Ireland: Tax measures in Finance Bill 2021

Finance Bill 2021 (published 21 October 2021) contains many tax provisions that were already announced in the budget speech for 2022. Moreover, there are certain measures in the bill that were not previously announced as part of the budget—and these are highlighted below.

• The bill includes provisions that would bring certain companies that are not residents in Ireland but are in receipt of Irish-sourced rental income within the “charge” to Irish corporation tax. This would result in Irish-source rental profits of such companies being subject to tax at a rate of 25% (instead of 20%). In addition, the effect of this change would bring such companies within the scope of the new general limitation rules on the deductibility of interest expense.
• The bill provides for the transposition into Irish law of general interest limitation rules as provided for under the EU Anti-Tax Avoidance Directive. The new rules would limit the tax deductibility of net borrowing costs to 30% of a taxpayer’s EBITDA (earnings before interest, taxes, depreciation, and amortization) subject to certain exceptions. Read an October 2021 report that examines how Ireland’s new interest limitation rule could affect aircraft leasing sector.
• The bill would revise the exclusion from the scope of Irish transfer pricing rules available for certain non-trading transactions entered between persons within the charge to Irish tax. Read TaxNewsFlash
• The bill includes a provision that would require profits of an Irish branch of a non-resident company to be calculated in accordance with the authorised OECD approach for the attribution of profits to a branch.
• The bill includes several technical changes to the Irish anti-hybrid rules and would target certain reverse-hybrid mismatch outcomes.
• The bill provides for an exemption from capital gains tax for domestic mergers by absorption (to align the capital gains tax treatment of such mergers with the treatment that currently applies to cross-border mergers within the EU).
• The bill would extend the scope of the relief to payments made directly by a qualifying company to an individual involved in the provision of labour-only services for the purposes of the production of a qualifying film.
• The bill would extend the scope of the anti-avoidance provision that restricts the tax deductibility of interest on loans from a connected company used to purchase assets from another connected company. Currently, this treatment applies to promissory notes, and when a loan is refinanced, it remains within the scope of the restriction.
• The bill would amend the scope of anti-avoidance rules applying to the taxation of dividends paid out of pre-migration profits. Under this amendment, an interim dividend paid out of profits earned in an accounting period in which a company becomes Irish resident would not be deemed to have been paid from profits earned before the company was resident in Ireland.
• The bill contains several technical amendments to the employment investment incentive (EII) and start-up relief for entrepreneurs (SURE). These include removing the requirement that an EII / SURE investee company spends 30% of the investment on qualifying purposes before the relevant relief can be claimed.  

• The bill introduces a change so that value added tax (VAT) refunds would no longer be available on cancellation deposits and charges retained by a supplier. This would reflect recent European VAT case law that indicates that when a supplier receives a non-refundable payment for a good or service that is not actually consumed by the customer, VAT is nonetheless due on that payment.
• The bill includes several technical provisions in relation to VAT grouping. This confirms that at least one member of a VAT group must be VAT-registered and that the cancellation of a VAT group can take effect from a date earlier than the Irish Revenue cancellation notice. It also includes provisions to require the VAT group remitter to notify Irish Revenue within 30 days if the conditions for VAT grouping are no longer met.
• The bill contains a number of provisions to allow for a VAT exemption and zero-rating for goods and services aimed to address the coronavirus (COVID-19) pandemic, such as vaccines and in-vitro diagnostic medical devices.
• The bill includes a provision to waive excise tax (duty) due on the renewal of certain intoxicating liquor licences for the licensing year 2021/2022. This extends the measure introduced in Finance Act 2020 for a second year and is part of the government’s support package for pubs, bars, and nightclubs that were economically affected because of the COVID-19 restrictions.

• The bill provides that the annual value of a gift taken by a borrower in the case of an interest-free loan would be the lowest borrowing rate available in the market for an equivalent sum.
• The bill provides that upon request by an Inspector of Taxes, the disponer of a gift on which agricultural relief or business property relief is claimed would be required to file a return with Irish Revenue and providing certain details in relation to the gift, whether or not the gift breaches the relevant 80% group threshold for the recipient.

• The bill includes technical amendments to the provisions introduced during 2021, for a new 10% rate of stamp duty on the purchase of multiple residential properties. The technical amendments clarify that apartments and certain leased mortgage to rent and social housing developments are not within the scope of the new 10% rate.
• The bill contains several measures intended to streamline and modernise the collection of stamp duties on financial cards, cheques, and insurance policies. The pay and file system for the collection of these stamp duties is to be streamlined and fully automated, replacing a system of manual returns and varied payment methods.

Finance Bill 2021:

• Provides an exemption for certain employer-funded health and wellbeing-related benefits
• Provides an exemption from income tax for certain payments made to qualifying students
• Provides an exemption from tax on up to €200 of income annually for persons who sell renewable electricity to the national grid
• Addresses the treatment to employees for electric vehicles provided by their employer
• Includes a provision that removes a double charge to tax that currently exists in respect of deposit interest earned by a trust
• Makes several technical and administrative amendments to the legislation dealing with the taxation of pension schemes

Finance Bill 2021 also includes measures concerning:

• Mandatory disclosure and automatic reporting
• Revenue penalties and publication
• Charities
• COVID-19 debt warehousing scheme

Read an October 2021 report prepared by the KPMG member firm in Ireland