Irish Economy
Irish Finance Bill 2011 published; Retail software known as a ‘Zapper’ is to be banned; Annual Artists' Income Exemption cut to €40,000
By Finfacts Team
Jan 21, 2011 - 4:16 PM

The National Recovery Plan 2011-2014 (pdf) - - includes some spin e.g. the plunge in unit labour costs, mainly due to a surge in pharmaceutical/medical devices production and exports with employment almost unchanged in the low 40,000's since 2004.

The Irish Finance Bill 2011 was published Friday afternoon to give effect to measures announced in Budget 2011 which was presented last month and to propose additional measures. In an anti-avoidance measure, retail software known as a ‘Zapper’ is to be banned. Meanwhile the annual Artists' Income Exemption has been cut to €40,000.

The Minister for Finance Brian Lenihan T.D. said today: "“This Finance Bill is an important element of the National Recovery Plan which plots a course to sustainable economic growth and employment.

The measures contained in the Bill continue the process of stabilising our public finances, providing appropriate support to business and assisting the Revenue Commissioners to maintain a climate of compliance.

The measures in the Bill which will assist all businesses and help boost employment include the Employment and Investment Incentive , which replaces and updates the Business Expansion Scheme. In response to calls from the tourism industry, the Air Travel Tax is being substantially reduced. I have extended the three year corporation tax exemption for start up companies which create jobs. The Bill also gives effect to the fundamental reforms of Stamp Duty contained in the Budget, which will improve and stimulate the operation of the property market. Work is ongoing on the changes required in the tax system to give effect to the Civil Partnership legislation, as well as the tax treatment of bank bonuses in relevant financial institutions. Amendments relating to these areas will be considered at later stages of the Bill.

It is important to have a tax system that supports our potential to grow. That is why the Government decided, as set out in the National Recovery Plan, that two- thirds of the required budgetary adjustment over the period 2011-2014 should be achieved by way of expenditure reductions and one-third should be raised by taxation. Taxation policy measures announced in the Budget of December 7th provided for an estimated yield of €1.4 billion in 2011 and just under €2.6 billion in a full year. Most of the income tax changes envisaged in the National Recovery Plan were made in Budget 2011 and are now being given legal effect in this Finance Bill.

The measures contained in this Finance Bill, together with our budgetary strategy, will continue to encourage employment and promote genuine economic recovery.”

• The Bill sets out the details of the Universal Social Charge (USC), introduced to replace the Income Levy and the Health Levy as announced by the Minister in Budget 2010.
• Provision is made for reductions of 10% in Income Tax Credits and Bands as announced in the Budget. Provision is also being made for the reduction of the age exemption limits. These changes are in line with the commitments in the National Recovery Plan, 2011-2014.
• A number of reliefs and exemptions are being either restricted or abolished. These include Rent Relief (phased out over 8 years), Patent Royalty Exemption, tax relief for trade union subscriptions, relief from BIK for employer-provided childcare facilities, capital expenditure on new machinery and plant for use in mining, and a number of share-related measures: relief on loans to acquire an interest in certain companies, Approved Share Options Scheme and relief for new shares purchased by employees. In line with the Budget announcement, provision is being made to restrict the tax exempt earnings of Artists to €40,000.
• The provisions on the property-related tax expenditures, as announced in the Budget, are fully contained in the Bill (Sections 22 and 23), but the Government has decided that they will now be subject to a commencement provision which may only take effect in the next tax year following the preparation and publication of an economic impact assessment on the proposed changes. The intention to carry out an impact assessment was announced on Budget day. In light of the wide range of concerns that has been expressed regarding the potential effects of the changes on the real economy, and on employment in particular, the Government decided that such an assessment should be undertaken in advance of the commencement of the provisions.
• The existing Business Expansion Scheme (BES) is being reformed and renamed as the Employment and Investment Incentive (EII). This new incentive will be more targeted at job retention and creation. As the BES is an approved State Aid, any changes must first be approved by the European Commission before they can come into effect. Once the necessary approval is received from the European Commission, the new incentive will be commenced by Ministerial Order. This will encourage job creation in new and existing companies.
• Tax relief for energy-efficiency works: Income Tax relief will be provided for expenditure incurred by individuals (not the landlord of the property) on a range of works undertaken to improve the energy efficiency of residential premises situated in the state. A maximum of €30 million in relief per annum will be allowed for this scheme.
• The Relevant Contracts Tax system is modified to replace the current RCT rates with a three-rate withholding system on a revenue-neutral basis. A 0% rate which would apply on the same basis as currently applies to a C2 holder. A 20% rate will be introduced for subcontractors registered for tax with an established compliance record. The 35% rate will be retained as the default rate where the other rates are not appropriate.
• The Bill gives effect to the fundamental reforms to Stamp Duty on residential property as announced in the Budget. Stamp Duty is now payable on 1% on residential property transactions valued up to €1 million and 2% on the excess over €1 million. This applies to all such transfers on or after 8 December 2010.
• In relation to pensions, the flexible options on retirement (e.g. access to an Approved Retirement Fund - ARF etc) are being extended to all Defined Contribution (DC) pension arrangements, subject to certain changes to the general conditions attaching to those options and to certain transitional provisions.
• The scheme introduced in Budget 2009 which provides a three-year exemption from corporation tax on the trading income and certain gains of new start-up companies is being extended to include start-up companies which commence a new trade in 2011. The scheme is being modified from 2011 so that the value of the relief will be linked to the amount of employers’ PRSI paid by a company in an accounting period.
• The Bill confirms the changes announced in the Budget to a number of indirect taxes, including: the excise increases on petrol and diesel from December 07, 2010; a single rate of Air Travel Tax of €3 with effect from 1 March 2011; the extension of the car scrappage scheme, at a reduced rate of up to €1,250, until 30 June 2011; the extension of VRT relief for hybrid vehicles and flexible fuel vehicles, at a reduced rate of up to €1,500, for a further two years until 31 December 2012; and the increase in the current VRT flat-rate of €50 for Commercial (Category C) vehicles to €200 with effect from 1 May 2011.
• Also introduced, subject to Commencement Order, are the taxation changes necessary for the extension of the 1% betting duty based on turnover to remote bookmakers in respect of bets taken from persons in the State. In view of the different business model adopted by Betting Exchanges, a “betting intermediary duty” will apply at the rate of 15% on the commission they charge/receive from persons in the State. It is planned that the necessary regulatory changes will be provided for through separate legislation amending the Betting Act 1931.

The Minister highlighted a number of the other new measures in the Finance Bill:

• The self-assessment rules are amended by bringing forward the date for the payment of preliminary tax for income tax purposes from October 31 to September 30 in the tax year involved. Similarly, the date for the payment of the balance of tax for the previous tax year and the submission of a tax return (relating to Income Tax and Capital Gains Tax) for that year is brought forward from 31 October to 30 September. Similar measures were undertaken last year for Capital Acquisitions Tax (CAT).
• The definition of expenditure on research and development for the purposes of the R&D tax credit is being amended so that a company cannot also claim the tax credit on expenditure incurred on specified intangible assets (for which a separate tax relief scheme is already in place.)
• Relief under section 247 of the Taxes Consolidation Act, 1997 will not generally be allowed in respect of interest on intra-group borrowings to finance the purchase of assets from another group company nor will such interest be allowed as a deduction in computing profits or gains of a trade.
• Changes are being made to counter attempts to extract funds from close companies on a tax-free basis using trusts and other such arrangements. The changes will apply to transfers of assets or liabilities made on or after the date of publication of the Bill.
• A customer service initiative to provide taxpayers with additional optional methods for the payment of taxes and duties, including by use of credit card. This gives greater flexibility for making payments while also facilitating voluntary compliance.
  The Bill addresses the current lack of a specific tax-related provision governing the confidentiality of taxpayer information provided to Revenue. It will also align the treatment of confidentiality of taxpayer information which is out of line with the practice in most other tax administrations.
• Publication of tax defaulters can only follow ‘agreement’ and ‘payment’ of settlement amounts. Certain taxpayers and agents are aware of this requirement and they persistently resist or refuse to either agree liability or pay the settlement which does not allow Revenue publish the relevant details. The proposals contained in the Finance Bill address this situation.
• Revenue is being granted additional powers in respect of false claims for tax relief or tax credits made by or on behalf of taxpayers. The measures impose a penalty on any person who makes a false claim or assists in making a false claim in addition to seeking recovery from the beneficiary of any tax refunded on the basis of a false claim.
• Software, known as a ‘Zapper’ which can be applied to electronic point-of-sale records to seamlessly amend them to, for example, reduce the recorded turnover of a business will be outlawed and appropriately stringent penalties introduced.
• Section 110 of the Taxes Consolidation Act, 1997 which governs the taxation of securitisation and structured finance transactions, is amended. The purpose of the proposed amendments is twofold. In the first instance, it will extend the type of assets that a section 110 company can acquire to include plant and machinery, commodities and carbon offsets. The carbon offset proposal is part of a broader initiative to develop a Green Financial Services Centre. At the same time, the provisions of section 110 are being restricted to better reflect their original intention.
• As the current full exemption from VRT available on the purchase of electric vehicles until 31 December 2012 can result in very large VRT relief in respect of high priced electric vehicles, a cap of up to €5,000 will apply to the VRT relief available with effect from May 1 2011.
• In the case of VAT, the Bill introduces a reverse charge mechanism for the scrap metal sector; the amendment to the notification rules as regards foreign-established mobile traders, and the extension of the penalties regime for VAT non-compliance.

List of Items Finance Bill 2011

Finance Bill 2011

Explanatory Memorandum

Brian Keegan, tax director at Chartered Accountants Ireland, commented: Difficult Property Tax Relief decisions put on hold in a “work in progress” style Finance Bill 2011

"There’s no respite in this Bill from the Budget hikes to income taxes. But the Bill stops short of implementing some of the proposals to curtail tax reliefs due to property investors.

Property Measures

It seems that there is no prospect now of the bulk of the property relief restrictions being applied in 2011. The Bill stipulates that the key restrictions can only be applied after an impact assessment is undertaken. Not only that, the Bill provides for an interval after this assessment, presumably to allow for any adjustments to be made which arise from it.

Chartered Accountants Ireland considers that the original proposals would have done little to raise additional revenue, damaged property values further, ruined some investors and damaged the reputation of Irish tax based incentives. A proper impact assessment for such measures is essential. This move in Government thinking since Budget Day underlines the worth of broader consideration and debate. We hope there will be adequate time for further debate and deliberation as the Bill makes its way through the Oireachtas.

Employment and Investment Incentive Scheme

Other measures are largely unchanged between the Budget Statement and the Bill. The new Employment and Investment Incentive Scheme has positive aspects, especially as it is available to be used by a wider range of businesses than the predecessor Business Expansion Scheme. However, the scheme requires EU approval under State Aid rules. We need to get capital flowing back into business as soon as possible. An early approval of this scheme is very important. It is unfortunate that suggestions for more simplified schemes with no immediate cash tax cost were ignored.

Tax Payment and Administration

While PAYE workers have been affected immediately by the income tax increases, the self employed face earlier tax payment and filing dates into the future. Our tax system is a self-assessment system, which relies heavily on self employed taxpayers and their accountants doing the bulk of the tax calculations. The requirement to pay taxes a month earlier than usual will not be especially welcome. The change will put additional work pressure on many businesses. This is because traditionally, most companies make returns in September each year, most individuals in October. In future both will file returns in September. This is a particularly unwelcome development and does nothing for the efficiency of the administration of tax in Ireland.

Revenue have been given significant new powers, including a special power to penalise bogus claims for relief. On the other hand, the right of the taxpayer to confidential dealings has been copperfastened, which is sensible and worthwhile.

A Work in Progress

Other items which had been signalled for inclusion in the Finance Bill, for example the changes needed to give effect to the Civil Partnership legislation are promised at a later stage in the Bill. There is some sense that this Bill is a work in progress. Key provisions have either been suspended and are subject to a Commencement Order to follow, or don’t appear at all but are promised at a later stage.

Statement: Irish Property Owners Association (IPOA) Welcome Finance Bill Section 22 & 23 Reprieve

"The Government has seen the light by deferring the commencement of Sections 22 and 23 of the Finance Bill. The abolition of these incentives would have caused severe damage to the property investors of this county, to the banking sector who are already under serious strain, to the taxation system and the economy as a whole. Stephen Faughnan, Chairman of the IPOA welcomed the move and stated that 'the impact assessment will show that the budget measures announced would damage the economy, result in wholesale mortgage default, curtail the investment in much needed infrastructure. These measures if brought in would undermine investment in the state and cause mistrust in Public Private Investments for decades to come'.

The IPOA have lobbied extensively and engaged top legal advice in their efforts to change the budget announcement on property based incentives. This will give a breather to the investors of this country who trusted the state and invested on the basis of state incentives in properties like housing, hospitals, nursing homes etc. and were shocked by the Budget Announcement. Property Owners can be assured that IPOA undertake to challenge any moves to withdraw these incentives by this or any future Governments."

Commenting on the bill, IBEC chief economist Fergal O'Brien said:"It is very disappointing to see that there is practically nothing in this Finance Bill targeted at trying to get people back to work. Following a Budget that put excessive taxes on labour and increased employment costs for businesses, we had hoped to see measures in the Finance Bill that would support enterprise and employment.

"The Bill sets out the detail of the Employment and Investment Scheme, which was announced on Budget day, but apart from that it is very difficult to point to anything in this Bill aimed at addressing the jobs crisis. Business is particularly disappointed that Government has not done anything to advance the smart economy. Business had hoped to see new measures to improve Ireland's R&D offering and improve the tax treatment of intellectual property."