Finance Bill Overall comments

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Finance Bill 2020: overall comments from Head of Tax Lorraine Griffin

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In his Budget speech delivered on 13th October 2020, the Minister for Finance announced the single largest budgetary package in the history of the State. In light of the ongoing challenges presented by Brexit and the COVID-19 pandemic, the size and scale of Government response is unprecedented. Alongside the funding measures announced, the Minister also introduced a net tax package of €270million. Finance Bill 2020, published on 22 October 2020, provides the legislative basis for such tax measures.

It is unsurprising therefore that the measures contained in Finance Bill 2020 reflect the key themes of resilience and recovery alluded to by the Minister on Budget Day, with a particular focus on the international tax agenda, supports for business and environmental concerns.

The Bill includes measures such as:

  • A range of measures to support Small and Medium Enterprises (SMEs) including revisions to the existing capital gains tax (CGT) entrepreneur relief and the introduction of the new COVID Restrictions Support Scheme (“CRSS”) to provide targeted support for businesses impacted by COVID19 restrictions. 
  • Tax measures to address climate change including an increase in carbon tax. 
  • Relatively limited personal tax changes, reflective of the Minister’s speech regarding personal tax rates and rate bands, primarily focused on the Universal Social Charge.
  • Measures to support and enhance Ireland’s “knowledge economy”, through a two year extension of the Knowledge Development Box regime. 
  • Amendments to Ireland’s intangibles tax regime (s.291A), such that assets qualifying for the IP tax depreciation regime, and acquired on or after 14th October 2020, will now fall fully within the capital allowances clawback regime. The position whereby a clawback of prior tax depreciation claimed did not arise once the IP assets had been held for more than 5 years has been withdrawn. 
  • Extension of the duration of the enhanced Help to Buy scheme until the end of 2021, previously introduced as a temporary measure. Reduction of the VAT rate relating to supplies in the tourism and hospitality industry (including entertainment services) from 13.5% to 9%, as announced on Budget Day.

In the prior year, Finance Act 2019 provided for the adoption of anti-hybrid rules. The anti-hybrid rules, required under the EU Anti-Tax Avoidance Directive, are complex in nature, and practical application of the rules can be challenging. Notwithstanding an extensive period of consultation in 2019 on the provisions, the complex nature of the rules has necessitated amendments introduced by Finance Bill 2020 to clarify operational aspects of the law.

A similar approach is evident with respect to the revised Irish transfer pricing regime, applicable from 1 January 2020. Finance Bill 2020 provides for additional amendments to the transfer pricing provisions and EU Mandatory Disclosure rules, to ensure that certain aspects of the legislation operate as intended.

Notably absent from the Finance Bill 2020 was any reference to interest restriction rules required as part of the EU Anti-Tax Avoidance Directive. Per the Minister’s speech on Budget Day, such rules are expected to be introduced by 1 January 2022.

Our view

Finance Bill 2020 is reflective of the policy decisions outlined by the Minister in his speech on Budget Day, and adopts the key themes of resilience and prudence in fiscal matters. Government focus is correctly on measures to protect lives and livelihoods, and this is not a time for austerity. These priorities have been generally reflected in the approach to tax measures adopted in Finance Bill 2020. The deferral of new rules to restrict tax relief for interest expense is welcome, given the potential impact on the cost of borrowing for business.

The enhancements to CGT entrepreneur relief and the introduction of the CRSS are particularly welcome in light of the challenges faced by SMEs due to the COVID19 pandemic, and reflect previous policy decisions to support such sectors. Equally, the reduction in the VAT rate for hospitality related sectors is an important measure to support key sectors of the economy.

In terms of the tax measures to encourage investment and employment, the enhancements contained in Finance Bill 2020 are welcome developments. There are also positive policy soundings on looking at further enhancements that can be made to investment incentives and the development of a digital gaming credit incentive. However, in light of the continuing high marginal tax rate faced by individuals, the taxation of work will remain a key policy area that will require focus in the years ahead.

For further details on the above and other new measures included in Finance Bill 2020, 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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