Securing Ireland's future - Finance Bill 2019
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Finance Bill 2019 Securing Ireland’s future
Contents
Overview 3
Policy / International Outlook 9
Transfer Pricing 12
EU ATAD Measures: Anti-hybrid Rules 17
EU Mandatory Disclosure Regime 19
Private Business / Individuals 22
Domestic and International Large Corporates 27
Financial Services 32
Employment Taxes / Individual Taxes 36
Property 38
Stamp Duty 42
VAT 44
Trade and Customs 46
Tax Administration and Revenue Powers 50
2 | PwC Finance Bill 2019
Finance Bill 2019 sets out the The Research & Development tax on Budget day in respect of
legislative changes required to credit relief for companies has non-residential property and
implement many of the Budget been enhanced and the Bill ‘schemes of arrangement’ are
day announcements of 9 October introduces measures aimed at included. The EU mandatory
last. The most significant ensuring that the status quo is disclosure rules imposing
measures are the extension of maintained in relation to certain reporting obligations on
Overview Transfer Pricing rules to non-
trading transactions and the
transposition of the anti-hybrid
corporation tax measures or
reliefs in the event of a disorderly
Brexit.
taxpayers and advisers are being
transposed into Irish law under
the Bill. Other housekeeping
rules as required by the EU measures include final stage
Changes to the Key Employee
Anti-Tax Avoidance Directive 2 ratification steps to update the
Engagement Programme (KEEP)
(ATAD 2). Dutch and Swiss tax treaties,
have made it more flexible and
targeted anti-avoidance
The Bill proposes significant certainty as to the future tax
measures and amendments to
changes to the Irish Real Estate treatment of employer provided
the provisions governing the tax
Funds (IREF) and the Real Estate vehicles is now provided. The
appeal procedure.
Investment Trust (REIT) regimes. Stamp Duty changes announced
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
3 | PwC Finance Bill 2019
Transfer Pricing larger capital transactions and including the concept of DEMPE EU ATAD Measures: Anti-
previously “grandfathered” and the OECD’s risk allocation hybrid Rules
The majority of the key measures
transactions. framework.
as they relate to transfer pricing As required by ATAD 2, the Finance
were well flagged to taxpayers and • The introduction of an enhanced With the extension of transfer Bill introduces anti-hybrid
key stakeholders alike via a process domestic TP documentation pricing rules to certain non-trading legislation for payments made, or
of close engagement and regime in line with the 2017 transactions, groups are arising, on or after 1 January 2020.
consultation with the Department of OECD Guidelines. recommended to conduct a The anti-hybrid rules are aimed at
Finance. The measures were also thorough review of their structures preventing companies from
• The inclusion of a “substance
flagged as part of the Transfer and identify any intercompany benefiting from differences in the
over form” provision which
Pricing Feedback Statement issued cross border non-trading tax treatment of payments on
provides Irish Revenue with the
by the Department in August. The transactions involving Irish hybrid financial instruments and on
ability to disregard and
consultative nature of the approach companies. To the extent these payments by or to hybrid entities.
recharacterise a transaction in
supports the Minister’s pledge to transactions were not supported or Hybrid financial instruments are
certain circumstances.
maintain stability and certainty in priced by reference to the arm’s broadly those which are treated as
an ever evolving tax landscape. • The extension of transfer pricing length principle in the past, the debt in one jurisdiction but equity in
rules to transactions involving pricing should be reviewed in light
The primary measures introduced another, while a hybrid entity is
SMEs, upon execution of a of the extended rules.
by the Finance Bill as they relate to typically viewed as opaque in one
Ministerial Order.
transfer pricing include: Legislation extending the updated jurisdiction but transparent in
Incorporation of the OECD 2017 transfer pricing rules to SMEs could another. This tax system arbitrage
• Modernising Ireland’s transfer Transfer Pricing Guidelines brings was resulting in companies
be introduced subject to a
pricing legislation, bringing our the substantial clarifications and qualifying for tax relief on payments
Ministerial Commencement Order.
domestic regime into line with revisions agreed in the OECD’s which were not being taxed in the
In this regard, a watching brief
the 2017 OECD Guidelines. 2015 BEPS Report on Actions 8-10 hands of the recipient (so-called
should be kept by SMEs in the
• The extension of our transfer Aligning Transfer Pricing Outcomes event that the Minister signals the Deduction No Inclusion or DNI
pricing rules to certain non with Value Creation onto a execution of a Commencement situations) or in qualifying for tax
trading transactions, certain legislative footing in Ireland, Order. relief in more than one jurisdiction
4 | PwC Finance Bill 2019
on the same payment (Double Specific Brexit-related changes financial services groups whilst the Property
Deduction situations). The new aimed at maintaining the status quo expansion of the transfer pricing
The Finance Bill sees the extension
rules will deny deductions for such for business and the enhancement rules, which contain provisions that
of existing measures such as the
payments or in certain of certain aspects of the Research expand the arm’s length principle to
Help To Buy Scheme and Living
circumstances will subject them to and Development tax credit regime non-trading transactions, should
City Initiative.
tax here. The main impact is likely including its increase from a 25% have limited impact from a financial
to be on groups or investment credit to a 30% are to be services perspective, in part thanks Some additional anti-avoidance
structures where US shareholders welcomed. to a carve-out in respect of Section measures in respect of Irish Real
or investors are involved because 110 TCA 1997. Estate Funds (IREFs) and Real
As announced on Budget Day, the
checking an opaque company open Estate Investment Trusts (REITs) are
Finance Bill provides for an While there was a carve-out from
or a transparent partnership closed proposed. While the aim or purpose
increase in the dividend withholding the new transfer pricing measures
for US tax purposes can result in of the targeted anti-avoidance
tax rate to 25% in relation to for Section 110 companies (due to a
the entity being a hybrid entity. measures is understood, the
distributions made from 1 January legislative conflict that those rules
specific measures introduced and
2020. would have created), additional
Domestic and International their effective date will have come
Section 110 anti-avoidance
as a surprise to the market and it
Large Corporates Financial Services provisions are being introduced in
will remain to be seen whether
The main legislative changes likely order to strengthen the existing
As for most corporates, the these could have a wider
to affect domestic and international protections in the operation of the
introduction of the legislation unforeseen impact to the sector.
large corporates are those securitisation regime. These
implementing the EU mandated Whilst the rate of dividend
contained in the anti-hybrid additional anti-avoidance provisions
anti-hybrid rules and the transfer withholding tax will be increased
legislation provisions and the will need to be considered in detail
pricing feedback statement are from 20% to 25% with effect from 1
provisions introducing transfer by all asset managers managing
significant developments for January 2020, importantly, this rate
pricing to non-trading transactions such vehicles.
financial services sector taxpayers increase should not apply to IREF
as mentioned above. too. The anti-hybrid rules are likely withholding tax, which should
to impact large cross border
5 | PwC Finance Bill 2019
remain at 20% as provided for in Employment Taxes then taking effect from 1 January • Replacement of the 1% VRT
the existing IREF legislation. 2023. Benefit in kind rates for surcharge on diesel vehicles
Finance Bill 2019 restates the
company vans will also increase with an additional charge based
recent budget announcements with
Stamp Duty from 5% to 8% of the original on Nitrogen Oxide (NOx)
no amendments to the core income
market value of the van from 1 emissions.
Following a surprising bands or rates for either tax or USC
January 2023. Other amendments
announcement on Budget day, the only minor increases were provided • An increase in excise duty on
provide for specific reliefs or
Finance Act has now legislated for for 2020 in the form of an increased cigarettes.
exemptions relating to non-
a 1% stamp duty charge where a Home Carers Credit (increase of • A relief from betting duty and
employment related payments and
scheme of arrangement involving a €100 to €1,600) and Earned Income betting intermediary duty for
training allowances.
“cancellation scheme” is used to Credit (increase of €150 to €1,500). small independent bookmakers.
effect the sale of a company. No There are some welcome
stamp duty would have been extensions to key reliefs in the form Trade and Customs • An extension to the relief from
of the Special Assignee Relief Alcohol Products Tax for
payable on such an arrangement The focus on climate action was a
Programme (SARP) and also the microbreweries.
prior to this amendment. The central theme of the Budget and
measure came into effect on Foreign Earnings Deduction (FED). the Finance Bill reflects this. This • An extension to the relief from
Budget night. Timelines surrounding when the the has contributed to an increase of VRT for hybrid-electric and
0% benefit in kind rate for electric €6 (per tonne) in carbon tax, which plug-in hybrid-electric vehicles
The stamp duty rate on commercial
cars and vans will end and be has led to an increase in the rates to 31 December 2020.
property has been increased from
replaced provides certainty to of Mineral Oil Tax, Natural Gas
6% to 7.5%. The increased rate
employees provided with such Carbon Tax and Solid Fuel Carbon Value Added Tax (VAT)
applies to transactions executed on
vehicles by their employers with the Tax. The Bill also introduced a
or after 9 October 2019. Transitional The Finance Bill contains limited
0% rate being extended to 31 100% increase in the rate of
measures have been provided for. amendments to VAT most of which
December 2022 and a new benefit electricity tax for business use.
were flagged in advance. The most
in kind valuation for company cars
Other key measures introduced significant amendment is the
based on kilometres travelled and
include: introduction of a new VAT rate of
the CO2 emission levels of the car
13.5% on food supplements with
6 | PwC Finance Bill 2019
effect from 1 January 2020. This DTA and protocol force of law in Agreement Procedure (“MAP”) and intermediaries such as tax
follows a public consultation period Ireland. It is expected that the under Treaties and the domestic advisors, lawyers, accountants and
and replaces Revenue’s previously provisions of the new Netherlands- appeals processes. financial institutions to identify and
announced intention to implement Ireland DTA will have effect in the report very detailed information on
Relatively minor technical
the 23% rate on these products. Netherlands for taxable years and a broad range of cross-border tax
amendments are made to
periods beginning (and taxable arrangements where they meet
collection, recovery and repayment
Tax Treaty updates events occuring) on or after 1 certain criteria, known as hallmarks
procedures.
January 2021 and in Ireland (i) as (which are very broadly defined).
On 13 June 2019, Ireland signed a
respects corporation tax, for This information will be shared
new double taxation agreement
financial years beginning on or after
EU Mandatory Disclosure automatically among Member
(“DTA”) with the Netherlands and a
1 January 2021; (ii) as respects Rules (DAC 6) States on a periodic basis through
protocol to amend the existing DTA
income tax, USC and CGT from 1 The Bill transposes the EU Directive a centralised database.
and protocols with Switzerland.
January 2021. on the mandatory disclosure of
These agreements ensure that the
certain cross-border arrangements Betting Duty
existing DTAs with the Netherlands
Tax Administration and (known as DAC6) into the Irish tax
and Switzerland are modernised In recognition of the difficulties
Revenue Powers code. The draft legislation
and reflect a number of provisions experienced by small independent
introduces new obligations for
contained in the multilateral Minor amendments to the tax bookmakers, the Bill introduces a
‘intermediaries’ (or the relevant
instrument agreed at OECD level. appeal procedures have been made relief from betting duty and betting
taxpayer in certain circumstances)
The agreements will enter into force which are designed to improve the intermediary duty up to a limit of
relating to the mandatory reporting
once the relevant governments appeals process, in particular the €50,000 per calendar year. The
of certain cross-border tax
notify each other that all required circumstances in which an Appeal relief is subject to a
arrangements to Irish Revenue.
formalities required by its law to Commissioner can dismiss an commencement order and State
DAC6 aims to strengthen
bring the agreement into force have appeal. Aid approval.
transparency and fight against what
been completed. The Finance Bill
The Bill also introduces certain is regarded as aggressive cross-
proposes to complete the
measures to deal with the border tax planning by requiring
formalities required to give the new
interaction between the Mutual individual and corporate taxpayers
7 | PwC Finance Bill 2019
Conclusion Alongside these changes, the Bill
also includes welcome
Finance Bill 2019 is largely a
improvements to the operation of
product of circumstances, with the
KEEP, EIIS and the R&D Tax Credits
consequences of the changing
regime, which will be of particular
international tax landscape, and the
interest to SMEs. The Irish tax
uncertainty associated with Brexit,
system has an important role in
to the fore. The Bill contains a
both encouraging entrepreneurship
number of significant pieces of
and shaping Ireland’s future, and
legislation (DAC 6, anti-hybrid
these changes are encouraging.
legislation) that were required to
meet Ireland’s commitments under The 12.5% rate aside, change
EU law. It also contains a number of appears to be the only constant in
Brexit-proofing measures to ensure today’s tax environment. With
that the status quo is maintained in interest limitation rules on the
relation to certain corporation tax horizon and the possibility of BEPS
measures or reliefs in the event of a 2.0, continued consultation with
disorderly exit of the UK from the stakeholders is crucial, with a view
EU. Separately, changes have been to ensuring that our tax regime is
introduced to modernise Ireland’s not only transparent, sustainable
Transfer Pricing regime. All these and legitimate, but also
changes mean that the pace of tax competitive.
reform, which we have witnessed
over the last number of years, has
continued and shows no signs of
abating.
8 | PwC Finance Bill 2019
External threats to the economy Brexit
and associated policy
The Minister for Finance announced
considerations were the key
on Budget Day that €1.2bn would
Policy /
drivers behind the Budget 2020
be made available in response to
announcements and they
Brexit via a mix of capital redirected
continue to make their presence
International
from the wider budget and
felt as part of the Finance Bill
borrowing as required. The
2019 package. Back in the
additional resources would be
Outlook
Finance Bill 2018, the key tax
Peter Reilly directed to the sectors, industries
measures introduced were to
Tax Policy Leader and taxpayers most at threat from a
give effect to ATAD. In 2019, a
+353 1 792 6644 no-deal Brexit. While an analysis of
broader range of tax and non-tax
peter.reilly@pwc.com such spending is outside the remit
policy influencers were at play.
of this note, it is worthwhile to
The primary tax changes can be
consider the revenue raising
loosely grouped together in
measures that will underpin these
terms of their response to three
supports.
external pressure points: Brexit,
climate action and international The key revenue raising measures
tax reform obligations. have been directed towards the real
Notwithstanding the stated estate industry. The increase in the
policy objectives of the Finance rate of non-residential stamp duty
Bill 2019 package, the proposals from 6% to 7.5% shows a
must also be viewed in the continuing trend of taxing the
context of a looming general buoyant commercial real estate
election. market. A targeted move designed
to bring schemes of arrangement
involving a cancellation scheme
within the charge to Stamp Duty
was unexpected. Institutional
investors in the real estate sector
9 | PwC Finance Bill 2019
will also be impacted by the possible in a post-Brexit world is a The cornerstone of the climate The Bill introduces anti-hybrid rules
effective restriction on interest fundamental objective of Finance action measures in the Bill is the for the first time in Ireland. These
deductibility where Irish property is Bill 2019. Our ability to attract talent increase in the rate of carbon tax to are complex rules designed to
held by an Irish Real Estate Fund needs to be to the fore in this €26 p/tonne of CO2 emissions. On a ensure structures and transactions
(see the Property section on page respect. Hence, while these long term basis, the Minister which have a hybrid element
38 for more details). enhancements are welcome there indicated that the rate of Carbon entered into by related entities
is no doubt that more needs to be Tax will increase steadily to €80 p/ cross-border do not result in a
Aside from the measures geared
done in the area of private business tonne by 2030. However, there was deduction without inclusion or
towards the property industry, the
and entrepreneurship. For a further no binding legislation to this effect. deductions in more than one
increase in the rate of Dividend
analysis of this, please see the The carbon tax increase is further jurisdiction. The rules have already
Withholding Tax (“DWT”) from 20%
Private Business section on page supported by an increase in the been subject to extensive
to 25% was a surprise
22. VRT rate for NOx-heavy vehicles stakeholder consultation
announcement on Budget Day and
and an equalisation of the throughout the past 12 months and
formed another key revenue-raising
Climate Action electricity tax between business will be further supplemented by
measure. The policy rationale put
and private consumers. The policy Revenue guidance in the new year.
forward for this is to close the tax The government has faced
objective of these measures is to Careful analysis of the rules will be
gap between the rate of DWT and a extensive pressure to tackle climate
change behaviours and encourage required by multinational groups to
taxpayer’s marginal Income Tax change from private citizens and
a move towards greener energy, map out the impact on their
rate which is created where international fora alike in the last 12
both from a personal and a organisation. These measures are
taxpayers fail to disclose income months. The declaration of a
business perspective. considered in more detail in the
from shares. climate emergency in Ireland, the
anti-hybrid section on page 17.
Some welcome measures in the Bill electoral green wave in the EU
elections and a realisation that we
International Tax Reform The Bill also provides for an
to assist the SME sector included
are not on track to meet our 2020 Ireland continues to reform our extension of transfer pricing rules in
enhancements and extensions to
climate goals has focused the corporate tax code to ensure it is Ireland. Transfer pricing rules have
schemes such as KEEP, EIIS,
minds of policymakers. transparent, robust and fit for been in operation in Ireland since
SARP, FED and the R&D Tax Credit.
purpose in a post-BEPS world. 2010. Since 2010, international best
Making Ireland as attractive as
practice has moved along and the
10 | PwC Finance Bill 2019OECD has since issued updated whether it will be held later this year
Transfer Pricing Guidelines which or in early 2020, it will be contested
Ireland has agreed to implement. at a time of economic uncertainty.
We are also required to update our With this in mind, the Minister for
transfer pricing rules to meet the Finance has crafted the measures
minimum standards under BEPS in the Bill so that they can achieve
Actions 8-10 and 13. The updates in the socio-economic policy
the Bill have been subject to public objectives whilst also generating
consultation throughout 2019 so we additional receipts to support a
do not expect to see significant potentially poorer economic
changes to these as they move climate.
through the legislative process.
Factors predominantly outside of
We note that the introduction of Ireland’s control have the greatest
rules to limit interest deductions potential to upset our economic
against corporate profits do not outlook. Accordingly, a “steady as
form part of the Finance Bill 2019 she goes” approach to policy
package. We expect that such creation and delivery is a
measures will be introduced in reasonable response to an
Finance Bill 2020. uncertain economic forecast.
As always, the devil will be in the
Political backdrop detail and our experts will now take
The measures contained in Finance you through the Finance Bill
Bill 2019 must be viewed in the package in more detail.
context of the current Irish political
landscape. A general election
draws closer and, regardless of
11 | PwC Finance Bill 2019The majority of the key measures • The extension of our transfer
as they relate to transfer pricing pricing rules to certain non
were well flagged to taxpayers trading transactions, certain
and key stakeholders alike via a larger capital transactions
process of close engagement and previously
Transfer and consultation with the
Department of Finance. The
•
“grandfathered” transactions.
The introduction of an
Pricing
measures were also flagged as
enhanced domestic TP
part of the Transfer Pricing
Ronan Finn documentation regime in line
Feedback Statement issued by
+353 1 792 6105 with the 2017 OECD
the Department in August. The
ronan.finn@pwc.com Guidelines.
consultative nature of the
approach supports the Minister’s • The inclusion of a “substance
pledge to maintain stability and over form” provision which
certainty in an ever evolving tax provides Irish Revenue with
landscape. the ability to disregard and
recharacterise a transaction
The primary measures
in certain circumstances.
introduced by the Finance Bill as
they relate to transfer pricing • The extension of transfer
include: pricing rules to transactions
involving SMEs, upon
• Modernising Ireland’s
execution of a Ministerial
transfer pricing legislation,
Order.
bringing our domestic regime
Ally McCaffrey into line with the 2017 OECD
+353 1 792 5065 Guidelines.
ally.mccaffrey@pwc.com
12 | PwC Finance Bill 2019Incorporation of the OECD future guidelines issued by the the OECD’s three-tiered approach With regard to important deadlines
2017 Transfer Pricing OECD into our domestic legislation. to transfer pricing documentation the Finance Bill specifies that, where
Guidelines What does this mean for me? into our legislation, with country-by- the relevant revenue thresholds are
country reporting obligations met, transfer pricing documentation
Ireland’s existing transfer pricing • The updates bring the having already been introduced in must be prepared no later than the
legislation refers to, and endorses, substantial clarifications and Ireland in 2016. date upon which the annual tax
the 2010 version of the OECD revisions agreed in the OECD’s return for the chargeable period
Transfer Pricing Guidelines. In order 2015 BEPS Report on Actions In order to manage & mitigate the
concerned is filed. Therefore, Irish
to bring our domestic legislation in 8-10 Aligning Transfer pricing compliance burden, the Master File
companies within the scope of the
line with international best practice Outcomes with Value Creation and Local File requirements will be
enhanced transfer pricing
in the area, Section 835D of the onto a legislative footing in subject to certain de minimis
documentation rules with a 31
Taxes Consolidation Act 1997, our Ireland, including the concept of thresholds. The revenue based
December year end will be expected
basic charging provisions, will be DEMPE and the OECD’s risk thresholds set out in the Finance
to prepare and finalise their transfer
updated to make reference to (1) allocation framework. Bill are as follows:
pricing documentation for the 2020
2017 version of OECD Transfer • A Master File must be prepared
Enhanced transfer pricing financial year by 23 September
Pricing Guidelines, (2) guidance on documentation requirements where group revenues are €250 2021.
the application of the approach to million or more; and
Hard-to-Value Intangibles, and (3) Aligned with the need to modernise Documentation must be provided
our domestic transfer pricing rules, • A Local File must be prepared by the taxpayer within 30 days of a
the updated guidance on the
the Finance Bill introduced where group revenues are €50 written request from Irish Revenue.
application of the Transactional
enhanced TP documentation million or more.
Profit Split Method. The Finance Bill A penalty regime has also been
also provides for the ability to requirements into our domestic The proportionate approach to introduced by the Finance Bill for
supplement the relevant guidelines legislation. Section 835G will now documentation is welcomed and non-compliance with the transfer
referenced in Section 835D by way include specific requirements to acknowledges stakeholder pricing documentation
of Ministerial Order. This gives the prepare and maintain a Master File feedback received as part of the requirements. However, where the
Minister the ability to incorporate and Local File in line with Chapter V public consultation process. taxpayer prepares transfer pricing
of the 2017 OECD Transfer Pricing
documentation that demonstrates a
Guidelines. This formally introduces
13 | PwC Finance Bill 2019reasonable effort to comply with Extending transfer pricing rules
the transfer pricing legislation, and to certain non-trading
is provided to the Revenue transactions
Commissioners on a timely basis As expected, Finance Bill 2019
(i.e. within 30 days of request) there delivers an extension of Ireland’s
is protection from tax geared transfer pricing rules to cross
penalties in the careless behaviour border non-trading transactions
category. and includes a new section 835E,
What does this mean for me? which when read together with the
updated sections 835A and 835C,
• For Irish companies that are
sets out the scope of the extension.
part of a larger group, with
effect from 1 January 2020, Irish transfer pricing rules will now
there will be a requirement to apply to taxpayers chargeable to
prepare mandatory transfer income tax or corporation tax
pricing documentation including under Schedule D (i.e. the 12.5%
annual Master File and Local and 25% tax rates), whereas
File reports. These reports previously the legislation only
should be prepared no later applied to profits or gains or losses
than the date on which the tax taxable under Case I and Case II of
return is due to be filed. Schedule D only (i.e. 12.5% tax rate
for trading transactions). This
• Full and timely compliance with
signifies a broad extension of the
the transfer pricing
transfer pricing rules, bringing a
documentation requirements on
significant number of non-trading
a yearly basis is required in
transactions within the scope of our
order to avail of penalty
legislation.
protection.
14 | PwC Finance Bill 2019The new rules mean that Irish the extended transfer pricing rules, What does this mean for me? legislation are set out in Section
Special Purpose Vehicles (“SPVs”) so as to ensure that SPVs can 835HB and state that the new
• Groups are recommended to
may fall within the scope of Irish continue to meet their policy legislation will apply to assets
conduct a thorough review of
transfer pricing rules to the extent objectives. However, additional where the market value exceeds
their structures and identify any
that they engage in related party anti-avoidance provisions are being €25 million. Capital transactions
intercompany cross border
transactions. That said, while there introduced with respect to the below the threshold will continue to
non-trading transactions
may be additional documentation legislation under which SPVs be subject to existing market value
involving Irish companies. To the
requirements to contend with, the operate in order to strengthen the rules.
extent these transactions were
fact that Section 110 companies existing protections against abuse
not supported or priced by Again, the extension of the rules to
(the regime which SPVs typically of the regime.
reference to the arm’s length capital transactions was signalled
operate under) are already obliged
The provision also provides for the principle in the past, the pricing by the Department of Finance in
to enter into transactions on an
extension of the transfer pricing should be reviewed in light of their Feedback Statement. The
arm’s length basis means the
rules to domestic transactions but the extended rules. purpose of the extension is to
formal extension of the transfer
only where the transaction was Extending transfer pricing rules improve certainty in relation to the
pricing rules contained within the
entered into with the sole or main to capital transactions arm’s length valuation of capital
Finance Bill will therefore have a
purpose of obtaining a tax assets as well as improving the
lessened impact on these vehicles Finance Bill 2019 also extends
advantage, as part of a wider documentation available to support
in practice. The one exception to Ireland’s transfer pricing rules to
arrangement with a foreign party. In the transactions.
the existing arm’s length capital transactions within the
line with the majority of responses What does this mean for me?
requirement relates to payments scope of capital gains tax or
received following the public
under profit participating loans/ corporation tax on chargeable • While capital transactions have
consultation, this acknowledges
notes (“PPL/Ns”) issued by gains. Similar to the documentation been subject to market value
that fully domestic non-trading
qualifying SPVs. Helpfully, Finance requirements, a de minimis rules, the new legislation
transactions do not pose the same
Bill 2019 is aligned with the existing threshold was considered ensures that larger transactions
type or level of risks posed by
securitisation legislation in that appropriate to capture larger are valued and documented in
international / cross border
PPL/Ns are not within the scope of transactions. The changes to the accordance with the arm’s
transactions.
15 | PwC Finance Bill 2019length principle, bringing an relied upon in limited bringing to the SME sector the
extra layer of compliance to circumstances (such as long Department has decided that it is
certain transactions. term loans for example). As not appropriate to introduce the
Removal of the “grandfathering” such, the impact of this change rules at this time. The Department
exemption is more concentrated. have noted that the execution of a
Nonetheless, groups are Ministerial Order will be signalled in
The exemption which allowed
recommended to conduct a advance.
arrangements, the terms of which
careful review of their structures
were agreed before 1 July 2010, to If introduced, tailored transfer
and identify previously
remain outside the scope of pricing documentation
“grandfathered” transactions
Ireland’s transfer pricing rules (the requirements for SMEs depending
and to the extent these
“grandfathering exemption”) has on their size can be expected, with
transactions were not supported
been removed from the legislation a likely exemption for small
or priced by reference to the
by the Finance Bill. Again, this was enterprises and reduced / simplified
arm’s length principle in the
a well signaled change that was requirements for medium sized
past, the pricing should be
discussed with stakeholders as companies.
reviewed and documented in
part of the consultation process. What does this mean for me?
light of the extended rules.
It is important to note that the new Future extension of TP rules to • Nothing for now; but a watching
TP documentation requirements will SMEs brief should be kept in the event
now apply to previously the Minister signals the
Although not included in the
grandfathered transactions. execution of a Commencement
Finance Bill, it is worth noting that
What does this mean for me? Order.
legislation extending the updated
• Given the passage of time, it is transfer pricing rules to SMEs could
understood that the be introduced subject to a
grandfathering exemption has Ministerial Commencement Order.
relatively limited applicability, Given the uncertainty Brexit is
16 | PwC Finance Bill 2019As required by ATAD 2, which was broadly those which are treated as on the same payment (Double
EU ATAD
signed up to by Ireland back in debt in one jurisdiction but equity in Deduction situations). The new
2016, the Finance Bill introduces another, while a hybrid entity is rules will deny deductions for such
anti-hybrid legislation into effect for typically viewed as opaque in one payments or in certain
Measures: payments made, or arising, on or
after 1 January 2020.
jurisdiction but transparent in
another. This tax system arbitrage
circumstances will subject them to
tax here.
Anti-hybrid
was resulting in companies
The anti-hybrid rules are aimed at The Finance Bill introduces some
qualifying for tax relief on payments
preventing companies from important new definitions and
which were not being taxed in the
Rules
benefiting from differences in the concepts into Irish tax legislation.
hands of the recipient (so-called
tax treatment of payments on The DNI rules for instance do not
Deduction No Inclusion or DNI
hybrid financial instruments and on apply unless the payment is made
situations) or in qualifying for tax
payments by or to hybrid entities. to an associate enterprise, which is
relief in more than one jurisdiction
Hybrid financial instruments are defined as entities in a 25% share
Denis Harrington Harry Harrison Colin Farrell
EU Tax Leader for Ireland +353 1 792 6646 +353 1 792 6345
+353 1 792 8629 harry.harrison@pwc.com colin.d.farrell@pwc.com
denis.harrington@pwc.com
17 | PwC Finance Bill 2019capital ownership relationship jurisdiction that does not impose unlikely to arise very often except The introduction of the Anti-Hybrid
(increased to 50% in certain tax are treated as included on Profit Participating Note (PPN) Rules has necessitated legislating
circumstances), or companies that provided that the profits or gains payments by Section 110 for the first time the tax treatment
are included in the same are treated as arising or accruing to companies. These companies are of stock lending and repo
consolidated group for financial that entity. A CFC-type charge already subject to restrictions on arrangements (previously dealt with
account purposes or companies imposed under the laws of another deductibility not dissimilar from the by way of Revenue Guidance) as
which exercise significant influence territory will also be treated as anti-hybrid rules, and indeed those well as the correction of
(defined in the Bill) over the included. Section 110 restrictions have been terminology in the existing
management of the other. Clearly strengthened further in the Finance Investment Limited Partnership
In situations where a payment by a
this will cover all MNC group Bill. The main impact therefore is legislation.
hybrid entity or a double deduction
situations but could also capture likely to be on groups or investment
arises, no restriction applies as long
investors into certain fund structures where US shareholders
as the payment can be offset
structures, although helpfully debt or investors are involved because
against “ dual inclusion income”.
relationships are not included within checking an opaque company open
This is income which is subject to
the definition. or a transparent partnership closed
tax in both Ireland and the
for US tax purposes immediately
Another very important concept is jurisdiction where the mismatch
turns the entity into a hybrid entity.
that of “inclusion” because once situation arises. Also while imported
In such circumstances the Irish
the payment is included in the mismatches, covering payments
company has to establish either
recipient location no deductibility which fund hybrid mismatches
that the payment has been included
restrictions apply. The definition of outside of Ireland, can also result in
in the other jurisdiction or can be
“inclusion” covers not just restrictions these do not apply
offset against dual inclusion
payments that are subject to tax in where payments are made to other
income. This will require a more
the overseas jurisdiction, but also EU Member States.
detailed understanding of the
payments to exempt foreign entities
In terms of the potential impact of foreign tax treatment than ever
such as pension funds, Government
the new legislation, payments under previously required.
bodies etc. Furthermore, payments
hybrid financial instruments are
to entities that are located in a
18 | PwC Finance Bill 2019Finance Bill 2019 introduces a to Irish Revenue. DAC6 aims to automatically among Member
new Chapter 3A into Part 33 of strengthen transparency and States on a periodic basis
the TCA 1997 which transposes fight against what is regarded as through a centralised database.
EU
the EU Directive on the aggressive cross-border tax
While the Finance Bill has
mandatory disclosure of certain planning. It requires individual
aligned the domestic rules very
cross-border arrangements and corporate taxpayers and
closely to DAC6, transposing
Mandatory (known as DAC6) into the Irish
tax code.
intermediaries such as tax
advisors, lawyers, accountants
certain definitions from EU
Directives and referencing other
Disclosure
and financial institutions to
The draft legislation introduces meanings set out in DAC6,
identify and report very detailed
new obligations for welcomingly it provides some
information on a broad range of
Regime
‘intermediaries’ (or the relevant additional clarity by leveraging
cross-border tax arrangements
taxpayer in certain the definitions contained in
where they meet certain criteria,
circumstances) relating to the existing domestic legislation
known as hallmarks (which are
mandatory reporting of certain relating to the meaning of ‘tax
very broadly defined). This
cross-border tax arrangements advantage’ and ‘arrangement’.
information will be shared
Denis Harrington Fiona Carney Paul Reilly
EU Tax Leader for Ireland +353 1 792 6095 +353 1 792 5246
+353 1 792 8629 fiona.carney@pwc.com paul.x.reilly@pwc.com
denis.harrington@pwc.com
19 | PwC Finance Bill 2019The Bill also sets out the To be reportable, the arrangement that the hallmark makes the certain circumstances, including
penalties (discussed below) for must contain at least one of the 16 arrangement reportable only if it where:
non-compliance with any of the hallmarks which are listed in Annex can be established that ‘the main
• the arrangements are devised
obligations within the reporting IV of DAC6. The new provisions benefit or one of the main benefits
in-house and no external
regime. reference Annex IV rather than which, having regard to all relevant
advisors are involved,
listing all the hallmarks. These facts and circumstances, a person
Reportable Arrangements • any ‘intermediary’ involved is
hallmarks are broadly defined and may reasonably expect to derive
The new rules relate to ‘cross- based outside of the EU, or
can capture a wide range of from an arrangement is the
border arrangements’. Wholly
transactions including: obtaining of a tax advantage’. • any EU-based intermediary is
domestic arrangements are not
therefore within scope. • transfers of certain assets, entitled to waive their obligation
functions or risks between Reporting Responsibilities to report on the grounds of legal
The provisions encompass taxes of professional privilege.
associated enterprises, Primary responsibility for reporting
any kind levied by, or on behalf of, a
Member State with the exception of • arrangements involving arrangements under the new rules
deductible cross-border rests with ‘intermediaries’. Timelines for Reporting
VAT, customs duties and EU excise
duties (as these are covered by payments between associated An ‘intermediary’ is any person that The Directive entered into force on
other EU legislation on enterprises where the payment designs, markets, organises, makes 25 June 2018 and its provisions
administrative cooperation between is, for any one of a list of available for implementation or who apply from 1 July 2020. Under
Member States). reasons, not fully taxable where manages the implementation of a transitional measures covering the
received, and reportable cross-border interim period, arrangements for
A ‘cross-border arrangement’ is
arrangement. It can also include which the first implementation step
broadly an arrangement or a series • arrangements that may
any person who provides aid or took place between 25 June 2018
of arrangements concerning either undermine reporting obligations
assistance in connection with any and 30 June 2020 must be reported
(a) more than one EU Member State on the automatic exchange of
of these activities. to Irish Revenue by 31 August
or (b) an EU Member State and a financial account information.
2020.
third country (ie. a non-EU Member A ‘main benefit test’ applies to However, the reporting obligation
State). falls onto the taxpayer concerned in From 1 July 2020, the timeframe for
several of the hallmarks, meaning
reporting is very narrow.
20 | PwC Finance Bill 2019Arrangements must be reported any chargeable period in which taxpayer and, as appropriate, any Revenue Guidance
within 30 days beginning on the they entered into the arrangement other intermediary of the reference
Considerable uncertainty exists
earlier of the day after: or obtained/sought to obtain a tax number assigned to an
with regard to the correct
advantage from the arrangement. arrangement by Revenue.
1. the arrangement is made application and interpretation of the
available for implementation; A penalty not exceeding €4,000 rules, particularly in relation to the
Penalties for non-compliance applies in certain other scope of certain hallmarks and
2. the arrangement is ready for
Penalties of up to €500 per day circumstances, where an definitions.
implementation; or
apply where an intermediary or a intermediary or a taxpayer (where
3. the first step of implementation Consequently, the content of the
taxpayer (where relevant) fails to file relevant) fails to file the required
has been made. guidance notes that Irish Revenue
the required information on a information on a reportable cross
are expected to issue in the first
Under the provisions, Revenue will reportable cross border border arrangement that is covered
quarter of 2020 will be a very
assign a reference number to a arrangement within the 30 day under the transitional measures by
important aid to interpreting and
reportable cross-border timeframe set out above. The the 31 August 2020 deadline.
applying the rules in an Irish
arrangement. The intermediary amount of any such penalty is A penalty of up to €5,000 applies in context. In the meantime, given that
must notify the taxpayer and any required to be determined by the the case of a failure by a taxpayer DAC6 will now be on a statutory
other intermediaries of this courts having regard to, in the case to comply with the obligation to footing and have effect from 25
reference number within a five day of an intermediary, their fee or likely disclose the reference number June 2018, it is important that all
timeframe. There are also fee in connection with the assigned to an arrangement in a relevant transactions are assessed
requirements for taxpayers to share arrangement and, in all other cases, relevant tax return and a penalty of and documented by reference to
reference numbers with other the amount of any tax advantage up to €4,000 can apply where a the wording contained within the
taxpayers involved in the same gained or sought from the taxpayer fails to share a reference Finance Bill. This will be a very
reportable cross-border arrangement. number with another taxpayer significant exercise for
arrangement. involved in the same reportable intermediaries and taxpayers alike.
A penalty of up to €500 per day
The taxpayer must disclose the also applies where an intermediary cross-border arrangement.
reference number assigned to the does not comply with the five day
arrangement on their tax return for window to notify each relevant
21 | PwC Finance Bill 2019Whilst the Irish tax system has Relief for Investment in
been very successful in Corporate Trades
supporting the overall economy
The Employment Investment
through the encouragement of
Incentive (EII), the Start-Up Capital
Foreign Direct Investment it is
Private also important that the tax code
supports the “home-grown” Irish
Incentive (SCI) and the Start-Up
Relief for Entrepreneurs (SURE)
schemes are a suite of measures
Business / Colm O’Callaghan
business sector. This year’s
Finance Bill sees the introduction
of a number of positive measures
that enable individuals claim
income tax relief when they are
Individuals +353 1 792 6126
colm.ocallaghan@pwc.com
which are further discussed
below. It is however a little
subscribing for shares in qualifying
SMEs. The Bill enacts the changes
flagged in the Minister’s most
disappointing that the Bill does
recent Budget speech as follows:-
not address some of the core
concerns and challenges that we • The abolition of the phased
are seeing in practice in the basis for claiming tax relief
areas of business succession which means that an individual
and ownership transition. In that paying the marginal rate of
regard, it would have been great income tax can claim 40% tax
to see enhancements in the relief in the year in which the
areas of Retirement Relief, investment is made. This
Business Property Relief and measure applies to shares
Entrepreneur Relief and also a issued after 8 October 2019.
relaxation of the provisions Individuals who made EII or SCI
Declan Doyle introduced in recent years that investments before that date will
+353 1 792 8702 impose income tax rather than however continue to be subject
declan.doyle@pwc.com capital gains tax treatment when to the old provisions where 30%
owners exit a business. relief was available in year 1 and
10% in year 4, subject to certain
conditions.
22 | PwC Finance Bill 2019• The increase of the annual The table below sets out a summary of the EII and SCI schemes and compares the rules that apply to 2019 and
investor limit from €150k to 2020 investments.
€250k which will take effect
Comparison of Schemes 2019 Investments 2020 Investments
from 1 January 2020.
Relief Rate Phased (30% and 10%) Upfront (40%)
• The introduction of a higher
investor limit of €500k for those Eligible Shares All classes of new “Shares” and may carry Same as for 2019
who invest for a minimum preferential rights to dividends, assets on a
period of 10 years. It will be winding up and be redeemable
interesting to see the take-up on Eligible to Claim Relief Spend min. of 30% of amount raised on a Same as for 2019
this because an individual can qualifying purpose
now invest €500k in aggregate Company Limit €5m p.a. subject to €15m lifetime cap for EII. SCI Same as for 2019
over a two-year period and can subject to a €500k lifetime cap.
exit after only five years under
Investor Limit €150k p.a. €250k p.a.
the existing rules. It therefore N/A €500k p.a.
• 4 year holding period
seems to be targeted at high
• 10 year holding period
income individuals who make
sizeable long-term equity Qualifying companies Micro, small and medium sized enterprises apart Same as for 2019
investments. from those carrying on excluded trades in the
case of EII. SCI only available to Micro enterprises
Approval process Self-certify Same as for 2019
“Statement of Qualification”
Minimum holding period 4 years 4 years or (10 years if
investor avails of the new
€500k limit)
Capital Gains Normal rules but capital losses are restricted Same as for 2019
End date 31 December 2021 Same as for 2019
23 | PwC Finance Bill 2019The legislation also allows for EII of the drafting errors that arose in tax liability they have incurred in the micro and small sized companies
investments to be made via the context of the substantial period. This will be of particular are subject to a commencement
designated funds which broadly overhaul of the legislation last year. help to companies that have been order to be made by the Minister for
allows investors spread their restricted in how much they can Finance pending State aid approval.
investment across a number of Research and Development monetise based on the current Other wider amendments to the
qualifying companies. With effect - Micro and Small Companies limits and will no doubt provide an R&D tax credit regime included
from 1 January 2020, the relief is additional cash flow benefit. within the Finance Bill are
only available for the year of The Bill provides some welcome discussed in the Domestic and
amendments to the R&D regime in The final key amendment for micro
assessment in which the International Large Corporates
its application for micro and small and small sized companies is the
investment is made by the section of this document.
sized companies. These ability to claim an R&D tax credit in
individual into the designated fund.
amendments apply to companies an accounting period where they
The SURE incentive broadly have not yet commenced to trade. Key Employee Engagement
with fewer than 50 employees and
benefits founders in circumstances an annual turnover and/or balance Under the provisions, companies in Programme (KEEP)
where they leave PAYE employment sheet not exceeding €10m. that pre-trading scenario can offset The Key Employee Engagement
to set up their own company. It the credit against the corporation Programme (KEEP) is a tax efficient
operates by allowing them to The changes include an increase in tax liability of the company for that share option plan which was
shelter income earned during any of the R&D tax credit rate that applies accounting period, and where there introduced with effect from 1
the previous 6 years by the amount to qualifying R&D expenditure from is an excess credit, this can then be January 2018 and broadly applies
invested (capped at €100,000 p.a.) 25% to 30%. In addition to this, the set against any payroll taxes and to unquoted trading companies that
in new shares. No changes to the provisions provide more flexibility VAT liabilities of the company. Once are incorporated in an EEA State
SURE tax regime were announced for these companies in calculating again this will facilitate cash refunds and are Irish resident (or resident in
as full upfront tax relief at the the limit on the amount of the R&D for the company by being able to the EEA but carry on a business in
individual’s marginal rate of tax has tax credit that can be monetised. monetise the credit in this pre- Ireland through a branch or
always been available. The provisions allow micro and trading phase. agency). The scheme provides an
small sized companies to calculate
The Bill also includes a number of It is worth noting, however, that exemption from income tax, PRSI
the monetisation limit by reference
technical measures to correct some these provisions that are aimed at and USC on any gain realised on
to twice the amount of the payroll
24 | PwC Finance Bill 2019exercise of a qualifying option and or subsidiaries and its relevant company directly owns more than subsidiaries or where a holding
instead the gain will be subject to subsidiary or subsidiaries. 50% of the ordinary share capital company holds cash or undertakes
CGT on a disposal of the shares. and a relevant subsidiary is a certain activities. It is unclear
The qualifying group (excluding the
company whereby more than 50% whether these changes will be
The Finance Bill has introduced a holding company) must be wholly
of the ordinary share capital is flexible enough to cater for the
number of welcome amendments or mainly carrying on a qualifying
indirectly owned by the qualifying various group structures which are
as follows:- trade, must have at least one
holding company. A relevant seen in the Irish market.
qualifying subsidiary and all of the
1. Extension of the relief to subsidiary cannot be regarded as a
companies in the group must be The amendments within the
companies who operate through qualifying subsidiary.
unquoted. Finance Bill also include changes to
certain group structures,
These Finance Bill changes are the definition of a “qualifying
The definition of a qualifying
2. Provisions to allow part time much needed to make KEEP more individual” to allow for part time
holding company is a company:
employees to qualify for relief relevant for growing Irish employees/flexible working
and facilitate employees to a. which is not controlled either businesses as previously group arrangements and the movement of
move between group directly or indirectly by another structures with more than one employees between group
companies, and company, subsidiary were not catered for companies. The definition of a
3. Extension of relief to existing b. which does not carry on a trade within this section of legislation. qualifying individual has been
shares as well as new shares or trades; and However, once again the legislation amended to include an individual
seems to have been unduly who is required to work at least 20
In relation to the first amendment, a c. whose business consists wholly
complicated by adding many hours per week or who devotes not
qualifying share option has been or mainly of the holding of
conditions which could continue to less than 75% of their working time
extended to include options shares only in (and no other
make it difficult for SMEs to qualify for a qualifying company or a
granted in a qualifying holding companies) its qualifying
for the relief. The definitions qualifying company within a
company of a qualifying group. subsidiary or subsidiaries and
included do not seem to cater for qualifying group. This change has
any relevant subsidiary or
The definition of a qualifying group scenarios that are often seen in opened up the scheme to a number
subsidiaries.
includes only a qualifying holding practice, for example, where the of employees who may previously
company, its qualifying subsidiary A qualifying subsidiary means a parent company in a group is a not have qualified on the basis that
company where a qualifying holding trading company with multiple they were not “full time employees”
25 | PwC Finance Bill 2019and also facilitates the possibility of changes will encourage more eProbate system were also
an employee moving between companies to grant options under included.
qualifying companies within a the scheme and avail of the relief,
group. however, some further Agri-Sector
enhancements will be required in
Finally the Finance Bill has removed The only change on agri matters is
order for the scheme to reach its
the requirement for the shares to be the extension of the deadline from
full potential. These changes are
newly issued shares which carry no 31 December 2019 to 31 December
subject to a commencement order
future or preferential right to assets 2022 by which the first transaction
by the Minister for Finance.
on a winding up or dividends. The (i.e. the sale, purchase or exchange
scheme now offers the opportunity of land) in a farm restructuring plan
for options to be granted over Capital Acquisitions Tax – must take place in order for the
existing shares as well as new Group thresholds capital gains tax relieving provision
shares which is a welcome The Bill gives effect to the Budget to apply.
amendment which further enhances announcement to increase the
the flexibility of the scheme. Group A tax-free threshold from
Since the introduction of KEEP €320,000 to €335,000 which
there has been a very limited applies to gifts and inheritances
uptake of the scheme due to the taken on or after 9 October 2019.
restrictive nature of the various Also included in the Bill is a
conditions. The changes proposed technical amendment to ensure, in
by the Finance Bill are certainly a the case of an inheritance, that the
step in the right direction to Dwelling House Exemption is only
resolving some of the issues which available in respect of a single
have severely limited the ability for residential property. Provisions to
companies to qualify for the facilitate the development of an
scheme. It is hoped that these
26 | PwC Finance Bill 2019You can also read
