Irish Finance (No. 2) Bill 2011 gives effect to the taxation measures announced in the Jobs Initiative
By Finfacts Team
May 19, 2011 - 4:23 PM

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Taoiseach Enda Kenny meets students (L to R) Danielle Lyons, Katie O'Brien, Niamh Walsh and Sarah Tierney, from Colaiste Iósaef, Killmallock, Co. Limerick with their "Be INVENTive-Re INVENT it" project at the Young Social Innovators of the Year ceremony at Citywest Convention Centre Dublin, May 11, 2011.

The Minister for Finance Michael Noonan T.D. today published the Finance (No. 2) Bill 2011 which gives effect to the taxation measures announced in the Jobs Initiative on May 10th.

 On the publication of the Finance Bill, the Minister said: “The central objective of this Finance Bill and the Jobs Initiative is to assist in the creation of jobs. The Bill will achieve this objective through fostering confidence that will stimulate economic growth across the domestic sectors and especially the tourism sector. The tourism sector has the ability to achieve strong growth given the significant tourism infrastructure already in place.   The Bill also provides the resources to finance these measures that are so important to those seeking work.”
 The Bill, which will go through the Oireachtas in the coming weeks, gives effect to a number of specific measures:
Section 1 makes three amendments to section 766B of the Taxes Consolidation Act, 1997, primarily for the purpose of enhancing the flexibility for accounting for the R&D tax credit on an ‘‘above-the-line’’ basis.
Section 2 relates to Air Travel Tax and amends section 55 of the Finance (No. 2) Act 2008 to empower the Minister for Finance to appoint, by order, a day on or after which passenger departures would not be subject to the tax.
Section 3 amends the Value-Added Tax Consolidation Act 2010 to provide for a second reduced VAT rate of 9%, in respect of certain goods and services, for the period 1 July 2011 to 31 December 2013. The amendment provides that the 9% rate will apply mainly to restaurant and catering services, hotel and holiday accommodation, admissions to cinemas, theatres, certain musical performances, museums and art gallery exhibitions, fairgrounds or amusement park services, the use of sporting facilities, hairdressing services, printed matter such as brochures, maps, programmes, leaflets, catalogues, magazines and newspapers.
Section 4 provides for the levy on pension schemes announced in the Jobs Initiative. It inserts a new section 125B into the Stamp Duties Consolidation Act 1999 which imposes an annual stamp duty of 0.6% on the market value of assets under management in pension schemes approved by the Revenue Commissioners under Irish tax legislation.

The value of the assets subject to the levy will be based on the market value on May 19th for 2011, and on January 1st for 2012, 2013 and 2014, or on the last date of the previous 12 month accounting period.

The schemes affected are Retirement Benefit Schemes (i.e., Occupational Pension Schemes), Retirement Annuity Contracts and Personal Retirement Savings Accounts (other than what are known as vested PRSAs). The levy will apply for a period of 4 years (2011 to 2014) and is payable twice yearly at the rate of 0.3% on each due date.

Chargeable persons will be required to deliver a statement on each payment date setting out the chargeable amount and the stamp duty payable. The levy will not apply to the assets of occupational pension schemes in respect of employees whose employment is or was wholly exercised outside the State.

The research and development (R&D) tax credit rules are being changed through giving flexibility to companies in how they account for the credit.

An amendment to the Taxes Consolidation Act, 1997 will give companies the option of accounting for it either on an above or below the line basis.

Finance (No.2) Bill 2011 (pdf)

Explanatory Memo Finance (No.2) Bill 2011 (pdf)

Patrick Cosgrave, Director, Deloitte Total Reward and Benefits, commented: “The issues around the pension levy are well publicised. However, the reality is that there may be even greater challenges in the pipeline. In particular, the EU/IMF Four Year Plan anticipates that there will be a further reduction in pension related tax relief equivalent to €680 million per annum by 2015. This may be achieved through significant reduction in tax relief on contributions, reduced caps on overall pension funds and perhaps an increased levy.

“In addition, a recent government consultation paper has proposed a more onerous funding test for defined benefit (DB) schemes and a new model for future DB provision. The proposals are likely to lead to a substantial increase in cash costs for employers with DB schemes, as well as increased volatility in costs. These changes will be of greater financial significance than the levy. For many employers, they will also lead to conflict with the trustees and accelerate the “once and for all” decisions that are necessary to restructure DB schemes.”

Cosgrave highlighted however that there are at least two anticipated positive developments in relation to VAT and pension fund management charges: “Firstly, there are hopeful signs that the EU Member States will agree to a change in EU VAT law to extend the existing management exemption for investment funds to occupational pension funds, potentially from January 2013. Furthermore, pending an ECJ judgment expected in late 2012, there is a possibility that the management of pension funds could become exempt from VAT before that date and possibly result in VAT benefits back-dated by up to four years, but only if they act now.”

Cosgrave concluded: “While changes domestically will present challenges for the pension scheme sponsors, some of the costs may be balanced out by VAT changes at EU level. For a typical pension scheme, obtaining a four year VAT rebate on management charges may well be sufficient to cover the cost of the levy for a year. Our advise to all those impacted by the changes is to keep a close eye on these emerging developments to ensure that they are best placed to avail of them.”

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