Overall comments on Finance Bill 2022 from Head of Tax Lorraine Griffin

In his Budget speech delivered on 27 September 2022, the Minister for Finance highlighted the impact of unforeseen risks and challenges such as Brexit, COVID19 and the war in Ukraine, on the Irish economy. Such factors have led to high inflation, particularly energy price inflation, compounded by the imbalance between demand and supply that emerged as the economy reopened after COVID19.

The Minister recognised that while the pace of economic growth is expected to slow, there is a solid foundation underpinning the Irish economy, built on a resilient labour market with low numbers of unemployment overall. The focus is now on building sustainable growth and preparing for the challenges we will face in the future. Budget 2023 was referred to as a “Cost of Living Budget”, with Finance Bill 2022 introducing the key provisions announced by the Minister for Finance on 27 September. The Finance Bill measures reflect the Government’s priority focus on supporting businesses experiencing high energy costs and addressing the rising cost of living for households.

The measures contained in Finance Bill 2022 are reflective of the key challenges outlined by the Minister, in particular the focus on inflation
and the rising cost of living, the housing crisis, as well as climate change
and sustainability.

In terms of the international tax reform agenda, specifically the OECD Pillar I and Pillar II proposals, work is still ongoing on these measures at a global and EU level. Therefore, as expected, the Finance Bill 2022 does not contain any measures to reflect adoption of the proposed new rules. However, there have been some changes to the Research and Development Tax Credit and the Knowledge Development Box to reflect the imminent introduction of the global minimum tax rules under Pillar II.  For the most part, the remaining measures in the Finance Bill are reflective of the need to create a sustainable and innovative environment for business growth while ensuring that taxpayers take home pay remains stable in the face of rising inflation.

The Bill includes key measures such as:

• The extension of the Help to Buy scheme for a further two years   
• Increases to the standard income tax rate band and a number of tax
  credits, with effect from 1 January 2023·      
• The introduction of a new income tax credit in respect of rental
  payments. This credit will apply in relation for 2022 to 2025 inclusive, equal to the lesser of 20% of the qualifying payment made or €500 (€1,000 in the case of a jointly assessed couple)     
• The extension of the Special Assignee Relief Programme (SARP) to
  31 December 2025. In addition, a relevant employee who first arrives in the State on or after 1 January 2023 will require a minimum annualised relevant income of €100,000 to benefit from the relief. 
• The introduction of a new reporting requirement for employers, subject to a commencement order. The Finance Bill proposes an automatic requirement for an employer to report the following non-taxable benefits: the remote working allowance of €3.20 per day, the small benefits exemption and non-taxable travel and subsistence expenses. The Finance Bill summary states that the reporting of such benefits will align to the existing mechanisms used for payroll purposes and that the section is subject to a commencement order to allow for stakeholder engagement on the measure.
• The introduction of the Temporary Energy Business Support Scheme, in particular clarifying that eligibility for relief will be calculated using a deemed unit price up to a monthly cap of €10,000 or €30,000 where business operates in more than one location and have multiple meter point reference numbers.      
• Tax relief is proposed for a pan-European Personal Pension Product
  (PEPP), to comply with EU requirements. A PEPP will be a contract-based product between an individual and a PEPP provider in the form of an investment account. PEPPs are of a similar nature to PRSAs and will be taxed in a similar manner with tax relief for employee contributions, no tax on the growth in the fund, but tax on pension payments drawn down from the fund.  In line with the amendment for PRSAs, employer contributions to a PEPP will be exempt from income tax.  
• Amendments to the Research and Development Tax credit regime to
  provide that a company will have the option to call for payment of their
  eligible tax credit or to offset it against other tax liabilities. The amendments also remove the existing caps on the payable element of the credit, while providing positive amendments in respect of smaller R&D projects.  
• Provisions allowing tax relief on expenses incurred on a vacant residential premises prior to it being first let, to increase the cap on allowable expenses from €5,000 to €10,000 and to reduce the minimum period for which the property must be vacant for from 12 months to 6 months.
• Amendments in respect of Relief for Investments in Corporate Trades (including the Employment Investment Incentive, Start up Relief for
  Entrepreneurs and Stat up Capital Incentive)
• Technical amendments to the Interest Limitation Rules introduced
  in Finance Act 2021
• Amendments to the Knowledge Development Box to extent the relief
  for a further four years, while providing for a new effective rate of tax of
  10% for profits within the scope of the relief.
• A number of amendments have been made to support the administration of the Residential Zoned Land Tax, introduced in Finance Act 2021. One notable change is to provide an exemption from the tax in circumstances where landowners are precluded from developing land within the scope of the tax due to contractual obligations entered into prior to 1 January 2022.
• The introduction of a Vacant Homes Tax (VHT), with the objective of increasing the supply of homes for rent or purchase by encouraging the
  owners of vacant residential properties to bring those properties back into use. The amount of VHT payable for a chargeable period will be three times the base amount of Local Property Tax payable in respect of the property for the year in which the chargeable period ends.
• Notably absent from the Finance Bill as initiated were enhancements to the Key Employee Engagement Programme announced in the Minister’s Budget speech on 27 September. As indicated in Budget 2023, the Minister of Finance confirmed that the clear intention remains to provide for the buy-back of KEEP shares by the company from the relevant employee and to raise the lifetime company limit for KEEP shares from €3 million to €6 million. Changes to broaden out the relief to allow for group structures and more flexible arrangements as regards employees are also being brought into effect. Such amendments are expected to be introduced to the Bill at Committee Stage.

Our view

Finance Act 2022 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 and war
in Ukraine.Apart from the provisions relating to the Research and Development Tax Credit and Knowledge Development Box, absent from the Finance Bill 2022 were any changes relating to the international tax framework. This is not surprising, as technical work relating to the OECD Pillars I and II is expected to continue at a rapid pace between now and the end of the year. On Pillar II, we expect to see further movement on the EU Directive on the Global minimum tax of 15% in the coming weeks and months, with implementation and detailed rules dominating the tax landscape in 2023 and beyond. Coupled with other Directives such as the ATAD3/”Unshell” Directive and proposed Debt equity bias reduction allowance (DEBRA) currently being discussed at EU level, we expect to see 2023 being dominated by public consultation in this area.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.

For further details on the above and other new measures included in Finance Bill 2022, we invite you to view our articles and commentary analysing the Bill on our Budget hub.