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TaxingTimes
Finance Act 2015 & Current Tax Developments
November 2015
kpmg.ie/financeact2015
KPMG is Ireland’s leading Tax practice with almost 600 tax professionals based in Dublin, Belfast, Cork and Galway. Our clients range from dynamic and fast growing family businesses to individuals, partnerships and publicly quoted companies.
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For further information on Finance Act 2015 log on to: kpmg.ie/financeact2015
TaxingTimes Finance Act 2015 1
Conor O’BrienPartner
Introduction
The Government published Finance Act 2015 on 22 October 2015. The Act contains the taxation measures announced in the Minister for Finance’s Budget speech on 13 October 2015 as well as a number of measures not previously announced. As the bill has been passed by the Dáil, we refer to the bill in this issue of Taxing Times as Finance Act 2015.
We welcome the publication of the Act which confirms pro-growth and pro-employment measures announced on Budget day as well as announcing some new ones. Positive new measures announced include:
n A confirmation that legitimate travel expenses for certain foreign directors coming to Ireland for board meetings are not taxable. Uncertainty over this issue had been a significant concern for business and we have been calling for clarification of the treatment of such expenses for some time. The measure is sensible and removes the potential anomaly of directors being taxed on what are in fact legitimate travel expenses rather than actual income.
n An increase from €250 to €500 in the amount of certain qualifying vouchers that can be given tax free to employees. The amount involved is not enormous but nonetheless will be much appreciated by many as Christmas approaches.
The pro-growth and pro-employment measures announced on Budget Day and confirmed in the Act include:
n A cut in rates of USC for low to middle incomes.
n A reduction in the rate of capital gains tax from 33% to 20% on up to €1 million of gains earned by qualifying entrepreneurs.
n An increase of the main exempt Capital Acquisitions Tax threshold from €225K to €280K.
n A start to equalising the tax credit treatment of the self-employed with that of the employees.
We very much welcome the policy of allowing individuals to retain more of their own money by reducing tax rates combined with intelligent and targeted tax reforms. Our experience as the largest provider of business advice in Ireland leads us to believe that such policies will increase growth and employment in the economy and that the best targeted tax reforms will ultimately increase the Exchequer yield when the growth and employment effects are taken into account. In particular we have been calling for reform of the taxation of entrepreneurs. We welcome the measures in this regard included in the Act. Although they do not go nearly as far as we have recommended we believe they are a good start and we hope they can be built on in the future.
We also hope that in the future the policy of excluding incomes over €70K per annum from tax reductions will cease. Such incomes are unusually highly taxed by international standards with the top 1% of income taxpayers already paying more than the bottom 75% combined. This reduces the competitiveness of our economy particularly in the new post “BEPS” world where OECD rules will mean it is increasingly critical to attract key executives to Ireland. Moves to improve Ireland’s competitiveness in the income tax area will complement the excellent and very competitive Irish corporation tax regime and should ensure the economic recovery continues.
Conor O’BrienHead of Tax and Legal Services
Personal Tax 2
Employee Issues 5
Business Tax 6
Reporting Regimes 12
Ireland’s Knowledge 14 Development Box
Property & Construction 17
Financial Services 19
Indirect Taxes 22
Finally some reward 24 for risk takers
BEPS in a nutshell 28
Tax Rates 32 & Credits 2016
2 TaxingTimes Finance Act 2015
Personal Tax
Universal social chargeThe Act gives effect to the changes in the universal social charge (USC) announced in the Budget.
The USC changes have been targeted at those earning between €12,012 and €70,044, which the Government views as low to middle incomes.
The changes should result in a benefit equivalent to an additional week’s net pay for an individual earning €70,000.
The maximum rate of tax for all those earning under €70,044 has been reduced to 49.5%, the first time that this rate has been under 50% since the supplementary Budget of April 2009. This has been achieved by reducing the two lower USC rates by 0.5% each. Full details of the revised rates and bands are set out in the tax rates and credits section at the end of this publication.
The change in rates also means that the top rate of USC is limited to 3% for (i) those with medical cards and (ii) those aged 70 years and over with income of €60,000 or lower.
The USC entry threshold is to be increased to €13,000, a move that will remove 42,500 workers from the scope of the charge. The USC was originally introduced in order to broaden the tax base, but successive Budgets have narrowed its application by eliminating a relatively modest charge on a large number of people – a person with income of €12,999 in 2015 has a USC liability of €215.
All of the above changes will come into effect from 1 January 2016.
The marginal tax rate for those earning above €70,044 has not been changed and continues to be 52% for employees and 55% for the self-employed. However, individuals earning above €70,044 also benefit from the USC reduction in respect of their income up to €70,044.
The Act also includes a measure for employees who, due to the scheduling of wage / salary payments, have an additional pay day in a particular calendar year i.e. 53 pay days for employees paid weekly or 27 pay days for employees paid fortnightly. Where this occurs,
the relevant USC rate thresholds are adjusted to ensure that the employee’s net pay is not affected simply because of the scheduling of their wage / salary payments. This change applies for the 2015 tax year onwards.
The Act includes an additional measure in relation to employer contributions to a PRSA. Such contributions are treated as a taxable benefit-in-kind, with relief from income tax available subject to certain age-related and earnings limits. Previously, USC was payable on the full amount of the contribution. The Act introduces a full exemption from USC on these contributions with effect from 1 January 2016.
Earned income tax creditThe Act provides for the earned income tax credit announced in the Budget. The credit will be available to those with earned income who are not entitled to an employee tax credit of €1,650. The credit will be the lower of 20% of the relevant income or €550.
If the individual is also entitled to a partial employee tax credit, the aggregate employee tax credit and earned income tax credit is limited to €1,650.
Capital acquisitions tax The Act states that the current tax-free threshold that applies to gifts and inheritances from parents to their children be increased from €225,000 to €280,000. This is to apply in respect of gifts and inheritances received on or after 14 October 2015.
Although this increase of almost 25% is to be welcomed, it should be borne in mind that this threshold was reduced from €542,544 in 2009 to the current level. In light of rising property prices throughout the country, particularly in Dublin, the capital acquisitions tax liability on inheriting a family home can
Robert Dowley Partner
TaxingTimes Finance Act 2015 3
still be burdensome in many cases. It is hoped that this threshold continues to be reviewed as property prices continue to recover.
Home carer tax creditThe Act effects the changes in the home carer tax credit announced in the Budget. For 2016, the credit available is to be increased to €1,000 and the income threshold is to be increased to €7,200.
Medical insuranceThe Health Insurance (Amendment) Act 2014 changed the definition of a ‘child’ for medical insurance purposes. The Act aligns the tax relief on medical insurance premiums with this updated definition by stating that a ‘child’ for these purposes means an individual under the age of 21 who is entitled to a child-rate health insurance premium.
This change applies to policies entered into or renewed on or after 1 May 2015.
Income from assets transferred abroadIn certain circumstances, Irish income tax is chargeable on a person tax-resident or ordinarily tax-resident in Ireland (“the Irish resident”) in respect of income that accrues to a person who is tax-resident or domiciled outside of Ireland (“the foreign resident”).
This charge to income tax can arise where the income accrues to the foreign resident because of a transfer of assets abroad, and either (i) the transferor of the assets to the foreign resident has the power to enjoy the income, or (ii) the Irish resident receives a benefit out of the assets.
The Act introduces a new exclusion from this charge with effect from 1 January 2016. The change means that
the Irish resident will not be chargeable on such income where the foreign resident is tax-resident in a member state of the European Union or European Economic Area, and carries on genuine economic activities in that state. The Explanatory Memorandum suggests that this change has been introduced because of Ireland’s obligations under EU law.
The Act also introduces a change to these “transfer of assets abroad” provisions in relation to a person who is Irish resident but not Irish domiciled. At present, a person who is Irish resident but not Irish domiciled is only taxable on the income of the foreign resident to the extent that the income was brought into Ireland. This is in line with the remittance basis of taxation that generally applies to persons domiciled outside of Ireland but who are resident or ordinarily resident in Ireland. The effect of the change is that the “transfer of assets abroad” rules will now apply to individuals who are Irish resident but not Irish domiciled.
This change applies to income arising to the foreign resident on or after 1 January 2016.
Gains accruing to non-resident companiesIn addition to the above anti-avoidance provisions regarding income accruing to a foreign resident, Irish tax law also includes similar provisions in respect of chargeable gains. In certain circumstances these provisions may attribute a chargeable gain accruing to a company tax-resident outside of Ireland to certain persons tax-resident or ordinarily tax-resident in Ireland, e.g. a shareholder in the foreign company.
The Act introduces a new exclusion from this charge where the disposal is made for bona fide commercial reasons and does not form part of an arrangement of which one of the main purposes is the avoidance of liability to Irish tax.
This exclusion will apply in respect of gains realised on or after 1 January 2016.
4 TaxingTimes Finance Act 2015
Standard Life return of valueEarlier this year, Standard Life implemented a return of value to shareholders where the shareholders could elect to receive the value as a dividend liable to income tax, or redemption proceeds liable to capital gains tax.
Owing to postal delays, some shareholders who wished to opt for the redemption route missed the election deadline. In recognition of the fact that the postal delays were outside of the shareholders’ control, the Act provides that capital gains tax treatment will apply in these circumstances.
Marriage equalityFollowing the Marriage Equality Referendum, the Act introduces a technical amendment to ensure that Irish tax law applies equally to same-sex married couples and other married couples.
Requirement to file a tax returnIndividuals taxable under the PAYE system are not required to file a self-assessment tax return where their non-PAYE income is under €3,174 (excluding deposit interest income subject to DIRT) and is taken into account in determining their tax credits for PAYE purposes.
With effect from 1 January 2016, this de minimis threshold is to be increased to €5,000.
Water grantThe Act provides that the water conservation grant of €100 will be exempt from income tax, universal social charge and PRSI.
Fuel grantFollowing a ruling of the European Court of Justice, drivers and passengers with a disability can no longer obtain relief from excise duty on their motor vehicle fuel with effect from 31 December 2014. The Act authorises the Minister for Finance to make regulations providing for the payment of a grant to replace the benefit of this relief. Any such grant will be exempt from income tax, universal social charge and PRSI.
Foreign earnings deductionRelief obtained in respect of the foreign earnings deduction was subject to the restriction on specified reliefs for high earners for 2012, 2013 and 2014. Due to a drafting error, the restriction expired on 31 December 2014. The Act provides that the restriction will again apply to the relief from 2016 onwards.
Woodland incomeProfits or gains arising from woodlands are exempt from income tax subject to the restriction on specified reliefs for high earners. With effect from 1 January 2016, such income will no longer be subject to the specified reliefs restriction.
Such profits and gains will, however, continue to be subject to USC.
Brian ThorntonPartner
TaxingTimes Finance Act 2015 5
Employee Issues
Non-resident directors Until last year it was generally understood that the practice of the Revenue Commissioners was to treat the reimbursement of travel and subsistence expenses incurred by directors in attending meetings as not being subject to Irish income tax. However, in July 2014 the Revenue Commissioners issued a practice note expressing the view that the reimbursement of these expenses is taxable. This practice note was not universally accepted, as some felt that it was contrary to established case law. In response to requests from taxpayers and numerous other stakeholders (including KPMG), the Department of Finance undertook a consultation process, launched in mid-2015. As part of that process, KPMG made a submission to the department maintaining that the reimbursement of these expenses should not be treated as taxable.
The Act includes the introduction of an unequivocal exemption for the reimbursement of vouched travel and subsistence expenses incurred from 1 January 2016 by non-executive directors who are not resident in Ireland and who are attending meetings relating to the affairs of the company as a director.
The wording of the exemption would appear to extend to travel and subsistence expenses incurred in attending meetings other than just board meetings provided that the individuals are participating in these meetings in their capacity as directors. For example, attendance at meetings of the sub-committees of a board of directors or meetings with third parties by the non-executive directors (in their capacity as such) would appear to be covered by the exemption.
While the measure is very welcome for both domestic companies and the FDI sector, the exemption is confined to non-resident non-executive directors. This limitation could leave Irish residents at a disadvantage when travelling to meetings in Ireland and abroad if they are unable to rely on another exemption or exclusion from taxation relating to the reimbursement of the relevant expenses. It is possible that the measure contravenes the EU Freedom of Movement principle.
The exemption is to come into effect from 1 January 2016. Ideally, and for clarity, given the uncertainty that has prevailed since mid-2014, it would be given retrospective effect.
State Examination Commission employee expensesThe Act includes the introduction of an exemption from 1 January 2016 for expenses paid by the State Examination Commission in respect of travel and subsistence incurred by employees for “examination purposes”. “Examination purposes” is defined as:
n Development of examination papers or other examination materials,
n Marking of such papers or other materials, or
n Carrying out invigilator duties at an examination specified in the Examination Act.
Employee small giftsUnder a long-standing concession, commonly referred to as the small benefit exemption, the Revenue Commissioners treat the provision of a non-cash benefit with a value of up to €250 as exempt from income tax. Only one such benefit can be provided to an employee in a year.
The Act gives legislative effect to the existing concession, whilst at the same time increasing the value that can be treated as tax-free to €500.
Both employees and employers will welcome this measure as it allows for one of the few opportunities for an employer to provide a tax-free benefit to employees.
This measure came into effect from 22 October 2015.
Exemption for certain payments made under employment lawTax legislation includes an exemption from income tax for payments made in respect of breaches of an employee’s rights under employment law. The payment must be one that arises under an award made by an employment law authority or a related mediation process.
The Act updates the legislation dealing with the exemption to take account of the recent reorganisation of the employment law authorities under the Workplace Relations Act 2015.
Eric WallacePartner
6 TaxingTimes Finance Act 2015
Employment and Investment Incentive (EII)Finance Act 2014 included amendments to the tax regime for income tax relief for investments made in certain qualifying companies. The introduction of these measures was subject to a Ministerial Order which could not be signed until EU clearance was obtained. As this clearance has been obtained, the minister appointed Budget Day as the effective date of the amendments to apply in respect of shares in qualifying companies issued on or after that date.
The principal measures applicable as and from Budget Day are as follows:
n The amount of finance that can be raised by qualifying companies over a 12-month period is increased from €2.5 million to €5 million and an increase in the amount of finance that can be raised over the lifetime of a company from €10 million to €15 million.
n The minimum period for which investors are required to hold their shares to avoid a clawback of the relief is increased from three years to four years.
n The scope of the relief is extended to include medium-sized companies operating in non-assisted areas (such as Dublin and Cork city) and certain internationally traded financial services.
n Companies involved in internationally traded financial services must obtain certification from Enterprise Ireland in order to qualify for the relief.
n Any claim for EII relief will not be allowed unless, at the time the claim is made, the company in which the investment is made qualifies for a tax clearance certificate.
In addition, the Finance Act extends the scheme so that investments used by companies operating nursing homes to enlarge their capacity will also qualify for relief. The nursing home must meet a number of specific conditions. In particular, this expansion of the relief does not apply to an investment in a nursing home which is subject to certain option
arrangements for its repurchase. The money raised for this purpose must also be spent within a certain timeframe by the company.
For shares issued on or after Budget Day, companies which are more than seven years old only qualify in respect of investments used to finance certain products or expansion into certain new markets. This is a requirement set out in EU Regulations concerning State Aid.
The existing rules permit investors investing into eligible companies through Revenue approved funds, to elect to obtain the tax relief in the year in which they invest in the fund, rather than when the eligible company issues the shares to the fund, where those shares are issued in the year after the year of investment into the fund. The Act amends this rule for investments made into designated funds in 2014, to allow the investor to claim relief in 2014 where the shares are not issued by the eligible company until 2016.
All of these changes took effect from Budget Day (13 October 2015).
Knowledge Development BoxThe Act introduces the highly publicised Knowledge Development Box (KDB). The KDB gives an effective 6.25% corporate tax rate on qualifying profits. See our article, Ireland’s Knowledge Development Box, for full details.
Relief from corporation tax for certain start-up companiesThe three-year relief from corporation tax on certain trades of start-up companies, introduced in 2009, is extended by three years. It will therefore benefit trades commenced before 31 December 2018.
The measure applies where a company’s annual corporation tax liability on qualifying income and gains in its first three years of trading does not exceed €40,000 (with marginal relief also available up to a corporation tax liability of €60,000). The relief is capped at the amount of employer’s PRSI paid in the period.
A review of the operation of the relief was announced in last year’s Budget speech, and the output of that review has now been published in the Department of Finance’s “Tax and Entrepreneurship Review”.
As part of the review, the Department of Finance invited views from the public and interested parties on the use and effectiveness of this relief. The department’s report acknowledged the limitations on the effectiveness of relief due to the cap on the relief based on employer’s PRSI contributed. However, the Act does not propose the removal of this restriction.
This change is to have effect from 1 January 2016.
Dividends between companies resident in EU member statesIrish tax law enacted the EU Parent-Subsidiary Directive (PSD) in 1991, whereby no withholding tax is deducted from distributions by an Irish resident subsidiary to its EU incorporated and tax-resident parent. A credit is also available against Irish corporation tax on foreign dividends received by an Irish company for the “underlying” corporation tax or equivalent foreign tax suffered by the subsidiary on the profits out of which the distribution is made.
Similar relieving treatment is available for cross-border dividends in other measures provided for in the Irish tax legislation. Consequently, in many circumstances, Irish companies can achieve the same or similar treatments without using the PSD rules. However, relying on the PSD rules can be administratively easier.
The Irish enactment of the PSD rules has anti-avoidance provisions where the voting rights in the EU parent are controlled by non-EU residents or persons who are not resident in a treaty partner country and the EU parent has not been established for bona fide commercial reasons or where it forms part of arrangements, the main purpose (or one of the main purposes) of which is the avoidance of Irish tax.
Marie ArmstrongPartner
Business Taxs
TaxingTimes Finance Act 2015 7
Eric WallacePartner
Following a revision of the PSD this year, the Finance Act introduces a wider anti-avoidance rule to prevent the relief applying where arrangements are in place which are “not genuine” and whose main purpose, or one of the main purposes of which, is to obtain a tax advantage which defeats the object or purpose of the PSD. This change is intended to be effective for distributions made or received from the date of the passing of the Finance Act. The amendment to the PSD is intended to prevent “shopping” into the EU by interposing an EU resident company between a non-EU parent and an EU subsidiary.
We would not expect many Irish groups to be adversely affected by the amendment in practice.
Capital gains tax relief for entrepreneursThe Act introduces a new 20% capital gains tax (CGT) rate for gains realised by entrepreneurs on the disposal of certain business assets. The relief is capped at a lifetime limit of €1 million of chargeable gains and applies to disposals made on or after 1 January 2016. Significant Committee stage amendments were made by the Minister to the original draft legislation. These changes are very welcome and many are consistent with a submission by KPMG to the Department of Finance in which we suggested ways to make the relief more accessible to entrepreneurs owning shares and working in a group of companies.
To avail of the relief, the entrepreneur must own the chargeable business assets for at least three years immediately prior to the sale. The relief also applies to the disposal of ordinary shares in a listed or unlisted company, being either a company whose business consists wholly or mainly of carrying on a qualifying business (widely defined to include all activities apart from holding assets as investments, holding development land or developing or letting land) or a holding company of a qualifying group. A qualifying group
consists of a holding company whose business consists wholly or mainly of holding shares in 51% subsidiaries and those subsidiaries. The business of each of the subsidiaries must consist wholly or mainly of carrying on a qualifying business (though this requirement does not apply to any subsidiaries which are themselves holding companies). The entrepreneur must own at least 5% of the shares in the company being disposed of in the three years prior to sale and have worked as an employee or director spending at least 50% of their working time in the service of the company or qualifying group for a continuous period of at least three out of the five years prior to the sale.
Where there has been a qualifying share-for-share and share-for-undertaking involving the company/group, provision is made to allow an individual take account of their combined ownership and working periods in the old and new companies in meeting the qualifying conditions for relief.
See our article, Finally some reward for risk takers, for more detail.
Capital gains tax on disposals made under compulsory purchase ordersThe Act provides that with respect to disposals of land acquired under a compulsory purchase order, the date of disposal is deemed to be the date on which the compensation amount is received by the landowner where the compensation is received on or after 1 January 2016. Prior to this change, a chargeable gain could in some cases arise before the receipt of the compensation proceeds.
Extension of agri-food tax reliefsIn continued recognition of the importance of the agri-food sector to the Irish economy, the Act extends various tax reliefs for farmers for a further three years to 2018.
Stock relief
Stock relief is given in respect of increases in the value of farm trading stock used in a farming trade. It is calculated by reference to the increase in value of the stock between the beginning and end of an accounting period. Stock relief is normally granted as a 25% reduction in the increase in value of farm trading stock. However, relief of 50% is available for farmers in registered farm partnerships and 100% relief is available for young trained farmers (subject to relevant caps). The Finance Act includes the extension of the reliefs to 31 December 2018.
The Act also contains new provisions requiring the farmers in a registered farming partnership to be active in running the farm (i.e. to spend at least 10 hours per week working on the farm) in order to claim the stock relief. It also includes a number of additional conditions which must be satisfied by a registered farm partnership. The Act also provides for the introduction of new regulations on what information should be included on the register of farms.
Young trained farmers
Transfers of agricultural land to young trained farmers are currently exempt from stamp duty provided certain conditions are met (including that the transferee has a prescribed third-level qualification). The Act adds another third-level qualification to the list and also extends the relief to 31 December 2018.
8 TaxingTimes Finance Act 2015
Adrian CrawfordPartner
Farm land leasing relief restrictionsTax relief is currently available to an individual who earns rental income from the lease of their farm land. A number of conditions need to be satisfied in relation to the lease itself and how the lands are used. The relief depends on the lease term, takes the form of a deduction from income and is subject to a maximum cap of €40,000 for leases of 15 years or more entered into after 1 January 2015.
The Act introduces anti-avoidance measures to prevent the relief from applying in situations where an individual or person connected with the farmer is both a lessor of his/her own land and lessee of other farm land. The anti-avoidance provisions also apply where an individual both leases and farms his/her own land.
Succession farm partnershipsAs announced in the Budget (and in line with the recent policies to promote the early inter-generational transfer of farms), the Act contains a new income tax credit for farming partnerships of up to the lesser of €5,000 per annum or the assessable profits for the year. The relief can be claimed for a maximum of five consecutive years. The tax credit is allocated between the partners in the farming partnership based on their profit sharing agreement.
To qualify, the partnership must be registered on the register of succession farm partnerships. In addition, the partnership agreement must provide for the sale or transfer to the successor of at least 80% of the farm assets to which the farm partnership applies during the period of 3-10 years after the date an application is made to enter the farm partnership on the register. It is possible to include the spouse or civil partner of the partner in the
succession farm partnership so that a joint transfer of the farm assets to the spouse or partner is permissible.
The credit will only be available to partners where all successors are under the age of 40 at the start of the year of assessment. If the farm assets are not transferred in accordance with the partnership agreement, the relief will be clawed back from either the farmer, the successor, or both depending on the circumstances under which the transfer does not proceed.
The relief was proposed by the Irish Farmers Association in their pre-Budget submission in July 2015 and is designed to relieve the burden of insufficient income from the farm for two families relying on the same farm.
The Act also provides the minister with powers to appoint authorised officers to inspect farms to ensure that the provisions of tax relief from the lease of farm land and succession farm partnerships are met.
The commencement of the relief is subject to ministerial order.
Petroleum production taxFollowing the review of the fiscal terms for the exploration and production of oil and gas in Ireland, published in June 2014, the Finance Act includes legislation introducing a Petroleum Production Tax (PPT) as recommended in the review. The PPT will apply in the case of oil and gas licences and options granted on or after 18 June 2014 and will replace the Profit Resource Rent Tax for those new licences.
The rate of PPT will range from 5% to 40% and will be charged, as a
new additional duty, in addition to the existing 25% rate of corporation tax on oil and gas activities. However, the PPT payable will be deductible against profits or gains chargeable to corporation tax, resulting in a maximum marginal tax rate on oil and gas production of 55%.
The new tax will apply on a field-by-field basis, calculated on an oil or gas field’s net income at a rate that is determined by reference to the profit ratio of the field. This ratio is essentially calculated by reference to the cumulative gross revenues net of cumulative field costs. However, a minimum charge equal to 5% of gross annual revenue (less transportation expenditure) will be due once a field starts producing oil or gas, regardless of overall profitability of the field.
Additional reporting requirements will also arise for any company subject to the PPT. Provisions will also be introduced relating to situations where 100% directly owned companies are involved in the activities.
Profit Ratio PPT Rate
THE GREATER OF:
Any 5% of gross revenue less transportation
expenditure
OR
Equal to or greater than 1.5 but less than 4.5
pro rata (between 10%-40%) of net income
4.5 or greater 40% of net income
TaxingTimes Finance Act 2015 9
Scientific research allowances At present accelerated capital allowances are available in respect of capital expenditure on assets (such as plant or machinery) used in qualifying scientific research (i.e. activities in the fields of natural or applied science for the extension of knowledge). The allowance is given as an upfront deduction for the full amount of the expenditure.
The Act includes an amendment which will require the asset on which the scientific research allowances are to be claimed to actually be in use at the end of the chargeable period in which the expenditure is incurred (if the expenditure was incurred when the claimant was already carrying on a trade) or at the end of the chargeable period in which the trade is set up and commenced (if the expenditure was incurred prior to trading commencing). This change will align this relief with the conditions that apply under the general rules for capital allowances, which require an asset to be in use at the year-end in order to qualify for capital allowances.
In addition, the Act includes an amendment designed to ensure that no other capital allowances can also be claimed in respect of the same expenditure.
These changes will have effect from 1 January 2016.
CGT clearance and withholding taxWhen goodwill, Irish real estate, or non-quoted shares deriving their value or the greater part of their value from Irish real estate are disposed of, the purchaser is obliged to withhold 15% of the gross consideration and remit it
to the Revenue Commissioners unless the vendor produces a CGT clearance certificate obtained from the Revenue Commissioners in relation to the transaction. This only applies where the consideration exceeds €500,000.
In recognition of the increase in prices payable for houses in transactions between private individuals, the Finance Act provides an increased threshold of €1 million for the disposal of houses or apartments from 1 January 2016.
Capital gains tax on non-residentsIn general, shareholders of Irish tax-resident companies who are neither resident nor ordinarily resident in Ireland are not subject to CGT on the disposal of their shares. However, they will be liable to CGT where they hold shares through an Irish branch or agency or where the shares are unquoted and they derive their value (or the greater part of their value) directly or indirectly from Irish land and buildings or certain Irish mineral rights.
The Act introduces the introduction of a specific anti-avoidance provision
to counteract schemes whereby cash is transferred to a company prior to a disposal of shares in that company so that, at the time when the shares are disposed of, the value of those shares is derived mainly from cash rather than Irish land and buildings or Irish mineral rights.
The amendment applies to disposals made on or after 22 October 2015. Film relief Prior to 2015 relief for investments in films operated by giving tax relief to individuals investing in qualifying films and television programmes. The relief was changed so that, from 2015, relief is no longer given to investors. Instead direct support is given to the film production companies in the form of a corporation tax credit to the company.
The scheme provides relief in the form of a corporation tax credit of 32% of the cost of production of certain films. This cost was previously capped at €50 million per film. The Finance Act increases the €50 million cap to €70 million. This increase is subject to EU State Aid approval.
Johnny Hanna Partner
10 TaxingTimes Finance Act 2015
Company reconstructions and amalgamationsIt is possible to defer CGT arising on the transfer of assets by a company to another company in the course of a qualifying reconstruction or amalgamation. Under these rules, where certain conditions are met, the transfer of the assets concerned is deemed to occur for a level of consideration which would result in neither a gain nor a loss. The effect is that the transferee essentially assumes the transferring company’s tax base cost in the assets concerned and the triggering of a taxable event is deferred until the transferee subsequently disposes of those assets.
The Finance Act provides that availing of this relief in respect of disposals made on or after 22 October 2015
will only be possible where the reconstruction or amalgamation is shown to be effected for bona fide commercial reasons and does not form part of a scheme or a management the main purpose (or one of the main purposes) of which is to avoid a tax liability.
Restrictive covenantsThe Act includes a change whereby a payment a person makes under a restrictive covenant is subject to CGT in the hands of the person who is subject to the restriction, and not the person to whom it is paid (if different). This provision is designed to counter a perceived lacuna in the CGT provisions whereby CGT on such payments could be avoided if the payments were made to a person who was not resident
in Ireland. The amendments apply to relevant sums paid on or after 22 October 2015.
CGT deferral on transfer of assets to an ICAVCGT law provides for the deferral of CGT when assets are transferred between companies in the course of a reconstruction or amalgamation, or between two group companies. Since 2008, this treatment has not been available where the assets are transferred to an investment company which is subject to “gross roll-up” Irish tax treatment (under which the investment company is exempt from Irish corporation tax and CGT on all income, profits and gains).
TaxingTimes Finance Act 2015 11
A new form of “gross roll-up” fund vehicle, the Irish Collective Asset-management Vehicle (ICAV), was introduced into Irish law in 2015. The Act includes changes to the CGT deferral rules to prevent the deferral of CGT on the transfer of assets to an ICAV in the course of a reconstruction or amalgamation, or from a group company. This change is intended to be effective for transfers made on or after 1 January 2016.
Revenue powersThe Finance Act includes provisions to extend the Revenue Commissioners’ powers in relation to gathering information. Existing legislation permits them to request records from third parties and financial institutions in relation to named taxpayers for the purpose of enquiring into a tax liability. It provides that the power to request information is extended to an unnamed taxpayer or group or class of unnamed taxpayers.
The changes will also permit the Revenue Commissioners to apply for a High Court order requiring a third party or financial institution to provide information in relation to an unnamed taxpayer or group or class of unnamed taxpayers. In certain circumstances they will also be able to request that the High Court judge order that the details of the order not be disclosed to any person.
In situations where foreign tax is concerned, in addition to the above powers, the Act states that the Revenue Commissioners will be able to apply to the Appeal Commissioners for consent to serve an order on a
third party to make records available to the Revenue Commissioners where a foreign tax authority has requested information from the Revenue Commissioners under exchange of information legislation or other similar information-sharing legislation or agreements.
Requirement to retain recordsThe Finance Act contains new provisions which state that, where a person has an obligation to maintain books and records in respect of a trade or profession, these books and records must be retained for a period of five years after the cessation of that activity.
Professional services withholding taxThe Finance Act removes training services provided on behalf of FAS from the ambit of professional services withholding tax (PSWT). It also amends the list of accountable persons required to operate PSWT to take account of new bodies which have been formed, amalgamated or changed their names.
This change will have effect from 1 January 2016. Relevant contracts taxThe Finance Act extends the scope of RCT to relevant contracts carried out in certain designated areas on the Continental Shelf which are outside Ireland’s territorial waters.
This change will have effect from 1 January 2016.
Charities Regulatory AuthorityThe Common Investment Fund (CIF) was established to invest funds for certain charities. It benefits from a tax exemption. CIF became vested in the Charities Regulatory Authority (CRA) on 16 October 2014, having previously been established by the Commissioners of Charitable Donations and Bequests for Ireland. The Act introduces a tax exemption to the CRA in relation to income from CIF. This exemption takes effect from 16 October 2014.
Marine sectorThe Minister for Finance published an independent review of marine taxation supports together with the Budget, and announced that these proposals were being examined by the relevant Government departments with a view to establishing the feasibility of implementing these measures in future budgets. As expected, the proposals are not included in the Finance Act.
KPMG has been heavily involved in the marine sector and will continue to assist businesses and representative bodies to ensure that this sector remains as competitive as possible.
12 TaxingTimes Finance Act 2015
Country by Country (CbyC) reportingOn Budget Day, the Minister for Finance announced that Ireland would adopt the OECD recommended country-by-country (CbyC) reporting requirements. The Finance Act includes legislation on CbyC reporting that closely mirrors the OECD’s suggested model legislation.
For fiscal years commencing on or after 1 January 2016, multinational groups, where the ultimate parent entity is tax-resident in Ireland, will have to file an annual CbyC report with the Revenue Commissioners if the group’s consolidated turnover exceeds €750 million. Such multinational groups will be required to file their CbyC reports no later than 12 months after the end of the relevant fiscal year.
Tables 1 & 2 illustrate the detailed financial and other information that will be required in the annual CbyC report to be submitted to the Revenue Commissioners. These details are consistent with the OECD’s CbyC reporting template.
Further regulations will be prepared by the Revenue Commissioners in connection with CbyC reporting for large Irish head-quartered multinational groups. These regulations will cover, inter alia, a requirement for Irish tax-resident subsidiaries to either: (i) provide a CbyC report to the Revenue Commissioners to the extent the ultimate parent entity is not obligated to file a CbyC report in its country of residence, or (ii) notify the Revenue Commissioners of CbyC reports filed with foreign tax authorities.
The Act provides that the Revenue Commissioners will be authorised to share the CbyC reports with competent authorities of foreign governments
if the CbyC reports cover those jurisdictions and if Ireland and the foreign government have entered into a qualifying agreement to exchange information.
Penalty for failure to file report
Companies will be required to retain records to support the information in the CbyC report. The Act includes provisions whereby failure to make a return (or the filing of an incorrect or incomplete return) will result in a penalty of €19,045 plus €2,535 for each day on which the failure continues.
The requirement to provide this type of information is a fundamental development in international taxation. It will provide tax authorities with levels of information on broader group operations and transfer pricing policies
that they have not been readily able to obtain to date. This raises questions as to how the information will be used by tax authorities. Confidentiality is also a
concern. Some groups will worry about the privacy of commercially sensitive information where that information is shared internationally (particularly in the context of tax disputes). Furthermore, for complex multinationals, and particularly those involved in substantial merger and acquisition activity, the challenge of gathering and collating the relevant information is likely to be substantial.
As the regime will take effect from 1 January 2016, groups within the scope of CbyC need to take immediate action to prepare for its introduction. In addition, highly complex groups and may wish to take steps to reorganise and streamline their operations in order to simplify their CbyC reporting obligations.
Automatic Exchange of Information
Eoghan QuigleyPartner
Reporting Regimes
Name of the MNE group:Fiscal year concerned:
Tax JurisdictionRevenues Profit
(Loss)Before Income
Tax
Income Tax Paid (on cash
basis)
Income Tax Accrued - Current
Year
Stated Capital
Accumulated earnings
Number of Employees
Tangible Assets other
than Cash and Cash
EquivalentsUnrelated
PartyRelated Party
Total
Name of the MNE group:Fiscal year concerned:
Tax Jurisdiction
Constituent Entities resident in
Tax Jurisdiction
Tax Jurisdiction of organisation or incorporation if differentfrom Tax Jurisdiction
Residence
Main business activity(ies)
1.
2.
3.
1.
2.
3.
Res
earc
h an
d D
evel
opm
ent
Hol
ding
or
Man
agin
g in
telle
ctua
l pro
pert
y
Purc
hasi
ng o
r Pr
ocur
emen
t
Man
ufac
turin
g or
Pr
oduc
tion
Sal
es, M
arke
ting
or
Dis
trib
utio
n
Prov
isio
n of
Ser
vice
s to
un
rela
ted
part
ies
Inte
rnal
Gro
up
Fina
nce
Reg
ulat
ed F
inan
cial
S
ervi
ces
Insu
ranc
e
Hol
ding
sha
res
or o
ther
eq
uity
inst
rum
ents
Dor
man
t
Oth
er
Adm
inis
trat
ive,
M
anag
emen
t or
Sup
port
Ser
vice
s
Table 2: Entity-by-entity disclosure of business activity
Table 1: Country-by-country disclosure of revenues, profits, taxes and other information
TaxingTimes Finance Act 2015 13
The Finance Act contains measures necessary to implement rules allowing for the automatic exchange of information across the European Union in respect of financial accounts, as provided for in EU Directive 2014/107/EU (DAC II). This continues the ever-expanding landscape for the reporting of information on financial accounts around the globe.
The automatic exchange of information on financial accounts began with the US Foreign Account Tax Compliance Act (FATCA) regime, which took effect from 1 July 2014. Irish financial institutions had an obligation to file their first FATCA return, to disclose certain financial accounts held by US persons in 2014, with the Irish Revenue Commissioners by 31 July 2015 (after a one-month automatic extension had been granted). However, in future, Irish financial institutions will be required to file returns by 30 June annually.
In many instances reporting in 2014 was limited, with many financial institutions simply being required to file nil returns as they chose to defer their review of pre-existing account holders until after 2014. However, this deferral is only temporary. Once these accounts are reviewed, an increased volume of reporting is expected in respect of 2015
and subsequent years.
Increasing trend towards transparency
FATCA was quickly followed up by the OECD’s Common Reporting Standard (CRS). To date, more than 95 countries have either signed an agreement to facilitate the exchange of information under the CRS or have publicly announced their intention to exchange information under the CRS, with countries adopting the CRS in phases beginning 1 January 2016. The first exchange of information will be in 2017. The number of countries signed up to the CRS highlights the increasing trend towards financial account tax transparency around the globe.
The CRS rules will take effect in Ireland on 1 January 2016 and will involve collecting and reporting information with respect to certain non-Irish and non-US financial account holders by 30 June each year (with the first return due 30 June 2017 with respect to 2016). This represents a significant increase in the number of account holders who will be subject to due diligence and reporting, compared to those account holders who are subject to the US-focused FATCA regime.
To assist Irish financial institutions in meeting these new obligations, Ireland has adopted the “wider approach” to the CRS, which allows Irish financial institutions to collect and report to the Revenue Commissioners information on all account holders regardless of the country in which they are resident, and not just those account holders who are resident in those countries which have adopted the CRS. The Revenue Commissioners will then determine those tax authorities with which they need to exchange information. This approach should help simplify
implementation for Irish financial institutions.
EU obligation to exchange information
In parallel, the EU Commission has introduced DAC II to fast-track the reporting of financial account information between all EU countries (except Austria, which is deferred for one year). This will create a mandatory obligation for EU member states (except Austria) to exchange information on financial accounts in 2017 with respect to 2016. The Finance Act includes the necessary provisions to give the Revenue Commissioners the power to issue regulations to implement the requirements of DAC II into Irish law.
DAC II will govern the automatic exchange of information with respect to financial accounts between EU member states. It has broadly the same principles as the CRS. The Revenue Commissioners have indicated that they are endeavouring to adopt a single standard, such that the implementation of the CRS and DAC II will effectively be the same. This would allow them to collect information for CRS and DAC II purposes using a single return. Such an approach will likely be widely welcomed.
The automatic exchange of information with respect to financial accounts is not going away and has expanded considerably in recent years. As the automatic exchange of information on financial accounts evolves, it will be important for Irish financial institutions to plan their approach to financial account due diligence carefully so as to minimise the need to constantly revisit account classifications.
Name of the MNE group:Fiscal year concerned:
Tax Jurisdiction
Constituent Entities resident in
Tax Jurisdiction
Tax Jurisdiction of organisation or incorporation if differentfrom Tax Jurisdiction
Residence
Main business activity(ies)
1.
2.
3.
1.
2.
3.
Oth
er
Kevin Cohen Partner
14 TaxingTimes Finance Act 2015
Ireland’s Knowledge Development Box
Overview
The Finance Act provides for the introduction of the Knowledge Development Box (KDB). The KDB is aimed at incentivising innovative activities by offering an effective tax rate of 6.25% on qualifying profits.
As the minister announced in Budget 2016, the KDB will be the first OECD-compliant preferential tax regime in the world, and the Act confirms that the regime is following the “modified nexus approach” endorsed by the OECD.
What is the “modified nexus approach”?
The “modified nexus approach” seeks to link the relief under the KDB to the proportion of qualifying Research and Development (R&D) expenditure bring carried on by the company in Ireland, as a percentage of overall group expenditure including acquisition costs.
What intellectual property qualifies for the KDB?
The Act confirms that certain patented inventions and copyrighted software will be considered intellectual property
for the purposes of the qualifying asset definition. The definition also includes plant breeders’ rights, supplementary protection certificates for medicinal products and plant protection certificates. The intellectual property must be the result of R&D activities.
Where a company has a number of qualifying assets which are so interlinked that it would not be possible to identify the expenditure on each specific asset, the Act allows for a grouping of assets. This is termed a “family of assets” and the KDB regime will apply as if such a family of assets is a single qualifying asset. Specific documentation requirements apply in evidencing that the assets are interlinked through a commonality of scientific, technological or engineering challenges underlying the R&D, or other suitable nexus.
What relief is available?
The relief is given by way of a deduction of profits equal to 50% of the qualifying profit from this separate trade to give an effective tax rate of 6.25%. The qualifying profit is determined by reference to the following formula:
What is qualifying expenditure?
For the purposes of the formula, qualifying expenditure on the qualifying assets means expenditure incurred by a company wholly and exclusively in the carrying on by it of R&D activities, where such activities lead to the development, improvement or creation of the qualifying asset (i.e. the intellectual property as defined above). The definition of R&D mirrors the definition for the purposes of the R&D tax credit but only allows expenditure incurred by the company in another EU member state if it is tax deductible in Ireland.
Specifically excluded from the definition of qualifying expenditure (but included in the definition of overall expenditure for the purposes of the formula) are any acquisition costs in relation to the qualifying asset. Payments to a related group member for the carrying on of R&D, including related-party cost-sharing arrangements (“group outsourcing costs”) are also excluded from qualifying expenditure, although outsourcing payments to non-related parties are considered to be qualifying expenditure for the purposes of the relief.
The Act provides for an up-lift in the amount of qualifying expenditure, to include the lower of:
n 30% of the amount of the qualifying expenditure, or
n the aggregate of acquisition costs and group outsourcing costs
As a consequence of the restrictions on acquisition costs and group outsourcing costs, the potential relief available
Anna ScallyPartner
Profit of the specified
trade relevant
to the qualifying
asset
Qualifying profit taxed
at 6.25% effective
rateOverall
expenditureon qualifying
asset
X =
Qualifying expenditure on qualifying asset
Overall income from qualifying asset
Income taxed at 6.25% effective rate
Overall expenditureon qualifying asset
30%uplift
X =
Qualifying expenditure on qualifying asset
Possible 30% uplift
TaxingTimes Finance Act 2015 15
Orla GavinPartner
will be diluted where the intellectual property has been acquired by the company (from a third party or a group company) or where the company outsources R&D activities on the intellectual property to another group company.
How is the profit of the specified trade determined?
The qualifying company is required to treat its KDB-qualifying activities as a separate specified trade.
The income to be included in the computation of the profits of a specified trade will include any royalty or other sum in respect of the use of that qualifying asset. In addition, where the sales price of a product or service includes an amount attributable to a qualifying asset, the income that will qualify is the portion of the income which is attributable to the value of the qualifying asset on a just and reasonable basis.
An appropriate portion of expenses
laid out in earning the income will be deducted in computing the profits of the specified trade.
In arriving at the various apportionments in computing the relief, large companies must apply transfer pricing rules whereas smaller companies should apportion income and costs, where required, on a just and reasonable basis.
When will this relief be available?
This relief will be available to companies for accounting periods which commence on or after 1 January 2016 and before 1 January 2021.
A claim must be made within 12 months of the end of the relevant accounting period. The claim should be made in the corporation tax return of the claimant company for the period.
What transitional rules are in place?
The Act sets out a number of transitional measures that are relevant in determining qualifying profits in accounting periods commencing on or
before 31 December 2019, as follows:
n Although KDB takes effect for accounting periods beginning on or after 1 January 2016, acquisition costs and group outsourcing costs incurred prior to this date will be included in the relevant calculation with the effect of limiting the relief.
n Qualifying expenditure will be calculated with reference to the qualifying expenditure on all qualifying assets in the 48 month period ending on the last day of the relevant accounting period.
Given the transitional measures, the costs of any intellectual property acquired prior to 1 January 2016 on which R&D subsequently takes place in order for the asset to be a qualifying asset, will continue to form part of the relevant calculation in future periods.
16 TaxingTimes Finance Act 2015
How does the KDB interact with other reliefs being claimed?
KDB does not impact on the availability of capital allowances on the acquisition of qualifying intangible assets. However, the Act provides that any relief available under the KDB regime will not increase the level of refundable R&D tax credits available. In other words, the R&D tax credit refund will be computed as if no relief under the KDB regime had been claimed (although unused R&D credits can still be carried forward).
Where a company incurs a loss on the activities that qualify for the KDB for which an election is made, 50% of the losses will be available for relief in the ordinary way. The rationale being that, as qualifying KDB profits are effectively taxed at 50% of the normal 12.5% tax rate, relief for KDB losses should effectively restricted by 50%.
Are there documentation requirements?
Detailed records are required to be maintained to verify a company’s entitlement to the relief, and the Act includes detailed commentary on these.
Impact for multinational companiesThe KDB is seen as forming a core part of Ireland’s international tax offering in attracting foreign direct investment, in conjunction with the R&D tax credit regime, allowances for acquired intellectual property, and the bedrock of the 12.5% corporate tax rate.
Notwithstanding this, the benefit of the KDB may be limited for multinational groups, who typically undertake R&D activities globally on a joint and collaborative basis by and between development teams located in a number of jurisdictions, in relation to a number of assets, products and business lines. In such cases, the qualifying R&D activity undertaken by the Irish company in relation to an asset may only equal a small percentage of the overall expenditure on that specific intellectual property asset, resulting in a reduced percentage of income from that intellectual property being eligible for the reduced effective tax rate.
Impact for indigenous SMEsWhile the benefit of the KDB may not be substantial for multinational companies, domestic SMEs may be in prime position to avail of the reduced tax rate on qualifying profits. Given the mechanics of the relief, where a company undertakes all, or a substantial portion, of its R&D activities in Ireland, it may find that a significant portion of qualifying income from its intellectual property assets qualifies for the effective 6.25% rate.
Of particular interest to SMEs may be the expansion of the definition of intellectual property for companies with annual income from intellectual property not in excess of €7.5 million. For those companies, intellectual property also includes inventions that are certified as being novel, non-obvious, and useful. However, the definition used in the Act appears to be a unique definition not referenced in relevant patent law, and its intention is therefore unclear at this point.
TaxingTimes Finance Act 2015 17
Local property tax (LPT)The introduction of LPT in 2013 required homeowners to file LPT returns and pay the tax in respect of around 1.9 million properties. The first valuation date was 1 May 2013. The valuations declared in 2013 form the basis for the LPT liabilities for 2013 (half year), 2014, 2015 and 2016. The next valuation date was due to be on 1 November 2016 and was to determine the basis for the LPT liabilities for 2017, 2018 and 2019.
Earlier this year, the Minister for Finance commissioned Dr Don Thornhill to review the operation of the LPT, and, in particular, the likely impact on LPT liabilities of property price increases.
In his Budget Statement, the minister outlined the postponement of the next valuation date for LPT from 1 November 2016 to 1 November 2019. This change was recommended by Dr Thornhill whose report estimated that more than half of properties would move up by at least one band, based on current property prices. This is a positive step for homeowners and means that there will be no increase in LPT in 2017 as a result of increased property values (as the LPT liabilities will continue to be based on the 1 May 2013 valuations).
The minister has also accepted Dr Thornhill’s recommendation to continue to exempt from LPT certain properties damaged by pyrite.
In his report, Dr Thornhill recommended that any deferral to the valuation date should be accompanied by additional legislative changes to reform the LPT system. While further changes have not been included in the Act, in his Budget speech, the minister stated that all of the recommendations made in Dr
Thornhill’s report would be considered in more detail in due course.
The Act also includes provisions to extend the information that the Revenue Commissioners may request from property agents who collect rent in respect of residential premises and from government bodies that pay rent or rent subsidy on such properties. The information that the agents and government bodies must request include the landlord’s tax reference number and the LPT identification number in respect of each residential property. Where the relevant agent or government body is unable to provide this information, they are required to state that this is the case.
Rental incomeAt present, relief for interest on borrowings used by a landlord to
fund the purchase, improvement or repair of a residential rental property is restricted to 75% of the interest incurred. The Act provides that from 1 January 2016 onwards this restriction shall not apply where the property is let under certain circumstances to (i) an individual in receipt of rent supplement or housing assistance payments, or (ii) a local authority for social housing (i.e. a qualifying lease).
It is necessary for the landlord to submit an undertaking to the Private Residential Tenancies Board that they will let the premises under a qualifying lease for a continuous period of 3 years in the period from 1 January 2016 to 31 December 2019. For qualifying leases already in place at 31 December 2015, the undertaking must be made by 31 March 2016 and in the case of new leases commencing on or
Jim CleryPartner
Property & Construction
Olivia Lynch Partner
18 TaxingTimes Finance Act 2015
after 1 January 2016, the undertaking must be made at the time the landlord is required to apply to register the tenancy with the Residential Tenancies Board. Where the landlord makes the first undertaking in 2016 it should be possible to ensure two qualifying lease periods can be achieved by making the second undertaking in 2019.
Subject to the conditions being met, the claimant landlord must claim the relief after the end of the 3 year period. The 25% interest expense incurred over the three years that was not eligible as an expense deduction due to the 75% limitation is then treated as if it accrued on the day immediately following the end of the 3 year period.
Where a residential property is let partly under a qualifying lease and partly under a non-qualifying lease then interest relief is available with respect to the portion of the property let under a qualifying lease, calculated on a just and reasonable basis.
Home Renovation IncentiveThe Finance Act extends the extension of the Home Renovation Incentive scheme (HRI). The relief was due to expire on 31 December 2015. It will now run to 31 December 2016.
Finance (No. 2) Act 2013 originally introduced the HRI scheme for individuals who renovate or improve their principal private residence located
in Ireland. The relief is provided by way of a 13.5% income tax credit on qualifying expenditure of between €4,405 and €30,000 (excluding VAT) paid to qualifying contractors, i.e. the relief is capped at €4,050. The credit is granted in the two years following the year in which the work is carried out.
The scheme seeks to incentivise individuals to upgrade their homes using tax-compliant contractors, and it has proven to be very successful. The relief was extended by Finance Act 2014 to include rental properties owned by landlords who are subject to income tax.
CGT losses on certain rental propertiesThe Act includes a technical amendment addressing an anomaly whereby an unintended restriction of capital losses could arise in certain cases on the disposal of certain Section 23 rented properties.
Where such properties are sold within 10 years of first being rented, there is a clawback of the income tax relief claimed. Finance Act 2012 introduced a change to the provisions to prevent the unintended application of the High Earner’s Restriction to rental losses forward, which would otherwise have been available to shelter the clawback. However, this change gave rise to a further unintended restriction on capital losses arising on the sale of the property. The Act corrects this position so that the full capital loss should be available where there has been clawback of the income tax relief.
The amendment is to apply retrospectively from 1 January 2012.
TaxingTimes Finance Act 2015 19
In addition to the various provisions highlighted in the Budget, the Finance Act includes a number of technical provisions that were not previously indicated. In particular, the provisions around Additional Tier 1 capital bring clarity to the income and corporation tax treatment of these instruments. There are also a number of technical amendments that will have relevance to the financial services sector. While not specific to the sector, the exemption from income tax and USC for travel and subsistence expenses of non-resident non-executive directors travelling for relevant meetings will be well received – see our Employee Issues section for further details.
The commencement date for each of the amendments outlined below is 1 January 2016 unless otherwise stated.
Additional Tier 1 instrumentsIrish financial institutions have been issuing Additional Tier 1 (AT1) instruments since the end of 2014 in order to meet their Tier 1 capital requirements. As AT1 instruments share features of both debt and equity, it has been deemed necessary to confirm the applicable income and corporation tax treatment.
The Act confirms that an AT1 instrument will be regarded as a debt instrument and that the coupon payable will be regarded as interest and not as a distribution or a charge on income for tax purposes. The Act further provides that, with any necessary modifications, the exemption from interest withholding tax applicable to quoted Eurobonds will apply to AT1 instruments.
These clarifications are helpful and bring the Irish tax treatment in line with that broadly applicable in other European countries, thereby ensuring Irish banks are on a level playing field with their competitors in the market for AT1 instruments.
Encashment tax The encashment tax system requires that banks and paying agents in Ireland who collect foreign dividends belonging to others to deduct and account for income tax at the standard rate when they cash the foreign dividend for their client. Up until now, the annual return and payment date was 20 days after the end of the year of assessment. This deadline has now been extended so that encashment tax returns and related payments must be made within 46 days of the end of the year of assessment, i.e. by 15 February.
Collective investment undertakingsThe Act contains a number of amendments which relate to collective investment undertakings:
n The definition of “collective investment undertaking” is to be amended to include an authorised Irish Collective Asset-management Vehicle (ICAV). Although this definition refers to investment funds established prior to the introduction of the gross roll-up regime for investment funds on 1 April 2000, the definition continues to have relevance to all regulated funds, including those established after 1 April 2000, in the context of the double tax treaty between Ireland and the USA. The purpose of the amendment is to
remove any uncertainty about the application of the double tax treaty to an ICAV.
n An amendment had been made to clarify the tax treatment applicable to non-resident Alternative Investment Funds (AIFs) which have an Irish tax resident AIF manager. The purpose of the amendment is to provide that a non-resident AIF will not be viewed as having a taxable presence in Ireland solely as a result of the fund being managed by an authorised independent Irish tax resident AIF manager.
Life policy non-resident declarationsThe Act removes the removal of the requirement to complete a non-resident declaration at or about the time of the inception of the life policy. It states that, provided the relevant declaration has been made prior to the chargeable event, a gain will not be treated as arising on a chargeable event in relation to a life policy.
Stamp duty on ATM/debit cardsThe Act makes provision for the introduction of a new basis for levying stamp duty on ATM/debit cards. The change in approach is designed to incentivise consumers to use debit cards instead of withdrawing cash from an ATM.
Currently, stamp duty is levied based on a fixed annual charge of €2.50 for an ATM card or a debit card and €5 for a combined ATM/debit card. Under the new approach, the fixed annual charge will be abolished and, instead, stamp
Financial Services
Brian Daly Partner
Colm RogersPartner
20 TaxingTimes Finance Act 2015
duty of €0.12 will be levied on each ATM withdrawal (but not on debit or credit transactions). The annual stamp duty charge in respect of each card will be capped at the existing levels of €2.50 and €5, as appropriate.
These changes will apply from 2016 onwards.
Aviation facilitiesIn the context of Ireland’s pre-eminent position in the global aviation finance sector and the importance of the aviation sector for the economy, the Act effects changes required to allow the commencement of the scheme of capital allowances for the construction of facilities used in the maintenance, repair, overhaul and dismantling of aircraft. Legislation introducing this scheme of capital allowances was included in Finance Act 2013 but was subject to EU State Aid approval and a Ministerial Commencement Order.
To obtain EU State Aid approval, it was necessary to modify the scheme of relief. The main provisions of the modified relief, which come into operation on 13 October 2015, are as follows:
n In general, expenditure on such facilities will qualify for industrial building writing-down allowances at the normal rate of 4% per annum over a 25-year write-down period. However, a certain amount of expenditure (known as “specified capital expenditure”) will qualify for accelerated allowances over a seven-year period (15% writing-down allowance per annum for six years, with 10% in the final year).
n A cap has been placed on the amount of specified capital expenditure that can qualify for accelerated allowances. Where the expenditure is incurred by a company, accelerated allowances will be available on expenditure up to a capped amount of €5 million. Where the expenditure is incurred by an individual, the cap is €1.25 million.
n To qualify for accelerated allowances, the expenditure must be incurred in the five-year period commencing on 13 October 2015. There is no such time limit on expenditure that will qualify for the standard writing down allowances.
n The accelerated allowances granted in respect of specified capital expenditure will fall within the scope of the high income earner restriction.
Bank levyThe Budget indicated that the bank levy on financial institutions which was due to expire in 2016 will be extended to 2021. It is forecast to generate an additional €750 million of revenues over the period. The method used to calculate the levy, which is currently based on the Deposit Interest Retention Tax (DIRT) payments made by the financial institutions in 2011, will be subject to review. The Act does not contain any additional detail in this regard.
Revenue powersThe Act includes a series of amendments to Revenue powers, which are covered in more detail in our Business Tax section. With regard to the financial services sector, the Act provides the Revenue Commissioners with additional powers to seek records and documents from financial institutions, as follows:
n The Revenue Commissioners can currently seek information from a financial institution about a known taxpayer. The Act amends this to include a taxpayer whose identity is not known at that time, but who is capable of being identified by other means.
n The current provision enabling the Revenue Commissioners to seek a High Court order requiring a financial institution to provide information about a taxpayer is amended to
Gareth BryanPartner
TaxingTimes Finance Act 2015 21
allow them to request the court to direct that the existence of the disclosure order is not made known to the taxpayer. Where such a request is made to the court, the Revenue Commissioners must have reasonable grounds for suspecting that the disclosure of the order would lead to serious prejudice to the proper assessment or collection of the tax.
n The Revenue Commissioners’ power to obtain taxpayer information from various sources where foreign tax is at issue is amended. The power to apply to the Appeal Commissioners for their consent to seek taxpayer information from a third party (where that third-party name was provided by a financial institution) is now extended to cover foreign tax.
The above changes come into effect from 22 October 2015.
Double taxation agreementsUnder the existing legal framework, it is only possible to enter into double taxation agreements with the government of another country for the prevention of double taxation, the exchange of information and the recovery of tax. The Act makes provision for such agreements to be entered into with non-governmental authorities (e.g. the Taiwanese authorities). This amendment comes into operation from the date of passing of the Finance Act.
The Act provides for the ratification of a new double taxation agreement with Ethiopia and new treaties to replace the existing treaties with Zambia and Pakistan, as well as a new protocol to
the existing German treaty. The Act also provides for the ratification of new information exchange agreements with Argentina, the Bahamas and Saint Christopher (Saint Kitts) and Nevis.
Central Bank (Supervision and Enforcement) Act 2013The Central Bank (Supervision and Enforcement) Act 2013 amended the Central Bank’s powers to authorise branches of credit institutions headquartered outside the European Economic Area (EEA). This has necessitated the inclusion of a technical change in the Act to update the existing “financial institution” definition that is used in a wide range of tax provisions.
This amendment is to come into operation from the date of passing of the Finance Act.
DIRT amendmentThe Social Insurance Fund (into which social security contributions are paid) comprises a current account and an investment account. The Minister for Social Protection manages and controls the current account of the fund, with the Minister for Finance managing and controlling the investment account. The Act introduces an exemption from DIRT in respect of deposit interest derived from Social Insurance Fund accounts arising to the Minister for Social Protection.
Pension fund levy The abolition of the pension fund levy that was announced in the Budget does not require any legislative amendment as it simply will not be extended past 2015. The Act therefore, does not reference this any further.
22 TaxingTimes Finance Act 2015
VAT exemption for educational activitiesThe Finance Act amends to amend the scope of the VAT exemption that applies to children’s or young people’s education, school or university education, and vocational training and retraining activities.
The Act provides that the exemption will apply only where the activity is carried out by specified recognised bodies.
In addition, the Act contains measures to allow the Revenue Commissioners to treat education and vocational training services as subject to VAT where treating the services as VAT exempt would create a distortion of competition. Businesses which previously treated their education or vocational training services as VAT exempt but are not recognised bodies will be no longer be able to apply VAT exemption to these services.
The provisions also confirm that the VAT exemption applies to tuition given privately by teachers covering school or university education. This measure reflects recent judgments of the Court of Justice of the European Union and brings this exemption more clearly in line with the EU VAT Directive.
These changes are to apply with effect from passing of the Finance Act.
Online gamblingThe Act extends to extend the VAT exemption for betting and betting exchange services to stakes placed by customers located outside of Ireland and to commissions charged to such customers by remote betting intermediaries.
These changes are to apply with effect from passing of the Finance Act.
Management of investment fundsThe Act amends to amend the definition of “collective investment
undertaking” to include authorised Irish Collective Asset Management Vehicles (ICAVs) and thereby clarify that the management of an ICAV is VAT exempt.
This change is to apply with effect from passing of the Finance Act.
Anti-fraud measuresThe Act contains a number of protection measures to counteract the fraudulent evasion of VAT. The VAT reverse charge mechanism has been extended to certain domestic supplies in the wholesale gas and electricity sector and to gas and electricity certificates. As a result, with effect from 1 January 2016, the recipient, rather than the supplier, will be required to account for VAT on the supply on the reverse charge basis.
The Act also states that the Revenue Commissioners will have the legislative power to cancel a VAT registration number in certain circumstances and to make public the cancellation if it
Terry O’NeillPartner
Indirect Taxes
TaxingTimes Finance Act 2015 23
appears necessary for the protection of VAT revenue.
Connected party suppliesThe Act extends anti-avoidance measures to taxable supplies of uncompleted properties between connected parties. In addition to accounting for VAT on the sale, the vendor would be required to make an adjustment based on the difference between the VAT arising on the sale and the amount of VAT incurred by that vendor on the acquisition and development of the uncompleted property.
These changes are to have effect from the passing of the Finance Act.
Margin scheme for second-hand goodsThe Act includes measures to clarify that a cross-border supply within the EU of new means of transport (as defined for VAT purposes) does not come within the scope of the VAT margin scheme for second-hand goods.
These changes are to have effect from the passing of the Finance Act.
VAT returns and repaymentsThe Act includes technical measures to confirm that amended and supplementary VAT returns are subject to the same provisions regarding the imposition of penalties as an original VAT return.
In addition, the Act contains measures with the effect that, where a refund of VAT is due to a taxpayer following payment of an estimated assessment
issued by the Revenue Commissioners which is subsequently cancelled, the taxpayer must separately apply for that refund, rather than automatically receive the refund payment from the Revenue Commissioners.
These changes are to have effect from the passing of the Finance Act.
ExciseThere are a number of excise-related measures in the Act, as follows:
n Making available upfront the 50% reduction in Alcohol Products Tax (which is currently available by rebate) for beer produced in a microbrewery. This is subject to a commencement order.
n Extension of the Revenue Commissioners’ powers to search and retain records, computers and mobile phones where the Revenue officer reasonably suspects that there has been an excise offence.
n Confirmation of the announcement in the Budget of an increase in excise on a pack of 20 cigarettes by 50 cent (including VAT) and pro-rata increases on other tobacco products with effect from 14 October 2015.
n Subject to ministerial order, provisions for the introduction of electronic filing of excise duty returns.
n Clarification of the requirements for authorised persons who operate a “tax warehouse” for excisable products, including the requirement that the holder of the licence comply with excise law.
n Clarifications in respect of the
scope to reclaim vehicle registration tax (VRT) on passenger vehicles removed from Ireland and a reduction from 1 January 2016 in the administration fee for such reclaims from €500 to €100.
n Subject to regulations, the provision of a grant to certain persons with severe and permanent disability in respect of the purchase of hydrocarbon oil for vehicles used by that person for transportation. This replaces an existing excise repayment.
Niall CampbellPartner
24 TaxingTimes Finance Act 2015
Finally some reward for risk takers
In addition to these, the headline measure from the Finance Act was the reduction in the universal social charge (USC) rates for those earning under €70,044, which of course will reduce the overall tax burden of entrepreneurs as well as self-employed individuals generally. In this article, however, we will focus on the measures that were introduced specifically for entrepreneurs.
Earned income tax credit The earned income tax credit will be introduced from 1 January 2016 and will be worth €550 in net pay terms. While this equates to only one-third of the PAYE credit available to those in employment, it represents the first step in rebalancing the tax differential between the employed and self-employed. In his Budget speech, the minister reached out particularly to the small business owners across the country, including small retailers, publicans, farmers and tradesmen.
As can be seen from the table below, both employees and self-employed will have more net income in 2016 than 2015, but there is still a considerable bridge to cross to achieve parity. This measure had been widely forecasted, but the self-employed will wonder why they continue to shoulder a bigger fiscal responsibility than their employed counterparts who are earning the same income.
CGT Entrepreneur ReliefOver the last number of years, our nearest neighbours in the UK have taken significant steps to reward their domestic risk takers, in particular through the UK’s Entrepreneurs’ Relief regime, whereby entrepreneurs pay a reduced rate of capital gains tax (CGT) (reduced from 28% to 10%) on the disposal of their business, up to a value of a gain of Stg£10 million.
KPMG’s submission as part of the aforementioned public consultation process recommended a number of measures, including the introduction of a scheme similar to the Entrepreneurs’ Relief regime in the UK. Following the consultation process, a similar scheme for Irish entrepreneurs was announced on Budget Day. The tax relief under the Irish scheme will reduce the CGT rate from 33% to 20% on net gains from the disposals of a business up to a €1 million lifetime limit. A number of significant concerns were raised at the conditions imposed in the Finance Bill as published, however, a number of those concerns were subsequently addressed. These changes are very welcome and many are consistent with a submission by KPMG to the Department of Finance in which we suggested ways to make the relief more accessible to entrepreneurs owning shares and working in a group of companies.
The following are some of the main conditions in the section:
n In the case of the disposal of shares in a company, the individual claiming the relief must be a qualifying person. A “qualifying person” means an individual who is or has been a director or employee of the company (or companies in a qualifying group) who spends at least 50% of their working time in a managerial or technical capacity of a qualifying business for a continuous period of three years out of the last 5 years prior to the disposal. The amendments made in the Committee and Report stages to the Finance Bill (in particular that the individual is no longer required to be
Enhanced entrepreneurs CGT relief
Corporation tax relief for start-ups extended
Motor tax reduction for commercial vehicles
Introduction of an earned income credit
Promoting electronic payments by reducing interchange fees and stamp duty charges
Introduction of a knowledge development box (KDB)
Agri-tax reliefs being extended and new relief for succession planning
Enhancing film tax relief by increasing the investment cap
Providing tax incentives for constructing aviation services facilities
Net Pay on #150,000
Year Employed Self Employed
2015 #83,616 #80,466 #3,150
2016 #84,518 #81,918 #2,600
Increase in net pay
#902 #1,452 #550
Olivia Lynch Partner
TaxingTimes Finance Act 2015 25
a full time working director of the company), address concerns that the relief, as originally drafted, would not apply to serial entrepreneurs or businesses in the tech sector where founders are often involved with a range of companies in related businesses or with different stakeholders and as a result may not be regarded as working full-time in the business that is sold.
n In the context of relief for the disposal of shares, the company must be engaged in carrying on a qualifying business (unless it is a holding company of a qualifying group). This does not extend to the holding of share options or other interests held over shares or to the holding of development land or the development or letting of land.
n The individual must hold not less than 5% of the ordinary share capital in the company that is sold.
n The asset must be a chargeable business asset. This includes shares in a company carrying on a qualifying business and shares in a holding company of a qualifying group (the amendments expanded the cases where relief is available in a group context). The asset, however, cannot be development land.
n An individual must be the owner of the business assets for a continuous period of not less than 3 years in the 5 years immediately prior to the disposal of the assets.
Whilst the conditions above limit the application of the scheme to certain entrepreneurs, the small business owners that the minister appealed to
in his Budget speech will welcome the reduction in capital gains tax payable.
The new Irish regime can be contrasted with the 10% CGT rate and Stg£10 million limit afforded under the UK regime. In addition, the UK only require a business asset to be held by the owner for one year as opposed to three years in Ireland. However, the UK regime has been in existence since 2008 and initially only provided for relief of up to Stg£1 million. It has since been progressively increased over time to Stg£10 million. It is hoped that the maximum Irish scheme limit will be increased over the short to medium term to encourage entrepreneurs to grow their business and produce scale, rather than encouraging individuals to sell up at an early stage when they reach the capital gains threshold.
26 TaxingTimes Finance Act 2015
Corporation tax start-up reliefThis measure was due to be abolished at the end of 2015 but it has received a three-year stay of execution. It will, therefore, benefit trades which commence before 31 December 2018. The measure aims to reduce the corporation tax payable on the profits of a new trade and gains on the disposal of assets used in the trade. The relief was introduced to provide support in the early years of trading for start-ups, thereby safeguarding jobs.
Based on the figures provided by the Department of Finance, it is questionable as to whether the relief has made a huge impact in promoting entrepreneurship in Ireland, especially since most start-up companies by their very nature have little access to revenue streams in their early years and accordingly are often loss-making. Nevertheless, this relief has been claimed by a significant number of companies in 2012 and 2013, at a cost of just over €10 million in tax relief claimed. The costings published on Budget Day put the annual cost of extending this relief at €6 million per annum.
Other measures that did not appearSelf-employed personnel make up 16.5% of the workforce. Whilst many entrepreneurs will not be affected by the additional 3% USC self-employed surcharge as it only applies to those earning in excess of €100,000, it creates a significant imbalance in the tax system for those that do, when compared to employees who do not pay the additional surcharge on a similar level of earnings. The justification for
keeping such a measure in place is hard to reconcile but, according to the Revenue Commissioners estimates in September 2015, only 28,700 persons pay the additional surcharge so it appears likely that the political motivation was to reduce taxes elsewhere where they would have a wider numerical impact.
Employment and Investment Incentive Scheme (EIIS)/Start-Up Refunds for Entrepreneurs (SURE)It is important to develop an environment that not only encourages people to take a risk in starting a new business, but also encourages other parties to take a risk in supporting such ventures in the early stages. Such people are typically family, friends or “angel” investors, and can provide a business with much-needed funds during its infancy.
Steps have been taken over recent years to enhance the incentives
available to such investors. However, in a number of cases these steps point largely to a re-branding of the available reliefs, rather than the overhaul many deem necessary in order to compete more vigorously with other jurisdictions. This included the recent re-naming of the Seed Capital Relief Scheme as Start-Up Refunds for Entrepreneurs (SURE), although certain conditions which are seen as inhibiting the relief remain unchanged.
Separately, in the Budget, the minister confirmed that the annual and lifetime investment limits in a company under EIIS are to be increased to €5 million and €15 million respectively. While this is welcome, the announcement effectively rubber-stamps the measures announced in last year’s Budget, following the required EU State Aid review.
The existing rules allow investors to claim relief in Revenue approved funds in the year of investment even if the shares are not issued by the company
Conor O’SullivanPartner
TaxingTimes Finance Act 2015 27
to the fund until a following year. The Finance Act now permits investors who made investments into designated funds in 2014 to claim relief in 2014 where the shares are not issued by the eligible company until 2016.
A number of groups involved with the start-up sector are disappointed that these incentives do not go far enough to entice investors into very early-stage companies. A regime similar to the Seed Enterprise Investment Scheme (SEIS) in the UK was called for, as a means of providing enhanced and accelerated tax relief on smaller amounts of capital investment. The SEIS has helped to encourage a large number of investments of relatively small amounts of between Stg£5,000 and Stg£10,000. For a company at this stage in its development, such investments can be key in helping it to grow and succeed.
Mobility and entrepreneursOn the flip side an interesting comment from the minister in his Budget statement is that small and medium enterprises account for 99.7% of all enterprises in Ireland and account for 68% of all employment. Accordingly, the remaining 0.3% of businesses will be large Irish enterprises and in the main large multinationals operating in Ireland. If this small number of enterprises account for nearly 32% of all employment, did the Government cater enough to attract talent to live and work in Ireland? Notwithstanding the reduction in USC for all income earners in Ireland, the reality is that a marginal rate of 52% (or worse still 55% for self-employed persons) remains a serious inhibiter to attracting high-calibre employees and entrepreneurs to work in Ireland.
Steps were made in last year’s Budget to attract talent to Ireland through the Special Assignee Relief Programme (SARP) but, whilst a step in the right direction, it is less attractive than similar schemes in the Netherlands or France. The National Competiveness Council stated in July 2015, that “Competition for Talent is global and intensifying”. In addition, entrepreneurs are in many cases young and mobile and can easily set up a business in a location that offers competitive income tax and capital gains tax treatment.
The road out of economic collapse has been long and Ireland’s entrepreneurs have been at the centre of the economic revival. The Finance Act has brought some welcome relief for their efforts in helping to secure Irish jobs
and create new business in Ireland. These new tax measures (which many argue do not go far enough) will be cautiously welcomed by entrepreneurs, but they will want to see a tax roadmap which is fair in terms of overall tax rates between employees and the self-employed and rewards them for the risks they take.
A version of this article first appeared in the Sunday Business Post Budget 2016 magazine on Sunday, 18 October 2015 and has been reproduced with their kind permission
28 TaxingTimes Finance Act 2015
In a
Nut
shel
l The
Oct
ober
201
5 B
EPS
Del
iver
able
sIn
trod
uctio
n
n O
n 5
Oct
ober
, the
OEC
D re
leas
ed th
e fin
al
deliv
erab
les
of it
s B
ase
Eros
ion
and
Profi
t Sh
iftin
g (B
EPS)
Act
ion
Plan
n T
his
repr
esen
ts o
ne o
f the
mos
t sig
nific
ant
chan
ges
to th
e in
tern
atio
nal c
orpo
rate
tax
land
scap
e in
man
y ye
ars
n F
or th
e m
ajor
ity o
f Act
ions
, the
se
docu
men
ts c
oncl
ude
the
disc
ussi
on a
nd
reco
mm
enda
tion
phas
e an
d m
ark
the
star
t of t
he im
plem
enta
tion
and
prac
tical
de
liver
y ph
ase.
The
nex
t pha
se w
ill in
clud
e a
man
date
for m
onito
ring
and
supp
ortin
g im
plem
enta
tion
n M
ultin
atio
nals
will
need
to re
thin
k ho
w
they
vie
w ta
xes
in a
pos
t-BEP
S w
orld
. G
over
nmen
ts in
tern
atio
nally
, inc
ludi
ng
Irela
nd, w
ill ha
ve to
thin
k ab
out h
ow th
ey
bala
nce
thei
r am
bitio
n to
att
ract
bus
ines
s ac
tivity
thro
ugh
offe
ring
an a
ttra
ctiv
e co
rpor
ate
tax
regi
me
agai
nst c
omm
itmen
ts
unde
r the
BEP
S Pl
an w
hich
aim
s to
kee
p a
mor
e le
vel g
loba
l pla
ying
fiel
d
n W
e be
lieve
Irel
and’
s ta
x re
gim
e is
wel
l al
igne
d w
ith B
EPS
mea
sure
s. Ir
elan
d is
like
ly to
impl
emen
t in
the
near
term
m
easu
res
whi
ch h
ave
broa
d co
nsen
sus
and
enha
nce
the
tran
spar
ency
of i
ts re
gim
e.
Irela
nd w
ill ad
opt a
‘wai
t and
see
’ app
roac
h be
fore
ado
ptin
g m
easu
res
that
pot
entia
lly
affe
ct th
e co
mpe
titiv
e po
sitio
n of
its
tax
regi
me.
n I
n th
is d
ocum
ent w
e su
mm
aris
e th
e ke
y pr
opos
als,
and
pro
vide
our
initi
al v
iew
on
how
the
reco
mm
enda
tions
may
tran
slat
e in
to im
plem
enta
tion
Actio
n 1:
Dig
ital E
cono
my
Oct
ober
201
5 D
eliv
erab
le?
Yes
Key
OEC
D p
ropo
sals
n F
or d
irect
tax
no s
peci
fic n
ew d
igita
l tax
es
or p
erm
anen
t est
ablis
hmen
t rul
es a
re
reco
mm
ende
d. T
he O
ECD
exp
ects
the
Dig
ital E
cono
my
to b
e ta
ckle
d by
oth
er
Act
ions
but
leav
es th
e do
or o
pen
to
coun
trie
s to
impl
emen
t dom
estic
rule
s if
they
con
side
r the
m in
adeq
uate
or c
reat
ing
a tim
e la
g. M
onito
ring
will
cont
inue
with
a
furt
her r
epor
t in
2020
n F
or in
dire
ct ta
xes,
a s
hift
to c
olle
ctin
g ta
x in
the
juris
dict
ion
of c
onsu
mpt
ion
is
reco
mm
ende
d. F
or B
2B th
is g
ener
ally
m
eans
a re
char
ge o
r sel
f ass
essm
ent.
B2C
re
mot
e su
pplie
rs o
f dig
ital s
ervi
ces
will
ne
ed to
regi
ster
and
acc
ount
for V
AT in
the
coun
try
of re
side
nce
of th
eir c
usto
mer
n A
new
Low
Val
ue Im
port
Rep
ort p
rovi
des
optio
ns fo
r tax
aut
horit
ies
to ta
x m
ore
low
va
lue
e-co
mm
erce
tran
sact
ions
by
shift
ing
VAT
oblig
atio
ns to
the
vend
or/in
term
edia
ry
KPM
G’s
vie
w
n T
axin
g B
2C s
uppl
ies
of b
oth
digi
tal s
ervi
ces
and
low
val
ue e
-com
mer
ce in
the
coun
try
of re
side
nce
of th
e co
nsum
er w
ill pl
ace
a gr
eate
r com
plia
nce
burd
en o
n ve
ndor
s in
th
e gl
obal
dig
ital e
cono
my
and
pote
ntia
lly
incr
ease
the
cost
to c
onsu
mer
s
n I
t is
disa
ppoi
ntin
g th
at th
e re
port
eff
ectiv
ely
enco
urag
es c
ount
ries
to ta
ckle
dig
ital B
EPS
ch
alle
nges
uni
late
rally
whi
ch c
ould
lead
to
glob
al u
ncer
tain
ty a
nd in
cons
iste
ncy
Actio
n 2:
Hyb
rid m
ism
atch
arra
ngem
ents
Oct
ober
201
5 D
eliv
erab
le?
Yes
Key
OEC
D p
ropo
sals
n R
ecom
men
datio
n fo
r the
intr
oduc
tion
of d
omes
tic h
ybrid
mis
mat
ch ru
les
to
neut
ralis
e th
e ef
fect
of h
ybrid
inst
rum
ents
an
d en
titie
s
n O
ther
reco
mm
ende
d do
mes
tic p
rovi
sion
s in
clud
e th
e de
nial
of a
div
iden
d ex
empt
ion
for t
ax d
educ
tible
pay
men
ts a
nd m
easu
res
to p
reve
nt h
ybrid
tran
sfer
s be
ing
used
to
dupl
icat
e w
ithho
ldin
g ta
x cr
edits
n P
ropo
sed
chan
ge to
the
OEC
D m
odel
tr
eaty
to e
nsur
e hy
brid
ent
ities
are
not
us
ed to
obt
ain
trea
ty b
enefi
ts u
ndul
y
KPM
G’s
vie
w
n T
he h
ybrid
mis
mat
ch ru
les
oper
ate
auto
mat
ical
ly a
nd c
onta
in a
prim
ary
resp
onse
and
a d
efen
sive
rule
to a
void
do
uble
taxa
tion
and
to e
nsur
e th
at th
e m
ism
atch
is e
limin
ated
eve
n w
here
not
all
juris
dict
ions
ado
pt th
e ru
les
n C
ompa
nies
with
exi
stin
g in
tra-
grou
p fin
anci
ng a
nd ro
yalty
arr
ange
men
ts
will
need
to a
sses
s th
e im
pact
if th
e re
com
men
ded
rule
s w
ere
to b
e in
trod
uced
by
a re
leva
nt ju
risdi
ctio
n
n I
rela
nd’s
regi
me
is la
rgel
y un
affe
cted
by
hybr
ids.
It is
like
ly to
act
to im
plem
ent a
nti-
hybr
id m
easu
res
agre
ed w
ithin
the
EU
n O
ther
cou
ntrie
s m
ay a
ct to
impl
emen
t O
ECD
mea
sure
s - t
he U
K ha
s al
read
y an
noun
ced
its in
tent
ion
to in
trod
uce
dom
estic
rule
s to
giv
e ef
fect
to th
e O
ECD
’s
reco
mm
enda
tions
on
hybr
ids
from
1
Janu
ary
2017
Actio
n 3:
CFC
Rul
es
Oct
ober
201
5 D
eliv
erab
le?
Yes
Key
OEC
D p
ropo
sals
n A
s w
ith th
e ea
rlier
dis
cuss
ion
draf
t, th
e fin
al re
com
men
datio
ns a
re in
the
form
of
“bu
ildin
g bl
ocks
” th
at a
re c
onsi
dere
d ne
cess
ary
for t
he d
esig
n of
eff
ectiv
e C
FC
rule
s. T
he s
ix b
uild
ing
bloc
ks in
clud
e th
e de
finiti
on o
f a C
FC a
nd o
f CFC
inco
me
an
d th
e at
trib
utio
n of
CFC
inco
me
n T
he re
com
men
datio
ns a
re n
ot m
inim
um
stan
dard
s, b
ut th
ey a
re d
esig
ned
to e
nsur
e th
at c
ount
ries
whi
ch c
hoos
e to
impl
emen
t th
em w
ill ha
ve C
FC ru
les
that
eff
ectiv
ely
prev
ent t
axpa
yers
from
shi
ftin
g in
com
e in
to
fore
ign
subs
idia
ries
KPM
G’s
vie
w
n T
he O
ECD
cle
arly
reco
gnis
es th
e ne
ed fo
r fle
xibi
lity
in th
is a
rea,
as
the
desi
gn o
f CFC
ru
les
in d
iffer
ent c
ount
ries
refle
cts
diff
erin
g po
licy
obje
ctiv
es, i
n pa
rtic
ular
dep
endi
ng
on w
heth
er th
ey h
ave
a w
orld
wid
e or
te
rrito
rial t
ax s
yste
m o
r whe
ther
they
are
EU
mem
bers
n T
he d
efini
tion
of C
FC in
com
e is
one
of
the
key
build
ing
bloc
ks, b
ut is
an
area
w
here
ther
e ar
e cl
early
diff
erin
g vi
ews.
A
non
-exh
aust
ive
list o
f app
roac
hes
(e.g
. su
bsta
nce
and
exce
ss p
rofit
s an
alys
is)
has
been
incl
uded
to a
ccom
mod
ate
diff
erin
g vi
ews
n I
rela
nd is
not
like
ly to
impl
emen
t a C
FC
regi
me
in th
e ne
ar te
rm. I
f it d
id, i
t is
expe
cted
to a
dher
e to
EU
sta
ndar
ds
TaxingTimes Finance Act 2015 29
In a
Nut
shel
l The
Oct
ober
201
5 B
EPS
Del
iver
able
sAc
tion
4: In
tere
st d
educ
tions
Oct
ober
201
5 D
eliv
erab
le?
Yes
Key
OEC
D p
ropo
sals
n C
ount
ries
may
ado
pt th
e m
easu
res
if th
ey
choo
se. R
ecom
men
datio
n of
Fix
ed R
atio
R
ule
(FR
R) o
f tax
relie
f for
net
inte
rest
of
10%
to 3
0% o
f EB
ITD
A, a
pplie
d to
net
(in
clud
ing
third
par
ty) i
nter
est a
t an
entit
y le
vel.
A G
roup
Rat
io R
ule
(GR
R) w
ould
en
able
gro
ups
that
are
mor
e hi
ghly
leve
rage
d w
ith th
ird p
arty
deb
t to
appl
y th
e w
orld
wid
e ra
tio ra
ther
than
the
coun
try’s
FR
R (p
ossi
ble
10%
upl
ift to
pre
vent
dou
ble
taxa
tion)
n A
ltern
ativ
es to
the
GR
R in
clud
e an
“eq
uity
es
cape
” ru
le o
r no
GR
R p
rovi
ded
the
FRR
is
appl
ied
to b
oth
mul
tinat
iona
l and
dom
estic
gr
oups
n S
ugge
sted
furt
her o
ptio
ns: a
de
min
imis
th
resh
old,
pub
lic b
enefi
t exe
mpt
ion,
car
ry
forw
ard
of d
isal
low
ed in
tere
st e
xpen
se
and/
or u
nuse
d in
tere
st c
apac
ity, a
nd o
ther
ta
rget
ed a
nti-a
void
ance
rule
s
KPM
G’s
vie
w
n M
ost c
ount
ries
that
are
min
ded
to a
dopt
ar
e ex
pect
ed to
sel
ect a
FR
R in
the
rang
e of
20
%-3
0% o
f EB
ITD
A. T
he G
RR
, if a
dopt
ed,
is lik
ely
to b
e of
mor
e be
nefit
to la
rgel
y do
mes
tic g
roup
s
n I
mpl
emen
tatio
n is
key
: som
e co
untr
ies
that
ha
ve re
stric
tions
on
inte
rest
ded
uctio
ns
may
be
relu
ctan
t or s
low
to c
hang
e th
ese
if th
ey b
elie
ve th
ey a
re a
lread
y ef
fect
ive
n B
anki
ng a
nd In
sura
nce
sect
ors
mus
t wai
t fo
r fur
ther
wor
k to
be
done
in 2
016
n I
rela
nd is
unl
ikel
y to
ado
pt in
the
near
term
. It
alre
ady
has
a ra
nge
of ta
rget
ed m
easu
res
to li
mit
inte
rest
ded
uctio
ns o
n de
bt
Actio
n 5:
Har
mfu
l tax
pra
ctic
es
Oct
ober
201
5 D
eliv
erab
le?
Yes
Key
OEC
D p
ropo
sals
n I
ntro
duct
ion
of th
e M
odifi
ed N
exus
ap
proa
ch to
link
ben
efits
und
er p
refe
rent
ial
IP “
Box
” re
gim
es to
a c
laim
ant’s
pr
opor
tiona
te c
ontr
ibut
ion
to R
&D
act
iviti
es
unde
rpin
ning
the
inco
me
n F
or e
xist
ing
IP B
ox re
gim
es, n
ew M
odifi
ed
Nex
us re
gim
es to
be
intro
duce
d fro
m J
uly
2016
with
use
of c
urre
nt re
gim
es p
erm
itted
un
til J
une
2021
und
er d
efine
d gr
andf
athe
ring
prov
isio
ns. A
ll IP
regi
mes
will
requ
ire c
hang
e to
Mod
ified
Nex
us A
ppro
ach
n N
on-IP
regi
mes
will
be re
view
ed to
ens
ure
in li
ne w
ith n
ew s
ubst
ance
requ
irem
ents
n I
ntro
duct
ion
of c
ompu
lsor
y sp
onta
neou
s ex
chan
ge o
f inf
orm
atio
n on
cer
tain
rulin
gs
from
Apr
il 201
6. A
pplie
s to
pas
t rul
ings
, and
ne
w e
ntra
nts
to IP
box
es p
ost F
ebru
ary
2015
KPM
G’s
vie
w
n I
rela
nd w
ill in
trod
uce
its K
now
ledg
e D
evel
opm
ent B
ox, t
he fi
rst n
ew M
odifi
ed
Nex
us A
ppro
ach
regi
me
in F
inan
ce A
ct
2015
. The
Nex
us p
rinci
ple
will
intr
oduc
e co
nsid
erab
le c
ompl
exity
. For
man
y ta
xpay
ers,
is li
kely
to re
stric
t ove
rall
bene
fits,
par
ticul
arly
if o
pera
ting
mul
tiple
R
&D
cen
tres
on
a gl
obal
bas
is
n O
ECD
mea
sure
s to
exc
hang
e ru
ling
info
rmat
ion
spon
tane
ousl
y in
rela
tion
to
mat
ters
incl
udin
g pr
efer
entia
l reg
imes
, un
ilate
ral t
rans
fer p
ricin
g an
d PE
s ec
ho E
U
mea
sure
s pr
opos
ed to
com
men
ce in
201
7 to
incl
ude
rulin
gs g
iven
sin
ce 2
012
Actio
n 6:
Tre
aty
abus
e
Oct
ober
201
5 D
eliv
erab
le?
Yes
Key
OEC
D p
ropo
sals
n A
s a
min
imum
sta
ndar
d, to
cou
nter
trea
ty
shop
ping
cou
ntrie
s w
ill in
clud
e on
e of
the
follo
win
g ty
pes
of ru
les:
(1) A
com
bine
d ap
proa
ch o
f bot
h a
Prin
cipa
l Pur
pose
s Te
st (“
PPT”
) an
d Li
mita
tion
on B
enefi
ts
(“LO
B”)
rule
in ta
x tr
eatie
s; (2
) A P
PT ru
le
alon
e in
tax
trea
ties;
or (
3) A
LO
B in
tax
trea
ties
supp
lem
ente
d by
dom
estic
ant
i-co
ndui
t fina
ncin
g le
gisl
atio
n
n S
ugge
sted
spe
cific
ant
i-abu
se ru
les
for:
tran
sact
ions
see
king
to p
reve
nt s
ourc
e ta
xatio
n of
imm
ovab
le p
rope
rty,
low
ta
xed
PEs,
hol
ding
per
iods
for s
hort
term
di
vide
nd tr
ansf
er tr
ansa
ctio
ns, d
ual r
esid
ent
com
pani
es
n S
till t
o be
fina
lised
in e
arly
201
6 is
the
reco
mm
ende
d w
ordi
ng fo
r the
LO
B c
laus
e (p
endi
ng th
e fin
alis
atio
n of
the
US
new
m
odel
tax
trea
ty) a
nd th
e tr
eaty
ent
itlem
ent
of n
on-C
IVs
KPM
G’s
vie
w
n T
he d
evel
opm
ent o
f the
pro
visi
ons
thro
ugh
wor
k on
a m
ultil
ater
al in
stru
men
t in
2016
m
erits
clo
se re
view
for I
rish
base
d bu
sine
ss
oper
atin
g in
tern
atio
nally
as
the
draf
t pr
ovis
ions
pre
sent
cha
lleng
es fo
r tax
paye
rs
oper
atin
g in
sm
all o
pen
econ
omie
s. Ir
elan
d is
aw
are
of th
e ne
ed fo
r its
tax
trea
ty
netw
ork
to c
ontin
ue to
wor
k ef
fect
ivel
y to
su
ppor
t int
erna
tiona
l tra
de
n W
hils
t the
re is
reco
gniti
on o
f the
im
port
ance
of n
on-C
IV fu
nds
and
thei
r tr
eaty
ent
itlem
ent,
the
cont
inui
ng la
ck o
f cl
arity
for s
uch
fund
s is
dis
appo
intin
g
Actio
n 7:
Def
initi
on o
f PE
Oct
ober
201
5 D
eliv
erab
le?
Yes
Key
OEC
D p
ropo
sals
n R
evis
ed p
ropo
sals
to c
hang
e th
e PE
de
finiti
on, i
f ado
pted
by
coun
trie
s, w
ould
re
sult
in a
sig
nific
ant e
xten
sion
to th
e de
finiti
on o
f a P
E
n T
he c
ircum
stan
ces
in w
hich
a “
depe
nden
t ag
ent”
PE
can
be c
reat
ed w
ill be
si
gnifi
cant
ly w
iden
ed e
.g. i
t will
exte
nd to
si
tuat
ions
whe
re a
per
son
“hab
itual
ly p
lays
th
e pr
inci
pal r
ole
lead
ing
to th
e co
nclu
sion
of
con
trac
ts th
at a
re ro
utin
ely
conc
lude
d w
ithou
t mat
eria
l mod
ifica
tion
by th
e en
terp
rise”
n T
he li
st o
f exc
epte
d ac
tiviti
es w
ill be
sub
ject
to
an
over
ridin
g pr
econ
ditio
n th
at th
ey b
e “p
repa
rato
ry o
r aux
iliary
” in
nat
ure
n A
new
ant
i-fra
gmen
tatio
n ru
le w
ill be
in
trod
uced
, app
lyin
g w
here
com
plem
enta
ry
func
tions
that
are
par
t of a
coh
esiv
e bu
sine
ss o
pera
tion
are
carr
ied
on b
y th
e sa
me
or a
clo
sely
rela
ted
ente
rpris
e
KPM
G’s
vie
w
n T
he p
ropo
sed
chan
ges
to th
e de
finiti
on
of P
E ar
e fa
r rea
chin
g. D
evel
opm
ents
on
ado
ptio
n by
cou
ntrie
s w
ill ne
ed to
be
cons
ider
ed b
y ev
ery
mul
tinat
iona
l as
they
w
ill ge
nera
te s
igni
fican
t unc
erta
inty
for
busi
ness
n T
he s
cope
of s
ome
chan
ges
(in p
artic
ular
re
latin
g to
“de
pend
ent a
gent
s”) h
as b
een
slig
htly
nar
row
ed c
ompa
red
to e
arlie
r pr
opos
als.
The
fina
l pro
posa
ls re
mai
n in
here
ntly
less
pre
cise
than
the
curr
ent P
E
defin
ition
30 TaxingTimes Finance Act 2015
In a
Nut
shel
l The
Oct
ober
201
5 B
EPS
Del
iver
able
sAc
tions
8-1
0: IP
and
TP
outc
omes
Oct
ober
201
5 D
eliv
erab
le?
Yes
Key
OEC
D p
ropo
sals
n L
egal
ow
ners
hip
of a
n in
tang
ible
doe
s no
t of
itse
lf pr
ovid
e a
right
to a
ll (o
r eve
n an
y) o
f th
e re
turn
gen
erat
ed fr
om it
s ex
ploi
tatio
n.
Inst
ead
thos
e re
turn
s ac
crue
to th
e en
titie
s w
hich
car
ry o
ut D
EMPE
func
tions
- de
velo
pmen
t, en
hanc
emen
t, m
anag
emen
t, pr
otec
tion
and
expl
oita
tion
- in
rela
tion
to
that
inta
ngib
le
n T
he n
ew g
uide
lines
em
phas
ise
the
need
to
acc
urat
ely
delin
eate
a tr
ansa
ctio
n so
th
at th
e co
nduc
t of p
artie
s w
ill re
plac
e co
ntra
ctua
l arr
ange
men
ts w
here
they
ar
e in
com
plet
e or
out
of l
ine
with
the
cond
uct.
Tran
sact
ions
can
be
disr
egar
ded
for T
P pu
rpos
es w
here
they
lack
co
mm
erci
al ra
tiona
lity
n R
etur
n fo
r ris
k is
allo
cate
d to
the
part
y w
hich
con
trol
s it
and
has
the
finan
cial
ca
paci
ty to
ass
ume
it. A
n en
tity
only
pr
ovid
ing
capi
tal w
ill be
ent
itled
to n
o m
ore
than
a ri
sk fr
ee re
turn
n E
nhan
ced
rule
s on
how
to a
pply
the
CU
P (c
ompa
rabl
e un
cont
rolle
d pr
ice)
m
etho
dolo
gy to
com
mod
ity tr
ansa
ctio
ns
n A
saf
e ha
rbou
r for
low
val
ue a
ddin
g se
rvic
es
reco
mm
ende
d, w
ith a
ligh
t tou
ch b
enefi
ts
test
and
pre
scrib
ed n
et c
ost p
lus
mar
gins
of
betw
een
2% a
nd 5
%
n C
hang
es to
the
rule
s on
Cos
t Con
trib
utio
n A
rran
gem
ents
to a
lign
them
with
the
othe
r TP
out
com
es
Actio
ns 8
-10:
IP a
nd T
P ou
tcom
es (c
ont.)
KPM
G’s
vie
w
n O
ther
than
som
e cl
arifi
catio
n of
con
tinui
ng
to re
cogn
ise
cont
ract
ual t
erm
s w
here
they
al
ign
with
con
duct
and
the
sign
ifica
nce
of th
e fin
anci
al c
apac
ity to
ass
ume
risk,
th
ere
is li
ttle
cha
nge
from
the
prev
ious
di
scus
sion
dra
fts.
The
reco
mm
enda
tions
ar
e co
nsis
tent
with
the
over
all e
volu
tion
of
the
tax
trea
tmen
t of i
ntan
gibl
es, r
isks
and
ca
pita
l. Fo
r US
owne
d gr
oups
, US
reac
tion
to O
ECD
gui
danc
e on
inta
ngib
les
loca
ted
in a
juris
dict
ion
with
lim
ited
subs
tanc
e w
ill
be in
tere
stin
g as
it m
ay c
onfli
ct w
ith U
S
appr
oach
es
n T
hese
reco
mm
enda
tions
cem
ent t
he
impo
rtan
ce o
f und
erly
ing
subs
tanc
e an
d va
lue
crea
tion
over
lega
l ow
ners
hip/
fu
ndin
g. A
s gr
oups
con
side
r alig
ning
su
bsta
nce
and
loca
tion
choi
ces,
Irel
and
with
its
att
ract
ive
tax
regi
me
is p
oten
tially
wel
l pl
aced
to b
enefi
t
n W
hils
t the
re is
som
e cl
arifi
catio
n fo
r bu
sine
ss (e
.g. p
ropo
sed
safe
har
bour
s),
over
all w
e ex
pect
ther
e to
be
an in
crea
se in
di
sput
es w
hich
will
be ti
me
cons
umin
g an
d co
stly
n T
he fi
nal p
ictu
re fo
r gro
ups
with
hig
h va
lue
inta
ngib
les
oper
atin
g th
roug
h cl
osel
y in
tegr
ated
inte
rnat
iona
l sup
ply
will
not
emer
ge u
ntil
impl
emen
tatio
n gu
idan
ce is
fin
alis
ed o
n H
ard-
to-V
alue
-Inta
ngib
les
and
profi
t spl
it m
etho
ds
n A
lthou
gh a
dopt
ion
in fi
nal O
ECD
gui
delin
es
may
be
som
e tim
e aw
ay, t
axin
g au
thor
ities
ar
e al
read
y ba
sing
cha
lleng
es a
nd a
udit
revi
ews
on th
e em
ergi
ng g
uida
nce
Actio
n 11
: BEP
S da
ta
Oct
ober
201
5 D
eliv
erab
le?
Yes
Key
OEC
D p
ropo
sals
n T
he O
ECD
find
s si
x in
dica
tors
that
it h
as
stud
ied
poin
t to
BEP
S ac
tivity
whi
ch it
es
timat
es is
cos
ting
gove
rnm
ents
bet
wee
n U
SD 1
00 b
illion
and
USD
240
billi
on a
yea
r in
lost
tax
reve
nues
n T
he re
com
men
datio
ns c
over
dat
a to
be
colle
cted
by
gove
rnm
ents
and
m
etho
dolo
gies
to a
naly
se d
ata,
and
als
o th
e co
nsis
tent
pre
sent
atio
n of
dat
a
n I
mpr
oved
dat
a an
d an
alys
is to
ols
are
inte
nded
to le
ad to
bet
ter i
dent
ifica
tion
of
any
BEP
S ta
king
pla
ce a
nd th
e im
pact
of
the
actio
ns ta
ken
to a
ddre
ss B
EPS
KPM
G’s
vie
w
n T
he re
com
men
datio
ns s
et o
ut a
re in
line
w
ith o
ur e
xpec
tatio
ns
n I
t is
diffi
cult
to a
sses
s th
e su
cces
s of
the
prop
osed
tool
s in
mon
itorin
g B
EPS
until
A
ctio
ns a
re im
plem
ente
d m
ore
wid
ely
in a
va
riety
of j
uris
dict
ions
n B
usin
ess
need
s to
rem
ain
aler
t tha
t the
bu
rden
and
cos
t of a
dditi
onal
dat
a to
be
colle
cted
doe
s no
t fal
l on
busi
ness
Actio
n 12
: Man
dato
ry d
iscl
osur
e ru
les
Oct
ober
201
5 D
eliv
erab
le?
Yes
Key
OEC
D p
ropo
sals
n R
ecom
men
datio
ns d
o no
t rep
rese
nt
a m
inim
um s
tand
ard.
Cou
ntrie
s ca
n de
term
ine
whe
ther
or n
ot to
intr
oduc
e a
man
dato
ry d
iscl
osur
e re
gim
e
n T
he re
port
reco
mm
ends
a m
odul
ar
appr
oach
to d
iscl
osur
e ta
rget
ing
feat
ures
of
aggr
essi
ve tr
ansa
ctio
ns, s
peci
fic d
omes
tic
risk
area
s an
d cr
oss-
bord
er B
EPS
outc
omes
of
con
cern
n I
t ack
now
ledg
es a
ny im
plem
enta
tion
mus
t be
bal
ance
d w
ith c
ount
ry s
peci
fic n
eeds
and
ex
istin
g co
mpl
ianc
e an
d di
sclo
sure
initi
ativ
es
n T
he re
port
als
o in
clud
es in
form
atio
n on
how
m
anda
tory
dis
clos
ure
cont
ribut
es to
war
ds
enha
nced
tran
spar
ency
bet
wee
n ta
x ad
min
istr
atio
ns
KPM
G’s
vie
w
n T
he re
com
men
datio
ns a
re in
line
with
ou
r exp
ecta
tions
. The
key
for c
ount
ries
min
ded
to a
dopt
will
be in
car
eful
ly ta
rget
ed
impl
emen
tatio
n to
bal
ance
har
vest
ing
rele
vant
info
rmat
ion
with
avo
idin
g un
nece
ssar
y di
sclo
sure
s
n T
he re
com
men
datio
ns a
lign
clos
ely
with
Ire
land
’s m
anda
tory
dis
clos
ure
regi
me.
No
chan
ges
are
expe
cted
to Ir
elan
d’s
regi
me
in
the
near
term
n D
evel
opm
ents
in o
ther
cou
ntrie
s m
ay
emer
ge o
ver t
ime
or ta
x au
thor
ities
may
fin
d th
e fu
ture
impa
ct o
f act
ions
on
rulin
gs
and
othe
r inf
orm
atio
n ex
chan
ge in
itiat
ives
pr
ovid
e th
em w
ith ti
mel
y in
form
atio
n on
in
tern
atio
nal t
ax p
lann
ing
affe
ctin
g lo
cal
taxp
ayer
s
TaxingTimes Finance Act 2015 31
In a
Nut
shel
l The
Oct
ober
201
5 B
EPS
Del
iver
able
sAc
tion
13: T
P do
cum
enta
tion
and
CbyC
Oct
ober
201
5 D
eliv
erab
le?
No
Key
OEC
D p
ropo
sals
n T
he th
ree
pape
rs p
revi
ousl
y re
leas
ed h
ave
been
con
solid
ated
to c
reat
e th
e te
xt o
f new
C
hapt
er V
of t
he O
ECD
Gui
delin
es (i
.e. t
here
ar
e no
new
mat
eria
ls p
ublis
hed
asid
e fro
m
the
Exec
utiv
e Su
mm
ary)
n W
ork
cont
inue
s at
a lo
cal c
ount
ry le
vel o
n th
e do
mes
tic im
plem
enta
tion
of th
e O
ECD
re
com
men
datio
ns in
resp
ect o
f Mas
ter F
ile,
Loca
l File
and
Cou
ntry
by
Cou
ntry
Rep
ortin
g (C
byC
)
KPM
G’s
vie
w
n C
ount
ries
are
alre
ady
anno
unci
ng n
ew
legi
slat
ion
to im
plem
ent a
ll thr
ee e
lem
ents
of
Act
ion
13. I
rela
nd p
ropo
ses
to e
nact
Cby
C
alig
ned
with
OEC
D p
ropo
sals
for g
roup
s w
ith c
onso
lidat
ed tu
rnov
er >
€75
0 m
illion
in
Fina
nce
Act
201
5
n T
he b
asis
of p
repa
ratio
n an
d de
finiti
ons
need
to
be
test
ed a
nd re
fined
by
mul
tinat
iona
ls,
with
tran
sfer
pric
ing
docu
men
tatio
n be
ing
an
impo
rtant
tool
with
whi
ch th
ey c
an m
anag
e th
eir t
rans
fer p
ricin
g ris
k an
d pu
t the
ir C
byC
da
ta in
con
text
n G
roup
s ne
ed to
hav
e a
trans
fer p
ricin
g do
cum
enta
tion
stra
tegy
to c
oord
inat
e th
e co
nten
t and
pre
para
tion
and
mak
e su
re th
at
the
thre
e el
emen
ts c
onsi
sten
tly e
xpla
in th
e gr
oup’
s bu
sine
ss m
odel
n M
any
tax
auth
oriti
es a
re a
skin
g fo
r tra
nsfe
r pr
icin
g do
cum
enta
tion
to b
e su
bmitt
ed
alon
gsid
e ta
x re
turn
s
Actio
n 14
: Dis
pute
reso
lutio
n
Oct
ober
201
5 D
eliv
erab
le?
Yes
Key
OEC
D p
ropo
sals
n A
str
ong
polit
ical
com
mitm
ent t
o a
min
imum
sta
ndar
d of
trea
ty d
ispu
te
reso
lutio
n m
echa
nism
s an
d th
e cr
eatio
n of
an
effe
ctiv
e m
onito
ring
mec
hani
sm to
en
sure
pro
gres
s is
mad
e
n A
com
mitm
ent t
o ne
gotia
te b
indi
ng
man
dato
ry a
rbitr
atio
n am
ongs
t 20
coun
trie
s th
roug
h th
e m
ultil
ater
al in
stru
men
t und
er
Act
ion
15
KPM
G’s
vie
w
n T
he p
ropo
sals
are
wel
com
e an
d pr
esen
t an
opp
ortu
nity
for p
rogr
ess
to b
e m
ade.
H
owev
er, m
uch
depe
nds
on h
ow th
e re
com
men
datio
ns a
re im
plem
ente
d in
pr
actic
e to
del
iver
bot
h w
ides
prea
d ac
cess
to
Mut
ual A
gree
men
t Pro
cedu
res
(MA
P)
and
effe
ctiv
e di
sput
e re
solu
tion
n I
rela
nd is
am
ong
the
20 c
ount
ries
whi
ch
has
com
mitt
ed to
neg
otia
ting
a bi
ndin
g ar
bitr
atio
n m
echa
nism
. Par
ticip
atin
g co
untr
ies
incl
ude
the
US
and
criti
cally
w
here
the
grea
test
impr
ovem
ents
arg
uabl
y ne
ed to
be
mad
e (fo
r exa
mpl
e, In
dia,
Chi
na,
Bra
zil).
Con
tinui
ng p
oliti
cal c
omm
itmen
t to
findi
ng a
nd o
pera
ting
effe
ctiv
e an
d tim
ely
disp
ute
reso
lutio
n m
echa
nism
s w
ill be
key
to
the
succ
essf
ul im
plem
enta
tion
of th
e re
com
men
datio
ns
Actio
n 15
: Mul
tilat
eral
inst
rum
ent
Oct
ober
201
5 D
eliv
erab
le?
No
Key
OEC
D p
ropo
sals
n N
o fu
rthe
r ann
ounc
emen
ts p
rovi
ded.
Th
e fin
al re
port
sim
ply
atta
ches
the
2014
R
epor
t on
the
desi
rabi
lity
and
feas
ibilit
y of
a m
ultil
ater
al in
stru
men
t (M
LI) a
nd th
e m
anda
te fo
r an
ad h
oc g
roup
to d
evel
op it
n T
he in
augu
ral m
eetin
g of
the
Act
ion
15
ad h
oc g
roup
is to
be
held
on
5 an
d 6
Nov
embe
r 201
5, to
sta
rt th
e su
bsta
ntiv
e w
ork
in d
evel
opin
g th
e M
LI
n W
ork
will
cont
inue
thro
ugho
ut 2
016
to
conc
lude
the
MLI
and
ope
n it
for s
igna
ture
by
Dec
embe
r 201
6
KPM
G’s
vie
w
n T
he M
LI c
ould
aff
ect I
rela
nd’s
tax
trea
ty n
etw
ork
and
over
3,0
00 b
ilate
ral
agre
emen
ts w
orld
wid
e so
it is
impo
rtan
t th
at w
e ha
ve c
larit
y ov
er h
ow it
will
wor
k as
so
on a
s po
ssib
le
n I
rela
nd’s
gov
ernm
ent i
s aw
are
of th
e im
port
ance
of a
n ef
fect
ivel
y op
erat
ing
tax
trea
ty n
etw
ork
in s
uppo
rtin
g in
tern
atio
nal
trad
e by
Iris
h ba
sed
busi
ness
. Ire
land
ca
n be
exp
ecte
d to
car
eful
ly c
onsi
der t
he
impa
ct o
f ado
ptio
n of
mea
sure
s ne
gotia
ted
unde
r the
MLI
n S
o fa
r, ab
out 9
0 co
untr
ies,
incl
udin
g Ire
land
, an
d no
w th
e U
S, a
re p
artic
ipat
ing
in th
e ad
ho
c gr
oup
Our
team
Con
or O
’Brie
nH
ead
of T
ax &
Leg
al S
ervi
ces
cono
r.obr
ien@
kpm
g.ie
Tel:
+35
3 1
410
2027
Con
or O
’Sul
livan
Tax
Partn
erco
nor.o
sulliv
an@
kpm
g.ie
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3 1
410
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rew
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lagh
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rtner
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ieTe
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ieTe
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40
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dsTa
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rtner
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g.ie
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urke
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96
32 TaxingTimes Finance Act 2015 Tax Rates and Credits 2016
PRSI contribution, Universal Social Charge (changed)
% Income
Employer 10.75% No limit 8.50% If income is €376 p/w or less
Employee** (class A1)
PRSI 4% No limit*
Universal Social Charge 1% €0 to €12,012**
3% €12,013 to €18,668
5.5% €18,669 to €70,044***
8% > €70,044
Personal income tax rates (unchanged)At 20%, first At 40%
Single person €33,800 Balance
Married couple (one income)* €42,800 Balance
Married couple (two incomes)*&** €67,600 Balance
One parent/widowed parent* €37,800 Balance
* Applies to civil partnership/surviving civil partner also ** €42,800 with an increase of €24,800 maximum
Personal tax credits (changed)Single person €1,650
Married couple* €3,300
Single person child carer credit €1,650
Additional credit for certain widowed persons* €1,650
Employee credit €1,650
Earned income credit** €550
Home carer credit €1,000
Rent credit - single and under 55 years (reduced)*** €80
* Applies to civil partnership/surviving civil partner also** Applies to self employed income and certain PAYE employments not subject to the PAYE credit*** Rent credit will be phased out by 2017. €40 reduction in 2016 for a single person
From 1 May 2015, tax relief for medical insurance premiums will be capped at €1,000 (or relevant premium where lower) for adults (aged 21 or over even where the individual pays a child premium rate). Tax relief on child premiums capped at €500 per child.
Home Renovation Incentive SchemeIncome tax credit split over two years for homeowners who carry out renovation/improvement works on their principal private residence from 25 October 2013 to 31 December 2016 (extended by one year). The credit is calculated at a rate of 13.5% on all qualifying expenditure over €4,405 (ex VAT). The maximum credit is €4,050. With effect from 15 October 2014, this scheme is extended to landlords of rental properties who are liable to income tax.
Home loan interest relief granted at source on principal private residence*
First time buyers loan taken out from 2009 to 2012
Years 3-5
Married/widowed** Lower of €4,500 or 22.5% of interest paid
Years 6-7
Married/widowed** Lower of €4,000 or 20% of interest paid
After year 7 (where applicable up to and including 2017)
Married/widowed** Lower of €900 or 15% of interest paid
Other mortgages, loans taken out from 2004 to 2012
Married/widowed** Lower of €900 or 15% of interest paid
First time buyers loan taken out from 2004 to 2008
Remainder of first 7 years of mortgage
Married/widowed** Lower of €6,000 or 30% of interest paid
After year 7 and up to and including 2017
Married/widowed** Lower of €1,800 or 30% of interest paid
Single persons
Thresholds set at 50% of those outlined above for married/widowed persons
* Loans taken out on or after 1 January 2013 do not qualify for Mortgage Interest Relief. The relief will be abol-ished completely from 2018 and subsequent tax years
** Applies to civil partnerships/surviving civil partner also
Local Property Tax (varying rates) - Valuation fixed for further three years*
Market Value less than €1,000,000**
Market Value greater than €1,000,000: - First €1,000,000 - Balance
0.18%
0.18%0.25%
* Valuation for LPT fixed for further three years to 2019** Market Value less than €100,000 - calculated on 0.18% of €50,000. Market Value €100,000 - €1,000,000 -
assessed at mid-point of €50,000 band (i.e. property valued between €150,001 and €200,000, assessed on 0.18% of €175,000)
- Applies to residential (not commercial) properties. Exemptions for houses in certain unfinished estates and newly constructed but unsold property. Exemption until 31 December 2016 for new and unused houses purchased between 1 January 2013 and 31 December 2016 and second hand property purchased between 1 January 2013 and 31 December 2013
- Certain payment deferral options may be available for low income households- From 2015 onwards, local authorities can vary the basic LPT rates on residential properties in their
administrative areas. These rates can be increased or decreased by up to 15%
Self-employed PRSI contribution, Universal Social Charge (changed)
% Income
PRSI 4% No limit*
Universal Social Charge 1% €0 to €12,012**
3% €12,013 to €18,668
5.5% €18,669 to €70,044***
8% €70,045 to €100,000
11% > €100,000
* Minimum annual PRSI contribution is €500 ** Individuals with total income up to €13,000 are not subject to the Universal Social Charge*** Reduced rate (3%) applies for persons over 70 and/or with a full medical card, where the individual’s income does not exceed €60,000
Tax relief for pensions
- Tax relief for pensions remains at the marginal income tax rate
- The Defined Benefit pension valuation factor is an age related factor that will vary with the individual’s age at the point at which the pension rights are drawn down
- Except where a Personal Fund Threshold applies, the Standard Fund Threshold is €2m
Capital Gains TaxRate 33%
Entrepreneur relief (from 1 January 2016)* 20%
Annual exemption €1,270
* Relief capped at lifetime limit of €1m chargeable gains
Capital Acquisitions Tax (rate unchanged)
Rate 33%
Thresholds
Group A* €280,000
Group B €30,150
Group C €15,075* Applies to gifts and inheritances received on or after 14 October 2015
Corporation Tax ratesStandard rate 12.5%
Knowledge Development Box rate 6.25%
Land (not fully developed) 25%
Non-trading income rate 25%
Value Added Tax (9% rate retained)Standard rate/lower rate/second lower rate 23%/13.5%/9%
Flat rate for unregistered farmers 5.2%
Cash receipts basis threshold €2m
Deposit Interest Retention Tax (rate unchanged)
DIRT 41%*&**
* Also applicable to exit taxes on financial products** Refund of DIRT incurred in previous four years on savings (up to 20% of the purchase price) used by first time
buyers to purchase a dwelling. This scheme will be in place from 14 October 2014 to the end of 2017
Stamp Duty - commercial and other property (unchanged)
2% on commercial (non residential) properties and other forms of property, not otherwise exempt from duty.
Stamp Duty - residential property (unchanged)
1% on properties valued up to €1,000,000
2% on balance of consideration in excess of €1,000,000
* Employees earning €352 or less p/w are exempt from PRSI. In any week in which an employee is subject to full-rate PRSI, all earnings are subject to PRSI. Unearned income for employees in excess of €3,174 p.a. is subject to PRSI. New sliding scale PRSI credit of max. €12 per week where weekly income between €352 and €424
** Individuals with total income up to €13,000 are not subject to the Universal Social Charge*** Reduced rate (3%) applies for persons over 70 and/or with a full medical card, where the individual’s income does not exceed €60,000
Notes
Notes
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TaxingTimes
Finance Act 2015 & Current Tax Developments
November 2015
kpmg.ie/financeact2015