Finance Bill 2001

Contents  

Part 1 Measures announced in the Budget 

Part 2 Measures announced on 26 January 

Part 3 Further measures not previously announced  

Appendix on New Savings Scheme

CONTENTS

Part 1 - Measures announced in the Budget
Income Tax, Corporation Tax and Tax Administration
1. Reduction in Rates of Income Tax
2. Increase in Allowances
3. Widening of the Standard Rate Band
4. Increase in Income Tax Exemption limits
5. Renewal of income tax exemption for unemployment benefit paid to systematic short-time workers
6. Changes to Rent Relief
7. Tax relief on trade union subscriptions
8. Relief at source for medical insurance and mortgage interest relief
9. Change to Net Pay Basis for Permanent Health Benefits Insurance
10. Medical Expenses Relief
11. Increase in the amount that can be claimed under the employment of a carer allowance
12. Benefit-in-kind on preferential loans - adjustment to preferential rate
13. Rent-a-room scheme
14. Increase in assumed flat rate charge for tagged refuse collection relief
15. Qualifying days for the seafarers’ allowance
16. Tax relief for third level fees
17. BES/Seed Capital Scheme - Extension of existing schemes
18. Extension of Farmer’s Stock Relief
19. Taxation of foreign Life Assurance and Collective Investment
20. Tax treatment of Credit Unions and deposits in other financial institutions
21. Corporation Tax - 12½% rate for SMEs with trading income up to £200,000
22. Corporation Tax - 12½% rate for shipping
23. Changes to stock valuation at discontinuance of trading
24. Capital Allowances: Reduction in write off period for Plant and Machinery, from 7 to 5 years
25. Capital allowance and expenses purposes for business cars
CAT, CGT, Stamp Duty
26. Abolition of Probate Tax
27. CAT - Treatment of Foster Children for CAT purposes
28. Capital Acquisitions Tax/Agricultural Relief - Allowing a longer period
29. Capital Gains Tax relief for Compulsory Purchase Order for farmland
30. Stamp Duty and Capital Gains Tax - Site transfers for residential purposes from a parent to a child
31. Abolition of stamp duty on life assurance investment
Indirect Taxation
32. Changes to VAT rate
33. Farmer’s Flat rate VAT
34. Excise Duty on unleaded petrol, auto diesel and tobacco products
35. Restriction of new lower excise duty rate for auto diesel to low sulphur diesel
36. December deferment arrangements for excise duty on alcoholic drinks
37. VRT - Hybrid cars
Part 2 - Measures announced on 26 January
Income Tax, Corporation Tax and Tax Administration
38. Completion of Move to Tax Credits
39. Calendar Tax Year
40. Conversion of Irish Pound amounts to convenient euro amounts
41. E-Filing of Tax Returns
42. Electronic record-keeping
43. Professional Services Withholding Tax
44. Enterprise Trust successors
45. Building Societies: technical changes
46. Retirement Annuity Contracts - abolition of 5% cap on tax relieved contributions in the case of dependants
47. Pensions - PAYE and Annuity Payments
48. Park and Ride: definition of qualifying commercial premises
49. Living over the shop scheme
50. Multi-Storey Car Parks - Extension of qualifying deadline
51. Technical items on Capital Allowances
52. Collective funds - amendments
53. Life Assurance Investment
54. Deemed distribution treatment for certain interest payments to non-resident Group Companies
55. Residual Irish Income Tax liability on certain Eurobond interest
56. Commission on private rented housing sector measures
57. Foreign Earnings Deduction - Amendment of definition of ‘day’ and insertion of expiry date
58. Capital Allowances for Taxi Licences
CAT, CGT, Stamp Duty
59. Capital Acquisitions Tax - Amendments
60. Capital Acquisitions Tax - foreign owned works of art
61. Stamp Duty on mortgages
62. Stamp Duty - exemption from stamp duty for the National Building Agency on the acquisition of land for social and affordable housing
63. Stamp Duty - extension of time limit for completion of contracts signed before rate change
Indirect Taxation
64. VAT: transposition of directive on fiscal representatives
65. VAT treatment of toll roads following ECJ ruling
66. Technical VAT changes
67. Gaming/Amusement machines - technical amendments to definitions
68. Excise Consolidation and Modernisation Measures
69. Licences - tax clearance for wine retailers off licence
70. Increase in rate of excise duty on mineral oil licences
71. Licence for the National Concert Hall
72. Increase in excise penalties for use of marked gas oil, other oil offences and other excise offences
73. Tobacco prosecutions
74. Technical amendments in the Customs area
Part 3 - Further measures not previously announced
Income Tax, Corporation Tax and Tax Administration
75. New Savings Scheme
76. Tax relief for Share Options
77. Tax relief for Donations
78. Medical Insurance Relief for ancillary care
79. BIK for Childcare
80. ESOT and APSS legislation
81. Tax collection measures
82. Increase in Penalty for Summary Conviction for an offence
83. Exit tax on certain Life Assurance Policies
84. Exit Tax on Whole-of Life Policies
85. Dividend Withholding Tax
86. DIRT on tracker bonds
87. Ratchet loans
88. Shipping - continuation of ringfence
89. The St Gobain case
90. Foreign Income Relief
91. Capital Allowances - water treatment
92. Capital allowances for third level institutions
93. Capital Allowances on Milk Quotas
94. Petroleum Tax amendment
95. Eircom Securities
96. Rural Renewal Scheme - Extension of floor area sizes
CAT, CGT, Stamp Duty
97. CAT - Amendment of exempt securities exemption
98. CAT - Elimination of Multiple Charges
99. Various other CAT Amendments
100. CGT @ 60% on development land
101. Stamp Duty/ASPT - Extension of relief in cases of marriage break-up
102. Anti-speculative property tax - amendments
103. Stamp Duty Exemption for Voluntary and Co-operative Housing Bodies
104. Other Stamp Duty Amendments
Indirect Taxation
105. VAT on educational research
106. VAT on Insurance Agents
107. VRT on 4x4 Vehicles
108. Licences - tax clearance for beer retailers’ off licence
109. Forfeiture of Ships involved in smuggling
110. Passenger Services Road Fuel
Technical Amendments
111. Definition of Sub-contractors
112. Interest paid as a charge on income
113. Incorrect Cross Reference in Section 372M
114. Withholding Tax on interest paid by Collective Funds
115. Excise Duty on Fuel held in vehicle tanks
116. Excise Duty payable on Firearm Certificates issued to non-residents
Appendix on New Savings Scheme

Part 1 - Measures announced in the Budget

Income Tax, Corporation Tax and Tax Administration

1. Reduction in Rates of Income Tax

The standard rate of tax is being reduced by 2%; from 22% to 20%. The higher rate of tax is being reduced by 2%; from 44% to 42%. The reduction in the standard rate also applies to standard rate DIRT, Dividend Withholding Tax, professional services withholding tax and life assurance-linked/collective funds investment.

2. Increase in Allowances

The standard rated basic personal allowances are being increased by £1,600 for a married couple and by £800 for a single person with corresponding increases in the Widowed/Lone Parents Allowance. The PAYE Allowance is being increased by £1,000. These standard rate allowances will be set out in the Bill as tax credits.

3. Widening of the Standard Rate Band

The standard rate band is being increased by £3,000 for single persons, from £17,000 to £20,000. It is being increased by £1,000 to £29,000 for one income married couples. In the case of two income married couples it is being increased by £6,000 to £40,000, £29,000 of which is transferable between spouses. The standard rate band is being increased by £3,000 for one-parent families, from £20,150 to £23,150.

4. Increase in Income Tax Exemption limits

The Bill increases the exemption limits for those aged 65 years and over by £1,000 to £8,500 for single and widowed persons and by £2,000 to £17,000 for married couples.

5. Renewal of income tax exemption for unemployment benefit paid to systematic short-time workers

The special exemption from taxation of Unemployment Benefit for systematic short-time workers will be extended up to 31 December, 2001.

6. Changes to Rent Relief

Tax relief is currently available for rent paid by certain tenants. For the under 55’s, the Bill increases the ceiling on the amount of rent which can be claimed from £750 to £1,000 for a single person and from £1,500 to £2,000 for married couples. In addition, the amount of rent relief that can be claimed by widowed persons, irrespective of age, will be equalised with the amount that can be claimed by married couples. This represents an increase from £1,125 to £2,000 for widowed persons under 55 and £3000 to £4,000 for those aged 55 and over.

7. Tax relief on trade union subscriptions

The Bill provides for a standard rated allowance of £100 in respect of members’ subscriptions to trade unions. This provision will have effect from 6 April 2001 but the Bill provides that the amount for the 2001 tax year will be added to the amount for the 2002 tax year and the total allowed in 2002 to facilitate the administration of the credit in the introductory period.

8. Relief at source for medical insurance and mortgage interest relief

The Bill contains an enabling provision for the granting of tax relief at source for medical insurance contributions from 6 April 2001 and for mortgage interest relief from 1 January 2002. That is, the relief will be netted off the payments due rather than claimed separately as a tax allowance.

9. Change to Net Pay Basis for Permanent Health Benefits Insurance

The Bill provides for tax relief for permanent health benefits insurance to be administered on a "net pay" basis with effect from 6 April 2001, that is, the contribution will be deducted from gross salary prior to the application of tax.

10. Medical Expenses Relief

The Bill provides for the widening of medical expenses relief. The definition of ‘relative’ will include persons as currently covered in the Dependent Relative Allowance. In future, taxpayers will be able to claim medical expenses relief directly for designated relatives instead of first having to claim the Dependent Relative Allowance for which there is an income limit or engaging in the covenant procedure. The restriction on relief for routine maternity care is also being removed. It is intended to introduce an amendment at Committee Stage to provide for the inclusion of expenditure on educational psychologists and speech therapists within the relief.

11. Increase in the amount that can be claimed under the employment of a carer allowance

Relief at the marginal rate of tax is available for the employment of a carer for a family member who is incapacitated. The amount that can be claimed under this relief will be increased from £8,500 to £10,000 p.a.

12. Benefit-in-kind on preferential loans - adjustment to preferential rate

BIK is charged on the difference between the interest actually paid by an employee on a preferential loan provided by his or her employer and the interest that would have had to be paid at the market rate of interest as represented by the "specified" rate of interest. The Bill increases the specified rate for home loans from 4% to 6%, and the specified rate for other loans from 10% to 12%.

13. Rent-a-room scheme

A new ‘Rent a Room’ scheme is being introduced. Where a room (or rooms) in a person’s principal private residence is let as residential accommodation and the gross annual rental income is less than £6,000, the rental income will be exempt from tax. The Bill provides that room rentals coming within the scope of this scheme will not trigger a stamp duty clawback; nor will it affect full entitlement to CGT principal private residence relief (in the event of a subsequent disposal of the property) or full entitlement to mortgage interest relief.

14. Increase in assumed flat rate charge for tagged refuse collection relief

In the case of income tax relief for charges for refuse collection which are based either on a "tag" system or which are paid to private concerns, a charge of £50 per annum is assumed within the legislation. The Bill provides for an increase to £150 with effect from 6 April 2001. The maximum amount of relief for annual service charges levied by local authorities will remain at £150.

15. Qualifying days for the seafarers’ allowance

A special allowance of £5,000 per annum is currently available for seafarers. The Bill reduces, from 169 to 161, the number of days a seafarer is required to be on voyages to or from a foreign port in an EU flagged ship for the purposes of claiming the allowance.

16. Tax relief for third level fees

The four existing tax reliefs for third level education fees will be merged and the conditions standardised. Restrictions currently applying to tax relief for repeat years, more than one course, to individuals already holding a third level qualification and the exclusion of medicine, dentistry, veterinary medicine and teacher training will be removed. Relief will be extended for postgraduate fees paid in the US and other countries not covered by the existing scheme.

17. BES/Seed Capital Scheme - Extension of existing schemes

The Bill extends the Business Expansion Scheme and Seed Capital Scheme from 6 April 2001 to 31 December 2001. The Bill also provides, from 6 April 2001, that companies providing internationally traded services and which are assisted financially by County Enterprise Boards will be qualifying companies for BES purposes.

18. Extension of Farmer’s Stock Relief

The Bill provides for an extension of the existing general 25 per cent stock relief for farmers and the special incentive stock relief of 100 per cent for certain young trained farmers from 6 April 2001 until 31 December 2002, subject to this being in conformity with EU State Aid rules. The requirement to be resident in the State in order to avail of Stock Relief is also being removed.

19. Taxation of foreign Life Assurance and Collective Investment

The Bill provides that the same tax rate will apply to investment in both Irish and certain foreign life assurance companies and investment funds. The foreign countries involved are all EU and European Economic Area countries and OECD countries with which Ireland has a Double-Taxation Treaty. Where an Irish resident receives the proceeds of such foreign investment products on or after 1 January 2001, the same tax rate will apply to such proceeds as will apply where an Irish resident invests in an Irish life assurance company or Irish investment fund, provided certain conditions are met. In the case of new such foreign products, the investor and, where it applies, the intermediary must notify Revenue both when making the investment and on receipt of the investment proceeds, with the tax being paid under the self-assessment income tax rules. Where the intermediary does not inform Revenue when making the investment a penalty of £1,500 will apply. Where Revenue are not notified in relation to receipt of proceeds, the investor will be liable for tax under the current rules i.e. 40% CGT, or in the case of certain offshore funds, the investor’s marginal income tax rate. These conditions are being cleared with the EU Commission.

20. Tax treatment of Credit Unions and deposits in other financial institutions

The Bill provides for the measures announced in the Budget: -

i) Credit Union members will be liable to pay 20% DIRT on their deposit interest income.

ii) With regard to the taxation of dividends from shares the Bill provides for the following options:

the present arrangements whereby Credit Union members are obliged to report the dividends received to the Revenue Commissioners and be subject to tax at their marginal income tax rate, or

20% DIRT or

where shares are placed in new special medium-term savings accounts, a tax exemption will apply for the first £375 p.a. in dividends for funds invested for a minimum of 3 years and for the first £500 p.a. in dividends for funds invested for five years. For dividends over £375/£500 tax will apply at 20%. The Bill provides that equivalent special medium-term savings accounts in other deposit-taking financial institutions will qualify for the same exemptions.

21. Corporation Tax - 12½% rate for SMEs with trading income up to £200,000

As already provided in the Finance Act 1999, the standard rate of corporation tax for trading income is being reduced from 24% to 20% from 1 January 2001. This is part of the phased reduction in the standard rate to a single standard rate of 12½% in 2003 for trading income. Companies whose total trading income (other than trading income taxable at the 10% or 25% rates) for an accounting period does not exceed £50,000 are taxed on such income at the 12½% rate. The Bill increases this limit to £200,000 from 1 January 2001. Marginal relief applies where the income is between £200,000 and £250,000.

22. Corporation Tax - 12½% rate for shipping

Profits from shipping which are currently charged to tax at the 10 per cent rate would from 1 January 2001 be charged to corporation tax at the prevailing standard rate of corporation tax - i.e. 20 per cent in 2001, 16 per cent in 2002 and 12½ % in 2003. The Bill provides for the 12½ per cent corporation tax rate to apply from 1 January 2001 for shipping activities.

23. Changes to stock valuation at discontinuance of trading

The Bill provides that, where at discontinuance of a trade, stock is transferred (or sold) to a person who carries on a trade, the closing stock at discontinuance is to be valued as follows:

Where the persons are not connected, at the actual transfer price, and

Where the persons are connected, at the arm’s length price. However, if the arm’s length price exceeds the original cost of the stock and also exceeds the actual transfer price, the parties can jointly elect to have the closing stock valued at the greater of original cost or actual transfer price.

This change will have effect from 6 December 2000.

24. Capital Allowances: Reduction in write off period for Plant and Machinery, from 7 to 5 years

The Bill provides for the write-off period for the annual wear and tear capital allowances for plant and machinery to be shortened from 7 years to 5 years. Up to now the allowances operated on a straight line basis over a seven year period, i.e. 15 per cent in the first 6 years and 10% in year 7. This measure takes effect for expenditure incurred on or after 1 January 2001 and applies both to the general plant and machinery capital allowances as well as to capital allowances for business motor vehicles (excluding taxi and short-term hire vehicles which retain their 40% reducing balance arrangement).

25. Capital allowance and expenses purposes for business cars

The Bill provides for an increase in the car value threshold for the restriction of capital allowances, running expenses and leasing expenses from £16,500 to £17,000. The new threshold applies to capital allowances for new cars and allowable expenses for all cars used in the course of a business. In addition, the existing car value threshold of £10,000, which applies in the case of capital allowances for second-hand cars, is also being increased to £17,000. A number of simplification measures will also be introduced. All these changes take effect in respect of cars bought and running expenses incurred in accounting periods (basis periods in the case of income tax), which end on or after 1 January.

CAT, CGT, Stamp Duty

26. Abolition of Probate Tax

The Bill confirms the abolition of Probate Tax in respect of deaths occurring on or after 6 December 2000.

27. CAT - Treatment of Foster Children for CAT purposes

The Bill provides that, as and from 6 December 2000, foster children will be treated the same way as other children for the purpose of CAT i.e. the Group I threshold of (£316,800 from 1 January last) will apply. In order to qualify for this equality of treatment, a fostered individual must have been cared for and maintained from a young age up to the age of eighteen for a successive period amounting to 5 years and must also have resided with the disponer (i.e. the foster parent(s)) for this period.

28. Capital Acquisitions Tax/Agricultural Relief - Allowing a longer period

Where an individual has obtained CAT agricultural relief on certain farmlands and these lands are subsequently acquired from the individual under a Compulsory Purchase Order (CPO) within 6 years of the transfer, the CAT relief given will be clawed back unless the lands involved are replaced within a specified time period. The Bill extends the period for replacement investment to 4 years (instead of just 1 year as at present) where farm lands are compulsorily acquired on or after 6 December 2000.

29. Capital Gains Tax relief for Compulsory Purchase Order for farmland

CGT rollover relief is available on farmland where the proceeds of the CPO for road-building or road-widening are reinvested in trading assets within a specified time period. The Bill extends the time period for such reinvestments from 1 year before and 3 years after the date of the disposal to 2 years before and 4 years after the date of disposal. These measures will apply to disposals on or after 6 December 2000.

30. Stamp Duty and Capital Gains Tax - Site transfers for residential purposes from a parent to a child

The Bill confirms that stamp duty and CGT will no longer apply on the transfer of a site from a parent to a child on or after 6 December 2000 provided it is for the construction of the child’s principal private residence and the market value of the site does not exceed £200,000. It will also be a condition that a parent can only transfer one site to each child for the purposes of this exemption. If such a site is subsequently sold by the child without the principal private residence having being constructed and lived in for 3 years, there will be a clawback of the CGT relief allowed on the transfer from the parent to the child except in the case of the death of the child.

31. Abolition of stamp duty on life assurance investment

The Bill provides that the 0.1% stamp duty on life assurance policies will be abolished in respect of policies taken out or varied on or after 1 January 2001. It will also provide for the abolition of the stamp duty (£1 per policy) on Critical Illness and Permanent Health Insurance Policies.

Indirect Taxation

32. Changes to VAT rate

The Bill confirms the reduction in the standard rate of VAT from 21 to 20 per cent with effect from 1 January 2001.

33. Farmer’s Flat rate VAT

The Bill confirms the increase in the flat rate farmers addition and corresponding livestock rate to 4.3 per cent with effect from 1 January 2001.

34. Excise Duty on unleaded petrol, auto diesel and tobacco products

The Bill confirms the Resolutions passed in the Dáil on Budget Night in relation to (a) the lowering of the excise duty on unleaded petrol and on diesel with effect from midnight on 6 December 2000 and (b) the increase, with effect from 1 January 2001, in the excise duty rate on tobacco products to offset the effect of the 1% VAT reduction.

35. Restriction of new lower excise duty rate for auto diesel to low sulphur diesel

The Bill provides for the confining of the lower rate of excise duty to low sulphur diesel. Under Council Directive 92/81/EEC, a derogation will be required necessitating an EU Commission proposal and unanimous agreement. The provision will be brought into effect by way of a Commencement Order.

36. December deferment arrangements for excise duty on alcoholic drinks

The present standard arrangement is that the excise duty on alcoholic beverages released from a bonded warehouse on to the home market must be paid to Revenue by the end of the next month. This applies to the January to November period. In the case of December releases, however, duty must be paid by the end of that month on deliveries up to and including 20 December. Duty on deliveries after 20 December are payable in January. The Bill does away with this advance payment in December and provides in future that all payments in respect of December must be made by the end of January.

37. VRT - Hybrid cars

The Bill provides for the refund of 50% of vehicle registration tax in respect of motor vehicles which are fitted with hybrid electric engines. The refund scheme will apply for a period of two years commencing on 1 January 2001.

 

Part 2 - Measures announced on 26 January

Income Tax, Corporation Tax and Tax Administration

38. Completion of Move to Tax Credits

The Bill replaces all fixed amount standard-rated allowances with an equivalent tax credit. To facilitate administration in the context of the move to tax credits, the Bill provides for the abolition of/amendment to income conditions attaching to various Income Tax reliefs. The Lone Parent Allowance and Incapacitated Child Allowance contain a condition whereby the amount of allowance tapers off if the relevant child has an income of his/her own above a prescribed level - the annual income levels are £720 and £2,100 respectively. The Bill provides for the abolition of these income conditions. The income conditions attaching to the Dependent Relative Allowance and the Home Carer’s Allowance will also be adapted to accommodate the tax credit system.

39. Calendar Tax Year

The income tax year and capital gains tax year will be aligned with the calendar year with effect from 1 January 2002. The Bill provides the legislative basis for this change and for a transitional tax period or "short tax year" running from 6 April 2001 to 31 December 2001.

The short tax year involves all allowances, credits, reliefs, thresholds, qualifying days etc. being reduced in that year to 74 per cent of their full year equivalents. There are very few exceptions to this general rule, the main one being the tax relief afforded to a widowed parent on the death of a spouse, which will be granted on a full year basis in the short tax year.

To coincide with the move to the calendar year, the Bill also provides for a common return filing and payment date of 31 October for those on the self assessment system. This means that, by that date, taxpayers will be required to have filed their tax return for the preceding tax year and paid any balance of income tax and capital gains tax for that year, having taken credit for preliminary tax already paid. They will also be required to have paid their preliminary tax for the current tax year. Given these new arrangements, it is proposed to allow a margin of error of up to £500 in relation to computational errors and provided the taxpayer has otherwise made a correct tax return and pays any shortfall by 31 December in that year, no interest or penalties will apply.

There will also be a number of consequential changes to the rules on payment of preliminary tax and, in addition, the rules on payment of preliminary tax by the direct debit method are being made more attractive. Finally, the Bill also makes consequential changes to the rules relating to commencement and cessation of trading and changes of accounting dates.

40. Conversion of Irish Pound amounts to convenient euro amounts

Amounts in tax legislation will be converted into convenient amounts in euro. This will generally involve smoothing amounts in favour of the taxpayer. Any amounts remaining in tax legislation expressed in Irish pounds because they apply to periods prior to 2002 will be read in euro, by conversion from pounds to euro, in accordance with EU law.

41. E-Filing of Tax Returns

As a central part of the e-Government initiative, legislation to permit electronic filing of tax returns was put in place in the Finance Act, 1999. The legislation was enacted before the Revenue Online System (ROS) was developed. The Bill provides a number of technical changes to the legislation to ensure that the law corresponds with the practical operation of ROS, which has now been established and is being brought into operation in phases. The Bill also extends these provisions to enable documentation other than returns to be provided under this system e.g. claims for medical expenses relief.

42. Electronic record-keeping

The Bill abolishes the requirement in direct tax and VAT law that electronic record-keeping systems be approved on a case-by-case basis by Revenue. Instead, Revenue will set out standards for such systems and the taxpayer will ensure that the system used complies with the published standards. This measure will reduce the burden of compliance on taxpayers and make electronic record-keeping a more accessible option.

43. Professional Services Withholding Tax

Section 523 of the Taxes Consolidation Act, 1997, requires that the public bodies ("accountable persons") specified in Schedule 13 to the Act deduct Professional Services Withholding Tax (PSWT) from payments made to persons providing them with professional services. The Bill adds a number of public bodies to the list of accountable persons.

44. Enterprise Trust successors

Section 88 of the Taxes Consolidation Act, 1997 provides that a company making a gift to the Enterprise Trust between 1 January 1992 and 31 December 2002 is entitled to treat the payment as tax deductible. That section also provided for corporate tax relief to be available to the ‘successor body’, as ‘approved by the Minister for Finance’. The Foundation for Investing in Communities is now taking over the role of Enterprise Trust. In strict legal terms, the Foundation is not the successor of the Trust because both will coexist for some time. Thus it is necessary to amend section 88. The amendment applies retrospectively from 1 August 2000, the date that the Foundation began its fund-raising. Donations made after 6 April 2001 will come within the new scheme for donations outlined in item no 77.

45. Building Societies: technical changes

The Bill amends the tax treatment of interest paid to, and received by, building societies so as to bring their treatment into line with banks in the following two instances:

to confirm the deductibility of certain interest paid by companies to building societies under section 243 of the Taxes Consolidation Act, 1997;

to exempt interest paid to or by building societies from interest withholding tax, as is already provided for banks under section 246. This relief is already granted by Revenue administrative concession and is now being put on a formal legislative footing.

46. Retirement Annuity Contracts - abolition of 5% cap on tax relieved contributions in the case of dependants

Section 785 Taxes Consolidation Act 1997 provides that where a person contributes to a contract for dependants or for life assurance, there is, within the overall limit of relief, a limit of 5% of net relevant earnings on the tax relief for these contributions. This means that the overall limit on tax relief, say 15%, is split: a limit of 5% of income for the contributions applies to the contract for dependants and the remaining 10% for contributions to the main retirement annuity contract (RAC). The contributions paid to the main RAC and the contributions paid to the contract for dependants are kept separate throughout the computation. There are particular complexities in the computation where relief for excess contributions paid is carried forward to future years. The Bill provides that the splitting of the overall tax relief in this way will be abolished. Individuals will still be free to contribute to a RAC for their dependants. Contributions to the contract for the dependants and contributions to the main RAC would simply be aggregated and subject to the overall tax relieved limit for contributions to retirement annuity contracts.

47. Pensions - PAYE and Annuity Payments

At present annuity payments under Retirement Annuity Contracts (RACs) are subject to the standard rate of withholding tax. The annuitant is obliged to complete a tax return and pay tax at the marginal rate. For ease of administration and to prevent any tax leakage, the Bill provides that RAC payments are subject to PAYE as is the case with payments from occupational pension schemes and Approved Retirement Fund (ARF) payments. This provision will apply from 1 January 2002.

48. Park and Ride: definition of qualifying commercial premises

Section 372W of the Taxes Consolidation Act 1997 will be amended to restrict qualifying commercial premises located at park and ride facilities for capital allowance purposes to those that provide local services only. This is to conform with requirements arising under EU state aid rules.

49. Living over the shop scheme

The Bill provides for a scheme of tax relief aimed at providing residential accommodation in the vacant space over commercial premises in the five cities, Dublin, Cork, Waterford, Limerick and Galway. The framework for the scheme provides for a range of tax incentives similar to those currently available under the Urban Renewal Scheme. These are 100 per cent relief in respect of refurbishment and necessary construction expenditure for owner occupiers and lessors of residential property. There is also relief for expenditure incurred on refurbishment and construction of the associated commercial property. To comply with EU State Aid rules, qualifying commercial services must be involved only in local services. The relief for commercial property will be conditional on the residential element being carried out and the eligible expenditure on the commercial element of a project cannot exceed the expenditure on the residential element. The reliefs will be applied to specific lengths of streetscape which are to be recommended by the Minister of the Environment and Local Government in the five cities covered following recommendation by the relevant Local Authority concerned and approval by a special panel of experts.

50. Multi-Storey Car Parks - Extension of qualifying deadline

Section 42 of the Finance Act 2000 provided that the capital allowances available under this scheme would apply to expenditure incurred in the construction or refurbishment of multi-storey car parks outside the Dublin and Cork metropolitan areas up to 31 December 2002 where 15 per cent of the total cost was incurred by 30 September 2000. A number of such projects experienced significant delays which made it impossible for this 30 September 2000 deadline to be met. An announcement was made on 26 September 2000 extending this 15 per cent cost deadline to 30 September 2001. The necessary provision are included in the Bill.

51. Technical items on Capital Allowances

A reference to "accounting period" in the milk quota capital allowance is being changed to "chargeable period" as only individuals are eligible. Other technical drafting changes are included in the Bill.

52. Collective funds - amendments

The Finance Act 2000 introduced a new system of taxation for collective funds. The new regime provides for an exit tax for resident unit holders. However the exit tax does not apply where the necessary non-resident declarations have been completed. The Bill includes a number of technical amendments to address problems identified since the new regime was introduced. This includes a provision that exchange gains/losses arising on the acquisition and disposal of units in a non-euro denominated fund crystallise for the unit holder for capital gains tax purposes at the time of disposal of the units. The Bill also contains provisions to allow certain exempt unit trusts within the new collective funds taxation regime. Investment restrictions for existing Special Investment Schemes are being removed as such schemes will be subject to the same rate of tax as other pre-January 2001 collective investment schemes, from 6 April 2001.

53. Life Assurance Investment

A number of adjustments are being made to the taxation arrangements for life assurance companies:

exit tax will not apply where the life assurance company pays out the investment proceeds to another life assurance company or collective fund,

charities who invest in life assurance companies will be exempted from the exit tax,

the formula used for calculation of the gains on partial encashment will be amended to ensure no overstatement of taxable gain,

gains arising on partial encashments when the investor is abroad, although not taxable, will be taken into account when calculating the gain on the final encashment where the investor has become an Irish resident,

non-resident declarations need only to be in hands of the company immediately before the pay-out rather than at point of sale,

the previous tax regime will continue to apply for Industrial Assurance business,

capital redemption business will be included within the new exit tax regime,

mutual life assurance companies will be taxed at the standard corporation tax rate on a measure of retained profits,

the non-availability of group trading losses against profits belonging to policy holders will be clarified,

the meaning of ‘disability’ for the purposes of the exit tax exemption will be clarified,

exit tax will not apply to assignment of policies in case of divorce,

existing exemption where policies are assigned for loan purposes will be tightened up,

investment restrictions for Special Investment Policies will be abolished.

These changes will take effect in most cases from 1 January 2001.

54. Deemed distribution treatment for certain interest payments to non-resident Group Companies

The Bill contains provisions amending section 452 of the Taxes Consolidation Act, 1997 to extend the scope of the section to include certain interest payments by companies liable to Irish corporation tax to companies resident in another EU Member State or in tax treaty countries which would, but for section 130(2)(d)(iv) of that Act, be treated as a deductible trading expense. It also puts certain Revenue administrative practices in relation to the tax deductibility of such interest payments to a company resident in a non-EU Member State or a non-tax treaty country on a legislative footing.

55. Residual Irish Income Tax liability on certain Eurobond interest

The Bill includes provisions amending section 198 of the Taxes Consolidation Act, 1997 to exempt certain Eurobond interest payments made by a company to a resident in another EU Member State or in a tax treaty country from any residual income tax liability.

56. Commission on private rented housing sector measures

The Bill provides for various tax incentives announced arising out of the recommendations of the Report of the Commission on the Private Rented Residential Sector.

It is proposed to extend the section 23 incentives on a targeted and limited basis, and for a limited period, to the provision of private rented accommodation for groups with priority housing needs. This will be included at the Committee Stage of the Bill.

Rollover relief for capital gains tax purposes will be made available to landlords where the proceeds of a sale of investment property providing rented residential accommodation are reinvested in such property. It will be a condition that the reinvestment property must contain at least as many residential units as the one disposed of, with a minimum of three units to apply in any event. There will also be provision for capital allowance over 7 years against rental income in respect of refurbishment expenditure. This will be included at the Committee Stage of the Bill.

The restriction of non-allowability of interest payments for tax purposes in respect of properties purchased on or after 5 January 2001 is being removed where all the following criteria are met;

The property had been converted from a single unit into multiple units of 3 or more prior to 1st October 1964 (i.e. when the 1963 planning legislation came into force)

The property consists of at least 3 units and the total number of units is not reduced below 50% of the number of units at the time of acquisition

At least 50% of the units in the property are available for letting to tenants in receipt of SWA assistance or any revised rent assistance arrangements which are put in place

The tax relief will apply to the tax liability on rental income only.

Entitlement to the above reliefs will be dependent on compliance with the applicable regulatory controls and to registering tenancies with the proposed Private Residential Tenancies Board.

57. Foreign Earnings Deduction - Amendment of definition of ‘day’ and insertion of expiry date

The Bill closes an existing loophole in the foreign earnings deduction relief by amending the definition of a day for the purposes of this relief. A condition for the relief is that the person must be absent from the State on at least 11 consecutive days.

The Bill clarifies that the definition of a day means a day throughout the whole of which an individual was absent from the State. This was the original intention of, and application of, the relief. This change will have effect on and from 26 January 2001.

The Bill also provides for an expiry date for the scheme of 31 December 2003, allowing for a review of the scheme before any extension is agreed.

58. Capital Allowances for Taxi Licences

As part of the Government’s policy in introducing the new regime for taxi licences, it was announced that the existing taxi licence owners as of the announcement date for the new regime (i.e. 21 November 2000) would be able to write off the actual cost to them of these licences as a capital allowance. The Bill provides:

• a write off period of 5 years in line with the new write off period for capital allowances for plant and machinery;
• the commencement of the write-off period for taxi-licences to be backdated for 3 years to 21 November 1997 or the commencement of trade whichever is the later;
• that the write off will be allowed against the trading income of the licence owner who drives a taxi and against both the trading and rental income only where one licensed vehicle driven by the licence owner is also rented out on a part-time basis.

CAT, CGT, Stamp Duty

59. Capital Acquisitions Tax - Amendments

The Bill provides for a number of amendments in the legislation on Capital Acquisitions Tax, most of which are drafting changes. More significant items are:

• Increased Joint Account limit in section 61 of the CAT Act 1976
• Extension of relief provided where a discretionary trust is wound up within 5 years.

60. Capital Acquisitions Tax - foreign owned works of art

At present, works of art which are lent to cultural institutions in the State by non-Irish resident individuals may be liable to CAT should the lender die during the period of the loan, as the asset would be situated in the State at the date of death. The Bill provides for an exemption for CAT purposes in such cases.

61. Stamp Duty on mortgages

The Bill provides for an increase in the stamp duty exemption threshold for mortgages from £20,000 to £200,000 to have effect for mortgage instruments executed on or after 26 January 2001. While mortgages represent almost half of all documents stamped each year by Revenue they account for a very small proportion of the tax revenue yield from all stamped deeds. The increase in the threshold will reduce the administration burden in Revenue and ease the compliance requirements for solicitors.

62. Stamp Duty - exemption from stamp duty for the National Building Agency on the acquisition of land for social and affordable housing

The Bill provides for a stamp duty exemption for the National Building Agency for land acquired for social and affordable housing. It will apply to land acquisitions finalised on or after 26 January 2001.

63. Stamp Duty - extension of time limit for completion of contracts signed before rate change

Under the Finance (No. 2) Act, 2000, investors who have a contract evidenced in writing before 15 June 2000 can avail of the previous stamp duty rates in existence prior to 15 June where the conveyance or lease is executed before 31 January 2001. This deadline is being extended to 31 July 2001 in the Bill.

Indirect Taxation

64. VAT: transposition of directive on fiscal representatives

The VAT Directive on fiscal representatives will come into force on 1 January 2002 and is being transposed into Irish law. The Directive abolishes the right of a Member State to impose a requirement for a VAT fiscal representative on a non-established person. This will require revocation of section 37 of the VAT Act, 1972 from that date. This section was a useful mechanism to encourage compliance for mobile foreign traders selling goods and non-established musicians/performers when they perform in Ireland. Alternative arrangements for these sectors will be considered for the next Finance Bill.

65. VAT treatment of toll roads following ECJ ruling

The European Court of Justice has ruled that existing tolled facilities (tolled roads and bridges) operated by the private sector in Ireland are subject to VAT. The VAT treatment of tolled facilities is being amended in the Bill and such tolls will be subject to the standard rate of 20 per cent from 1 July 2001.

66. Technical VAT changes

The Bill provides for a number of technical VAT changes as follows:

(i) Vat Treatment of Milk Quotas

The Bill amends the legislation to avoid uncertainty regarding the VAT treatment of milk quotas arising from changes in milk quota arrangements at EU level. It will provide for the VAT free transfer of milk quota between farmers in the context of an amendment to the rules with regard to the transfer of business generally.

(ii) Electronic Invoicing

The Bill does away with the requirement on traders to seek Revenue approval to use electronic invoicing, provided they meet the requirements set down in regulations.

(iii) Penalty for acquiring goods at the zero rate in another Member State by using a cancelled VAT number

A case has arisen where a person systematically used their own registration number after it had been cancelled to acquire goods in another Member State at the zero rate. When this was discovered the goods had been sold and could not be seized. The Bill provides, in addition to the existing sanctions, for a monetary penalty equal to the VAT evaded in this and similar situations.

(iv) Other Technical Items

There will be a number of changes to the VAT Act, 1972 to amend cross references, minor differences between national law and the Sixth Directive to make adjustments that have emerged as necessary during 2000.

67. Gaming/Amusement machines - technical amendments to definitions

Technical amendments are required to address problems which have come to Revenue’s attention where the definition of ‘premises’ and ‘public place’ do not appear to include educational institutions and colleges. The definition of ‘gaming machine’ as it stands may include so-called ‘crane type’ machines which Revenue has always treated as amusement machines. The definitions of gaming machines and of amusement machines need amendment to cater for these type of cases and related developments in the amusement and gaming areas.

68. Excise Consolidation and Modernisation Measures

As part of a process to modernise excise law, work is continuing to bring legal texts up to date. The Bill contains measures in respect of excise law applying to all the exciseable products. Existing provisions date back to the 19th century. Many of the provisions are now obsolete and in some areas confusion arises from the overlapping of successive ‘stand alone’ provisions. A Part in the Bill delivers a modern and more structured code of general rules which will provide greater clarity and simplicity of administration.

69. Licences - tax clearance for wine retailers off licence

The Bill extends the tax clearance requirement which applies to most excise licences to applicants for wine retailers’ off licences.

70. Increase in rate of excise duty on mineral oil licences

The Bill increases the rate of excise duty payable on mineral oil licences from £30 to £200. Such licences are required by persons who produce, sell, deliver or deal in mineral oils e.g, garages, central heating oil companies etc. The rate of £200 applies generally to other excise licences.

71. Licence for the National Concert Hall

The Bill provides for the application of the normal charge of £200 and standard tax clearance provisions to the National Concert Hall’s licence for the sale of liquor.

72. Increase in excise penalties for use of marked gas oil, other oil offences and other excise offences

The Bill includes a provision to increase the penalties - from £1,000 to £1,500 - on summary conviction, for certain offences in relation to tobacco and mineral oil. The primary objective of the changes is to provide for an increase in the penalty for using marked gas oil, commonly known as ‘green diesel’ as a propellant. This proposed increase was agreed late last year as part of the discussions under the ‘Programme of Action for the Road Haulage Industry’. The other increases are proposed for consistency of approach to avoid a proliferation of different penalty levels.

73. Tobacco prosecutions

The Bill amends the law to make it more difficult to seek to invoke certain exemptions from the requirement to pay excise duty or from the requirement to pay duty by means of tax stamps in the case of an offence such as the sale of unstamped tobacco products. It introduces a presumption in tobacco prosecutions that unstamped tobacco products are not exempt from excise duty or from the requirement to bear tax stamps.

74. Technical amendments in the Customs area

The Bill provides for:

• an increase in the penalty for summary offences from £1,000 to £1,500 in relation to charges for illegal importation of goods
• extension of the statutory time limit for commencing proceedings relating to indictable customs offences,
• removal of obligation to bring all customs seizures to the nearest customs house,
• deletion of section 172 of the Customs Consolidation Act 1876 which provides for forfeiture in areas which are, in effect, also covered by section 202 of the Act.

Part 3 - Further measures not previously announced

Income Tax, Corporation Tax and Tax Administration

75. New Savings Scheme

The Minister will put forward at Committee Stage of the Bill proposals for tax relief at the standard rate of 20% to encourage regular savings. Individuals may save up to £200 net per month for a five year period and the amount saved will receive a tax incentive which will be credited directly to the institution by the Revenue Commissioners i.e. the individual saves £200 per month and Revenue credits £50 to the account irrespective of tax liability. At the end of the five year period, or on death if earlier, the investment return (interest or capital gains depending on the product invested in) will be taxable at the normal savings exit tax of 23% and the capital (amount saved plus the tax credits) will be withdrawable tax free. If funds (either capital and/or investment return) are withdrawn within the five-year period they will be liable for an exit tax of 23%. Every person aged 18 or over will be permitted to have one such account at any one time. A person will be required to sign a declaration of tax residency and provide their PPSN (personal public service number) number when opening the account. The scheme will apply from 1 May 2001 and no new accounts can be opened after 30 April 2002. Further details of the proposal are set out in the Appendix.

76. Tax relief for Share Options

The tax treatment of share options is being changed. At present, income tax is payable on the difference between the price at which the option is granted and the market price of the shares when the option is exercised. There may also be a charge to capital gains tax on any gain when the shares are eventually sold. In future, capital gains tax at 20% will be payable on the difference between the price at which the option was granted and the price received when the shares are sold. No other tax charge will apply. Subject to certain conditions the new scheme will apply to share options granted on or after 15 February 2001. For a share option scheme to qualify for this tax treatment, it will, as with other employee share schemes, have to be approved by the Revenue Commissioners. Schemes must be open to all employees on similar terms. However, schemes may incorporate a key employee element which does not meet the similar terms condition provided at least 70% of the total amount of share options is made available to all employees. There will be a requirement for a retention period of at least three years between the time the option is granted and the time the shares are actually sold by the individual. There will be no limit on the amount of shares that can avail of the tax treatment. In considering proposals in this area, the Minister has also considered proposals for special tax treatment for payments under gainsharing schemes. While it has not proved possible to deal with the matter in this Finance Bill the Minister will seek to develop a viable option in this area for a future Finance Bill.

77. Tax relief for Donations

A new uniform tax relief scheme for donations is being introduced. This will involve merging almost all existing reliefs. The new relief will be available at a taxpayer’s marginal rate of tax for both personal and corporate donations. The minimum donation which can attract relief will be £250. There will be no upper limit on the total amount of relief afforded to individuals or companies. The relief will be available for donations to all beneficiaries under the existing schemes which are being merged (including third world charities) and will apply to charities which have tax exempt status for three years, first and second level schools and third level institutions. For ease of administration it is envisaged that the tax relief for most taxpayers will be paid by Revenue to the body receiving the donation rather than paid to the donor, while individuals on self assessment will claim the relief and companies will make the deductions as if the donation were a trading expense. The new scheme will represent an extension of the existing reliefs, for example, for personal donations to domestic charities and educational establishments.

78. Medical Insurance Relief for ancillary care

Having regard to a recommendation of the Government White Paper on Private Health Insurance, the Bill provides for the extension of tax relief for health insurance premia to cover premia for primary health care, including visits to general practitioners. Relief will be at the standard rate of tax. The criteria for eligibility of insurance products will be along the lines of those applying to unreimbursed medical expenses relief which excludes routine optical and dental treatment.

79. BIK for Childcare

With the aim of increasing the supply of childcare, the 1999 Finance Act introduced an exemption from benefit-in-kind tax for employer-provided childcare. Where the premises are made available by the employer jointly with other persons or made available by other persons on behalf of the employer, then the employer must be wholly or partly responsible for financing and managing the childcare service. To improve the operation of the scheme, the legislation is being amended to allow the exemption for employers who are involved in financing but not managing the facility. In such circumstances the exemption will be restricted to cases where the employer provides financial support for items of capital expenditure and equipment but not other costs. Where the employer is involved in the management of the facility, the current financing conditions will continue to apply.

80. ESOT and APSS legislation

The ESOT (Employee Share Option Trust) legislation is being amended as follows:

Where a beneficiary of an ESOT dies before shares have been transferred to an APSS (Approved Profit-Sharing Scheme) and have been appropriated, any distribution is subject to tax. The ESOT trust is now being allowed to give either shares, or cash if the shares are encumbered or the holding period has not expired, tax free to the estate of the deceased beneficiaries.

Subject to certain conditions, where a company buys back its shares, the shareholders are chargeable to capital gains tax rather than income tax on the proceeds. The conditions for qualifying for this beneficial tax treatment would normally apply to APSSs, but the shares must be held by the employees for 5 years. The holding period (for APSSs only) is being reduced to 3 years, so as to encourage the use of APSSs in private companies.

It is also proposed at Committee Stage to amend the ESOT legislation to ensure that, in the case of ICC Bank and TSB, following the sale of those bodies, any ESOTs established for the benefit of their staffs will be confined to those staff . Employees of the takeover companies will not be entitled to benefit from those ESOTS.

81. Tax collection measures

The Bill puts in place a number of measures intended to improve the tax collection system. The Finance Act 2000 included a provision to allow the Revenue Commissioners to offset a claim for a repayment of tax against outstanding liabilities where a taxpayer had failed to comply with his/her statutory obligations regarding the submission of returns and the payment of tax due. The Bill contains a provision to allow Revenue to refuse to repay a claim until any outstanding return has been submitted. The Bill also includes a technical amendment to put beyond doubt that a repayment may be offset against interest on overdue tax. The rules regarding the charging of interest in respect of employers PAYE and VAT are also being clarified.

The Bill standardises the arrangements for Revenue providing certificates of tax outstanding in court proceedings. These certificates are at present required to be provided by different Revenue officials (i.e. the Collector-General or the Inspector) depending on circumstances. The Bill standardises the procedures to enable the particular caseworker in a case to provide a single certificate covering all relevant matters.

The one month period that must elapse from the due date for payment of tax before attachment can be used is being reduced to 14 days. There are no time limits imposed for the use of any of the other enforcement options available to Revenue. This attachment power is intended to be used only for major cases.

82. Increase in Penalty for Summary Conviction for an offence

The Bill increases the maximum penalty of £1,000 for summary offences in section 1078 of the Taxes Consolidation Act, 1997 to £1,500, bringing the level of fine up to the maximum generally applying on conviction in the District Court for all offences.

83. Exit tax on certain Life Assurance Policies

At present certain categories of persons who are incapacitated and who have received compensation payments are, in certain circumstances, exempt from income tax on the investment income received from the investment of such payments. In the Finance Act, 1999, this income tax exemption was extended to include investment returns from off-shore funds from which tax is not deducted at source. It was not possible at that time to extend a similar exemption to holders of equivalent domestic life assurance and collective funds products as taxation applied at the level of the fund/life company. A new exit tax regime has now replaced this annual taxation in the case of new domestic life assurance/collective fund products and the same income tax exemption is now being extended to these products. For administrative reasons, however, tax will continue to be deducted by domestic life assurance companies/collective funds but will then be repaid by the Revenue Commissioners to the exempt individual if the individual satisfies the conditions of the relevant legislative provisions.

84. Exit Tax on Whole-of Life Policies

The Bill restricts the circumstances in which there is an exit tax exemption on the maturity of a life assurance policy on the death of a person. The imposition of an exit tax on payments from life policies was introduced in the Finance Act, 2000 and applies to policies issued on or after 1 January 2001. The exemption from the exit tax on death will continue to apply where under the terms of the policy, benefits are payable only on death. The restriction applies in respect of deaths occurring on or after 15 February.

85. Dividend Withholding Tax

The Bill provides for the extension of exemption from Dividend Withholding Tax (DWT) to a number of new categories of shareholders. For example, incapacitated individuals who are exempt from income tax in respect of the investment income from personal injury compensation payments. In addition, Irish resident subsidiary companies will be able to pay dividends free of DWT to their Irish resident parent companies, without the necessity of the parent company making a formal declaration to the subsidiary.

86. DIRT on tracker bonds

The Bill provides for a number of amendments in relation to the DIRT legislation. It clarifies the tax treatment of tracker bonds including ‘hybrid’ tracker bonds. Given the standard DIRT rate of 20% applying from 6 April next, the Bill also provides that no new Special Savings Accounts and Special Portfolio Investment Accounts can be opened after that date. A number of technical amendments are also being made in the Bill.

87. Ratchet loans

A ‘ratchet loan’ is a loan agreement where the rate of interest increases as profits deteriorate (as the lender’s funds are more at risk). Conversely, the rate of interest reduces as results of the borrower improve. Such loans are typically made to start-up companies with no previous earnings track record.

The Bill amends the legislation so that "ratchet loans" are not recategorised as a distribution for tax purposes. Generally, interest paid to lenders which varies according to the borrowing company’s results is treated as if it were a distribution of profits by the company. The amendment will allow the interest to be deducted as a trading expense. It will also take such payments outside the scope of dividend withholding tax.

88. Shipping - continuation of ringfence

Section 407 of the Taxes Consolidation Act 1997 prevented the set-off of losses or capital allowances arising out of a qualifying shipping trade taxed at 10% corporation tax against profits taxed at the higher standard rate. Furthermore, where a ship was leased for use in a 10% shipping trade, the capital allowances in respect of that ship could only be set against income arising under that lease and not against other leasing income. However, subject to certification by the Minister of the Marine and Natural Resources, capital allowances and losses could be offset against all leasing income in certain circumstances. These ringfencing provisions are being extended to 31 December 2002 in view of the application of the 12½% corporation tax rate to shipping from 1 January 2001.

89. The St Gobain case

Irish tax law is being amended following the decision of the European Court of Justice in the St. Gobain case in relation to double taxation relief and capital gains tax group relief. Changes are now being made so that an Irish branch of an EU resident company will be given the same credit against Irish tax for foreign tax suffered on the same income as would be given if the branch were an Irish resident company. Changes are also being made to allow an Irish Branch of an EU resident company which is a member of a group to transfer assets to another member of the group on a tax neutral basis. Each of the companies must be within the charge to Irish tax in respect of the transferred assets.

90. Foreign Income Relief

The Bill abolishes the exemption for dividends remitted to an Irish company from its foreign subsidiaries under section 222 of the Taxes Consolidation Act, 1997, unless the dividends were certified by the Minister for Finance before publication of the Bill. It also abolishes for new entrants the exemption for foreign branch income and gains tax under section 847 of that Act. These sections provide for relief or exemption from tax where such dividends are repatriated for specific investment purposes in the State, as certified in the case of section 222 by the Minister for Finance and, in the case of section 847, for the foreign branch income or gains as certified by the Minister for Finance in consultation with the Minister for Enterprise, Trade and Employment. These reliefs are seen as no longer necessary for new investment in current economic conditions.

91. Capital Allowances - water treatment

In line with international practice and emerging EU policy, Ireland is moving towards making the full cost of water and waste water services to all sectors transparent, and securing the full cost recovery in the case of non-domestic users. To facilitate this new policy framework the Bill amends existing legislation so as to provide for standard capital allowances to be available for non-domestic users who make capital contributions towards water supply infrastructural capacity provided by local authorities.

92. Capital allowances for third level institutions

Section 843 provides for capital allowances to be available for expenditure on certain buildings used for the purposes of third level education. The Bill contains an amendment so that capital expenditure on certain sports facilities associated with third level educational institutions can also benefit from these capital allowances.

93. Capital Allowances on Milk Quotas

The normal restrictive provisions regarding transactions between connected persons are being relaxed in the case of eligibility for the capital allowances on the purchase of a milk quota from a connected person, where the lease agreement for the quota between the lessor and the lessee was signed prior to 13 October, 1999, in view of the limited risk of tax avoidance in such cases, where the contracts have already been entered into.

94. Petroleum Tax amendment

Section 13 of the Taxes Consolidation Act 1997 imposes a charge to tax on income and gains from exploration or exploitation activities carried on in the State’s area of the Continental Shelf and from dealing in rights arising from such activities. Where a licence holder under the Petroleum and Other Minerals Development Act, 1960 employs another person to carry out exploration and exploitation activities on the licence holder's behalf, the licence holder will be treated as the agent of the other person for tax purposes. It has come to light that as the section is currently drafted a petroleum lease granted under the Petroleum and Other Minerals Development Act 1960 may not be covered by this agency treatment. In order to ensure against any tax avoidance, the Bill contains an amendment so as to cover a lease under the 1960 Act.

95. Eircom Securities

The Bill ends the tax and stamp duty reliefs for securities issued by Bord Telecom Eireann (now Eircom) and Irish Telecommunications Investments plc in the Taxes Consolidation Act, 1997 and the Stamp Duties Consolidation Act, 1999, arising from the privatisation of Eircom.

96. Rural Renewal Scheme - Extension of floor area sizes

The Bill provides for an extension to the upper limits on the total floor area for qualifying houses under the Rural Renewal Scheme where an individual or company claims tax relief in respect of the qualifying expenditure on the construction, refurbishment or conversion of a house for rental purposes. The floor area limit is being extended from 140 square metres in the case of construction to 175 square metres and in the case of refurbishment or conversion, from 150 square metres to 175 square metres.

CAT, CGT, Stamp Duty

97. CAT - Amendment of exempt securities exemption

Irish Government securities are exempt from CAT where the disponer and beneficiary are neither domiciled nor ordinarily resident in the State. If the disponer is domiciled and ordinarily resident in Ireland, the securities must be held for 3 years prior to the gift/inheritance in order to obtain the CAT exemption. The Bill extends this 3 year time period to 6 years to reduce the opportunity for tax planning in this area.

98. CAT - Elimination of Multiple Charges

When a reversionary interest (i.e. an interest arising on the death of a life tenant) comes into effect (i.e. on the death of the life tenant) there may be several simultaneous charges to CAT as a result of previous events. The Finance Act 1985 allows a set off in such circumstances so that there is in effect only one charge to CAT in such cases. There is an existing provision in relation to CAT agricultural relief in such cases whereby if agricultural relief is applicable when the reversionary interest comes into effect, the relief will also be allowed on the other charges to CAT as a result of previous deaths. The Bill extends this provision to CAT business relief and the CAT ‘Dwelling House’ relief.

99. Various other CAT Amendments

The Bill amends CAT business relief to allow the relief to apply in the case of businesses which are carried on either within or outside the State. The change acknowledges the increased overseas diversification of Irish businesses since the relief was introduced in 1994. The Bill also extends the CAT exemption which currently applies to IFSC/Shannon certified collective funds to funds established under the Finance Act, 2000, provided both the disponer and the donee or successor are not domiciled or ordinarily resident in the State. A number of changes are also being made to section 18 of the CAT Act 1976 consequent on the change made in the Finance Act, 2000, to the basis on which tax is charged on assets situated outside the State.

100. CGT @ 60% on development land

There is provision for a 60% CGT rate to apply to disposals on or after 6 April 2002 of development land which is zoned residential with a 20% CGT rate to apply to disposals of all other assets. The provision for this 60% rate was introduced following the recommendation of the first Bacon Report on Housing and was designed to act as a ‘stick’ approach to increase the supply of residential development land for housing. The Bill deletes this provision.

101. Stamp Duty/ASPT - Extension of relief in cases of marriage break-up

The Finance (No 2) Act 2000 provides for particular reliefs from stamp duty on first-time house purchase and exemptions from the 2% anti-speculative property tax in the case of second homes, on certain conditions, where the second home is acquired following a marriage break-up under a decree of divorce or a judicial separation. The Bill extends these provisions to circumstances where there is a deed of separation or a decree of nullity of a marriage. The Minister agreed to consider an extension to such cases when the Finance (No. 2) Bill, 2000 was being passed by the Dáil.

102. Anti-speculative property tax - amendments

The Bill provides for a number of small amendments in relation to the anti-speculative property tax. The Bill amends the definition of residential property for the tax so as to provide relief for property purchased for letting purposes shortly before a valuation date. The Bill also contains an amendment to allow an exemption from the tax for certain limited interests in the property concerned.

103. Stamp Duty Exemption for Voluntary and Co-operative Housing Bodies

A stamp duty exemption is being provided for approved voluntary and co-operative housing bodies for land acquisition coming within the ambit of the Housing Acts. Those voluntary bodies which are not registered charities are at present liable to pay stamp duty at 9%.

104. Other Stamp Duty Amendments

The Bill makes a number of stamp duty technical amendments including an amendment to the clawback provisions in relation to the inter-company relief. This relief exempts from stamp duty transfers of shares, property and policies of life insurance between associated bodies corporate where the transferor and transferee companies are 90% associated. The Bill also corrects a small drafting error in relation to the stamp duty first time buyer relief.

Indirect Taxation

105. VAT on educational research

The services provided by educational bodies are in general exempt from VAT. Arising from an approach from the EU Commission, the Bill applies VAT at the standard rate to research provided for a fee by educational institutions, or research bodies. This will help to ensure a level playing field in tendering for research services. This amendment will also enable Irish research bodies to reclaim VAT on taxable services provided under EU and other research programmes.

106. VAT on Insurance Agents

The services supplied by insurance companies and related services by insurance agents are not subject to VAT. The Bill provides for this exemption to apply to loss adjusters and to claims handling services when they are acting as an insurance agent on behalf of an insurance company.

107. VRT on 4x4 Vehicles

The Bill amends the rules governing the classification for VRT purposes of certain vehicles, mainly jeep-derived and car-derived vans, to ensure greater evenness of treatment of such vans classified under category B of VRT, taxable at 13.3% of the open market selling price. Car-derived vans, jeep-derived vans and other vans which have a gross vehicle weight (GVW) below 2,520 kilograms or a wheelbase below 2,450 metres will be classified as category B. Thus, for such a vehicle to be classified as category C, the vehicle must exceed both of these thresholds. Small vans below 1,400 kilograms unladen weight that have a cargo area load volume exceeding 2m³ will be classified as category C regardless of whether they meet the new GVW or wheelbase thresholds. A crew cab will be classified as a category C vehicle if the cargo area length of such a vehicle equals or exceeds 45% of the wheelbase or if its GVW equals or exceeds 2,520 kgs. No change is being proposed for the VRT treatment of motor caravans and larger panel vans.

108. Licences - tax clearance for beer retailers’ off licence

The Bill extends the tax clearance requirement which applies to most excise licences to applicants for beer retailers’ off licences

109. Forfeiture of Ships involved in smuggling

The Bill repeals the Customs Consolidation Act, 1876, Amendment Act, 1890. This repeal provides that all ships involved in smuggling, irrespective of their tonnage, may be subject to forfeiture.

110. Passenger Services Road Fuel

The Bill makes two amendments to clarify the position in relation to the scope of the excise duty relief for fuel used in passenger road services and will close two possible loopholes.

Technical Amendments

111. Definition of Sub-contractors

The Bill amends the legislation relating to the Relevant Contracts Tax system for sub-contractors to clarify the meaning of the terms of "certified sub-contractor" and "uncertified sub-contractor".

112. Interest paid as a charge on income

This measure provides for a technical amendment to ensure that interest which would otherwise meet the criteria to be classified as a charge on income will be allowable in cases where: (i) the interest is paid gross to a non-resident bank which has a branch in the State, or (ii) the interest on a quoted eurobond is paid gross.

113. Incorrect Cross Reference in Section 372M

Section 372M which provides accelerated capital allowances for industrial buildings under the Rural Renewal Scheme applies, in subsection (3), the provision of section 273. Paragraph (b) of that subsection makes a reference to "paragraph (i)" of section 273(2) whereas the reference should be to "paragraph (b)". The Bill will correct this reference.

114. Withholding Tax on interest paid by Collective Funds

This technical amendment extends the interest withholding tax exemption which currently applies to IFSC collective funds, to funds coming within the taxation regime provided for in the Finance Act 2000.

115. Excise Duty on Fuel held in vehicle tanks

The Bill clarifies that relief from tax applies at importation to oil contained in the fuel tanks of vehicles such as dumpers, mobile cranes, trains etc. as well as oil contained in the standard tank of a motor vehicle. The Bill also provides excise duty relief on oil used by manufacturers in the production of mineral oil itself. This existing relief was not carried through in the consolidated mineral oil tax chapter of the Finance Act, 1999.

116. Excise Duty payable on Firearm Certificates issued to non-residents

The Bill makes a technical amendment to ensure that excise duties payable on firearms certificates will apply to such certificates issued to non-residents.

 

Appendix on New Savings Scheme

Proposed Savings Scheme

Special Savings Incentive

The Minister will propose a new savings scheme at the Committee Stage of the Finance Bill 2001. Its principal objective will be to encourage regular savings by individuals. The main features of the scheme will be as follows:

For every amount saved in the scheme, the Exchequer will contribute to the individual saver’s account an additional 25% of that amount. This is equivalent to giving tax relief on savings at the standard rate of income tax.

Income or gains from the savings investment will be taxed at 23% and this will be deducted by the participating financial institutions at the end of the five years.

The scheme will commence on 1 May 2001 and accounts must be opened before 30 April 2002 to benefit. The Exchequer contribution will apply for a five year period only.

Every individual, who is resident in the State and 18 years of age or over, can save in one of these accounts. This is so whether an individual is married/unmarried, employed/unemployed, or working outside the home/working in the home. Each individual will be allowed only one account and on opening the account will be required to supply his or her PPSN (personal public service number) to the financial institution concerned.

The maximum amount that an individual can lodge to an account in any one month will be £200, and the Exchequer’s contribution to the account will be £50 for each £200 lodged. The minimum amount which must be saved by an individual in any one month, in the first year of an account, will be £10, though an individual may save up to £200 maximum in any month. After the first year an individual may save any amount in a month up to £200 over the remaining 4 year period.

Special saving incentive accounts will be managed, on behalf of an individual saver, by a range of bodies such as banks, building societies, credit unions, life assurance companies and fund managers. Exchequer contributions to each account will be sent directly to the account manager and added to the savings in the account. The Government will not be operating or guaranteeing the account or the return under them - this will be a matter between an individual and an account manager. It will be a matter for each individual to assess any level of risk they wish to undertake.

It will be possible for an individual to transfer a special saving incentive account from one investment manager to another during the five years.

An account can comprise investments in deposits, quoted shares, government securities, collective funds or life assurance products, as determined by the account manager.

To obtain the maximum benefit from the savings in the scheme, the savings must be left for the full term which is five years. Where that is the case, tax at 23% will apply only to the difference between the total value of the assets at that point in the account less the amounts invested together with the Exchequer contribution. That means that only the income or gains generated by the investment of all moneys lodged in the account will be liable to tax. This will be deducted at the end of the five year period whether the funds are withdrawn from savings or not at that point.

However, if there is an earlier withdrawal from an account (other than on death), the full amount withdrawn (both the savings and investment return) will suffer tax at 23%.

An account cannot be used as security for a loan.

The following sets out some examples of possible benefits. It should be noted that returns are just an assumption for the example; it will be a matter between the financial institution what return or gain is involved.

Example 1:

Joe opens an account with his preferred account manager and decides to save £50 a month for the five year period. Joe will save £3000 over the five year period and the Exchequer will contribute a further £750. If the return on investment is assumed to be 4% per annum the return on this £3,750 saved over a period would be of the order of £390 which would be taxed at 23% leaving a net gain of £300. Thus Joe would have £4,050 at the end of the five year period for £3,000 saved, a gain of £1,050 after tax.

Example 2:

Anne decides to open an account and save the maximum of £200 per month. She will save £12,000 over the five year period and the Exchequer will contribute £3000. Again assuming a 4% return the gain on this £15,000 would be £1,564 which would be taxed at 23% leaving a net gain of £1,204. Thus Anne would have £16,204 at the end of the five year period, a gain of £4,204 after tax.

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15 February 2001Finance Bill 2001 explanatory memo