ATAD Measures
The Bill sees Ireland complete its transposition of the EU Anti-Tax-Avoidance Directive (ATAD) into Irish tax legislation, through the introduction of interest limitation rules (ILR), which are designed to limit base erosion by restricting the level of interest deductions and the completion of our anti-hybrid rules through the introduction of rules to deal with so-called “reverse hybrids”. Some technical amendments are also made to the existing anti-hybrid rules.
Given the widespread use of debt financing across a variety of sectors and industries, the implications of the introduction of ILR will be significant. Taxpayers will need to familiarise themselves with the new rules quickly as they apply to accounting periods commencing on or after 1 January 2022.
The new ILR provisions will operate alongside existing comprehensive rules that restrict the deductibility of interest expenses. Their introduction provided the legislature with an opportunity to consolidate and simplify existing Irish rules surrounding interest deductions. However, this opportunity has been missed. Taxpayers therefore face an increasingly complex set of rules and a greater administrative burden.
Transfer Pricing
The Bill introduces a new version of section 835E, which governs the exclusion from transfer pricing of non-trading ‘Ireland to Ireland’ transactions. This new measure is welcomed as it is principles-based, clearer in scope than its predecessors and looks set to be fit-for-purpose in achieving the policy aim of excluding bona fide non-trading 'Ireland to Ireland' transactions from the scope of transfer pricing. It will apply to chargeable periods commencing on or after 1 January 2022.
The Bill also legislates for the ‘authorised OECD approach’ for the attribution of income to a branch of a non-resident company operating in the State. It will apply for accounting periods commencing on or after 1 January 2022.
Climate Change
There have been some positive developments in relation to climate action incentivisation measures including increases in Carbon Tax, VRT and the extension of the relief for the purchase of qualifying electric vehicles to the end of 2023. Revenue from the Carbon Tax will be targeted towards preventing fuel poverty and other initiatives including a national retrofitting programme. The Accelerated Capital Allowance Scheme for Energy Efficient Equipment has been extended to 31 December 2024. It is amended to prohibit equipment directly operated by fossil fuels from qualifying for accelerated capital allowances. A tax exemption is being introduced in respect of personal income received by households who sell residual electricity that they generate back to the grid.
Overall, the Bill includes a number of positive measures to tackle climate change and reduce Ireland’s overall greenhouse gas emissions. However, there are some missed opportunities. The Bill could have gone further to include even more targeted measures to support climate change.
Employment and Individual Taxes
The majority of the legislative measures included in the Bill from an employment and individual tax perspective mirror the announcements made on Budget day. It was a budget focused on easing the cost of living and the Bill includes provisions relating to income tax and USC band changes, and increases to the Personal, PAYE and Earned Income Credits. For those hoping to get on the property ladder in 2022, the Help-to-buy Scheme has been extended to 31 December 2022.
COVID-19 support measures
As in Finance Act 2020, a number of the measures contained in this year’s Bill are targeted at providing support to businesses and individuals that have been significantly impacted by COVID-19.
The Bill also puts the availability of a 30% deduction from income tax for heat, electricity and broadband costs for those working from home on a statutory basis.
The temporary reduction in VAT for the hospitality and tourism sector from 13 ½ per cent to 9 per cent has been extended and will continue until 31 August 2022.
It was confirmed on Budget Day that the Employment Wage Subsidy Scheme (EWSS) will be extended to the end of April 2022, but support from the programme will be phased out by then. It will be closed for new employers from 1 January 2022.
Digital Gaming Credit
The Bill also introduces a new tax credit for the digital gaming sector. The relief will take the form of a refundable corporation tax credit available to digital games development companies for qualifying expenditure incurred on the design, production and testing of a digital game. As the credit will require EU state aid approval, it has been introduced subject to a commencement order.
The introduction of this credit is a very welcome move and looks to support one of Ireland’s fastest growing domestic and international sectors to ensure that they are positioned for success in a post COVID-19 economy.
Property Measures
The Help to Buy Incentive Scheme is extended to the end of 2022. A new Zoned Land Tax of 3% tax is being introduced to encourage the use of land that is zoned residential and mixed-use to build homes. The deduction of certain pre-letting expenses incurred on vacant residential premises against rental income before first letting after a period of non-occupancy is extended to the end of 2024.
Other Measures
The Bill includes a number important changes to the Employment Investment Incentive (EII) scheme. The changes reflect some, but not all, of the feedback given on ways to improve the effectiveness of the scheme during a stakeholder event hosted by the Department of Finance last year and do not represent the hoped for overhaul in the rules. The amendments made appear best suited for start-ups that use the EII as a once-off source of funding.
The relief for certain start-up companies is to be extended for a period of 5 years. The relief is also to be amended such that companies may avail of the relief within their first five years of trading, an increase from the current three-year claim window.
The Bank Levy, which was due to expire in 2021, is extended to the end of 2022. However, it will apply to a reduced number of institutions.
The Bill also contains a number of measures to modernise and streamline the system for collecting stamp duty on insurance policies, financial cards, and cheques / bills of exchange. This should ease the administrative burden for financial institutions and insurers.
Two technical amendments relevant to mergers have been included in the Bill. These are welcome and should remove some technical ambiguities that previously existed in the context of both cross-border and domestic mergers.
In the area of tax administration and Revenue powers, the Bill proposes the introduction of a number of amendments to the penalty and publication regime in Ireland, as well as to the tax appeals process.
