As has been the case in recent Finance Bills, there was a number new measures included in this year’s Bill. Some of the key new measures are set out below.
Tax relief on third level fees
The relief available for fees paid for third level education has been restricted by section 11 of the Bill which provides that the first €2,250, (was €2,000), in fees per claim will be ineligible for tax relief where the fees are in respect of full-time education. Where students are in part-time education, the first €1,125 in fees will be ineligible; this has increased from €1,000.
Retirement relief for certain income
Section 5 provides that professional cricket players will now also be able to avail of relief from income tax in respect of certain earnings and consequently be eligible for a higher rate of relief on pension contributions.
Share Based Remuneration
Section 4 provides for a number of administrative changes intended to clarify the tax treatment of share based remuneration.
- Provision for the refund of income levy and universal social charge where shares are forfeited.
- Employers may withhold or sell sufficient shares to fund the income tax and USC charge on that award of shares, before transferring the balance to the employee. This applies only in case where the employee does not provide sufficient funds to meet the tax charge.
- Under section 128A TCA 1997 individuals could defer the payment of income tax on share options until there was a disposal of the shares. Section 4 provides that where such individuals dispose of shares, half of the net gains must be used to pay the outstanding income tax liability.
Section 2 also contains a number of technical amendments in relation to the application of the USC to share based remuneration.
Relief for Chargeable Excess
Where the value of an individual’s pension benefits at retirement exceed the reduced Standard Fund Threshold (SFT) of €2.3 million (or a higher Personal Fund Threshold – PFT), a chargeable excess subject to penal taxation arises.
Measures have been introduced in the Bill to reduce the immediate tax burden where a chargeable excess arises by providing that:
- No more than 50% of a retirement lump sum can be appropriated to pay the tax liabil-ity
- The remaining tax liability, if any, can be covered by either a distribution from an ARF and/or by way of a reduction in the gross annual pension payable under the scheme over a max period of 10 years
- A credit will be allowed for tax paid on excess retirement lump sums over €200,000
Public and Private Sector Pensions
Provision has been introduced to allow individuals a one-off opportunity to cash in their private pension savings, in whole or in part, with a view to avoiding a chargeable excess arising when the public service pension crystallises. Tax at the marginal rate will apply to the encashment.
Tax treatment of foreign source dividends
Irish companies will be taxed at the 12.5% rate in respect of foreign dividends received on or after 1 January 2012 where such dividends are paid out of trading profits of privately held companies in countries which have joined the OECD Convention on Mutual Administrative Assistance in Tax Matters (section 52). Such countries include Ukraine and Brazil. This brings the tax treatment of such dividends in line with the treatment of dividends received by an Irish resident company from either; a trading company resident in an EU Member State, or a territory with which Ireland has concluded a tax treaty, or which is part of a quoted group.
Financial Services Sector
As indicated by the Minister in his Budget speech, the Bill contains a number of measures to support the International Financial Services industry.
The key measures include:
- A number of amendments to support the UCITS IV Directive provisions (sections 32, 33 & 34)
- Section 41 contains measures to facilitate cash pooling and group treasury options (section 41)
- A new unilateral relief for foreign tax suffered on equipment leasing rental income (section 51)
- Section 36 seeks to improve the functioning of the Islamic Finance provisions as introduced in Finance Act 2010
- Section 88 contains a number of stamp duty amendments which extend the range and scope of stamp duty exemptions applying to certain financial transactions and confirm the stamp duty treatment of options over shares.
Capital Acquisitions Tax
Capital Acquisitions Tax – Pay & File Date reverts to 31 October
The pay and file date for CAT will be 31 October each year for gifts and inheritances which have a valuation date falling in the 12 month period ending on the previous 31 August (section 102). Finance Act 2011 had brought forward the pay and file date to 30 September, however, to “alleviate potential difficulties for taxpayers where an inheritance takes places close to the pay and file date” (though more likely to correct the 2011 oversight) the date was reversed to 31 October.
To comply with EU Treaty provisions, the condition that a “farmer” for the purpose of agricultural relief must be resident in Ireland for three years following the gift has been removed (section 100). Section 100 also provides that a loan against a principal private residence will only be allowed as a deduction for purpose of the relief where the loan is used to purchase, repair or improve the residence.
Stamp duty self-assessment regime
Section 93 provides that stamp duty will move to a full self-assessment basis. The key features of the new system include: abolition of the adjudication procedure, the introduction of a late filing surcharge as well as audit and appeal procedures and a reduction in the timeframe within which refunds of stamp duty can be claimed. Legislation providing for the new system is subject to Ministerial Order and will only apply to instruments executed on or after the date such order will specify. Chartered Accountants Ireland has been involved in on-going consultation with Revenue on the proposed new system and will continue to engage with Revenue on the practical implementation of the new system.
Capital Gains Tax
Turf cutters will be exempt from CGT in respect of compensation payments made to them for giving up the right to cut turf in Special Areas of Conservation (section 60)
Section 56 provides that a deduction will only be available for contingent liabilities when the payment is actually made. Prior to this amendment, a tax deduction was available when the contingency arose.
This year's Finance Bill provides for additional revenue powers across key areas of self-assessment.
Section 23. Officers of a company qualifying for film relief may be penalised for failing to meet scheme reporting requirements. In addition, Revenue may refuse permission to make refunds of investments to investors where the reporting requirements have not been met.
Credit card and laser card transactions
Section 107 provides for significant additional reporting requirements on credit and charge card providers. In future, they will be obliged to provide reports to Revenue of the traders they deal with and amounts they settle. While it probably would have been within Revenue’s entitlements to get this information by way of High Court order on a case-by-case basis, section 107 makes the reporting requirement automatic. We understand that this new provision is targeted towards combating the Shadow Economy in particular.
Returns of property
Anyone who has had to make a Statement of Affairs to the Collector General may be surprised to find that up to now there was only a limited statutory obligation to do so. Failure to do so on request will now be a revenue offence. (Section 110)
Bonds for Fiduciary Taxes
If a taxpayer has been involved in the management of the business where tax has not been paid in full, or if taxes are more than 30 days in arrears, the Collector General may now require the taxpayer to provide security for taxes which may become due. (Section 111). It is not immediately clear how this section will operate in practice, and it may need to be supplemented by a Statement of Practice.
Legal Professional Privilege
A new provision within the Taxes Consolidation Act, section 908F, will give a Revenue officer an avenue to challenge claims that requested materials are subject to legal professional privilege and cannot be furnished on those grounds. The Revenue officer may apply to the District Court for a determination on the status of such documents, and has a right of appeal to the Circuit Court, but apparently no further.
Modernisation of Direct Taxes Assessing Rules
A significant number of new sections replace Parts 39 and 41 of the Taxes Consolidation Act 1997. Per Revenue notes on the matter “In order to bring consistency across the direct taxes and consistency between self-assessment and non-self-assessment rules, it is considered that one common set of rules should apply. Having one common set of rules will lead to the simplification of the assessment process for both taxpayers and Revenue and will minimise points of doubt and ambiguity. In relation to self-assessment, it is proposed that taxpayers should be required to fully self-assess for IT / CT / CGT purposes. Such a system already applies for the purposes of CAT (Capital Acquisitions Tax) and proposals are being made this year to also move to full self-assessment for stamp duties.”
By and large, these measures do serve to simplify the current assessing rules. In future, the key “assessing document” will be the ROS computation, although without prejudice to Revenue’s entitlements to raise assessments in cases of fraud or neglect. We understand that there may be some further changes introduced as the Bill goes through the Oireachtas.
Mandatory filing of accounts using iXBRL
An innocuous looking technical amendment at section 116 will allow Revenue to make mandatory efiling of accounts using a technology known as iXBRL. This technology will facilitate the automatic analysis by Revenue computer systems of the accounts and ultimately the computations submitted. iXBRL is an innovative and progressive technology which is rapidly becoming an international standard for the exchange of financial information by electronic means.
While we have no concern in relation to its use, and indeed welcome efforts by the Revenue Commissioners to become iXBRL compatible, we are also conscious of compliance costs for businesses and for the accountancy practices which act for them. A comparable project in the United Kingdom to make the use of iXBRL mandatory has resulted in significant additional filing costs and delays in submitting returns.
A consultation process, sponsored by Revenue, on the phasing in of iXBRL is already underway. This Institute will participate in the consultation with a view to ensuring that progressive technologies can be used by tax practices without resulting in unnecessary and unwelcome additional costs, and that there is business benefit to be had from any new technology investment.
Obligation to Keep Records
Section 77 and 104 amend section 886 TCA 1997 to ensure that the current six-year requirement to keep records and underlying documentation will also apply to companies in liquidation and to companies which have been dissolved.