Ireland Publishes 2014 Finance Bill

Irish Finance Minister Michael Noonan has published the 2014 Finance Bill, which gives effect to the tax reforms announced in his Budget and introduces a number of new anti-avoidance measures.

Noonan’s October 14 Budget included plans to reduce the marginal tax rate from 52 percent to 51 percent, through a cut to the top rate of tax from 41 percent to 40 percent and a restructuring of the Universal Social Charge.

The Finance Bill also contains some of the corporate tax changes outlined in Noonan’s Road Map for Ireland’s Tax Competitiveness, which was published alongside the Budget.

Section 28 of the Bill will amend Ireland’s company tax residence rules to ensure that all companies that are incorporated in Ireland will be automatically tax resident there. If the legislation is passed, the requirement will come into effect for new companies from January 1, 2015, and from 2020 for existing companies.

Section 23 of the Finance Bill overhauls the research and development (R&D) tax credit. At present, the credit applies to the amount of qualifying R&D expenditure by a company in a given year that is in excess of the amount spent in 2003 (the regime base year). The Bill allows for the removal of the base year restriction for accounting periods commencing on or after January 1, 2015.

Section 35 enhances the intangible assets regime. The Government intends to remove the restrictions on the use of capital allowances for expenditure incurred on the provision of certain intangible assets for use in an Irish trade.

Also included in the Bill are proposals for a three-year extension for the Special Assignee Relief Programme (SARP) to end-2017, and the lifting of the cap on qualifying salary and of the requirement to be tax resident in Ireland and nowhere else for the purposes of the SARP.

The Bill also extends the Foreign Earnings Deduction for the same period, increases the number of qualifying countries, and reduces the overall number of days required to be working and living abroad.

A number of additional measures, not announced on Budget day, have been included in the Finance Bill. They focus overwhelmingly on tax avoidance. For instance, it includes amendments to close off a number of tax avoidance schemes that are linked to the use of Approved Retirement funds and “vested” Personal Retirement Savings Accounts.

The Finance Bill replaces sections 811 and 811A of the general anti-avoidance legislation (GAAR) with two new sections, 811C and 811D. The regime includes a surcharge for entering into abusive schemes and the possibility to have a scheme vetted prior to use to determine whether it would fall under the anti-avoidance provisions in 811C.

Among the numerous measures, the rules on mandatory disclosure are to be expanded to require the Revenue Commissioners to assign a unique Transaction Number to each tax avoidance scheme notified. Any transaction that seeks to avoid tax though the use of a discretionary trust would be deemed a disclosable transaction.

Last, the Finance Bill affords the Revenue Commissioners greater powers to tackle value-added tax (VAT) avoidance.