Before the Minister for Finance Michael Noonan T.D. had risen from his seat to deliver his Budget 2016 speech the media had already extensively reported on cuts to the universal social charge, a tax credit for the self-employed and various other giveaways.
In this Bulletin we consider ten other taxation measures which have received less media attention but which may have an important impact on key sectors of our economy.
ENERGY AND ENVIRONMENTAL SECTOR
1. Review of Marine Taxation Supports
The Minister today published an independent review of marine taxation supports which may be implemented in future Budgets.
Recommendations in the review include:
- Promoting Ireland as an international ship leasing centre;
- Applying and promoting EII and SURE Scheme to aquaculture, seafood processing and sea fishing enterprises sectors;
- Extending agricultural Relief from capital acquisitions tax (CAT) to the fishing sector; and
- Enhanced marine tax measures for capital investment in marine energy efficiency equipment.
PROPERTY AND LAND DEVELOPMENT SECTOR
2. Tax Breaks and the Residential Property Market
An ERSI report on Tax Breaks and the Residential Property Market has also been published today. The report looks at the problems on the supply side in the housing market and the possible impact tax breaks may have on this.
The report concludes that tax breaks aimed at stimulating house and apartment building will not be successful, and therefore should be avoided, where lack of finance, the planning system or lack of infrastructure could also be a factor in the sluggish housing market. Unless these roadblocks in the system can be addressed tax breaks will not significantly impact the number of houses and apartments being built.
3. Local Property Tax
The revaluation date for the Local Property Tax is to be postponed from 2016 to 2019. Also properties significantly affected by pyrite are to be exempted from the charge.
TECHNOLOGY MEDIA AND TELECOMS / LIFE SCIENCES
4. International Tax Strategy
The Minister published the Department of Finance’s ‘Update on Ireland’s International Tax Strategy’. The updated Tax Strategy records that the 12.5% rate “remains the cornerstone” of Ireland’s corporate tax strategy while pointing out that OECD has explicitly stated that taxation is at the core of countries’ sovereignty, and that each country is free to set up its corporate tax system as it chooses, including charging the rate it chooses. The report further reiterates Ireland’s objection to any harmonisation of tax rates across the EU.
5. Knowledge Development Box
A key part of the International Tax Strategy is the ‘Knowledge Development Box’ (KDB). This new regime, which was announced in last year’s budget, will attract a reduced tax rate of 6.25% on qualifying income. Furthermore the KDB, we are told, will use the OECD’s ‘modified nexus’ model and will be the first OECD- compliant KDB in the world.
EDUCATION / PUBLIC SECTOR
6. VAT on Charities
The VAT on Charities Working Group Report has been published by the Department of Finance today. The tax exemptions which are available to charities across the various tax heads do not extend to VAT, save for a few limited exceptions.
The working group report comes to the conclusion that introducing a refund mechanism for the VAT incurred by charities is not contrary to the EU VAT directive.
The working group looked at schemes in Denmark, the UK and the Netherlands. It outlines how a limited sectorial scheme (where a VAT refund may only be available if the charity operated in a certain sector) or a part compensation scheme (which may allow a charity to reclaim a proportion of the VAT they have incurred based on the level of their private donations) could be introduced in Ireland. It is now hoped that a consultation process can be undertaken to consider which of these options may represent the best way forward for charities.
FOOD BEVERAGE AND AGRIBUSINESS
7. Farm Succession
A new succession transfer partnership model is to be introduced to allow two (or presumably more) people to enter into a partnership with the aim of transferring the farm to the younger farmer at the end of the specified period (which cannot exceed ten years). This new model, which is subject to state-aid approval, is aimed at facilitating knowledge transfer and a gradual transfer of control between farm partners.
To support the transfer an income tax credit worth up to €5,000 per annum for five years will be allocated to the partnership and split according to the profit-sharing agreement.
The revised CGT Entrepreneur’s Relief will also be available to farmers disposing of farms.
HOSPITALITY AND LEISURE SECTOR
8. VAT Rate for Tourist Activities and other Aviation Measures
At one point during the Minister’s speech it seemed that the recovery in Dublin hotel prices may have led him to decide that the reduced 9% VAT rate for tourism activities, which has introduced back in 2011, was no longer required. The Minister, however, decided not to make any changes to this reduced rate on the basis that there was a case for retaining it for the rest of the country. Whether it might be looked at again in next year’s Budget cannot be ruled out.
New incentives, in the form of accelerated capital allowances, to encourage the construction of aircraft maintenance facilities may also been seen as an attempt to encourage airlines to carry on business here with more routes in and out of Ireland for tourists.
SMEs / ENTREPRENEURS
9. Group A Tax Free Threshold
Ireland’s gift and inheritance tax regime has been coming under scrutiny over the last few months, particularly in the context of recovering asset values and fears that is hindering business succession. The CAT rate has increased by 65% since 2008 while the tax free thresholds have halved in the same period.
The increase in the Group A tax free threshold, which principally applies to benefits received by children from parents, from €225,000 to €280,000 is to be welcomed. This increase will apply to gifts or inheritances taken on or after 14th October 2015.
It is, however, disappointing that the CAT rate of 33% has not been reduced nor have the other Group B and Group C tax free thresholds been increased.
10. Entrepreneur Relief
A revised CGT Entrepreneur’s relief which will apply a lower CGT rate of 20% on the proceeds from the sale of a business (subject to a €1million limit on such gains) is to be introduced.
The Department of Finance’s Tax and Entrepreneurship Review, which was published with the Budget, provides some further information in relation to how the relief will apply.
The relief is to be available to individuals who have owned a business for at least 3 years. The relief will be available to owners/founders of private companies, sole traders and farmers. The relief will not be available to companies.
It is not yet clear how this new relief will interact with the existing CGT retirement relief provisions.