Finance Bill Overall comments

Perspectives

Overall comments on Finance Bill 2021 from Head of Tax Lorraine Griffin

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In his Budget speech delivered on 12 October 2021, the Minister for Finance highlighted the dramatic impact of the COVID19 pandemic experienced in 2020. However, he also recognised that as restrictions have eased, we have seen better economic indicators than in prior years and an improvement in public finances driven by recovery in taxation receipts. 

The focus is now on building sustainable growth for the future both in terms of inward investment and domestic business. This is combined with a focus on supporting vulnerable businesses and addressing the cost of living pressures
(protecting the most vulnerable), as society and the economy reopens further. Alongside the funding measures announced in Budget 2022, the Minister also announced a net tax package of €500million. Finance Bill 2021, published on 21 October 2021, provides the legislative basis for such tax measures.

The measures contained in Finance Bill 2021 allude to the key challenges outlined by the Minister on 12 October 2021, in particular the focus on inflation and the rising cost of living, the housing crisis and the ever-present focus on climate change and sustainability. While the recent developments on international tax reform agreed to by Ireland on 8 October 2021 will take some time and therefore are not reflected in this year’s Finance Bill, other
measures on corporation tax are reflective of the need to create a sustainable
and innovative environment for business growth and to ensure Ireland remains
competitive for both inward and indigenous investment.

The Bill includes key measures such as:  

  • The introduction of interest limitation rules as required by the EU Anti-Tax Avoidance Directive which will act to limit corporation tax relief on net interest expenses of companies to 30% of EBITDA (subject to specific group and equity ratio provisions and other exclusions).
  • Amendments to the Employment Investment Incentive scheme to allow for more flexible access to funding for early stage Irish businesses.
  • Tax measures to address climate change including an increase in carbon tax.
  • Amendments to the income tax regime rate bands and credits in recognition of the recent inflationary pressures experienced by employees and self-employed workers alike.  
  • The introduction of relief for investment in digital games to allow for a corporation tax credit for companies engaged in the development of digital games, calculated as a percentage of qualifying expenditure.
  • The introduction of a Residential Zoned Land Tax to encourage the use of land for residential construction.
  • The extension of the Help to Buy scheme until the end of 2022 at current rates, reflective of the continued pressure on first time buyers in their search for a home. Effective from 1 January 2022, companies not resident in the State that are in receipt of Irish sourced rental income (Non Resident Landlords) will be subject to corporation tax at a rate of 25%.
  • Provisions for the application of an OECD-developed mechanism (the “authorised OECD approach”) for the attribution of income to a branch of a non-resident company operating in the State. This is to be done in line with the OECD guidance and the amendments specify that there are additional documentation requirements, as well as penalties.

In prior years, Finance Acts 2019 and 2020 provided for revised transfer pricing provisions to be introduced into Irish law. Finance Bill 2021 provides for additional amendments to the existing provisions to clarify the operation of specific exemptions relating to certain domestic Irish arrangements. As is usual in Finance Bills, a number of provisions additional to those in the Budget have been brought about; an example being the bringing about of parity of treatment between resident and non-resident landlords in receipt of Irish rental income.  

Our view

Finance Bill 2021 is reflective of the policy decisions outlined  by the
Minister in his speech on Budget Day and adopts an approach of prudence which has been a hallmark of Government since before the COVID19 pandemic.

The enhancements to the Employment Investment Incentive scheme are a welcome development for the Irish business community, particularly early stage companies who may not have the same level of access to debt funding and investment as more established players in the market. The Minister’s speech noted that positive changes have been made in recent years, but the scheme has yet to reach its full potential. We would be hopeful that the latest changes will act to move the dial in this regard.

Apart from the provisions relating to the EU’s Anti-Tax Avoidance directive, absent from the Finance Bill 2021 were any changes relating to the international tax framework. This is not surprising, as technical work relating to the OECD Pillar 1 and 2 is expected to take place at a rapid pace between now and the end of the year with a view to formal implementation and detailed rules dominating the tax landscape in 2022 and beyond. We may, however, see changes (where agreed) in future Finance Bills, and will be watching these developments with interest.

For further details on the above and other new measures included in Finance Bill 2021, we invite you to view our articles and commentary analysing the Bill on our website.

If you have any questions on what the Finance Bill means for you, your business or your family, please do not hesitate to speak with your usual Deloitte tax adviser or any member of the Deloitte tax team.

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