Financial Services has been saved
The preparation of Budget 2021 has been undertaken in a background of extraordinary circumstances – Covid and Brexit are context and we are in unprecedented times. As the Country adjusts to its new normal, the focus has been on public expenditure and providing supports to those in society and business who are most challenged by the pandemic and the threat of a no-deal Brexit. Unsurprisingly, this has resulted in little or no meaningful changes in the Budget announcement today which impacts the financial services sector and it broadly remains “business as usual”.
The Minister noted the continued work to transpose EU ATAD into Irish law would continue into next year. The financial services industry would hope that the timeline for the transposition of the ATAD Interest Limitation provision into our law will be as previously outlined in the Tax Strategy papers, with the rules becoming effective 1 January 2022. In addition the Minister referred to the fact that the anti-reverse hybrid rules of ATAD will also likely be legislated for next year, with an effective date of 1 January 2022.
Updates to the corporation tax roadmap are to be released by the Department of Finance. It will be interesting to see if there will be specific measures tailored for the financial services industry within that exercise. Timing on this publication remains unclear, particularly in light of the very recently released OECD BEPS Inclusive Framework reports.
Remote working arrangements have impacted the employees of financial services companies and will continue to do so. It was encouraging to hear the Minister outline plans for the establishment of an inter department group to develop a strategy for remote working and remote service delivery.
The Minister referenced a technical amendment to the Exit Tax rules introduced as part of the EU ATAD and the financial resolution clarifies how interest will be charged on unpaid tax which is due and payable under the provision.
Furthermore amendments were made, via financial resolution, to S.541 TCA 1997 to counteract scenarios whereby a chargeable gain/allowable loss may have been created as a result of the transfer of non-Euro denominated sums between bank accounts of the same account holder.
Who will be affected?
The measures announced in the budget today should not have an immediate material impact on the financial services sector.
When? What to do now?
Acknowledging the continued transposition of the EU ATAD into law during the course of next year is positive, particularly in respect of interest limitation rules. If the timing as recommended in the recent Tax Strategy Group papers is followed, it will be important that financial services industry participants not only engage in the consultation process but also use this time to quantify the impact that such rules may have on their operations and respond accordingly.
The Government’s continued commitment to Ireland’s 12.5% rate remains an important message. In time of uncertainty, maintaining stability with respect to our headline rate of corporation tax is crucial.
Reference to the timing of the introduction of the EU ATAD interest limitation rules is welcome. It has been proposed by the Tax Strategy Group that a detailed Feedback Statement for consultation with stakeholders takes place on this matter by the end of 2020. This would allow for an iterative consultation process to take place in the first half of 2021, with the final legislation to be introduced in Finance Bill 2021, to take effect from 1 January 2022.
There may have been an opportunity to enhance the attractiveness of Ireland as a location for ESG investment and investment management by offering some targeted initiatives however the Budget did not address this area, with climate change agenda amendments focussed on increased carbon taxes and VRT.
The Finance Bill will provide a first look at any further legislative changes that have not been announced in the Budget today.