Finance Act 2010


The Government recently published the Finance Bill 2010.  Outlined below are some of the main measures contained within the Bill.

Corporation tax

Transfer pricing
The Finance Bill has introduced transfer pricing legislation which will apply to transactions between associated parties.  The new rules will only apply to large companies.  They will have effect from 1 January 2011 and they will apply to both domestic and international transactions.

Tax relief for start-up companies
There is an extension of the current relief for start-up companies which commence to trade in 2010.

Dividends
Foreign dividends paid out of trading profits of a company tax resident in a non treaty country, where the company is 75% owned by a publicly quoted company will now be subject to Irish corporation tax at a rate of 12.5%.

Income tax

Remittance basis – Irish citizens
With effect from 1 January 2010 Irish citizens who are not ordinarily resident will no longer be entitled to avail of the remittance basis of assessment.  This means for example that individuals who are resident and domiciled in Ireland but not ordinarily resident will be subject to Irish income tax on foreign income on an arising basis regardless of whether the income is remitted to Ireland.  In some cases income earned prior to returning to Ireland could become subject to Irish income tax.

Remittance basis – foreign executives
The Finance Act 2008 introduced a limited form of remittance basis to earnings of foreign executives assigned to Ireland from a non EEA country, who remained employed under a non EEA contract of employment.

With effect from 1 January 2010 this relief has now been widened to include employees assigned to Ireland from an EEA country who remain employed under an EEA contract of employment.

In order to qualify certain conditions must be met, as follows:

  • the assignment must be for a period of at least 12 months (this was previously 3 years);
  • the individual must not have been resident in Ireland previously; and
  • the individual must not have exercised duties of employment in Ireland previously.

Service Charges
Relief for service charges paid will cease to be available beyond 2011. Relief will still be available in 2011 for charges paid during the 2010 tax year.

Mortgage Interest
Mortgage interest relief will be abolished with effect from the 2018 tax year.

For qualifying loans taken out between 1 January 2004 and 31 December 2011 tax relief will be available at current rates depending on whether the individual is a first time buyer or not.

For qualifying loans taken out during 2012, tax relief will be available up to 2017 but on a reduced basis.

No relief will be available for loans taken out from 2013 onwards.

Health expenses
Non-essential cosmetic surgery will no longer qualify for tax relief.  However fees paid to nursing homes will qualify for relief at the marginal rate where access to 24 hour nursing care is provided on-site.

Share Schemes
Mandatory reporting requirements have been introduced where shares awards are granted to employees or directors.  Previously these awards were reported on a P11D which was only required to be completed when requested by Revenue.

The due date for the submission of the new return is 31 March and a fixed penalty has been introduced where this return is not made.  This section has effect for shares awarded from 1 January 2009.

High earners restriction
The Finance Act 2006 introduced restrictions on the amount of specified reliefs an individual could claim in a year where that individual’s income exceeded €250,000.  The aim of this was to ensure that every individual paid a minimum effective tax rate of 20%.

The Finance Bill 2010 has reduced the minimum income limit from €250,000 to €125,000 with a full restriction applying to income in excess of €400,000.  In addition the formula for computing the restriction has been amended to the greater of €80,000 (previously €250,000) and 20% (previously 50%) of adjusted income.

The effect of these changes is that where an individual has income of €125,000 or over and specified reliefs of €80,000 or over he/she will now be caught by these restrictions.

Domicile Levy
With effect from 1 January 2010 a domicile levy of €200,000 will be imposed on all Irish citizens who are domiciled in Ireland provided that the following conditions are met:

  • worldwide income for the tax year is greater than €1m;
  • final Irish income tax liability is less than €200,000; and
  • market value of Irish property owned on 31 December exceeds €5m.

Capital gains tax

Retirement relief
Retirement relief will be available on the redemption, repayment or purchase by a company of its own shares in relation to disposals on or after 4 February 2010.

Compulsory Purchase Orders
With effect from 4 February 2010, the date of disposal of assets under a CPO will be the date on which the owner receives the CPO consideration.

Windfall Tax
An exemption to the windfall tax has been introduced for profits or gains from the disposal of sites of less than 1 acre where the market value is less than €250,000.

Additionally, the windfall tax has been extended to profits or gains attributable to decisions taken by planning authorities which materially contravene the development plan for the area.

VAT

Local authorities and public bodies
Following on from a recent European Court of Justice ruling it is proposed that local authorities and public bodies will be subject to VAT in relation to certain services where the non taxability could lead to a distortion in competition.  Services such as off-street parking may be impacted however the supply of water will remain exempt from VAT.

Motor vehicles
With effect from 1 January 2010 the new margin scheme will be implemented on the sale of second hand cars.  Under this new scheme, motor dealers will only be required to account for VAT on the margin earned on the sale of second hand cars.

Carbon tax
With effect from 1 May 2010 the carbon tax will be extended to include kerosene and natural gas. The rate of carbon tax is currently €15 per tonne.