is an exemption commencement of these new provisions
arising on the disposal of certain tax where the proceeds are below the is now subject to Ministerial Order.
incentive properties whilst letting agents threshold. The revised threshold applies to
and government bodies may be required a “house” only (which is broadly defined as
to provide additional information in a dwelling house or part of a dwelling
respect of landlords and their properties. house and associated land/buildings). The
limit remains unchanged for other assets.
This is a positive change which will help
reduce administration costs and delays in
relation to residential property sales.
16Interest deduction on loans
to acquire private residential
property
In computing taxable rental profits,
the deduction available for interest
incurred on loans to acquire private
residential property is restricted to 75%.
To incentivise landlords to rent their
properties to tenants in receipt of social
housing supports, an amendment is made
to reinstates the full 100% interest
deduction. The landlord must undertake,
for a period of at least three years, to
provide accommodation to such tenants
and must register such undertakings with
the Private Residential Tenancies Board
within certain time limits.
The landlord can avail of the increase
in interest deductions from 75% to 100%
after the end of the three year period
provided other conditions have been
fulfilled. The additional annual 25%
deduction for the three-year period will
be rolled up and allowed as a deduction
against rental profits in year four (in
addition to the normal 75% interest
deduction available in that year.)
The new provisions specify 1 January 2016
as the earliest date and 31 December 2019
as the latest date in which a three-year
undertaking period to rent to social
housing support tenants can commence.
In essence, a landlord will be able to avail
of the scheme for a maximum period of six
years provided the first three-year
undertaking is commenced not later than
the end of 2016.
17Pensions
Following on from the ending of the Pension Levy which was officially confirmed
during the Minister’s speech last week, there was some additional good news for
pensions in today’s Finance Bill in relation to tax relief on Employer PRSA
contributions. However, as anticipated the Bill does not contain any measures to
increase pension limits which look set to remain at current levels over the medium
term.
Employer PRSA Contributions No indexation of limits
The Bill provides for an exemption for As we anticipated last week, the Bill
employees from USC on employer confirms that the pension limits have
Munro O’Dwyer contributions to a PRSA, to bring the USC remained static - including the €115,000
+353 1 792 8708 treatment of such contributions in line earnings limit for personal contributions.
munro.odwyer@ie.pwc.com with employer contributions to Indeed in relation to the Standard Fund
occupational pension schemes. While a Threshold, it is worth noting that since its
welcome change, many employers have reduction to €2 million on 1 January 2014
already migrated their Group PRSAs into it has yet to be increased. It will be
an occupational pension scheme structure interesting to see whether this is a policy
since this anomaly arose as a result of decision or whether any earnings
provisions contained in the 2011 Finance adjustment factor will be declared in
Act. December by the Minister.
PRSAs will become relatively more Our advice to any individual with material
attractive as a means through which to pension entitlements would be to consider
provide pension benefits to staff - in whether future contributions might attract
particular as the requirement for a penal rate of taxation at the point of
Trusteeship is eliminated through a PRSA access, and to explore the opportunities
structure. That said, limits on Employer that are available to them to manage this
contributions that apply to PRSA exposure.
arrangements, and the greater level of
price competition in the occupational
pension scheme space do remain as
barriers to growth.
1819
Employment Taxes/
Individual Taxes
Finance Bill 2015 brings some significant surprises beyond the changes already
announced in Budget 2016.
The Bill proposes a measure to exempt from income tax, USC and PRSI the travel and
subsistence expenses of non-resident non-executive directors (‘NEDs’) for attending
board meetings. The proposed tax treatment will have a significant impact on
Ireland’s competitiveness as a location for foreign direct investment and will assist
Irish companies competing with other jurisdictions to attract internationally
experienced NEDs to their boards.
The Bill also puts on a legislative footing the ‘small benefits’ concession allowed by
Revenue and increases the annual concession limit from €250 to €500.
Mary O’Hara
Finally, confirmation that the territorial scope of Relevant Contracts Tax includes
+353 1 792 6215 the Irish Continental Shelf will be of significant interest to businesses in the energy
mary.ohara@ie.pwc.com and telecoms sectors.
Income Tax and USC
There were no additional changes to the income tax or USC rates, bands or thresholds
beyond those announced in the Budget. The confirmed USC rates and bands for 2016,
with a comparison to 2015, are as follows:
2016 Bands Rate 2015 Bands Rate
€0 - €12,012 1% €0 - €12,012 1.5%
€12,013 to €18,668 3% €12,013 - €17,576 3.5%
€18,669 to €70,044 5.5% €17,577 - €70,044 7%
€70,045 and above 8% €70,045 and above 8%
€100,000 and above* 11% €100,000 and above* 11%
*Self-employed income only
However, the Bill introduces a change to remove employer contributions to Personal
Retirement Savings Accounts (PRSAs) from the charge to USC. This brings the
treatment of such contributions in line with employer contributions to occupational
pension schemes.
20Non-Executive Directors (‘NEDs’) Relevant Contracts Tax (RCT) Tax treatment of payments to
Standard Life shareholders
The Irish tax implications of the payment RCT is a withholding tax regime that
or reimbursement of travel and subsistence applies on payments made to certain Owing to postal delays earlier this year,
expenses to NEDs for attending board contractors for the performance of certain Irish shareholders in Standard Life faced
meetings in Ireland has given rise to works defined as ‘relevant operations’. The an income tax liability on a return of value
differing views in recent times. The Bill scope is broad and includes construction, from the company, even where they had
proposes legislation to exempt non- energy, telecom, meat-processing and elected to receive this as capital. The Bill
resident NEDs from income tax, USC and forestry operations. effectively extends the election date up to
PRSI in respect of vouched expenses which capital gains tax treatment applies
The Bill confirms that the territorial limit
incurred for attendance at such board and avoids an unexpected income tax
for applying RCT includes the designated
meetings. liability for such shareholders.
areas of the Irish Continental Shelf. This is
While most welcome, the new legislation in addition to RCT applying to works Marriage equality
does not extend to Irish tax resident NEDs. carried out in the territory of Ireland and
It would be helpful if the Department of its territorial waters. The designated areas As expected, the Bill amends the Taxes
Finance commented on the drivers for of the Continental Shelf are the extension Acts to provide for the tax assessment of
limiting the new legislation to non-resident of Ireland’s territorial waters where the same-sex married couples following the
NEDs and the prospects or timing for natural land extends under the sea to the signing into law of the Marriage Act 2015.
extending the new legislation beyond outer edge of the continental margin.
non-residents. Ireland’s current designated Continental
Shelf is one of the largest seabed territories
The new provisions will be effective from 1
in Europe and extends in places beyond
January 2016. Further engagement with
200 nautical miles from the coastline
the Department of Finance and Revenue
baseline.
will be required to fully understand the
practical application of this solution. The Bill effectively reverses a Revenue
e-brief from earlier this year and broadens
Small Benefits Relief the scope of RCT such that it applies to
The Bill introduces a new legislative relevant operations undertaken in the Irish
exemption from income tax, PRSI and USC Continental Shelf by offshore industries
on ‘qualifying incentives’ provided by such as oil and gas companies, those
employers to employees (including involved in the construction of offshore
directors). ‘Qualifying incentives’ include windfarms and those laying cables or
both vouchers and benefits. A ‘benefit’ is similar type work for the
defined as a tangible asset other than cash. telecommunications space. Consequently,
Only one voucher or benefit may be given it is a very significant confirmation with
to an employee in any one year, the value important implications for a range of
of which cannot exceed €500, and a industries performing work in the Irish
voucher must not be exchangeable in part Continental Shelf.
or in full for cash. The voucher must not be
Chargeable persons
part of any salary sacrifice arrangement
between the employer and the employee. Currently, where the net non-PAYE income
of an individual exceeds €3,174 the
This relief builds on an existing Revenue
individual is considered a chargeable
concession whereby employers could
person. This brings the individual within
provide an employee with a single tax-free
the self-assessment system, which imposes
non-cash benefit of up to €250 in a year.
additional tax payment and filing
The new rules are applicable from obligations. The Bill increases this
22 October 2015. threshold from €3,174 to €5,000. While
income tax and USC applies to non-PAYE
income regardless, the amendment also
has the effect of increasing the threshold
above which PRSI on non-PAYE income
applies.
21Financial Services
Banking • if the payment is made by or through a
person in the State, then either the
Treatment of Additional Tier 1 Instruments quoted Eurobond is held in a recognised
Finance Bill 2015 proposes to allow a clearing system or the beneficial owner
deduction for certain interest/dividend of the quoted Eurobond is not resident
payments made in respect of capital in the State and has provided a non-
instruments issued by banks in order to resident declaration to the bank.
satisfy their Tier 1 capital requirements.
Encashment Tax
Until now, no deduction has been
permitted for interest payable in relation to The date for the filing of the annual
any Tier 1 capital so this represents a very encashment tax return has been extended
significant and welcome move. from the current 20 days after the end of
John O’Leary the year of assessment (i.e. 20 January) to
Currently, all instruments issued by banks 46 days after the end of the year (i.e. 15
+353 1 792 8659
to meet their Tier 1 capital requirements February).
john.oleary@ie.pwc.com are regarded as equity or quasi-equity in
nature. Accordingly, interest associated Stamp duty – cash cards, combined cards
with the issue of a Tier 1 debt instrument is and debit cards
not deductible for tax purposes. The Bill amends the existing Stamp duty
Although the Budget speech contained regime on cash cards, combined cards and
few references to Financial Services Under the proposed changes, an
“Additional Tier 1 instrument” will be debit cards.
specific measures, there are still a
number of important provisions in the regarded as a debt instrument (rather than The Bill replaces the definition of ‘bank’
Finance Bill across the FS sector. as equity) and a payment of dividends or and ‘building society’ with ‘credit
interest by Banks in respect of an institution’ and ‘financial institution’. It
“Additional Tier 1 instrument” will be also inserts the definition of a ‘cash
regarded as tax deductible interest. transaction’ and a ‘credit transaction’.
An “Additional Tier 1 instrument” is The Bill replaces the existing annual flat
defined in EU Regulations as a capital rate charge of €2.50 for each cash and
instrument (i.e. security, bonds, notes, debit card and €5.00 for each combined
shares, loans) that satisfies a prescribed list card, subject to certain exemptions which
of conditions as set out in Regulation (EU) are to remain unchanged, with a charge on
No.575/2013 of the European Parliament. withdrawals of cash from ATM machines
The Bill also includes a reference to in Ireland using these cards. The rate of
withholding tax on the payment of the charge is to be €0.12 for each such
interest / dividend, saying that the withdrawal; but the annual charge is to be
exemption from withholding tax that capped at €2.50 in the case of each cash
applies in relation to interest paid on and debit card withdrawals and €5.00 in
quoted Eurobonds will apply to the the case of each combined card.
Additional Tier 1 instrument in the same The Bill also revises the reporting
way as it applies to a quoted Eurobond. requirements for credit and financial
Exemption from withholding tax applies to institutions, requiring them to report to
interest on a quoted Eurobond where Revenue the total number of cash
either: transactions in respect of each of the three
• the bank uses a non-resident paying card types and the total number of each of
agent, or
22the three types of card to which the Aviation Sector legislation specifically designed for Irish
amended stamp duty cap has been applied investment funds. The effect of the
to. There is then an additional reporting Capital allowances for aviation services changes announced in the Finance Bill is
requirement for credit and financial Finance Acts 2013 and 2014 proposed to apply the same tax treatment to ICAVs as
institutions, requiring them to report the enhanced industrial buildings allowances currently enjoyed by Irish fund structures
total number of each of the three types of on capital expenditure incurred on that are defined as collective investment
card to which the monetary cap has not buildings employed in a maintenance, undertakings. This includes the provision
been applied, together with the total repair or overhaul of commercial aircraft of tax exemption in respect of Irish income
number of cash transactions in respect of trade or a commercial aircraft dismantling and chargeable gains. Of particular
those cards. trade. However, the legislation never came relevance is the fact that collective
into operation as it was subject to investment undertakings are specifically
The new basis for the charge and the
ministerial order which never defined as “a resident” for the purposes of
revised reporting requirements for issuers
materialised. the Ireland-USA double taxation treaty
of the cards are to come into effect for the
and the broadening of the definition to
chargeable period 2016 and subsequent The Bill now introduces a revised version
include the ICAV clarifies this position.
years. of that legislation, amended to comply
Furthermore, this clarification removes
with EU State Aid rules, coming into
Exchange of Information uncertainty as to whether ICAVs can
operation with effect from 13 October
qualify for the Ireland-USA treaty (subject
The Finance Bill amends the provisions in 2015. The accelerated scheme of industrial
to meeting the Limitation of Benefits
relation to the automatic reporting and buildings allowances provides for tax
provision requirements) and should
exchange of financial information, by depreciation over a seven year period
enhance the attractiveness of the ICAV to
transposing DAC 2 (i.e. the revised instead of the normal 25 year period but is
investment managers seeking to market/
Directive on Administrative Cooperation) limited to buildings costing up to €5million
invest their funds in the US.
into Irish law. DAC 2 relates to the OECD’s (where the expenditure is incurred by a
Common Reporting Standard (‘CRS’) and company) and €1.25million (where the Anti-avoidance
imposes an obligation on financial expenditure is incurred by an individual).
Furthermore, the Finance Bill also
institutions to carry out due diligence to The scheme, providing for accelerated
broadens the scope of the anti-avoidance
identify non-resident account holders and allowances over seven years, will operate
provisions relating to company
to report such data to the Revenue in respect of relevant expenditure incurred
reconstructions and amalgamations and
Commissioners. up to 13 October 2020.
transfers of assets within a group to
The EU Savings Directive legislation will Where the expenditure incurred on a include an ICAV. At present, anti-avoidance
be repealed as this will be replaced by DAC qualifying building is in excess of the measures prevent the deferral of capital
2 / CRS. noted limits and / or is incurred after 15 gains tax on the disposal of asset(s) by one
October 2020, industrial buildings company to another where the transfer is
Life Companies allowances may still be claimed, albeit as a result of a reorganisation,
Life assurance policies exit tax, non-resident over the longer 25 year period. Note that it amalgamation or as part of a group
declarations is not possible to apportion such transfer where the acquiring company is
expenditure as between the €5million / an authorised investment company. The
Life assurance policies held by non- €1.25million amount qualifying for Bill ensures that this treatment is also
residents are exempt from exit tax but accelerated allowances and the excess extended to prevent a capital gains tax
there is currently a requirement that a above this. Once more than these specified deferral where the acquiring company is
non-resident declaration is completed amounts have been incurred, allowances an ICAV.
at or about the time the policy is incepted. will only be available on the total
The Bill removes this requirement so that qualifying cost over the longer 25 year Appointment of Irish AIFM
exit tax will not apply provided the period. Finally, the Finance Bill separately
non-resident declaration has been made also provides confirmation that the
prior to maturity, encashment or Asset Management appointment of an Irish Alternative
assignment of the policy. Investment Fund Manager (“AIFM”) to
ICAVs
The Bill also extends the time period for a non-Irish Alternative Investment Fund
The Finance Bill broadens the definition of does not bring the AIF within the charge
refund claims where exit tax was applied
a collective investment undertaking to to Irish tax. It is also expected that further
to a chargeable event occurring on or
include an Irish Collective Asset- changes will be made to Section 1035A to
before 31 December 2015. Previously
management Vehicle (“ICAV”). Legislation update the legislation and bring it in line
it was necessary to make a claim within
introducing the ICAV into Ireland was with current regulatory requirements.
4 years after the end of the chargeable
enacted earlier this year, which offers fund
period to which the claim relates. A refund
promoters and investors a regulated
claim can now be made within 4 years after
corporate fund structure which can be
the end of the chargeable period ending on
established under bespoke Central Bank
31 December 2016.
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