Corporate Tax News Issue 64 - November 2022

Finance bill 2022 published

Ireland’s Department of Finance released the first draft of Finance Bill 2022 and an accompanying explanatory memo on 20 October 2022. The bill sets out the proposed legislative changes required to implement the budget day announcements of 27 September (for prior coverage, see the tax alert dated 3 October 2022). In addition to the measures announced in the Budget, the bill proposes a number of new measures and omits certain measures that were included in the Budget. According to the minister for finance, the bill will implement a series of targeted tax changes including measures to support families and businesses and  to address climate change, as well as administrative changes to the tax code to reflect recent international developments and protect and enhance the integrity of the code.

The Finance Act 2022 is expected to be signed into law before the end of 2022.

Measures announced on budget day

The key measures included in the Finance Bill, which were announced on Budget Day, are:

  • Changes to the payment provisions for the R&D tax credit to align with new international definitions of refundable tax credits.
  • Extension of the sunset clause of the knowledge development box for four years, and the introduction of a new effective rate of 10%.
  • Extension of section 481 film relief through 31 December 2028.
  • Extension of the foreign earnings deduction through 31 December 2025.
  • Extension of the bank levy to the end of 2023.
  • Increase in standard rate band from EUR 36,800 to EUR 40,000 for single individuals, and from EUR 42,800 to EUR 49,000 for married couples/civil partners with one earner.
  • Increase of EUR 75 in the personal tax credit, employee tax credit and earned income credit.
  • Increase in the Home Carer Tax credit from EUR 1,600 to EUR 1,700.
  • Increase in the 2% Universal Social Charge (USC) threshold from EUR 21,295 to EUR 22,920 and extension of the reduced rate of USC for full medical card holders under age 70 until the end of 2023.
  • Extension of the sea-going naval personnel tax credit through 31 December 2023.
  • Introduction of a new vacant homes tax.
  • Extension of the help-to-buy scheme through 31 December 2024.
  • Increase in the eligible expenditure limit for pre-letting expenses for landlords to EUR 10,000 and halving of the vacancy period to six months.  
  • Introduction of a new EUR 500 tax credit for private tenants who are not in receipt of other state housing supports.
  • Extension of the living city initiative to 31 December 2027, acceleration of relief and carryforward of relief for owner-occupiers.
  • Extension of the Residential Development Stamp Duty Refund Scheme to the end of 2025.
  • Extension of the special assignee relief programme (SARP) through 31 December 2025, and an increase in the minimum income limit for new entrants to EUR 100,000.
  • Increase in the limit of the small benefit exemption to EUR 1,000 and an increase in the number of benefits in a year that an employer can give from one to two per year.
  • Introduction of the defective concrete products levy, but at a rate of 5%, rather than the 10% rate announced in the Budget.  
  • Introduction of the temporary business energy support scheme.
  • Application of the zero rate of VAT for newspapers and news periodicals, including digital editions, and certain other products. 

Measures not announced on budget day

Some of the additional measures in the Finance Bill that were not announced on budget day include the following:

  • Application of the 2022 version of the OECD Transfer Pricing Guidelines for periods commencing on or after 1 January 2023.
  • Amendment to the treatment of certain Irish unit trusts as interests in an offshore fund.
  • Introduction of new reporting requirements for exempt unit trusts, common contractual funds and investment limited partnerships.
  • Amendment to the treatment of foreign exchange gains and losses arising on certain trading items.
  • Technical amendments to the interest limitation rules to ensure the rules operate as intended.
  • Technical amendments in respect of relief for investments in corporate trades.
  • Technical amendments to the digital gaming tax credit to ensure compliance with EU state aid rules and to make minor corrections.
  • Clarification that EU UCITS and alternative investment funds are exempt from VAT, similar to their equivalent Irish funds.
  • Removal of the VAT exemption for agency services related to the management of investment funds.
  • Exemption from income tax for a payment known as a COVID-19 related lay-off payment.
  • Extension of the benefit in-kind exemption for employer-provided bicycles and/or safety equipment for cargo bicycles and e-cargo bicycles, and an increased threshold of EUR 3,000.
  • New reporting requirements for certain tax-free employment benefits, subject to a commencement order.
  • Introduction of provisions to give effect to the EU regulations on the creation of Pan-European Pension Plans (PEPPs). The bill provides for a new form of approved pension product that will be similar to existing Personal Retirement Savings Accounts (PRSAs). The tax treatment of benefits and contributions to PEPPs will be the same as applies to other pension products currently available in Ireland.
  • Clarification that employer contributions to an employee’s PRSA or PEPP would not be treated as benefits in kind.
  • Amendments to the treatment of capital amounts received for the sale of patent rights, including a technical amendment confirming that the outright sale of a patent or a patent pending is not a sale of patent rights. This confirms that the sale of a patent is chargeable to capital gains tax, whereas the sale of patent rights for a capital amount is subject to tax as income. The amendments also allow for group relief on an intragroup transfer of patent rights.
  • Introduction of a new stamp duty repayment scheme for residential property acquired and sold within 12 months for the purpose of affordable home arrangements.

Measures announced on budget day not included in the Finance Bill

In addition, some measures announced on budget day are not included in the first draft of the Finance Bill:

  • Extension of the Key Employee Engagement Programme (KEEP) through 31 December 2025, facilitation of the buyback of KEEP shares by the issuing company and an increase of the company limit to EUR 6 million.
  • Extension of the Young Trained Farmer, Farm Consolidation, and Farm Restructuring stamp duty reliefs through 31 December 2025 and extension of the Young Trained Farmer and Registered Farm Partnerships stock reliefs through 31 December 2024. 
  • Introduction of accelerated capital allowances for the construction of slurry storage facility so that 50% of expenditure is claimed over two years.

The Department of Finance has stated that due to the nature and extent of issues for which provision is being made in the Finance Bill, the complex nature of certain drafting requirements and the need to align certain provisions with EU legislation, the draft legislative provisions relating to the above matters have been held over for introduction at Committee Stage of the Finance Bill.

Angela Fleming