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Home / 2008 / April 2008 / Finance Bill 2008, Part II

This is the concluding part of an article on the Finance Bill 2008. The first part was published in the February edition of Accountancy Ireland and outlined the significant measures which were introduced in the Budget 2008 and implemented in Finance Bill 2008. This part deals with additional changes introduced to the budgetary measures, together with other legislative amendments not mentioned in Budget 2008.

This article deals with the provisions introduced in the Finance Bill 2008, as initiated, and the Committee Stage Amendments. It should be noted that further changes may have been introduced at Report Stage, which due to timing issues are not dealt with.

Unlike in previous years, the Finance Bill contained few new initiatives over those announced at Budget time, focusing instead on ‘tidy up’ measures for existing tax law and anti-avoidance. The anti-avoidance measures were particularly evident at Committee Stage, with two specific measures introduced.

-One deals with arrangements whereby a dividend is paid in connection with a disposal of shares; and -the other amends TCA97 s811A by offering a two-year period by which the Revenue must deal with the transaction, but increases the surcharge from 10% to 20%.

Finance Bill – Additional Announcements Business Expansion Scheme (BES)and Seed Capital Scheme (SCS) The extension and amendment of the BES announced in Budget 2007 which had been implemented via Ministerial Commencement Order are included in the Finance Bill to bring them permanently into effect.

Research and Development Credit The base year rules are changed so that for the future, the base year is a corresponding year ending 10 years before the end of the year of claim (so for 2014 the base year will be 2004).

Film Relief Film relief is being extended for another 4 years until 31 December 2012 and the overall ceiling on qualifying expenditure for any one film is increased from €35m to €50m. These provisions are subject to EU approval.

VAT on Property There are detailed provisions dealing with the proposed new rules on VAT on Property. As mentioned in the Budget, these measures take effect from 1 July 2008.

Further Measures not announced in the Budget are set out below.

Income Tax /Business Taxation Relevant Contracts Tax (RCT) The ‘connected persons’ rule in TCA97 s531 is being amended, whereby any person connected to a construction company, etc., is deemed to be a principal contractor and required to operate RCT, so that it does not apply to ‘innocent’ incidental connections.

Caution is still required as the measure may not go as far as necessary.

Capital Allowances Capital allowances are proposed for buildings and structures erected in caravan/camping parks. The section applies to expenditure incurred on or after 1 January 2008.

Amendments to capital allowances schemes – childcare facilities, private hospitals, mental health centres and the Mid-Shannon Corridor Tourism – to tighten up the definition of ‘property developer’ as property developers are excluded from benefiting under these schemes. It should be noted that the measures may catch more situations that intended.

Some changes are being made to the Mid-Shannon relief introduced in last year’s Finance Bill, but yet to be approved by Brussels.

Amendments to Share Schemes There have been a number of changes to share schemes and employee benefits trusts. Anti-avoidance measures have been introduced in relation to convertible securities. In addition, salary sacrifice provisions have been introduced.

Corporation Tax/ International Taxation Taxation of Foreign Dividends The taxation of foreign dividends is being amended to take account of the ECJ FII Group decision.

Rather than use the opportunity to amend the legislation to enhance Ireland’s position as a location for Foreign Direct Investment, the measures being introduced attempt to implement the ECJ decision to the very minimum level.

Foreign dividends are dividends received by companies within the charge to Irish tax from companies that are resident for tax purposes in EU Member States or in countries with which Ireland has a tax treaty.

Such dividends that are paid out of trading profits will in future be chargeable to tax here at the 12.5% rate of corporation tax instead of at the 25% rate. Where dividends do not qualify to be charged at the 12.5% rate, they will continue to be charged at the 25% rate.

Dividend pooling rules are also amended in light of these changes.

Close Company Rules Close company surcharge rules are being amended to allow a company making a distribution and the company receiving it to jointly elect that the distribution will not be treated as a distribution for the purposes of TCA97 s440.

Petroleum exploration and production A new profit resource rent tax, ranging between 5% and 15%, will apply to the profits from petroleum and oil production activities depending on the profitability of the oil field.

The new tax will result in an effective rate of almost 40% on such profits.

Energy-Efficient Equipment Accelerated capital allowances are being introduced in respect of expenditure by companies on certain energy-efficient equipment bought for the purposes of the trade. The scheme, which will run for a trial period of 3 years, will apply to new equipment in designated classes of technology. Equipment eligible under the scheme will be published in a list established by the Minister for Communications, Energy and Natural Resources (with the approval of the Minister for Finance) and maintained by the Sustainable Energy Authority of Ireland.

Allowances for Know-How Amendments are being proposed in relation to the tax relief for certain expenditure on ‘know-how’ that is bought by a person for use in a trade to ensure that the legislation operates as originally intended. It is disappointing to see this relief being tightened at a time when measures should be introduced to facilitate a knowledge-based economy.

Share Buy-Back Costs An amendment is being proposed to provide that costs incurred by a company in buying-back its own shares are not allowed as a deduction. It is difficult to see the reason for this measure as a trade test already exists.

Financial Services Amendments are being proposed in the area of Securitisation; Life Policy: Gross roll-up regime and Investment Undertakings.

Double Taxation Agreements Amendments are proposed to deal with the calculation of double tax relief.

-Clarification that a formula introduced in FA06, which calculates the amount of doubly taxed trading income that arises from a payment from which foreign tax is deducted, does not apply to foreign branch profits. -Extension of the circumstances under which a double tax relief credit is made available to Irish companies in receipt of dividends from foreign companies.

VAT Recast of the VAT Act There are a number of provisions which deal with a recast of the VAT Act in 2009 to align our national VAT legislation with the new VAT Directive 2006/112/EC – the Sixth Directive was recast in 2006. ‘No Show’ Deposits Retained An amendment is being made to the VAT Act to provide that VAT accounted for on a deposit for a supply is refundable if that supply is cancelled and the deposit is retained by the supplier. This amendment is necessary following an ECJ ruling.

Cash Receipts Cases An amendment is being made to the VAT Act to provide that where a person on the cash receipts basis of accounting grants a discount to a VAT registered person after issuing a VAT invoice in respect of a supply, but fails to issue a credit note to cover the discount, the cash receipts basis of accounting will not apply to that specific supply.

Hire Purchase Transactions Involving Finance Houses in Certain Cases An amendment is being made so that the provisions in relation to bad debts in hire purchase transactions extend to goods acquired from other Member States; and to second hand means of transport and agricultural machinery supplied on hire purchase. It will ensure that finance houses will be entitled to bad debt relief in the event of default by customers in their payments for any goods financed through hire purchase, regardless of the type of goods involved or where they are sourced.

Medical (Contraceptive) Products The rate of VAT on non-oral contraceptive products is being reduced from the standard rate of 21% to the reduced rate of 13.5%.

Revenue Powers and Administration -Revenue are being empowered to amend the PAYE regulations so that, for example, tax can be collected from the employee rather than the employer in certain circumstances, where the employer has failed to deduct tax. -Revenue’s powers are being further added to by providing for an authorised officer of the Revenue Commissioners to question suspects in Garda custody, who have been arrested and detained by the Gardai in respect of certain Revenue offences.

Capital Taxes Summary of Capital Taxes Measures CGT Retirement Relief is being amended to introduce a ‘motive’ text to ensure the relief is not used for tax avoidance purposes. One cannot help but wonder about the reason for this development.

Several sections of the Stamp Duties Consolidation Act 1999 will have to be amended to allow for the introduction of e-stamping of instruments for stamp duty purposes. A consultation process is expected to be announced.

The Stamp duty associated companies relief is being amended to prevent group relief being claimed on a transfer of shares to a connected company by a recognised market intermediary whose own purchase of the shares was exempted from duty under section 75 (which is also amended). The change applies to transfers of shares executed on or after 31 January 2008.

The Stamp duty reconstruction and amalgamation relief is being amended to allow societies registered under the Industrial and Provident Societies Act 1893 to benefit from the exemption. The change applies to instruments executed on or after 1 June 2005. A new section is being introduced which provides for an exemption from stamp duty on the sale, transfer or other disposition of a greenhouse gas emissions allowance as defined in the new section. The exemption applies to instruments executed on or after 5 December 2007.

An amendment to ensure that the 4- year time limit for claiming repayments of CAT overpaid will run from the date of payment of the tax, where that tax has been paid within the period of 4 months after the valuation date.

A Treaty entered into under section 106 of the CATCA03 will have the force of law only after the Government has made an Order and secures the position of the existing Irish/UK Double Taxation Treaty that came into effect in 1978.

Conclusion The two parts of this article have considered the Finance Bill 2008 in its entirety up to and including the Committee Stage Amendments. At the time of writing, the Finance Bill 2008 was scheduled to be passed into law before Easter.

Mary O’Brien, ACA is Senior Manager at the Taxation Department of the Institute of Chartered Accountants in Ireland.

Hi, I am looking for the relevant section(s) in Finance Bill 2008 that deals with the new anti-avoidance measures.