On 22 February 2019, the Government published the Withdrawal of the United Kingdom from the European Union (Consequential Provisions) Bill 2019 (the "Bill") The Bill is an important measure proposing legislative action across a number of areas which will be required in the event of a no-deal Brexit. In particular, the Bill contains provisions in relation to taxation, social welfare, protection of employees, financial services and healthcare.
Part 6 of the Bill addresses taxation matters, dealing specifically with income tax, corporation tax, capital gains tax, VAT, stamp duty and capital acquisitions tax. It seeks to ensure that certain provisions of Irish tax legislation will continue to apply to those currently benefitting from such provisions when the UK ceases to be an EU or EEA (which is the EU countries plus Norway, Iceland and Liechtenstein) Member State. Some of the main aspects of the taxation elements of the Bill are outlined below.
From an income tax perspective, the Bill outlines amendments to existing legislation in the areas of KEEP (Key Employee Engagement Programme), EIIS (Employment and Investment Incentive Scheme), artist income exemption, relief for third level college fees, mortgage interest relief, sportsperson's relief, seafarer allowance and fishers tax credit. In most cases, the Bill expands current legislative definitions to include the UK, which will allow existing arrangements to continue in the immediate future for those who seek to rely on such reliefs.
In terms of corporation tax, provisions of the Taxes Consolidation Act 1997 will be amended so that relief for charges on income for corporation tax purposes will continue to apply in relation to interest and other annuities, annual payments, patent royalties and other payments paid to banks, stock exchanges and discount houses in the UK. For several credits and reliefs, the definition of "relevant Member State" will be extended to include the UK. This includes group loss relief, reconstruction or amalgamation relief, tax credit for R&D expenditure, and start up relief.
Capital Gains Tax (CGT)
The Taxes Consolidation Act 1997 currently provides relief from CGT for fund managers in respect of investments of a venture capital fund. This provision will be amended so that investments in the UK can be taken into account when calculating the amount of the relief. The Bill also deals with relief from CGT in respect of property purchased in any EEA State between 7 December 2011 and 31 December 2014, where the property is held for a certain period of time. The relief will continue to be available where the property was purchased in the UK.
Capital Acquisitions Tax (CAT)
The Bill extends the rules on agricultural relief to include agricultural property situated in the UK. It also extends a number of stamp duty provisions to cover the UK, including relief from stamp duty for stocks purchased by intermediaries on behalf of clients and reconstruction or amalgamation relief under the Stamp Duties Consolidation Act 1999.
Value-Added Tax (VAT)
Of particular importance from a VAT perspective, and something which should be welcomed by the majority of Irish taxpayers, is the inclusion of provisions to delay the payment of VAT on imports from the UK. This will ensure that the current VAT treatment for trading with the UK remains the same and will allow traders to record import VAT in a VAT return for the period the import takes place under the “reverse charge” accounting procedure. This is the same way VAT is currently accounted for on goods arriving from other EU Member States into Ireland. In effect, it will ensure that the status quo is maintained for VAT purposes on trade with the UK and should not impact on cash flow for businesses operating with full VAT recovery. Interestingly, the provisions are not limited to imports from the UK and, where a hard Brexit occurs, will apply to all imports from "third" countries (i.e. non-EU Member States). This should provide a cash flow benefit to traders with third countries and remove the current VAT cash flow cost arising from imports from "third" countries.