Finance Bill 2017
There have been a number of financial services companies that have announced that they intend to locate in Ireland or expand operations, those companies include JP Morgan, Bank of America, Barclays, TD Bank, Beazley, Chaucer, Standard Life and Legal & General. However the competition is fierce and there have been a number of high profile financial services groups that have chosen other European locations such as Frankfurt, Paris or Luxembourg. While at this stage many companies have made their decision on where they intend to locate, there are a number of companies that are still considering the matter. Also international tax changes in the context of BEPS (including transfer pricing) and the ATAD mean that now more so than ever there is an increased focus on having the appropriate people and substance located in country. Therefore it is important that Ireland’s tax strategy is formulated so that the regime is competitive and provides incentives for businesses to locate in Ireland.
Businesses require as much as is possible stability and certainty in tax policy and therefore while there may not be significant room, given budgetary constraints, to introduce new incentives, at a minimum we should be aiming to maintain those principles.
Last year’s Finance Act introduced new legislation broadly to provide for a level of taxation on funds (Irish Real Estate Funds) and s110 companies whose assets derive value from Irish land and buildings. This year’s Finance Bill includes a number of 'tidy up' amendments to the Irish real estate funds legislation including amending the definition of instances in which an IREF is not required to withhold tax including in the case of ARFs, AMRFs and PRSAs. Advance clearance procedures are introduced for situations where a refund of tax withheld would be made and the Finance Bill provides for MiFiD regulated intermediaries to make a declaration on behalf of pension funds, charities and credit unions. It is also proposed that funds may have to provide their financial statements in electronic format to revenue, this change would be introduced on a phased basis. The s110 changes which were introduced last year in respect of certain assets including loans which derive their value from Irish land or buildings have been extended in this year’s Finance Bill to shares which derive their value from Irish land or buildings.
In a welcome move the definition of a capital gains tax group has been extended to companies which are resident in double tax treaty countries and now broadly brings the definition in line with the existing definition which applies for group loss relief purposes.
In respect of companies claiming interest as a charge, the position where there are a number of holding companies is clarified in this year’s Finance Bill. Amendments are included to extend the interest relief to instances where a loan is used to acquire shares in, or in certain circumstances, lend to a holding company that indirectly holds ordinary shares in a trading company, through one or more intermediate holding companies. This is an amendment that has been lobbied for extensively and it is positive to see the position clarified as a result of this legislation.
Companies have over the last number of years and will continue to have to contend with changing accounting standards and how those new accounting standards will impact their corporation tax liability. Legislation is to be introduced to address the tax impact of changing accounting policies, accounting standards and the correction of errors. In the case of a change in accounting policy, standards or error the retrospective effect of the change will be taxable or deductible to the extent it has not otherwise been brought into account. In the case of a change in accounting standards the change will be spread over a 5 year period.
Legislation is also proposed in respect of foreign tax credit relief for Life Assurance Companies. In a move which reflects Revenues current view, it is proposed that foreign tax credit relief will not be available for a life assurance company if the foreign tax is suffered on income that forms part of the policyholder business.
As expected the first step to give effect in Irish law to the Multilateral Instrument, which will broadly introduce amendments to give effect to a number of BEPS measures, is also included in the Finance Bill. The amendment will allow for an Order to be made to give legal effect to the Multilateral Instrument.
In the main this year’s Finance Bill includes a number of 'tidy up' amendments however there are some welcome changes particularly in the context of the extension of the definition of capital gains tax groups and the amendments to the interest as a charge provisions.
Given budgetary constraints the room for the government and department of finance to introduce significant change in this year’s Finance Bill is restricted. However from an 'Ireland inc' perspective we must always be cognisant that when companies are considering relocating, for example from the UK or alternatively where they are considering new investment or expansion, countries are compared across a matrix under a number of different factors. That matrix generally assesses countries across a number of different factors. Regulation, the regulatory regime and the local regulators approach is often a critical factor for financial services companies when they make a decision on where to locate. Other factors are also important including tax and therefore it is important that the government is constantly monitoring how Ireland scores on the matrix of relevant factors, when compared with the other competing countries and whether there is more we can do or what changes should be considered in respect of the factors where we don’t score as well as we should.