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News : Irish Last Updated: Apr 24, 2009 - 5:31:05 PM


Irish Finance Bill 2008: Lenihan publishes Bill to "restore order and stability in the public finances"
By Finfacts Team
Nov 20, 2008 - 3:31:18 PM

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European Central Bank President Jean-Claude Trichet (on right) welcomes Irish Finance Minister Brian Lenihan to the 10th anniversary celebration of the ECB, in Frankfurt on Monday, June 02, 2008.

Irish Finance Bill 2008: Minister for Finance Brian Lenihan T.D. announced today that Finance No. 2 Bill 2008 which gives effect to the proposed Budget changes, "supports increased productivity and competitiveness, helps restore order and stability in the public finances; the Bill emphasises the need to support the enterprise sector by enhancing the knowledge economy to meet our current economic challenges."

1. The Minister for Finance, Mr Brian Lenihan, T.D. today published Finance No. 2 Bill 2008 which must be enacted by the Oireachtas by 14 February next. He said

: “I am introducing this Bill to the House in the knowledge that we face the most challenging fiscal and economic conditions in a generation. The economic context has changed very dramatically and with great rapidity. Confronted with severe budgetary pressures and negative economic growth, we face difficult choices. In making those choices I will continue to be guided by the principles of fairness, sustainability and affordability and by the need to put in place measures to enhance our economic performance”.

 

2. Lenihan said the Government is committed to protecting the economy from the worst effects of the current international downturn and to ensuring our international competitiveness is maintained and enhanced. The Bill places significant emphasis on supporting enterprise. The research and development (R&D) tax credit regime is being significantly enhanced to improve its attractiveness to large and small companies alike and to support the development of a knowledge-based economy. That is why the Bill provides support to start-up companies and also accelerates the availability of the domestic reliefs associated with Tax Treaties. These and other measures all contribute to supporting the productive sector of the economy as we plan for the future. As indicated in the Budget, the Minister says he is also committed to looking at the tax treatment of Intellectual Property over the next year having regard to the recommendations of the Commission on Taxation.

3. The Bill confirms measures announced on Budget Day including:

  • an increase in the rate of tax credit for incremental expenditure undertaken by a company on qualifying research and development (R&D) from 20% to 25%;

  • an extension of the tax incentive which provides for capital allowances of 100% of expenditure incurred by companies in the year certain energy-efficient equipment is purchased;

  • a new provision whereby new companies will see full relief where total corporation tax (CT) liability in any of the first 3 accounting periods does not exceed €40,000;

  • a new tax incentive scheme will be introduced to facilitate the removal and relocation of Seveso-listed industrial facilities which hinder the residential and commercial regeneration of Docklands in urban brown field areas;

  • to support activity and jobs in construction, the Stamp Duty applicable to non-residential property is being reduced from 9% to 6% changed in respect of Instruments executed on or after 15 October 2008;

  • an increase in the standard rate tax band to help maintain its real value and to ensure the maximum possible number of taxpayers continue to pay tax at the standard rate of 20%;

  • the introduction of an income levy at the rate of 1% on gross income up to €100,100 per annum and a rate of 2% for income above that amount. The Bill provides that a further 1% will be payable on income in excess of €250,120 per annum. All social welfare payments will be excluded from the levy. Those with an entitlement to the medical card will also be exempt from the income levy. An exemption threshold of €18,304 per annum is being set to exclude those on low incomes from the levy. An age related exemption for persons aged 65 years and over is being introduced. These thresholds will be €20,000 per annum with a provision for double that limit for a married couple. The income levy is progressive. Those on low incomes and dependent on social welfare are exempted while those that can afford it, pay the most;

  • an increase in the rate of mortgage interest relief for first-time buyers, along with a reduction in mortgage interest relief for non-first-time buyers. This rebalancing makes for a fairer system and helps those buyers with the biggest financial exposure to falling property values;
    the granting of health expenses relief at the standard rate only, with the exception of nursing home expenses which will continue to be allowed at a taxpayer’s marginal rate for 2009;

  • a car parking levy on employer-provided parking in the main urban areas. An amount of €200 per annum will apply to employees who use car parking facilities provided by their employer but a reduced rate or full exemption will be applicable in certain circumstances;

  • the introduction of a CO2-based system of taxation on the benefit to an employee of a company-provided car;

  • an extension to the Stamp duty relief available for farmers acquiring land, who are aged under 35 and have specific agricultural training. This relief will now apply in respect of instruments executed no later than 31 December 2012;

  • the renewal of the 25% general farming stock relief and the special 100% stock relief for Young Trained Farmers for a further 2 years to 31 December 2010;

  • the introduction of an air travel tax from 30 March 2009. The general rate applying will be €10 per passenger, with a lower rate of €2 for shorter air journeys. However, account has been taken of concerns raised by the regional airports particularly those on the western seaboard. The lower rate of €2 will apply to departures from any Irish airport where the destination is 300kms or less from Dublin airport. This means that all Irish departures to locations such as Manchester, Liverpool and Glasgow will be subject to the €2 rate.

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

  • In addition to the measures announced in the Budget, the Research and Development (R&D) Tax Credit Scheme is being enhanced to provide the full benefit of the credit to companies (including small and start up companies over 3 years). Companies will have options for the carry-back of unused tax credits for set-off against corporation tax paid in the previous year and to allow for any remaining unused credit to be refunded in instalments over a 3 year period by way of a payable credit. The Scheme will also now allow for a proportion of the expenditure on new or refurbished buildings used in part for R&D purposes to qualify for a tax credit; The 10 year look-back is being abolished;

  • The application of certain provisions in the Taxes Acts which would grant preferential treatment to payments to and from countries that have signed a Double Taxation Agreement (DTA) but have not yet ratified. The former requirement that a DTA had to be in force with the relevant country is being relaxed to overcome delays in bringing the agreements into force because of ratification procedures in either country;

  • The normal cut-off point for claims made under the Business Expansion Scheme (BES) and Seed Capital Scheme (SCS) schemes is being extended by three months where the required statements are submitted within the prevailing time limits by companies that have raised BES/SCS funding. The purpose of this measure is to make the schemes more user-friendly for those availing of them;

  • All visits to Ireland by those non-resident for tax purposes will be counted against their permitted days in the country;

  • Legislation to provide for the introduction of e-Stamping, involving a move from paper-based arrangements for Stamp Duty to electronic arrangements, was included in last year’s Finance Bill. A number of issues have been identified that are required to be addressed before the provisions come into effect. An incentive scheme will be provided as a once-off opportunity to regularise the stamping of any outstanding documents and to facilitate the smooth transition to the new electronic system;

  • The streamlining and simplification of the provisions in various Acts relating to the collection and recovery of taxes and duties (except customs) and their replacement with an integrated collection and recovery regime across the various tax heads;

  • The Bill will allow for the amendment of Revenue’s civil penalties regime (across all taxes and duties except customs) in accordance with the advice which the Revenue Commissioners receive from the Attorney General, so as to ensure its compatibility with the provisions of Article 6 of the European Convention of Human Rights (ECHR), and with the Constitution;

  • Provision is being made to extend the 31 December 2008 deadline of the scheme of capital allowances for expenditure on certain pollution control measures relief to 31 December 2010;

  • It is proposed that enabling provisions be introduced in the 2009 Finance Bill to provide that: all second-hand vehicles must be subject to a pre-registration check by the NCT as a condition of registration and a Temporary Register be set up in respect of foreign registered vehicles intending to remain in the State for a specified period e.g. more than 42 days.

5. The Minister said he considered the mix of measures in the Bill struck an appropriate balance between the need to protect those on low incomes, restore stability to the public finances while at the same time providing targeted support to enterprise to assist in our economic recovery. He looks forward to a constructive debate in the Oireachtas on the Bill and on the major policy issues surrounding the tax system.

 Finfacts Budget 2009 Page

Longer term Finance Bill benefits for business will not outweigh short term costs – ICAI

Brian Keegan, Taxation Director of the Institute of Chartered Accountants in Ireland commented: "The Finance Bill published this afternoon does contain worthwhile enhancements to R&D, BES and our Double Taxation network, but these are unlikely to have immediate short term benefits. It’s hard to see how any stimulus measures in this Bill are of a scale reflective of the country’s very serious economic situation. Measures such as the exemption regime for small start-up companies, while welcome, may not be sufficient.

The focus of this Bill was to be one of “support for the enterprise sector by enhancing the knowledge economy”. However this message gets lost in the realities of accelerated tax costs, most notably a new corporation tax payment regime with its harshest cashflow implication arising in 2009.

The application of a 3% levy on income amounts exceeding €250,000 had been well signalled in advance of the Bill. The current version of the Levy regime retains the unwelcome feature of denying relief for pension contributions.

ICAI notes the extension of the protections of the European Convention on Human Rights for taxpayers needing to make settlements with Revenue - it is the single issue taking up most of the space in the Bill. At first reading it would seem that the proposed approach is overcomplicated for taxpayers who wish to sort out difficulties on their own initiative without being prompted by Revenue.

The car parking space levy looks increasingly like a negative tax – one which could cost more to administer than it will yield. As such it could be assumed that it is the first phase of a developing measure intended to combat congestion. It is extremely important that the enforcement of the parking space levy be deferred until mid 2009 – no employer can reasonably be expected to have payroll systems in place to collect any new levy with this complexity from 1 Janu
ary next."

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