Economy

Finance Bill 2012 unpacked

ifschouseMeasures to simplify financial transactions within the IFSC and with foreign investors are included in the Finance Bill 2012. eolas reports.

Creating 10,000 net new jobs in the International Financial Services Centre (IFSC) is the over-riding objective of the Government’s five-year IFSC strategy.

Established by Charles Haughey in 1987, offering a 10 per cent corporation tax incentive, the IFSC reportedly employs approximately 30,000 people.

The Government has decided to focus on growing the IFSC in order to promote Ireland as a destination for business. To do that, it must “meet the expectations of investors, customers and governments” by addressing Ireland’s reputational damage suffered as a result of the crash, the impact of high personal tax rates (41 per cent), and the lack of skilled workers in specific areas (e.g. the technology sector).

The Strategy for the International Financial Services Industry in Ireland, launched in July 2011, has seven aims:

  • a more transparent and competitive direct and indirect tax framework;
  • a credible regulatory regime; 
  • new business lines; 
  • international engagement on marketing;
  • integrated engagement with potential investors;
  • ensuring workers have appropriate skills; and 
  • controlling business costs.

Finance Minister Michael Noonan announced in his Budget speech that the Finance Bill would contain “a package of measures … to support the continued success of the international funds industry, the corporate treasury sector, the international insurance industry and the aircraft leasing industry.”

The Finance Bill is currently at its second stage in the Seanad.

Ultimately, the Government claims that the Bill will provide clarity around the tax treatment of complex financial transactions in terms of stamp duty, ease the administrative burden on non-resident investors in Irish investment funds, enhance the tax regime for Islamic finance introduced in the Finance Act 2010, and extend group relief for losses to include group companies with non-EU/EEA parents.

The Bill proposes to allow a deduction for interest payments to group companies in jurisdictions that do not have a tax treaty with Ireland. This ‘cash-pooling’ offsets cash deficits in one business or country with surplus cash in another entity or country.

The existing unilateral credit relief, which currently applies to royalty payments, would be extended to include equipment lease rental payments, which would be of particular benefit to the aircraft leasing industry.

In order to improve the competitiveness of the Irish debt market, section 198 of the 1997 Taxes Consolidation Act (i.e. a person not ordinarily resident in the State is not charged income tax on interest paid by a company in the course of carrying out relevant trading operations) would be amended to remove a technical liability to Irish tax.

The development of a green IFSC remains on the agenda. The Bill would strengthen last year’s provisions to prevent a section 110 company (resident in Ireland and acquiring or holding a minimum of €10 million in assets such as shares or futures) from being used for tax avoidance transactions involving recipients in other countries. The range of ‘carbon offsets’ that a section 110 company can acquire would be extended to include forest carbon credits.

Currently, non-residents who have invested in Irish investment funds must submit written non-resident declarations (in order to obtain exemption from exit tax). This would be extended to include investments made through intermediaries and funds that migrate to Ireland.
The Bill aims to address tax problems arising for the cross-border merger of investment funds due to the Undertakings for Collective Investments in Transferable Securities Directive which was implemented on 1 July 2011.

The Bill has been criticised by Sinn Féin Finance Spokesman Pearse Doherty as “a Bill of which Charlie McCreevy would be proud.” He added that “it rewards high earners from overseas with generous tax breaks without any requirement to create a single job.”

United Left Alliance TD Richard Boyd Barrett said it “gives incentives to the corporate high flyers” and criticised the “further breaks in corporate tax by extending out the ridiculously low level of corporate tax to other companies that did not benefit from it and which are trading outside the EU.”

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