The Finance Act was signed by the president on 2 June 1995 and therefore became an act as of this date. The following is a brief summary of some of the Acts's more important provisions:-

Income Tax

The standard (27%) and top (48%) rates of income tax have not been altered. Tax bands have been widened so that in the case of a single person's income the first IRœ8,900 and in the case of a married couple's income the first IRœ17,800 will be taxed at the standard rate with the balance being taxed at the top rate. Personal allowances have also been increased to IRœ2,500 in the case of a single person and to IRœ5,000 in the case of a married couple.

A credit at the standard rate of income tax has been introduced in respect of rent paid by tenants living in private rented accommodation with an upper limit of IRœ1,000 for a married couple and IRœ500 for a single person.

Tax relief at the standard rate has been introduced for the tax years 1996 / 1997 onwards in respect of tuition fees paid to third level private colleges in respect of approved courses.

The rate of deposit interest retention tax applicable to special savings accounts has been increased from 10% to 15% with effect from the 6th April, 1995. However the 10% rate continues to apply to special portfolio investment accounts.

The phased abolition of tax relief on most covenant income has also been introduced. This was done in tandem with the published abolition of fees for third level private colleges. A more positive amendment relates to profit sharing schemes in that the total value of shares which may be appropriated in any one year to an individual employee under such schemes has been increased from IRœ2,000 to IRœ10,000. A further extension of relief has been introduced in respect of seed capital schemes (i.e. a form of business expansion scheme) whereby individuals, subject to certain conditions, obtain income tax relief for investment in qualifying new business ventures (mainly manufacturing or R. & D. activities). The amount now available for relief has been increased from IRœ75,000 to IRœ125,000. The conditions relating to the relief have been relaxed and the activities to which the relief relates have been extended and will now include companies trading on Finex, an exchange facility established in Dublin's International Financial Services Centre ("IFSC").

The use of an operating bank account in Ireland for the purposes of processing transactions by Irish resident trustees will no longer disqualify a trust from the benefit of the exemption from tax available to foreign trusts, provided all income arises from sources situated outside Ireland. This provision will only come into effect on the making of an appropriate order by the Minister for Finance. This new provision will assist trustee activities in the IFSC when it becomes operational.

A person not ordinarily resident in Ireland is no longer chargeable to income tax in respect of interest paid by a company carrying on relevant trading operations in the IFSC or Shannon. This removes a technical liability which although rarely (if ever) collected, caused concern to foreign investors.


Business Tax

The standard rate of Irish corporation tax has been reduced from 40% to 38% with effect from the 1st April, 1995. This has the consequential effect of reducing the tax credit attaching to dividends paid from 40% companies to 23/77ths.

The profits of a foreign branch of an Irish resident company are now exempt from corporation tax and capital gains tax where the Irish resident company creates substantial new employment in Ireland as a result of the substantial new investment of permanent capital in Ireland and where such company is granted an appropriate certificate by the Minister for Finance. This "Branch Exemption" will be granted where the as yet unpublished guidelines are met and a certificate is issued.

Urban renewal relief which provides that favourable capital allowances are available in respect of capital expenditure incurred on the construction or refurbishment of qualifying premises in certain designated areas has been extended for a further period. In the case of construction or refurbishment in the Customs House Dock area (which houses the IFSC), relief will be available for expenditure incurred up to 24th January, 1999. The double rent allowance available to business tenants will also be available until that date. Further amendments to urban renewal relief include the introduction of the concept of "enterprise areas" which are areas within which companies carrying on manufacturing activities and companies providing internationally traded services may obtain benefits.

A new scheme of capital allowances has also been introduced for certain seaside resorts. The scheme is to apply for a three year period running from the 1st July, 1995 to 30th June, 1998 and will provide for favourable capital allowances. The relief applies to the specified resorts.

Investment companies and IFSC companies which pay no dividends on shares or securities issued by them but instead repatriate profits by redemption of shares, can claim that the redemption shall not be treated as a distribution for the purposes of advanced corporation tax ("ACT") and therefore will be exempt from ACT on such redemption.

The surcharge of 20% which is currently levied on the undistributed income of certain closely held service companies has been effectively reduced in that the amount of income which is now disregarded for surcharge purposes has been increased.

An Irish registered company which is not resident in Ireland for tax purposes will now be required to supply certain information to the Revenue Commissioners such as its name and registered office, its place of business, the nature of its business, the identity of the individuals who control it and the identity of the territory in which it is managed and controlled. Any change in such details are also reportable.

The Act provides for relief for incremental expenditure on research and development incurred in a three year period by a manufacturing company availing of the 10% rate of corporation tax and which is not grant aided in respect of research and development. Such companies will be entitled to a quadruple deduction for incremental expenditure on research and development subject to an upper limited of IRœ175,000 and the exclusion of the first IRœ25,000 of such expenditure.

An IFSC company now qualifies for the 10% rate in respect of dealing in commodity futures or commodity options on behalf of persons not ordinarily resident in Ireland where dealing in futures or options is the principal trading operation carried on by the company.

An important relief introduced by the Act is the abolition of stamp duty in respect of transfers of property (including shares) between qualifying associated companies. Previously the stamp duty in respect of such transfers (excluding shares) was 2%. Associated companies for the purposes of the exemption from stamp duty are companies with a 90% direct or indirect common shareholding link. Also relief from stamp duty in the case of reconstructions or amalgamations of companies is now specifically stated as extending to companies incorporated in other Member States of the European Union and not only to Irish registered companies. In line with the treatment of other collective investment undertakings, investment limited partnerships are now exempt from capital duty.


Capital Gains Tax

Reliefs relating to the disposal of family businesses and farms have been extended in that with effect from the 6th April, 1995 where the consideration for the disposal of the farm or business in question does not exceed œ250,000, such disposal will be exempt from capital gains tax. In the case of disposals to children no such consideration ceiling exists, however previously children were required to maintain the business for a period of 10 years after the disposal, the Act has reduced this period to 6 years. Further, a family trading group now includes 75% subsidiaries whereas before it only included 100% subsidiaries.

The circumstances in which rollover relief is granted to individuals in respect of gains arising on the disposal of shares where the sales proceeds are reinvested in new shares in a trading company has been extended in that many of the restrictive conditions relating to the relief have been relaxed.


Capital Acquisitions Tax

Gift tax payable by a recipient on the acquisition of a business or a farm has been reduced. There has also been a reduction in the case of inheritances although this is more restrictive in the case of acquisitions of farms in order to encourage lifetime disposals.


Residential Property Tax

The property threshold limit has been increased to IRœ94,000 and the income threshold to IRœ29,500 so that fewer persons will now come within the charge to residential property tax.


Value Added Tax

A number of provisions have been introduced which are directly related to the implementation of EU Council Directive of 14th February, 1994 (94/5/EC) which is concerned with the VAT treatment of sales of second hand movable goods, works of art, collectors items and antiques. Other minor changes have been introduced including the abolition of monthly control statements previously required to be filed by taxable persons with turnover in excess of IRœ2m.


Miscellaneous

The Finance Act, 1994 provided for a charge to tax on foreign investment income on the basis of ordinary residence (even where the individual in question was non-resident). The Act provides that with effect from 23rd May, 1994 modest investment income will not be subject to Irish tax.

Finally the most contentious provision of the Act is without doubt Section 172 (the "informer's charter") which obliges an auditor or a tax advisor who, in the course of examining the accounts of a company, or in the course of assisting or advising a company in the preparation or delivery of any information for the purposes of tax, becomes aware of certain material tax offences committed by the company, to communicate particulars of the offences to the company and request it to either rectify the situation or report the offences to the Revenue Commissioners within six months after the communication. If the company does not do so the auditor or tax advisor as the case may be is obliged to cease to act for the company in his capacity as auditor or tax advisor and not to so act for a period of three years or until the matter has been rectified, if that is earlier. An auditor who is required to resign under the Section must notify the company of his or her resignation and send a copy of the notification to the Revenue Commissioners. The main offences contemplated by the Section include the making of incorrect returns, failure to make a return (except where a return has been made in one of the last three years), false claims to relief and issuing false documents. The Section as originally drafted obliged tax advisors as well as auditors to report offences to the Revenue Commissioners. A number of professional bodies, and in particular solicitors, raised considerable objections to the Section as originally drafted and submissions were made by these bodies to the Minister for Finance when the section was being discussed at Committee stage. It also became apparent that the Section as originally drafted was probably unconstitutional in that it required solicitors to breach the special relationship which exists between solicitors and clients by requiring them to report offences committed by their clients. In light of the submissions made by the professional bodies and of the question mark over the constitutionality of the Section, amendments were made so that a solicitor is now not required to report tax offences committed by his client company, he must merely cease to act for such client on becoming aware of the commission of such offences which is in accordance with the existing code of ethics conduct for solicitors.


For further information contact Caroline Devlin on +353 16 76 46 61.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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