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FINANCE BILL 2011 – THE LOWDOWN

In the latest bizarre political twist, possibly the most important single piece of legislation to be enacted during the term of the last Dáil, was sacrificed quickly on the altar of political expediency. The main opposition parties said they didn’t agree with it and would oppose it but they gave it tacit approval for the sake of a quick general election. In the main, the Sunday newspapers have also sacrificed column inches to the political shenanigans, largely ignoring the nuts and bolts of the Finance Bill itself.

“One of the most extraordinary finance bills in recent times passed through the Dáil last week with an urgency that could not have been foreseen when Budget 2011 was published last December,” noted Andrew Cullen, president of the Irish Taxation Institute, in The Sunday Business Post. “For thousands of businesses and employers in Ireland, the bill … will affect their decisions and plans in the coming months.”

Cullen views the bill as a bit of a curate’s egg for business – good in parts.

  • The Business Expansion Scheme will be rebranded and revamped as the new Employment and Investment Incentive scheme, subject to EU approval. It will mean a more streamlined and simpler certification process as well as increasing the amounts that can be raised by a company and invested by an individual.

Current limits on the trades that qualify will be lifted, making the scheme more widely available. Also, shares will only have to be held for three years instead of five and the rate of relief has changed to make it available on a phased basis. An initial relief of 30% will apply, Cullen says, with a final 11% available if certain employment and R&D targets are met.

  • The existing corporation tax exemptions for start-up companies introduced in Budget 2009 will be extended and will include companies who begin trading in 2011. The exemption applies for three years provided corporation tax liability would not have exceeded €40,000. Also, to encourage job creation, the relief is now linked to the amount of PRSI paid by the company.
  • The decision to drop the proposal to bring forward the pay-and-file deadline by a month was a welcome one for all sorts of reasons.
  • The decision to delay any abolition of certain tax-based property incentives was also welcome, according to Cullen, who said “the immediate withdrawal of reliefs would have undoubtedly lead to both business closures and jobs losses in provincial towns throughout Ireland”.
  • The construction sector received a boost from income tax reliefs to be introduced for energy-efficient works to an individual’s private residence. The Sustainable Energy Authority will oversee the process.
  • The tourism tax fell from €10 to €3 – a bit of good news for a very beleaguered hospitality sector

Of course, as we all know, it isn’t all good news by any means!

  • The universal social charge (USC) will apply at much lower levels than was the case with income and health levies previously, and will affect competitiveness, Cullen argues.

“Ireland needs to ensure that it remains competitive in the battle for new investment. The USC will impact in this regard, although it should be noted that even after these changes Ireland will remain competitive when compared with other OECD countries. However, we can’t afford to take our eye off the ball”.

  • The amendments increase the rate of USC for non-employment income over €100,000. “This adversely affects the self-employed entrepreneur in particular who is willing to take the risk and create employment.”
  • Significant changes will be implemented in the tax treatment of share awards. Approved share option schemes have been abolished and other forms of share schemes will be subject to PAYE.
  • PRSI will be reformed but there are no details as yet.
  • “The Finance Bill introduced restrictions on the availability of interest relief on inter-group borrowings where those funds are used to acquire assets from other associated companies. It also introduces restrictions on the deductibility of interest available to companies on loans used in lending to or acquiring shares in other companies. The changes are very complex and there are some concerns about their commercial impact.

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