A Cheann Comhairle, I move that this Bill be read a second time.
Two weeks ago I made my Budget statement in this House. I outlined how, after a long and difficult journey, balance was finally restored to the public finances last year.
Despite many challenges, our economic growth is broadly based.
Public capital investment will increase by 22 per cent this year.
The unemployment rate has fallen to 5.3 per cent from the peak of 16 per cent in 2012.
Tax revenues are largely in line with forecasts for this year with €40.7 billion collected to end-September, an annual increase of 8.7 per cent.
We expect to meet our revised target of €58.6 billon by end year.
The Department of Finance, with the endorsement of the Irish Fiscal Advisory Council (IFAC), is forecasting GDP growth of 5.5 per cent for this year, up from 3.9 per cent in the Stability Programme Update.
The economy is forecast to grow by 0.7 per cent next year based on an assumed disorderly Brexit which is the central scenario underpinning Budget 2020. My Department has highlighted that GDP growth of the order 3.1 per cent would have been in prospect if a disorderly Brexit was not the central scenario.
As I said then, we have eliminated the deficit and are projecting a surplus of 0.2 per cent of GDP. The Government is committed to prudently managing the economy against a backdrop of Brexit.
BREXIT
That said, we do not underestimate the challenge that Brexit presents to the economy. In the event that the UK leaves the EU with an agreement, we will continue to build on this surplus.
Brexit is the main immediate threat to the Irish economy, it is a threat to the wider European economy and ironically it is a threat to the UK economy and particularly the Northern Ireland economy.
I think that it is fair to say that we have done largely the right things in relation to this current threat. However we find ourselves in a situation where we are faced with an uncertain situation over which we have relatively little influence.
But there is no reason to panic. Because of the actions of this Government, we are in a strong position to mitigate the worst effects of the Brexit if we are forced to do so. As I previously indicated, in the event of a No Deal, we will intervene in a sustained and meaningful way to support jobs and the economy. We have a package of €1.2 billion to be called on if needed.
Intervening to support the economy in the event of a No Deal will see the surplus swing to a deficit of 0.6 per cent of GDP next year. We hope that the Withdrawal Agreement is ratified but it is only prudent to remain cautious until this has actually taken place. Until the Withdrawal Agreement is fully ratified, the risk of a no deal Brexit remains. We will continue to watch developments in Westminister and it is striking how things have moved in the two weeks since my Budget speech.
This is the context in which I framed Budget 2020 and the Finance Bill 2019 sets out the legislative provisions required to give effect to the changes announced in the Budget and safeguard the hard won progress of recent years.
Income Tax and Enterprise Support
This Government is committed to creating a supportive environment for enterprise and employment. The Finance Bill provides for a number of significant enterprise taxation supports by way of broadening access to the KEEP (Key Employee Engagement Programme) scheme, the Employment Investment Incentive (EII) and the Research and Development Tax Credit. The Bill extends both the Special Assignee Relief Programme and the Foreign Earnings Deduction to end 2022 following formal external review.
The Bill provides for the income tax measures announced on Budget day, applying increases to the Home Carer’s Credit and the Earned Income Tax Credit. The Bill also provides for the extension of the Help to Buy scheme to the end of 2021.
CLIMATE ACTION and CARBON TAX
In my Budget speech, I noted that climate change is without doubt the defining challenge of our generation. We can grow the economy while reducing our environmental impact and we now have a clear plan that sets out a pathway towards achieving our 2030 climate and energy targets.
The Climate Action Plan will be supported by the climate related National Development Plan investment of €8.1 billion and a further €13.7 billion of investment by our State companies.
But this investment, by itself, will not solve Ireland’s climate challenge.
Bold decisions are needed on our investment priorities but also on taxation and regulation. Carbon pricing is part of this.
There is broad support to increase the price of carbon from €20 today to €80 per tonne by 2030. This would raise an additional €6 billion that could be invested in decarbonising the economy while also protecting the most vulnerable in society.
I know that this will not be easy for everyone. Therefore, instead of a larger increase in any one year, I am committing to a €6 increase as a first step towards the 2030 target. It is this Government’s intention, and my ambition, to increase this steadily to meet the 2030 target. Some people, have said that this does not go far enough. Other say that this is too much. This may be an indication that I have struck an appropriate balance.
This €6 increase applied from Budget night to auto fuels but I have decided to delay its application to other fuels until May 2020, after the winter heating season. This is to protect those people who rely on fossil fuels for heating during the colder months.
This increase will raise €90 million in 2020 all of which will be ring-fenced to fund new climate action measures which will:
• Protect the most vulnerable in society;
• Support sustainable mobility projects;
• Deliver new agri-environmental schemes; and
• Invest in our low carbon future.
It is my intention to put in place a trajectory for further increases of €6 on an annual basis to 2029, bringing Carbon Tax to €80 per tonne by 2030. This approach is supported by the expert opinion of the Climate Change Advisory Council, the report of the Joint Oireachtas Committee on Climate Action and indeed, the recommendations of the Citizens’ Assembly on climate change.
Investing in our low carbon future
On Budget day, I outlined how we will invest a portion of carbon taxes in the Midlands to ensure that the transition which will take place in the communities in that region will be fair for all stakeholders.
Other climate related tax changes
In relation to tax measures in support of climate and public health policy, I am replacing the 1 per cent diesel surcharge introduced last year with a nitrogen oxide (NOx) emissions-based charge.
This surcharge will apply to all passenger cars registering for the first time in the State from 1 January 2020. The charge will apply on a euro (€) per milligram/kilometre basis, with the rate increasing in line with the level of nitrogen oxide emitted.
The surcharge reflects the detrimental effect of these emissions on our environment and will have a particular impact on older, more pollutant cars.
In addition, in this Finance Bill, I am introducing an environmental rationale to Benefit In Kind for commercial vehicles from 2023. The Bill will also extend the Benefit In Kind zero rate on electric vehicles to 2022 and extend VRT reliefs for conventional and plug in hybrids to 2020, subject to CO2 thresholds. The Bill will reduce qualifying CO2 thresholds for reliefs in respect of Capital Allowances and VAT reclaim on commercial vehicles; and provide additional relief through the Diesel Rebate Scheme to hauliers to compensate that sector for the increased cost of fuel.
Furthermore, in line with the recommendation in the Climate Action Plan, I am equalising electricity tax rates for business and non-business.
These changes are intended to shift the economy to a more environmentally friendly and sustainable model. This is important across all sectors including for our businesses.
Tax Avoidance
One of the main strengths of Ireland’s corporate taxation regime is the certainty we offer investors through stable, consistent and transparent policy making. Investment decisions that bring jobs to Ireland are long term decisions, and certainty as to long term policy, to the extent possible, is very important.
However, our corporate tax regime is only certain if it is defensible. I have long said that I see Ireland’s future as a country that competes from a position of legitimacy. I always try to make durable policy choices that we can sustain and stand over for the longer term.
It also worth reflecting that often the problems in the international tax system have come not from the actions of Governments but from advisers and business designing complex plans to exploit mismatches or gaps in legislation. These days must come to an end. While governments worldwide are doing their part by amending rules both globally and domestically this is a shared challenge. Globally, tax advisors, tax lawyers, and the professional services industry must also play a part. It is in everyone’s long-term interests that advisers make long-term decisions with their clients, conscious of the broader objectives and the standards that the public expects.
This Bill includes a number of significant changes to address the issue of tax avoidance.
I am making some changes in relation to Irish Real Estate Funds to address aggressive tax planning activities identified by Revenue on examination of IREF accounts filed this year. I stated in my Budget speech that analysis of these structures is ongoing, and I intend to make some further amendments at Committee Stage of this Bill to ensure that the aggressive activities of some entities do not negatively impact on bona-fide, third-party lending in vehicles funding much-needed development projects.
I am also making amendments to the REIT regime and to the taxation of securitisation vehicles, to strengthen anti-abuse measures and ensure appropriate taxation is collected.
I am also updating existing transfer pricing rules and extending their scope and application. The changes take account of the latest 2017 version of the OECD Transfer Pricing Guidelines and significantly extend the scope of the rules in line with the recommendations in the Coffey Review.
As part of Ireland’s commitment to implementing the Anti-Tax Avoidance Directive (ATAD), I am introducing new anti-avoidance measures this year in the form of ATAD compliant anti-hybrid rules.
The purpose of anti-hybrid rules is to prevent arrangements that exploit differences in the tax treatment of an instrument or entity under the tax laws of two or more jurisdictions to generate a tax advantage. They will apply to all corporate tax payers from 1 January 2020.
The Bill makes amendments in relation to the treatment of Investment Limited Partnerships (ILP) and puts the long-standing treatment of stock-borrowing and re-purchase transactions on a legislative footing. These amendments are being introduced in conjunction with the introduction of ATAD Anti-Hybrid Rules to ensure that the existing treatment of ILPs is clear in legislation.
As well as tackling avoidance, these reforms enhance the legitimacy of Ireland’s corporation tax regime internationally.
FINANCE BILL 2019 – SECTION BY SECTION
I will now take you through the Finance Bill from the beginning. However Deputies will appreciate that in the limited time available to me it is not possible to cover every single section in detail but more detail is provided in the Explanatory Memorandum published with the Bill last week.
PART 1
Part 1 deals with income tax, corporation tax, capital gains tax and the universal social charge.
Section 1 is the interpretation section.
Income Tax
Section 2 provides that the reduced rate of Universal Social Charge for full medical card holders whose individual annual income does not exceed €60,000 will be extended for a further year until the end of the 2020 tax year.
Section 3 gives effect to the budget announcement to increase the value of the home carer credit from €1,500 to €1,600.
Section 4 gives effect to the budget announcement to increase the earned income credit from €1,350 to €1,500.
Section 5 gives effect to the budget announcement in relation to Benefit-in-Kind on employer provided vehicles. The exemption for electric cars and vans with a market value of less than €50,000 is extended to 31 December 2022. From 1 January 2023, a new charging regime for employer provided cars will take effect that will be based on kilometres travelled and the CO2 emission levels of the car. Also, the rate of Benefit-in-Kind on employer provided vans will increase from 5% to 8% of the original market value of the van from 1 January 2023.
Section 6 extends an exemption from tax for payments made to compensate individuals for expenses incurred in the donation of a kidney to also include those who donate a lobe of a liver.
Section 7 makes a technical amendment to the exemption from income tax for payments made under the Magdalen Restorative Justice Ex-Gratia scheme and subsequent payments made by the Minister for Employment Affairs and Social Protection.
Sections 8 to 10 amend the SARP, KEEP and FED as I outlined earlier
Section 11 seeks to maintain the status quo for qualifying UK residents by allowing them retain entitlement to certain personal allowances, deductions and reliefs for the purposes of calculating their Irish income tax liability, in the event that the UK are no longer a Member State of the European Union.
Sections 12 to 14 deals with certain State payments including certain foster payments, training allowances and student grants.
Section 15 extends the Help to Buy scheme in its current format by 2 years to 31 December 2021 as already mentioned.
Section 16 provides tax relief for pension contributions made by a company to occupational pensions schemes set up for employees of another company in certain defined circumstances.
Section 17 extends the Living City Initiative until 31 December 2022.
Section 18 is the adjustment of the qualifying CO2 thresholds for capital allowances purposes.
Section 19 makes two technical amendments to the general rules on deductions for tax purposes. The first copper-fastens Revenue’s long-held position that taxes on income are not tax deductible as expenses in computing profits, on the basis that they are payable out of those profits. The second amendment is intended to update the tax treatment of impairment allowances in line with International Financial Reporting Standard (IFRS) 9.
Section 20 includes Children’s Health Ireland, Enterprise Ireland and the National Oil Reserves Agency Designated Activity Company in the list of specified non-commercial State-sponsored bodies that qualify for exemption from certain tax provisions under section 227 of the Taxes Consolidation Act 1997.
Section 21 amends section 845C to extend the treatment afforded to Additional Tier 1 instruments to comparable instruments, with equivalent characteristics to Additional Tier 1 instruments, issued by companies other than regulated financial institutions.
Section 22 deals with certain corporation tax measures or reliefs in the event of a disorderly exit of the UK from the EU.
Section 23 increases the rate of dividend withholding tax from the standard rate of income tax of 20% to a rate of 25% and increases the rate for distributions to certain non-residents in a similar manner.
Section 24 amends Chapter 2 Part 29 of the Taxes Consolidation Act 1997 (TCA) to include additional supports for micro and small companies who undertake Research and Development (R&D) activities. These measures are subject to a commencement order pending state aid approval from the European Commission.
Section 25 makes a number of amendments in respect of the Employment Investment Incentive (“EII”).
Corporation Tax
I have already spoken about anti avoidance measures which are covered by sections 26 to 31.
Section 32 amends section 1035A of the Taxes Consolidation Act 1997. This section provides for the removal of a potential liability to Irish tax that might arise to a non-resident who avails of the services of an independent authorised agent who is a regulated investment or asset manager resident in the State. The amendment updates the definition of an authorised agent to reflect updates to the appropriate regulatory provisions.
Section 33 inserts Chapter 3 into Part 28 of the Act. The chapter relates to the tax treatment of stock borrowing and repurchase (repo) arrangements.
In substance, both stock borrowing and repo agreements are a form of short-term lending and are reflected in the accounts of the participants as such. However, the form of the transaction involves the temporary transfer of the legal title of stock (e.g. shares) from one party to another, with a simultaneous commitment to reverse the transaction in the future.
This legislation operates to ensure the tax treatment follows the substance of such transactions where they are concluded within 12 months or less (being a short-term loan) where specified criteria are met.
These amendments are being introduced in conjunction with the introduction of ATAD Anti-Hybrid Rules to ensure that the existing treatment of stock borrowing and repurchase (repo) arrangements is clear in legislation.
Capital Gains Tax
Section 34 amends section 604B of the Taxes Consolidation Act 1997. That section provides for a capital gains tax relief for the purposes of farm restructuring. The amendment extends the operation of the relief to the end of 2022.
Section 35 amends section 616(1) of the Taxes Consolidation Act 1997 which provides interpretations for the purposes of Chapter 1 of Part 20 of the Act. The purpose of these amendments is to ensure that the status quo is maintained in relation to certain corporation tax measures or reliefs in the event of a disorderly exit of the UK from the EU.
Again additional detail is available in the Explanatory Memorandum.
Section 36 amends section 621 to correct an inconsistency in the treatment of an allowable loss in comparison with a chargeable gain in relation to certain share disposals involving a corporate group.
Section 37 makes changes in relation to exit tax, the details of which are in the Explanatory memorandum.
PART 2
EXCISE
Part 2 deals with Excise.
Section 38 confirms the Budget increase of 50 cent on a pack of 20 cigarettes in the rates of Tobacco Products Tax.
Section 39 confirms the Budget increase in the carbon component of Mineral Oil Tax on mineral oils used as auto fuels from 9 October 2019 as well as the increase from 1 May 2020 for non-auto fuels and vehicle gas.
Section 40 makes a number of amendments to Finance Act 1999 to bring national law concerning fuel used for private pleasure navigation in line with EU rules.
Section 41 provides for an enhanced relief under the Diesel Rebate Scheme.
Section 42 provides for an increase to the production threshold for eligibility to claim 50 per cent relief from Alcohol Products Tax for beer brewed in small breweries.
Section 43 provides for the equalisation of the rates of Electricity Tax for business and non-business use from 1 January 2020. The rate for business use will change from €0.50 to €1.00 per megawatt hour.
Section 44 and Section 45 provide for an increase to the Natural Gas Carbon Tax rate and to the Solid Fuel Carbon Tax rates. These are both part of the carbon pricing package.
Section 46 amends section 64 and section 77 of Chapter 1 of Part 2 of the Finance Act 2002 and inserts a new section 68A to that Act to provide a relief from betting duty and betting intermediary duty. This amendment is subject to a commencement order.
Section 47 amends the definition of “European Union” in Section 96 of the Finance Act 2001, in respect of Italy, to exclude the territory of Livigno from, and include the territories of Campione d’Italia and the Italian waters of Lake Lugano, within the scope of Excise Law. This amendment transposes a legal measure that has been approved at EU level and will have effect from 1 January 2020.
Sections 48 and 49 deals with Nitrogen Oxide (NOx) emissions which I discussed earlier. The NOx charge will be capped at a maximum of €4,850 for diesel vehicles and €600 for other vehicles.
Section 50 deals with extending the VRT relief for hybrid electric vehicles and plug-in hybrid electric vehicles (PHEVs) until 31 December 2020. It also stipulates that hybrid electrics with CO2 emissions in excess of 80 g/km and PHEVs with CO2 emissions in excess of 65 g/km do not qualify for the VRT relief.
PART 3
VALUE-ADDED TAX
Part 3 deals with VAT
Section 51 is the interpretation section.
Section 52 reduces the CO2 threshold from 156 to 140 grams per kilometre for business vehicles qualifying for a Vat deduction that are registered on or after 1 January 2021.
This section also removes the possibility of deducting VAT on services used to effect a transfer of ownership of goods within the scope of transfer of business relief. The entitlement to deduction in respect of any such services is already provided for in section 59(2) of the VAT Act.
Section 53 amends section 108 of the Value-Added Tax Consolidation Act 2010 to ensure that the powers contained in section 108 can be used in respect of mutual assistance requests received by the Revenue Commissioners from other Member States under the provisions of Council Regulation 904/2010/EC on administrative cooperation and combating fraud in the field of VAT.
Section 54 amends Part 2 of Schedule 3 to the Value-Added Tax Consolidation Act 2010 by inserting a new paragraph 3A to provide that food supplements will be subject to VAT at a rate of 13.5 per cent. This measure takes effect from 1 January 2020. I should make it clear that foods for specific groups such as infant formula, vitamins and minerals such as folic acid licensed as medicines by the HPRA, and fortified foods such as fortified cereals will continue to benefit from the zero rating for VAT purposes.
PART 4
STAMP DUTIES
Part 4 deals with stamp duties.
Section 55 is the interpretation section.
Section 56 amends Schedule 1 to the Stamp Duties Consolidation Act 1999 to give effect to the Budget increase in the rate of stamp duty applying to conveyances or transfers and lease premiums of non-residential property from 6% to 7 ½% which took effect from Budget night. It amends section 83D (the residential development refund scheme) to take account of the new rate of 7½%.
The 6% rate will continue to apply for purchasers or lessees with binding contracts in place before 9 October 2019 (the executed instrument must contain a statement to this effect) and where the sale or lease is executed before 1 January 2020.
Section 57 and 58 provide that Gibraltar-regulated insurers will continue to be liable to the current levies on insurance policies on their Irish business in the event of the UK leaving the EU. Both are subject to a commencement order.
Section 59 amends section 126AA of the Stamp Duties Consolidation Act 1999 to maintain the fixed annual levy of €150 million imposed on certain financial institutions. The levy is charged on the Deposit Interest Retention Tax (DIRT) paid by the relevant financial institutions in a series of base years. The levy is being increased from its current rate of 59% to 170% of the DIRT paid in the 2017 base year for payments due in the years 2019 and 2020. This measure came into effect on Budget night.
Section 60 imposes a stamp duty charge of 1% where the acquisition of a company is effected by means of a particular type of scheme of arrangement under Part 9 of the Companies Act 2014. This type of scheme of arrangement involves the target company entering into an arrangement whereby it cancels its existing shares and issues new shares to the acquiring company. The usual stamp duty charge in respect of the sale or transfer of shares did not apply as this type of arrangement does not involve a conveyance or transfer on sale. This measure came into effect on budget night.
PART 5
CAPITAL ACQUISITIONS TAX
Part 5 deals with Capital Acquisitions Tax.
Section 61 is an interpretation section.
Section 62 amends section 48 Capital Acquisitions Tax Consolidation Act 2003 which deals with the information to be supplied to Revenue and the Probate Office. This amendment is being made in the context of the introduction of an electronic process for applying for probate or letters of administration. The section provides for Revenue to develop relevant regulations and the section will be the subject of a commencement order.
Section 63 amends section 86 of the Capital Acquisitions Tax Consolidation Act 2003 which provides for an exemption from inheritance tax for beneficiaries inheriting certain dwelling houses. The amendment clarifies the situation with regard to the operation of the dwelling house exemption. More detail is found in the explanatory memorandum.
Section 64 increases the Group A tax-free threshold from €320,000 to €335,000. This is the Group threshold that applies primarily to gifts and inheritances from parents to their children. The increased threshold applies to gifts and inheritances taken on or after 9 October 2019.
PART 6
Part 6 is the final part and deals with miscellaneous matters
MISCELLANEOUS
Section 65 is the interpretation section.
Section 66 gives effect to certain provisions of an EU Directive to introduce a mandatory disclosure regime for certain cross-border transactions that could potentially be used for aggressive tax planning. In accordance with the requirements of the Directive, the information received from intermediaries and taxpayers will be shared with other EU Member States. This comes into operation on 1 July 2020.
Section 67 makes several amendments in relation to the tax appeal procedures contained in Part 40A of the Taxes Consolidation Act 1997 to facilitate improvements to the tax appeals process.
Section 68 will allow the collection of disputed tax to be suspended in cases subject to a Mutual Agreement Procedure in line with international tax dispute resolution mechanisms.
Section 69 removes the requirement that the hard copy of an electronic tax return should be approved by Revenue.
Section 70 allows the Revenue Commissioners to reduce a PAYE assessment downwards, without the taxpayer having to formally appeal the assessment.
Section 71 amends section 1001 of the Taxes Consolidation Act 1997 to allow entities to whom a fixed charge on book debts has been transferred to notify Revenue of this transfer.
Section 72 updates Part 1 of Schedule 24A to the Taxes Consolidation Act 1997 which lists all international tax agreements entered into by Ireland.
Section 73 and Schedule 2 provide for minor technical amendments to the—
• Taxes Consolidation Act 1997,
• Value-Added Tax Consolidation Act 2010,
• Capital Acquisitions Tax Consolidation Act 2003,
• Finance Act 1992, and
• Income Tax (Employments) (Consolidated) Regulations 2001.
Section 74 deals with the “care and management” of taxes and duties.
Section 75 contains provisions relating to the short title, construction and commencement of the Bill.
Conclusion
As is customary with the Finance Bill, there are still a small number of matters under consideration that I may bring forward on Committee Stage. I hope that the debate on the important provisions contained in the Bill can be conducted in a constructive way. I will always listen to other viewpoint. I will consider any suggestions put forward during our debate over the next couple of days in the context of Committee Stage amendments.
In conclusion, I commend the Bill to the House.
Ends