Finance Bill - Corporation Tax measures

Oct 23, 2017

Finance Bill 2017 covers a number of corporation tax measures which includes starting the process by which Ireland will align its double tax treaties and double taxation relief rules to take account of measures arising from BEPS.  Revenue practice in relation to section 247 TCA 1997 interest deductions for structures containing holding companies has been given the appropriate force of tax law and developments in accounting standards will also be reflected in tax law with a requirement to compute “transitional adjustments” under Finance Bill 2017. 

Tax treaty and double taxation measures

The Bill represents the first step in the procedure required to give effect in Irish law to the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI).  The MLI provides for the modification of bilateral tax treaties to eliminate double taxation in accordance with the recommendation of the BEPS initiative. This means that each of Ireland’s tax treaties will be modified once Ireland and its treaty partner states sign and ratify the MLI.  Ireland was among 60 signatories to the MLI on 7 June 2017.   Tax rules dealing with double tax agreements and relief for double taxation are covered in Section 826 TCA 1997 and Schedule 24A respectively and these sections will be amended to reflect the provisions in the Bill once a Ministerial Order is granted. 

Restrictions to section 110 companies

The Bill adds to the list of Irish property profits subject to restriction provisions under Section 110 TCA 1997.  Interest paid on or after 19 October in respect of certain shares deriving value from Irish land will be restricted.

KDB technical amendment to loss relief

A technical amendment is introduced to the loss relief provision for a company claiming relief under the Knowledge Development Box (KDB). The Bill states that the amount of relief that can be claimed for a loss incurred in the KDB trade cannot be greater than the loss itself.

Accounting standards

The Bill makes a number of amendments to section 76A TCA 1997 to deal with the  replacement of former Irish generally accepted accounting practice (GAAP) standards (including FRSs and SSAPs) with current Irish GAAP accounting standards (FRS 100 to FRS 105). The technical amendment requires a company to calculate a “transitional adjustment” upon a change of accounting framework. This transitional adjustment is then taxed or deducted (as the case may be) over a five year period following the transition. The technical amendment in the Bill also incorporates existing practice regarding changes of accounting policy and correction of errors. The “spreading” provisions have also been extended to the adoption of a new standard within the same accounting framework in anticipation of the further development of IFRS and Irish GAAP. 

Relief for loans applied in acquiring an interest in companies

The Bill amends section 247 TCA 1997 which is an important tax relief mechanism for interest on a loan used to acquire, or lend to, directly or indirectly a trading company.  The changes introduced under the Bill give statutory effect to the administrative approach taken by Revenue to allow interest relief on investments held indirectly through one or more intermediate holding companies.  Consequential changes have been made to section 243 TCA 1997 and section 249 TCA 1997 on foot of the amendments to section 247. The amendments to section 247 apply to loans made on or after 19 October. 

Restriction of tax relief for intangible assets

As announced on Budget Day, tax relief under section 291A TCA 1997 for capital allowances for intangible assets, and any related interest expense, is limited to 80 percent of the relevant income arising from the intangible asset in an accounting period. This restriction applies to expenditure incurred on or after 11 October 2017.  Section 291A is also amended to clarify that relief under this section applies irrespective of whether the company wholly or partly carries on qualifying trading activities.

 

iXBRL for investment undertakings

The Bill inserts a new section 739FA into TCA 1997 which will require investment undertakings to provide financial statements electronically to Revenue.  This measure will be introduced on a phased basis through regulations made by the Revenue.

Life assurance companies

The Bill makes a number of amendments to the taxation of life products. Firstly it provides that a life company cannot use foreign tax arising on income that forms part of its ‘policy holder business’ to claim double tax relief against its taxable profits. Secondly it provides that the assignment of a life policy as security for a mortgage to a qualifying company, within the meaning of section 110 TCA1997 will not be a chargeable event which triggers an exit tax charge on the policy holder.

Irish Real Estate Fund

The Bill makes a number of amendments to the Irish Real Estate Fund (IREF) regime, introduced by Finance Act 2016. Under the latest provisions, IREFs do not have to operate withholding tax on payments to Approved Retirement Funds, Approved Minimum Retirement Funds and vested Personal Retirement Savings Accounts.  Other measures set out in the Bill provide that:

  • sub-funds may make a declaration in respect of unit-holdings in other sub-funds of the same umbrella scheme,
  • advance clearance procedures will apply where a claim for a full refund of any tax withheld is made,
  • a Markets in Financial Instruments Directive (MiFID) regulated intermediary can  make a declaration on behalf of pension funds, charities and credit unions.