Finance Bill 2017
The new Minister for Finance announced the budget on the 10th of October 2017. As the pace of Ireland’s economic recovery continued there were tax cuts to be delivered, with minor adjustments to rates of USC, and entry point to higher rate tax. A well flagged increase in the earned income tax credit was also included.
In terms of the revenue raisers, a lot centred around property, with the stamp duty on commercial property increasing from 2% to 6% projecting an eye watering yield of €376m. Anti-avoidance rules which were much heralded at the time were not produced until the Bill was in the Seanad. These rules expanded the 6% rate to many transactions in shares, partnership interests and units or other interests in funds vehicles, where one of the main benefits of buying the property into the vehicle was the avoidance of the higher rate of future stamp duty on a sale.
A rebate was introduced for acquisitions of landbanks which were subsequently developed as residential units with a maximum of 25% commercial units on the site.
Ireland brought in amortization of intangible assets in 2009. At the time any tax deduction for a combination of amortization and deductible interest was limited to 80% of the profits accruing to the intangible asset. In 2014 the 80% restriction was removed allowing companies utilise any amortization and interest expense to reduce all of their profits from the qualifying intangible asset to zero. After commissioning the Coffey Report on Ireland’s corporate tax code the Government accepted his proposal to reintroduce the 80% cap. However, IP brought onshore into Ireland before the cap was reintroduced is not subject to the 80% cap. Whether this grandfathering of IP already onshore is compatible with EU State aid law remains to be seen.
The Government made a number of amendments to the bill at Committee stage to address cash extractions from owner managed companies. These range from treating what might previously have been capital transactions as distributions, through disapplying the reduced 10% rate of capital gains tax to certain connected party transactions. The anti-abuse rules will apply where one of the main benefits of the transaction being undertaken was the securing of the favourable tax rules at issue.