Ireland: Memorandum from the Department of Finance on the Finance Bill, 2000 - Part Two

Section 202 of the Taxes Consolidation Act, 1997 provides for tax relief where employees take a pay cut as part of a company restructuring designed to ensure the survival of the firm in the face of changed competitive circumstances. The relevant pay cut must be at least 10% of annual salary and the restructuring approved under the section by the Minister for Enterprise, Trade and Employment on the advice of the Labour Relations Commission. Under the relief, the first £6,000 of compensation plus £200 per year for each year of service is exempt from tax subject to a maximum of £10,000 after 20 years. As a result of changes to the scheme announced last July, the Bill will amend the scheme of relief as follows:

• Where the pay cut involved is at least 10% but not more than 15%, the existing levels of relief will apply.
• Where the pay cut exceeds 15% but is not more than 20%, the maximum is increased to £16,000 after 20 years service.
• Where the pay cut exceeds 20%, the maximum relief will be increased to £20,000 after 20 years service.

The new arrangements will apply to all restructuring agreements approved under the section on or after 21 July 1999. The relief was amended to facilitate the restructuring of Tara Mines and the changes were announced by the Minister on 23 July 1999. This provision, which is due to lapse on 5 April 2000, will be extended to 5 April 2003.

Section 482 of the Taxes Consolidation Act, 1997 provides relief from Income Tax and Corporation Tax to the owner of an approved building (including the surrounding gardens) in respect of the repair, maintenance or restoration of the approved building or garden. One of the conditions of relief is that the building or garden must be open to the public for a period of at least 60 days in any one year, including not less than 40 days during the period 1 May to 30 September. The opening days chosen are a matter for the owners. In order to improve the accessibility of such buildings and gardens to the public, the Finance Bill will provide in the case of new determinations (from the passing of the Finance Act) that the houses and gardens must be open from 1 May 2000 for at least 10 weekend days in the May to September period each year to avail of the tax relief. In relation to buildings and gardens that already have a determination the new opening conditions will apply in any case where expenditure is incurred after 1 October 2000. The new requirements will also apply to the CAT exemption for Stately Homes and Gardens and the BIK exemption for loans of certain art objects.

Under Section 482, those applying for the relief must advise Bord Failte of the opening times of the buildings and gardens and the Board may publish this information. In order to improve the information available to the public, the Revenue Commissioners will in future supply Bord Failte with the Revenue’s list of approved buildings and their opening times for use by the Board in its tourist publications. The list will also be published separately by the Revenue Commissioners. There are currently approximately 120 approved houses and gardens eligible for the reliefs in question.

The Bill will extend the qualifying periods for the Urban and Rural Renewal schemes until 31 December 2002 and increase the capital allowances in respect of qualified commercial buildings to 100%. The year one allowance of 50% will apply to both owner occupiers and lessors of qualified buildings with the remaining 50% written off at 4% per annum. The legislative provisions for the business tax incentives available under both schemes will be amended with effect from 1 July 1999 in order to comply with the EU Commission’s approval of both schemes. Double rent and rates relief will not apply to such schemes as a result of the EU Commission ruling. Similar amendments are also required to comply with EU Commission approval of Airport Enterprise Areas. The latter scheme is being extended to 31 December 2000 where 50% of total expenditure had been incurred by 31 December 1999.

The termination date for the signing of leases for double rent relief in the Temple Bar area is also being brought forward from 5 April 2001 to 31 December 1999. Section 46 of the 1999 Finance Act provided for an extension to the qualifying period of the scheme for tax relief for construction and development of residential accommodation on certain designated islands to 31 December 1999 where 50% of the total cost of the project was incurred by 30 June 1999. This latter condition will be amended in the Finance Bill to 15% of total cost to allow for unforeseen delays in getting the scheme under way.

The EU Commission decided on 22 December last to close the legal proceedings initiated by them in respect of the availability of the double rent and rates reliefs in the Custom House Docks Area. This decision means that these two reliefs, which are available for a ten year period, will continue to their original end-dates where (a) either the construction of the building was completed before 1 April 1998 or (b) the construction of the building commenced before 1 April 1998 and the tenant occupation of the completed building commenced before 9 February 1999. In all other cases, the two reliefs must terminate on 31 December 2003. The Finance Bill will include the necessary legislative provisions to implement the EU decision in regard to the double rent relief. Capital allowances for the buildings in the 27 acre and 12 acre sites in the Area were approved by the Commission in January 1999 and these allowances are unaffected by the Commission’s recent decision on double rent and rates relief.

The Bill will provide for tax reliefs to assist in the rejuvenation of certain smaller towns and villages which are to be designated by the Minister for the Environment and Local Government under the new Town Renewal Scheme. The eligible towns in question must have a population of 500 to 6,000 and have not been previously designated under any other tax relief scheme. The process of selecting these towns, on the basis of recommendations of the local authorities concerned, is not yet finalised but is expected by the Minister for the Environment and Local Government to be completed by 31 March 2000. The same reliefs will apply as for the new Urban Renewal Scheme. Double rent and rates reliefs will not apply to this scheme. EU Commission approval will be needed in respect of the capital allowances for commercial and industrial buildings but not for the owner-occupier and rented residential reliefs.

The Finance Act, 1999 introduced a dividend witholding tax at the standard rate of income tax on dividends paid by Irish companies to certain shareholders. The Act provided for exemptions for dividends paid to other Irish resident companies, pension funds, charities, collective investment funds and trustees of employee share ownership trusts (ESOTs). It also exempted non-corporate recipients who are tax resident in another EU Member State or in tax treaty countries and non-resident companies which are ultimately controlled by persons who are so resident. The legislation provides for a detailed administrative system to ensure deduction of the correct amount of tax and the verification of entitlements to exemption because of the particular status of the recipient or on the basis of non-residence. The Revenue Commissioners have examined how the system has worked in its first year of operation and have consulted market operators, Irish company registrars, stockbrokers and custodian banks, both here and overseas. As a result, it is proposed in the Finance Bill to modify the operation of the system, without risk to revenue or the effectiveness of policing measures. These modifications will reduce administrative costs, simplify certification procedures, remove overlapping or unnecessary requirements and extend the range of exemptions from witholding tax in cases where there is no effective underlying liability to tax on the dividend income in the hands of the recipients. The full details of the changes will be in the Finance Bill as published. A summary of the main measures is set out in Appendix 2 and further details can be obtained from the Revenue Commissioners.

The yield from DWT in the year to 5 April 2000 is expected to be £50 million compared to the Budget 1999 estimate of £15 million in a full year.

In order to facilitate the development of securitisation business in Ireland, both within and outside the IFSC, the Finance Bill will contain provisions amending the Taxes Consolidation Act, 1997 to:

• exempt interest payments made by a company to another company resident in another EU/treaty country from the "technical liability" to Irish income tax (mirroring the exemption introduced in the 1999 Finance Act in respect of withholding tax on such interest payments).
• disapply the provisions that treat interest as a distribution in the case of certain interest payments made in connection with a securitisation transaction undertaken under section 110 of that Act, where the level of subordinated debt to which the interest relates represents no more than 25 % of the value of the assets securitised at the time of securitisation.

Securitisation involves the sale of a block of assets which give rise to an income flow to a vehicle which manages the assets and collects the debts.

Section 485 of the Taxes Consolidation Act, 1997 provides tax relief at the marginal rate of income tax on donations of at least £1,000 made to certain third level educational institutions in respect of specific projects approved by the Minister for Education and Science in the areas of research, the acquisition of capital equipment, infrastructural development and the provision of facilities in certain areas of skills shortages. The Finance Bill will allow for an alternative to the current requirement for individual approval of projects by the establishment by each third level institution of an approved development fund in respect of the areas specified above. The objectives and operations of the fund will have to be approved in accordance with guidelines to be laid down by the Minister for Education and Science with the approval of the Minister for Finance. In addition, the range of projects covered by the section may be widened with the approval of both Ministers. The Bill will also provide for a reduction in the minimum level of contribution from £1,000 to £250 per annum; the carry forward of unused tax relief by donors in any one year for a period of three years in total; a requirement for the value of tax relief to be recouped from the third level body if any money in the approved fund has not been used for approved investments; and the delegation by the Minister for Education and Science of his functions under the section to the Higher Education Authority. The Bill will also contain a number of minor technical changes to the operation of tax reliefs (Section 767) in this area (e.g. name changes of some of the approved bodies who can receive donations).

The 1993 Finance Act adapted the Business Expansion Scheme legislation to provide for the introduction of the Seed Capital Scheme (SCS). The SCS allows an employee who leaves employment and invests in a new business to claim a refund of income tax paid in the previous five years. The size of the tax refund depends on the amount of the individual’s investment, subject to an overall investment limit of £125,000. To qualify for the SCS the company must be engaged in BES type activities, for example, manufacturing, qualifying tourism projects etc.

The 1995 Finance Act extended the scheme to individuals establishing a trading operation on FINEX, the financial futures and options division of the New York Stock Exchange. The legislation required that for an individual to qualify for the scheme the FINEX company had, inter alia, to hold an IFSC certificate. Because of a limit in the number of IFSC licences available in recent years it was not possible for FINEX traders to continue to obtain individual licences and they, therefore, could no longer avail of the SCS. The Finance Bill will rectify this position.

The Finance Bill will provide the Revenue Commissioners with the authority to delegate the operation of section 1022 of the Taxes Consolidation Act, 1997 to an officer authorised by them in writing to exercise that power. The Bill will also extend the application of the section to cases where either spouse is the assessable spouse in order to render the provision gender-neutral. At present, section 1022 enables the Revenue Commissioners to collect income tax from the non-assessed spouse (assumed by section 1022 to be the wife) in certain circumstances where the couple are jointly assessed to tax and the other spouse (in this case, the husband) has failed to pay the tax assessed or has failed to pay all the tax assessed on him. The amount of unpaid tax which can be recovered from the other spouse is limited to the amount attributable to that spouse’s income. Section 1022 is being amended to replace references to husband and wife with the term "spouse".

The purpose of these changes is to allow greater flexibility to the Criminal Assets Bureau in pursuing certain tax cases.

Section 523 of the Taxes Consolidation Act, 1997, requires that the public bodies ("accountable persons") specified in Schedule 13 to the Act deduct PSWT from payments made to persons providing them with professional services. The Finance Bill will contain a number of changes to the list of accountable persons, including the deletion of Telecom Éireann from the Schedule. In addition, a number of public bodies will be added to the Schedule.

It is proposed to make two small technical amendments to the legislation introduced in the 1999 Finance Act to deal with IRNR companies, one to ensure that the exclusion of certain joint ventures from the requirements of the legislation operates as intended and, secondly, to provide for the delegation of powers from the Revenue Commissioners to Revenue staff to notify the Companies Office of the failure of IRNR companies to furnish certain information to Revenue. Failure to do so allows such companies to be struck off the register of companies.

The Bill will provide for the repeal of certain redundant legislation relating to tax credits on company distributions following the abolition of tax credits on dividends from 6 April 1999. This is purely a technical change. Two changes will be made to the legislation on charges on income paid by companies. One rectifies an unintended consequence of the Taxes Consolidation Act, 1997 and ensures that certain interest paid by a company may continue to be allowed as a charge on income in appropriate circumstances. The second amendment relates to the requirement that, for interest to be allowed as a charge on income, it must be paid with deduction of witholding tax unless the paying company has been authorised by the Revenue Commissioners to make the payment gross. The Finance Acts, however, also permit interest to be paid without deduction of tax in certain other circumstances specified in section 246 of the Taxes Consolidation Act, 1997. The Finance Bill will ensure that interest paid under these circumstances can be deducted for tax purposes as a charge on income.

The Bill will provide that the Revenue Commissioners may issue certificates of discharge of liability to CAT to release properties and persons subject to a secondary liability in respect of CAT (e.g. executors, trustees etc) from a CAT charge. This discharge may be made whenever tax is paid on the basis of a self-assessed return. This will bring the legislation into line with administrative practice. Notwithstanding any such discharge, the beneficiary of a disposal remains liable in all cases for the full CAT due.

The Finance Bill will allow unincorporated farmers to choose to have CAT assessed under either the business relief provisions or the agricultural relief provisions, whichever is the more beneficial. These reliefs provide for a reduction of up to 90% of the value of business or agricultural assets for assessment purposes in the case of a gift or inheritance. The agricultural relief is confined to farmers and agricultural assets as defined in CAT law. Business relief is more generally available for non investment type businesses which are held for a period prior to the gift or inheritance. CAT Agricultural relief applies where 80% or more of a person’s total assets are agricultural assets. The Bill will close off loopholes in the law through which persons can get around this 80% rule by the temporary disposal of non-agricultural assets and their later reacquisition after relief has been obtained.

Under the existing CAT aggregation rules, where a beneficiary has taken previous gifts or inheritances from different sources since 2 December, 1988, the value of these benefits must be added to the value of the current benefit when determining the current CAT liability. This can mean that any unused amount of a particular class threshold cannot be availed of in respect of benefits from any other class of disponer. The Finance Bill will amend the aggregation rules so that only previous gifts or inheritances received under the same class threshold since 2 December 1988 will, from 1 December 1999, be taken into account when determining the CAT liability. This will reduce the impact of CAT on inheritances taken from close relatives (e.g. aunts/uncles) and strangers and ensure that the lower thresholds which apply in such cases are not used up because of inheritances taken from other sources, in particular from parents.

Under existing law certain heritage assets are exempt from Capital Acquisitions Tax, or from discretionary trust tax if the assets are held in such a trust. The relief is clawed back if the assets in question are disposed of within 6 years of the relief (other than if disposed of to certain public bodies) or if the conditions regarding public access to visit or view such assets are breached. Because of a defect in the law, the clawback in the case discretionary trust tax (DTT) arising from a breach of conditions, does not cover the full DTT liability on the assets but only the tax payable in the previous year. It is proposed in the Finance Bill to extend this clawback to apply to all prior DTT charges. Discretionary trusts are liable to a once-off levy of 6% of the value of the assets in the trust. This levy becomes payable on the date the property is settled; the settlor dies; or the beneficiaries all reach 21, whichever date is the latest. Discretionary trusts which are liable to the once-off levy are also liable to an annual levy of 1%.

While RPT was abolished from April 1997, a tax clearance procedure was retained for sales of houses above a specified threshold to ensure that arrears of RPT were paid by the relevant house owners. The threshold was increased to £200,000 in the Finance Act, 1999, but has failed to keep pace with the actual increase in house prices, especially in the Dublin area. As a result, a significant number of houses which would not have been in the RPT net in the first place are being presented to the Revenue Commissioners for RPT tax clearance. To deal with this, the Finance Bill will increase the threshold to £300,000 and will also provide that houses which have changed hands since the abolition of RPT will not be subject to tax clearance again when they are subsequently sold. The yield from RPT arrears is approximately £1.5 million per annum. These changes will not materially affect this yield.

The Finance Act 1995 introduced a stamp duty exemption from the 1% Stamp Duty for stock borrowing transactions by member firms of the Irish Stock Exchange. In 1996 this was extended to member firms of the UK Stock Exchange, market makers and nominees of member firms (on either Exchange) and market makers. The exemption applies where the stock or equivalent are transferred back to the lender within 3 months.

Stock repo transactions are similar to stock borrowing transactions and involve a holder selling stock for cash on the basis that the stock is repurchased for cash at the end of a fixed financing period. Stamp duty legislation does not currently provide an exemption for these stock repo transactions.

The purpose of these transactions is to provide liquidity in the market. Under administrative arrangements, set out by the Revenue Commissioners in their Statement of Practice issued in April 1999 for the tax treatment of both of these transactions, the circumstances in which exemption from stamp duty applies is broader than the current legislation allows. The Finance Bill will bring the legislation into line with the Statement of Practice and extend the authorised lending period from 3 months to 6 months. Stock repo transactions will also be exempted on the same basis as stock borrowing transactions.

The Stamp Duties Consolidation Act, 1999, exempts from duty the tradeable securities of all State-owned companies as listed in the Act. This provision will be amended to delete Telecom Éireann (now Eircom) from the list and to correct the reference to ‘Industrial Credit Corporation p.l.c.’ to ‘ICC Bank public limited company’. The Act will also be amended to ensure that the provision requiring that stamp duty amounts must be rounded up to the nearest £ will also apply in the case of the special half-rate of stamp duty which applies to transfers of property between certain relatives (e.g. parent to child).

At present a purchaser of land, mineral rights etc. (or shares deriving value from land etc.) or goodwill of a trade must deduct 15% of the amount paid as a CGT withholding tax and remit this to the Revenue Commissioners where the asset concerned is valued in excess of £150,000 unless the vendor has a tax clearance certificate from Revenue in respect of the sale. The provision is aimed mainly at non-residents. The price of many new houses exceeds the threshold of £150,000 and each individual house in a housing development may fall under the tax clearance procedure. This has imposed a considerable administrative burden on developers, new house purchasers and their agents. The Finance Bill will increase the threshold for the application of the withholding tax from £150,000 to £300,000 and exclude new house sales from tax clearance where the seller already has a valid tax clearance certificate for public sector contracts or for the construction sector itself. However, the option for the developer to use the CGT clearance system, as at present, will remain. These changes will reduce tax compliance costs for the sector without risk to tax revenue collection.

Under current legislation, a taxable person is obliged to furnish a VAT return to Revenue and remit the appropriate amount of VAT due. To accommodate the electronic filing of returns under the Revenue On-line System (ROS) system, the Finance Bill will provide that authorised agents may file the VAT return on behalf of the taxpayer. The liability for payment of the tax itself will remain with the taxpayer.

VAT Management Provisions

The VAT Acts will be amended to ensure that VAT estimates can be raised in cases where annual VAT returns are not made as required. At present such estimates can only be made in the case of the normal two-monthly return. The Bill will also confirm that VAT estimates can be made in all cases where an underpayment of VAT is revealed by a VAT audit of the taxpayer. The Bill will also implement the remaining requirements of the EU Directive on trading in investment gold in relation to the identification of customers. These requirements are similar in effect to money-laundering requirements in other investment areas.

The VAT legislative changes consequent on the elimination of duty-free purchases on intra-Community travel from 1 July 1999 were given effect by regulations made under the European Communities Acts. The Finance Bill will confirm these regulations by incorporating them into the VAT Acts for the sake of completeness and ease of reference for practitioners.

A new combined registration and licensing document is to be issued to vehicle owners. Heretofore the Revenue Commissioners issued the Vehicle Registration Certificate (VRC) and the Department of the Environment and Local Government issued the vehicle licence. That Department will in the future issue the new single document. Section 131 (5) of the Finance Act 1992, which obliges the Revenue Commissioners to issue the VRC, will be amended accordingly. The new arrangements will streamline procedures, fill any gaps in the operation of current licensing rules and will be easier for the vehicle owner to follow. The new single certificate will be introduced towards the end of this year.

The Finance Bill will confirm the current application of certain excise exemptions or reliefs in the case of fuel oils used in private flying and in certain off-road construction equipment. The changes are purely technical to correct anomalies or to define the scope of the exemptions or rebates more precisely.

For administrative simplicity, the Finance Bill will delegate certain powers from the Revenue Commissioners to authorised Revenue officials in the case of the revocation of VRT motor trading authorisations, the determination of vehicle open market selling prices (on which VRT is based) and the deregistration of motor vehicles. These powers can only be exercised under present law by a Revenue Commissioner. As a corollary to this delegation of powers, the Finance Bill will extend the scope of the VRT appeals system to decisions made in the circumstances outlined above. As with other tax cases, VRT appeals are heard by the Appeal Commissioners.

Excise duty applies to certain licences issued by the Courts - public dance licences, occasional liquor licences, special liquor exemptions, club licences. The law provides that the excise must be collected by the use of special Revenue stamps. Such stamps are no longer issued but alternative administrative arrangements have been put in place for some time to allow the revenue to be collected in other ways. For avoidance of doubt, the Finance Bill will bring the legislative provisions into line with actual practice.

The National Cultural Institutions Act, 1997 provided for the grant of liquor licences to the National Cultural institutions. The Finance Bill will provide that, as with all other liquor licences, excise duty will be charged on such licences - at a rate of £200 per annum. Applicants for such licences will also be subject to the normal tax clearance procedures on the issue or renewal of the licences.

At present, tax relief is available at the standard rate of income tax in respect of fees paid by full-time undergraduate students in private colleges in the State, part-time undergraduate students in private and publicly funded colleges in the State, and full-time undergraduate students in publicly funded colleges in other EU member states. The Minister for Education and Science approves the colleges and courses in Ireland. The maximum amount of qualifying fees in all cases is £2,500 per annum. The Finance Bill extends this relief at the standard rate to fees paid by full-time and part-time postgraduate students in private and publicly funded colleges in the State or full-time and part-time postgraduate students in publicly funded colleges in other member states. The relief will apply to courses commencing on or after 1 August 2000. The Bill will also provide that the tax relief on all third level fees can be claimed by the student, or their parents, guardians or spouses in all cases where the fees are paid by these persons. At present fee-paying parents or guardians may claim in respect of full-time students and spouses may claim in respect of part-time students.

The Finance Act, 1999 introduced tax concessions for save as you earn (SAYE) employee share option schemes. The SAYE scheme provides for tax relief on share options provided by employers to employees where the moneys used to buy the share options are saved by the employees through a 3 or 5 year instalment saving scheme. The Finance Bill amends the scheme to allow companies use a trust mechanism to acquire shares under a grant of share options and allows for the non-application of the 3 year minimum savings requirement where a person retires between 60 and 66. The present legislation waives the requirement only where a person reaches pensionable age - defined as 66 years.

The Revenue Commissioners are developing a system of Consolidated Billing, under which taxpayers will be issued with a consolidated statement of account showing their tax position under all taxheads. To complement this initiative, the Finance Bill contains an enabling provision which will permit the Revenue Commissioners to make regulations providing for -

(a) the offset of a repayment under one taxhead against a liability under another taxhead, for example, to allow a VAT repayment be set against an income tax liability, and

(b) a procedure for allocating payments in respect of tax where the taxpayer has not provided clear accounting instructions that a payment is to be applied in a particular fashion.

The first consolidated bills are likely to be issued before the end of this year covering the VAT and PAYE tax heads, extending later to all other tax heads.

Section 1003 of the Taxes Consolidation Act, 1997 allows for the value of certain donations of heritage items to a specified national collection to be written off in full against specific tax liabilities of the donor. Each donation must be worth at least £75,000 and be chosen by a special selection committee made up of the Chairman of the Heritage Council and the directors of the main national cultural institutions. The tax relief was introduced in 1995 with an overall ceiling for approved donations of £500,000 per annum. This was raised to £750,000 per annum in 1996 and the Finance Bill will raise that ceiling to £3 million per annum.

The Finance Bill implements a number of the recommendations of the Report of the Committee of Public Accounts in relation to DIRT Audit powers. Specifically, the Revenue Commissioners will be empowered, at their discretion, to delegate audit work in whole or in part to suitably qualified outside persons or to engage consultants to assist in DIRT reviews, without prejudice to the powers given to Revenue in the Finance Act 1999. The Bill provides for a limited number of technical amendments to Revenue’s powers of DIRT audit which will apply generally but will also clarify their application in the case of the current DIRT "look back" audit of financial institutions being undertaken by the Revenue Commissioners. Another recommendation of the PAC in relation to publication of details of the results of the DIRT "look-back" audits is dealt with under the next item.

Since 1983, the Revenue Commissioners have been required to compile and publish a list of persons on whom either a fine or other penalty has been imposed by the courts, or, in whose case the Revenue Commissioners have accepted a settlement offer in lieu of initiating legal proceedings. Publication is prohibited in certain cases e.g. where the settlement is the result of a voluntary disclosure, where the 1993 tax amnesty applies or where the settlement amount does not exceed £10,000. The list of names of tax defaulters is published by Revenue on a quarterly basis. The published list sets out details of the name, address and occupation of the person concerned and the fine or penalty imposed by the Courts or the amount of the tax settlement involved. The Finance Bill contains a number of changes to tighten up these requirements as follows to ensure that

• details of settlements are published by Revenue irrespective of whether a fine or penalty has been imposed by a Court and irrespective of whether any such fine has already been published by the Revenue Commissioners (the existing law has been interpreted as allowing publication of either the outcome of the Court action or the settlement, but not both);
• in future settlements, details are published even if the relevant tax penalties have been paid in full (under the existing law, settlements are not published if the full penalty is paid);
• a brief description of the circumstances relating to the default or evasion is published, for example where a case may have arisen out of a specific inquiry or investigation.

The Finance Bill will also contain provisions to implement the recommendation of the Committee on Public Accounts to allow for the reporting by Revenue to the Committee by 1 November 2000 of the results of the DIRT "look-back" recommended by the Committee in the case of each financial institution. This report will set out the DIRT arrears levied, the interest charged, the penalties imposed, together with any appropriate comments, and indicating whether any appeal has been lodged. Provision will also be made for the publication of this information.

The Finance Bill will clarify a number of provisions in relation to the operation of capital allowances in order to allow such allowances to be fully utilised for tax purposes by couples who are jointly assessed; to provide formally in law for setting off of capital allowances for rental income against other income in particular circumstances; and to ensure that certain restrictions on the use of capital allowances for relief against rental income are not overcome by companies transferring capital allowances in a group situation so as to obtain relief against non-rental income. The changes involved will largely bring the legal requirements into line with current administrative practice in relation to the operation of capital allowances.

The Finance Act, 1999 introduced a major reform in the pensions area in relation to tax relief rules. This reform provided alternative options in pension provision for the self-employed and proprietary directors who hold at least 20% of the share capital. This enables such retirees to preserve their capital fund intact rather than being obliged to surrender the fund on retirement in return for a fixed rate annuity. This year’s Bill makes a number of changes in relation to the operation of the new provisions as follows.

Firstly, the law currently requires that approved retirement funds (ARFs) must be managed by qualified fund managers. Such managers are generally banks, life assurers, building societies, etc., but may also be such persons as are recognised by the Minister for Finance. This latter requirement is being amended so as to replace such Ministerial recognition by a general recognition for any firms authorised by the Central Bank under the Investment Intermediaries Act, 1995. The Bill also provides for recognition of EU based managers on a cross-border basis who qualify under the European Investment Services Directive (93/22/EEC).

The new pensions rules provided for in the Finance Act, 1999 are also being extended to allow additional voluntary contributions to avail of the ARF arrangements and to reduce the qualifying condition for proprietary directors from 20% to 5% of the share capital. It is also proposed to extend the gross roll up provisions to ARFs so that the relevant marginal rate tax will apply only on withdrawals of capital or income from the fund and not on income as it accrues in the fund. In addition, a number of changes are being made to the tax treatment applicable to approved retirement funds following the death of the beneficiary to ensure consistency in the tax rules being applied.

The Finance Bill provides for a number of changes to the rules regarding the revocation of IFSC and Shannon tax certificates. In particular, Section 446 of the Taxes Consolidation Act, 1997 is being amended to provide for the mandatory revocation by the Minister for Finance of an IFSC certificate where the Central Bank notifies the Minister that the holder has failed to comply with a financial supervision requirement imposed by the Bank under the Central Bank Act, 1989. The Bill also provides that in the case of the revocation of an IFSC or Shannon tax certificate by the Minister, an appeal may be made to the Courts instead of the tax Appeal Commissioners as provided for at present. The law will also be amended to allow the Minister to withdraw a certificate at the request of the holder. Finally, the Finance Bill will repeal those sections in the Taxes Consolidation Act, 1997 which allow for the application of a special rate of corporation tax between the 10% rate and the standard rate of corporation tax to the income arising from certain IFSC or Shannon operations. This facility is no longer relevant given the reductions which have been made in the standard rate of corporation tax in the past few years.

Under current corporation tax law, companies who are the members of a trading consortium may set off losses made by the consortium against their own tax liabilities in cases where 100% of the shares in the consortium are owned by 5 or less members and all the companies involved in the consortium are Irish resident, or resident in another EU member state. It is likely that the consortium structure will be followed by firms setting up special purpose vehicles to undertake PPP projects. To facilitate the development of such projects, the Finance Bill provides that loss relief will now be available where 75% or more of the shares in the consortium are held by Irish or EU companies. This will facilitate participation in PPP consortia by non-EU companies or individual investors without loss of consortium relief to the other participating companies.

Under current arrangements, 50% relief is available for CAT purposes in the case of certain business or agricultural assets provided the assets in question are retained for at least six years after acquisition by gift or inheritance. This relief is available at 90% where the assets are held for at least 10 years. The relief is applied by reducing the value of the relevant assets by 50% or 90%, as the case may be, for purposes of applying capital acquisitions tax. This relief can be clawed back where the six year or ten year condition is not fulfilled i.e. the 90% relief is reduced to 50% if the ten year requirement is not met and from 50% to nil if the six year retention period is not observed. A six year retention period is more common in the CAT and CGT regimes and the Finance Bill now provides that the six year retention period will be sufficient to qualify for full 90% relief instead of 50% as at present.

Income tax legislation does not distinguish in tax treatment between an Irish divorce order and a foreign divorce order recognised as valid in the State. This equality of treatment between foreign and Irish divorce orders is not reflected in the case of CGT, CAT, probate and stamp duty in relation to transfers of assets as a result of divorce orders. The Finance Bill will rectify this anomaly in the tax system with effect from the passing of the Bill.

The Finance Bill provisions amend the law in relation to VAT on certain holiday homes. This is intended to ensure that those buying such properties who make use of the option to elect to register for VAT purposes in respect of the rental income from the property so as to claim a VAT refund on the purchase price of the home, must repay an amount determined by the Revenue Commissioners on cancellation of the election in certain circumstances. The Bill also makes a number of minor drafting and technical changes to the VAT Acts.

The Bill tightens up in a number of areas in relation to the use of rebated diesel oil in order to ensure that successful prosecutions can be brought in cases of the misuse of marked (rebated) diesel oil for purposes other than those for which the rebate is allowed (e.g. the illegal use of rebated oil in ordinary motor vehicles). The Finance Bill will clarify the operation of the excise duty rebate on certain road passenger public transport services including school buses and the entitlement of particular school bus services to the rebate.

The Finance Bill contains a provision to allow for the transfer of the electronic settlement of transactions in Irish Government Bonds, which currently takes place in the Central Bank of Ireland Securities Settlement Office.

An amendment is being made to the Temporary Holding Fund for Superannuation Liabilities Act 1999 to enable further sums to be paid into the Fund in the year 2000. Following the Government’s decision last year to partially pre-fund State pension liabilities with annual provisions of 1% of GNP and an allocation from the Telecom sale proceeds, a Temporary Holding Fund was set up by the 1999 Act as an interim measure and a sum of £3,015 million was paid into the Fund at the end of last year. The payments into the Temporary Fund are being made pending the introduction of an appropriate statutory framework for the financing, management and investment of State pension funds on an ongoing basis. Draft legislation for this is currently in preparation.

1. The £3000 allowance will be granted where the following conditions are satisfied for a year of assessment:

(a) the carer is married and he/she, or his/her spouse, is assessed to income tax under the joint assessment rules;

(b) one or more "qualifying person", i.e. a child, an elderly person or a handicapped person, normally resides with the carer and the carer’s spouse throughout the year of assessment, and is being cared for by the carer;

(c) the carer does not have income for the year of assessment in his/her own right in excess of £4,000 (subject to marginal relief) - see paragraphs 6 and 7 below.

2. Only one £3,000 allowance will be due irrespective of the number of qualifying persons being cared for. The allowance will also be available in respect of the care of elderly or incapacitated relatives who do not live with the carer but who reside close by.

3. The qualifying condition in respect of children will be met if the carer or the carer’s spouse is in receipt of Child Benefit (under the Social Welfare Acts) at any time during the year of assessment. This covers all children under 16 and children in full-time education under 19.

4. An elderly person for purposes of this relief is a person aged 65 or over.

5. A handicapped person is defined - regardless of age - as any person who is permanently incapacitated by reason of mental or physical infirmity. (Claims to permanent incapacity may involve some medical certification.)

6. The £3,000 allowance will still be available where the caring spouse has some limited income in his/her own right, for example income from a part-time job. Given that the allowance is aimed at home carers the threshold is proposed as £4,000 per annum. The Carer’s Allowance from the Department of Social and Community and Family Affairs will not be taken into account for the purposes of this £4,000 income threshold.

7. There will be a scheme of marginal relief where the home carer’s income is between £4,000 and £5,000: the allowance will be reduced as follows so that entitlement to any relief expires at £5,000:

8. The Home Carer’s Allowance and the increased standard band for certain two earner couples will be mutually exclusive; but the taxpayer will be entitled to whichever is the more beneficial for the particular tax year.