Finance Bill 2015
The Finance Bill 2015 was published on 22 October. This was the first step in the process of enacting the changes announced by the Minister for Finance in his budget statement of 13 October. It also included a number of additional measures, which were not announced on budget day.
A new provision confirms that the reimbursement of legitimate vouched expenses, incurred by non-resident directors travelling in the course of their duties, will be exempt from income tax. It appears to cover travel and subsistence expenses incurred in attending meetings other than just board meetings. The exemption only applies to directors who do not devote substantially their time to the services of a company in a managerial or technical capacity, i.e. typically non-executive directors. The exemption is to come into effect from 1 January 2016.
Detailed legislation was introduced in relation to the Knowledge Development Box. A new 6.25% tax rate will apply to patents and copyrighted software. The income qualifying for the reduced rate is to be directly linked to the R&D activity carried on in Ireland. It is therefore likely to be of greater benefit to indigenous Irish businesses and SMEs than multinational corporations, with more relaxed conditions for certain smaller companies of particular note.
Certain anti-avoidance provisions were enhanced, including the inclusion of non-domiciled individuals within the scope of the “transfer of assets abroad” provisions. An anti-avoidance provision was also introduced in respect of certain company reconstructions.
Legislation was introduced to facilitate “country by country” transfer pricing reporting. This will allow the exchange of transfer pricing information between OECD countries. It only applies to groups with turnover in excess of €750m. There is likely to be a significant focus on transfer pricing by all Revenue authorities in future years, including the Irish Revenue.
It was confirmed in the Finance Bill that the new CGT rate of 20% for entrepreneurs will only apply where there is at least a 15% shareholding in the business. It was also confirmed that it applies to gains in excess of €1m, but with the relief restricted to the first €1m. This is a lifetime limit. The 15% minimum shareholding requirement is likely to exclude many entrepreneurs whose shareholding has been diluted by successive funding rounds.
The Finance Bill and budget announcement contained a number of pro-employment and pro-growth measures, which are to be welcomed. In particular the reductions in USC rates, and the pledge to abolish the USC if re-elected, are commitments by the Government to attempt to make work pay by lowering taxes. It should be noted that the Minister in his speech referred to a maximum marginal tax rate of 50% being maintained in the future. If the USC is abolished, the 50% marginal tax rate may need to be achieved by the introduction of a third rate of income tax for high earners.
Our current marginal tax rates of 52% for employees and 55% for the self-employed, which are very high by international standards, remain a significant barrier to the attraction of key talent to Ireland. This could seriously jeopardise the future attractiveness of our corporate tax regime, with a focus in the future on the alignment of corporate profits and substance, i.e. jobs. It is hoped that this issue will be addressed in forthcoming budgets.
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