Finance Bill 2020 (“the Bill”) was published on Thursday 22 October 2020. The Bill contains the legislative provisions for the tax measures announced by the Minister for Finance in his Budget 2021 speech. At 106 pages in length, the Bill is shorter than previous Bills and there were relatively few surprises. However, the Bill provides further clarification on the measures announced in Budget 2021 and introduces some additional measures.

The purpose of this article is to outline the key measures included in the Bill which taxpayers and practitioners should be cognisant of. This article is subject to any subsequent amendments to the Bill introduced by the Houses of the Oireachtas before the Bill is signed into law which is expected to be in late December.

Pandemic unemployment payment

The Bill amends section 126 Taxes Consolidation Act 1997 (“TCA 1997”) to confirm that the pandemic unemployment payment is to be regarded as a taxable emolument. Revenue previously announced that any income tax liability arising on these payments may be spread over four years (i.e. 2022 to 2025), interest-free, by reducing the individual’s tax credits.

Help to buy scheme

The temporary enhancement of the help to buy scheme, introduced as part of the July Stimulus Plan, has been extended by 12 months to 31 December 2021. In brief, the scheme operates to provide assistance to first time home buyers in respect of the deposit required to purchase or build their home. The relief available is currently the lesser of:

• €30,000 (previously €20,000); and
• 10 percent (previously 5 percent) of the purchase price or completion value of the new home.

The relief is also capped at the amount of income tax and DIRT paid by the applicant in the four years preceding the application.

Reporting of certain share incentives

The Bill extends the scope of mandatory reporting by employers in relation to certain share incentives. This includes awards in the form of a cash equivalent of shares or where a discount is provided on the shares. The reporting of information pertaining to such awards must be provided electronically in a format prescribed by Revenue. This mandatory electronic reporting also now extends to convertible securities, restricted shares and forfeitable share plans.

Covid Restrictions Support Scheme (“CRSS”)

The CRSS is one of the targeted supports announced on Budget day to assist businesses significantly impacted by the introduction of public health restrictions to combat the COVID-19 pandemic. The Bill includes the legislative provisions for this relief.

A qualifying business may claim a cash payment under the CRSS equal to 10 percent of its average weekly turnover in 2019 up to €20,000 and 5 percent thereafter, subject to a maximum weekly payment of €5,000. This applies for each week that the business is affected by the Covid restrictions. For new businesses, the payment will be based on average weekly turnover between the date of commencement and 12 October 2020 (subject to the same €5,000 weekly limit).

In short, the scheme applies to companies, self-employed individuals and partnerships where the following conditions are satisfied:

• The taxpayer must be carrying on trading activities under Case I of Schedule D;
• The business must be carried on from a business premises located in an area which is subject to Covid restrictions (generally Level 3 or above);
• The Covid restrictions must prohibit or significantly restrict customers from accessing the business premises;
• As a result of Covid restrictions, the turnover of the business for the period in question, and for which a claim is made, must be no more than 25 percent of the average weekly turnover of the business in 2019 (or 2020 in the case of new businesses). This threshold increased from 20 percent as announced on Budget Day.

There are other requirements which must be satisfied such as having a valid tax clearance certificate and the taxpayer’s VAT compliance obligations must be up-to-date.

Professional services withholding tax (“PSWT”)

The Bill provides for the modernisation of the PSWT regime, subject to a Ministerial Commencement Order. In brief, the amendments would involve the submission of information, data and returns electronically to Revenue, which contrasts with the current system which is predominantly paper-based.

Transfer pricing

The Bill proposes amendments to the transfer pricing legislation introduced by Finance Act 2019. The proposed amendments are to apply to accounting periods beginning on or after 1 January 2021.

Firstly, the definition of a “relevant person” has been amended to ensure that a supplier or acquirer, whose profits or gains or losses within the charge to tax would take account of any results of an arrangement, will be regarded as a “relevant person” for the purposes of documentation requirements.

Perhaps more significantly, the Bill replaces the old section 835E TCA 1997 which provided for an exemption for certain Irish to Irish transactions. The new section 835E TCA 1997 is narrower in scope and this will potentially have significant implications for groups with non-arm’s length domestic transactions.

The definition of “qualifying relevant person” has been amended to clarify that a relevant person must have profits or gains or losses chargeable to tax under Schedule D, the computation of which directly takes account of the actual results of the arrangement. In addition, the definition has been amended to clarify when a party to certain loan arrangements will be regarded as a “qualifying relevant person”.

Encashment tax

Encashment tax is a withholding tax deducted from certain income such as public revenue dividends and dividends of a non-resident body. The Bill provides that from 1 January 2021 the rate of encashment tax is to increase from 20 percent to 25 percent, however there will be an exemption for companies within the charge to Irish corporation tax.

Intangible asset capital allowances

The Bill amends the intangible asset allowances regime in respect of balancing charges. Previously, a balancing charge would generally not arise in respect of allowances claimed under section 291A TCA 1997, where the asset was disposed of more than five years after the beginning of the accounting period in which the asset was acquired. The Bill provides that a balancing charge may now arise in respect of intangible assets acquired on or after 14 October 2020, irrespective of when the asset is disposed of. This measure was introduced on Budget Day by way of Financial Resolution.

Controlled foreign companies

The Bill introduces an anti-avoidance provision in respect of the controlled foreign company (“CFC”) rules. For accounting periods beginning on or after 1 January 2021, the following exemptions will not be available to a CFC which is tax resident in any country on the “EU list of non-cooperative jurisdictions for tax purposes”:

• Low profit margin exemption
• Low accounting profit exemption
• Effective tax rate exemption

Anti-hybrid legislation

The Bill provides for a number of technical amendments to the anti-hybrid legislation introduced by Finance Act 2019. In brief, the amendments clarify certain definitions and the application of the rules in certain circumstances (e.g. where there is no economic mismatch outcome as a result of a CFC charge).

Foreign currency deposits

Details of the capital gains tax (“CGT”) anti-avoidance provision announced by Minister Donohoe on Budget Day have been included in the Bill. From 14 October 2020, neither a chargeable gain nor an allowable loss for CGT purposes will arise where a foreign currency bank deposit is transferred between bank accounts held by the same person. Previously, such transfers could potentially crystallise an allowable CGT loss even though there was no real economic loss for the taxpayer.

Entrepreneur relief

The Bill amends the shareholding requirement for entrepreneur relief (whereby a 10 percent rate of CGT applies to capital gains under a lifetime limit of €1m, subject to certain conditions).

Currently, the conditions of entrepreneur relief require an individual to own at least 5 percent of the share capital of the relevant company for a continuous period of three years in the five years immediately preceding the disposal.

The Bill provides that shares may qualify for relief where they are held for a continuous period of three years at any time prior to disposal. This will allow for circumstances where an individual may dispose of shares in tranches several years apart.

This change is to apply to disposals on or after 1 January 2021.

VAT measures

The Bill introduced a number of VAT measures, some of which are designed to combat the ongoing financial impact of COVID-19 on certain businesses. These changes may be summarised as follows:

• A reduced VAT rate of 9 percent will apply to the supply of restaurant and catering services, guest and holiday accommodation, hairdressing services and certain entertainment services (e.g. cinemas, theatres and museums). The reduced rate applies from 1 November 2020 until 31 December 2021.
• The Bill includes a provision whereby Revenue would have the power to require a non-established trader to appoint a tax representative who would be jointly and severally liable for Irish VAT due by the non-established trader.
• The temporary zero-rating of certain medical equipment and supplies provided to the Health Service Executive and other health facilities is provided for in the Bill. This applied until 31 October 2020, and the provisions allow for an extension to a later date by notice of the European Commission. The Commission recently issued this notice, extending the temporary waiver until the end of April 2021.

Capital acquisitions tax (“CAT”)

The Bill provides that where business asset relief or agricultural relief are claimed, a CAT return will be required notwithstanding that the taxable value may not exceed 80 percent of the relevant CAT threshold.

The Bill also amends the four-year time limit in which Revenue can make enquiries, raise assessments or make repayments of CAT. The commencement date of this four-year period will now be 31 December in the year in which the return is received (rather than four years from the date the return is received as was previously the case).

Tax appeals

The Bill introduces certain amendments to the current tax appeals process. For example, the Bill provides that an appeal may be dismissed where an appellant does not submit certain information required to progress the appeal.

Furthermore, the right to interest for a taxpayer is removed where the taxpayer appeals an assessment and discharges the disputed tax liability. In the event that the taxpayer subsequently wins the appeal, there will be no right to interest on overpaid tax.

Next steps

The Bill will be debated in the Dáil and the Seanad during November and early December. The Bill is expected to be enacted into law by the end of the year.

Christopher Crampton is a Tax Associate Director with Grant Thornton

Email: Christopher.Crampton@ie.gt.com