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Taxing Times Finance Act 2015 & Current Tax Developments

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TaxingTimes Finance Act 2015 & Current Tax Developments November 2015 kpmg.ie/financeact2015
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Page 1: Taxing Times Finance Act 2015 & Current Tax Developments

TaxingTimes

Finance Act 2015 & Current Tax Developments

November 2015

kpmg.ie/financeact2015

Page 2: Taxing Times Finance Act 2015 & Current Tax Developments

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.

KPMG tax professionals have an unrivalled understanding of business and industry issues, adding real value to tax based decision making.

n Corporate Tax

n Private Client Practice

n Global Mobility Services

n Employment Tax

n VAT

n International and Cross Border Tax

For further information on Finance Act 2015 log on to: kpmg.ie/financeact2015

Page 3: Taxing Times Finance Act 2015 & Current Tax Developments

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

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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

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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.

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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

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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

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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

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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.

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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

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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

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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).

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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.

Page 14: Taxing Times Finance Act 2015 & Current Tax Developments

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

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Purc

hasi

ng o

r Pr

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t

Man

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turin

g or

Pr

oduc

tion

Sal

es, M

arke

ting

or

Dis

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Prov

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n of

Ser

vice

s to

un

rela

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part

ies

Inte

rnal

Gro

up

Fina

nce

Reg

ulat

ed F

inan

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S

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ces

Insu

ranc

e

Hol

ding

sha

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ther

eq

uity

inst

rum

ents

Dor

man

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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

Page 15: Taxing Times Finance Act 2015 & Current Tax Developments

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

Page 16: Taxing Times Finance Act 2015 & Current Tax Developments

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

Page 17: Taxing Times Finance Act 2015 & Current Tax Developments

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.

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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.

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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

Page 20: Taxing Times Finance Act 2015 & Current Tax Developments

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.

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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

Page 22: Taxing Times Finance Act 2015 & Current Tax Developments

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

Page 23: Taxing Times Finance Act 2015 & Current Tax Developments

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.

Page 24: Taxing Times Finance Act 2015 & Current Tax Developments

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

Page 25: Taxing Times Finance Act 2015 & Current Tax Developments

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

Page 26: Taxing Times Finance Act 2015 & Current Tax Developments

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

Page 27: Taxing Times Finance Act 2015 & Current Tax Developments

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.

Page 28: Taxing Times Finance Act 2015 & Current Tax Developments

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

Page 29: Taxing Times Finance Act 2015 & Current Tax Developments

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

Page 30: Taxing Times Finance Act 2015 & Current Tax Developments

28 TaxingTimes Finance Act 2015

In a

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Actio

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Oct

ober

201

5 D

eliv

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Yes

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to

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w

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ed fo

r fle

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is a

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rtic

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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

Page 31: Taxing Times Finance Act 2015 & Current Tax Developments

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

Page 32: Taxing Times Finance Act 2015 & Current Tax Developments

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

Page 33: Taxing Times Finance Act 2015 & Current Tax Developments

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

Tel:

+35

3 1

410

1181

And

rew

Gal

lagh

erTa

x Pa

rtner

andr

ew.g

alla

gher

@kp

mg.

ieTe

l: +

353

1 41

0 15

50

Adr

ian

Cra

wfo

rdTa

x Pa

rtner

adria

n.cr

awfo

rd@

kpm

g.ie

Tel:

+35

3 1

410

1351

Ann

a S

cally

Tax

Partn

eran

na.s

cally

@kp

mg.

ieTe

l: +

353

1 41

0 12

40

Tom

Woo

dsTa

x Pa

rtner

tom

.woo

ds@

kpm

g.ie

Tel:

+35

3 1

410

2589

Sha

ron

Bur

keTa

x Pa

rtner

shar

on.b

urke

@kp

mg.

ieTe

l: +

353

1 41

0 11

96

Page 34: Taxing Times Finance Act 2015 & Current Tax Developments

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

Page 35: Taxing Times Finance Act 2015 & Current Tax Developments

Notes

Page 36: Taxing Times Finance Act 2015 & Current Tax Developments

Notes

Page 37: Taxing Times Finance Act 2015 & Current Tax Developments

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© 2015 KPMG, an Irish partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a

Swiss entity. The KPMG name and logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Page 38: Taxing Times Finance Act 2015 & Current Tax Developments

© 2015 KPMG, an Irish partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Ireland.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

The KPMG name and logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity.

If you’ve received this publication directly from KPMG, it is because we hold your name and company details for the purpose of keeping you informed on a range of business issues and the services we provide. If you would like us to delete this information from our records and would prefer not to receive any further updates from us please contact us at (01) 410 2665 or e-mail [email protected].

Produced by: KPMG’s Creative Services. Publication Date: November 2015. (1183)

1 Stokes PlaceSt. Stephen’s GreenDublin D02 DE03

Telephone +353 1 410 1000Fax +353 1 412 1122

1 Harbourmaster PlaceIFSCDublin D01 F6F5

Telephone +353 1 410 1000Fax +353 1 412 1122

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Telephone +353 21 425 4500Fax +353 21 425 4525

DockgateDock RoadGalway H91 V6RR

Telephone +353 91 534 600Fax +353 91 565 567

Stokes House17 - 25 College Sq. EastBelfast BT1 6DH

Telephone +44 28 9024 3377Fax +44 28 9089 3893

TaxingTimes

Finance Act 2015 & Current Tax Developments

November 2015

kpmg.ie/financeact2015


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