Ireland’s securitisation regime has been the subject of much discussion in recent months. In his Budget speech, the minister reiterated the benefit of Ireland’s securitisation regime has been to our financial services industry. However, he suggested that the provisions are being used in ways which were not intended when the relevant section was introduced, particularly in relation to funds and property. The minister announced that legislation to address these concerns (a draft of which was published on 6 September 2016) would be included in the Finance Bill, following a consultation period, but no further detail was provided.
In broad terms, it is proposed that new rules will apply to the extent that a qualifying securitisation company owns financial assets (including loans) which derive their value or the greater part of their value (directly or indirectly) from Irish land and buildings. These financial assets are to be treated as part of a separate business, to be known as a “specified property business” carried on by the company. The general securitisation rules will continue to apply to this specified property business; however, interest deductions in respect of profit-participating loans will be restricted to the amount of interest that would have been payable on that loan had it been a non-profitparticipating loan entered into by way of a bargain made at arm’s length. Interest paid to certain categories of recipient (such as Irish pension funds, Irish companies, and certain EU companies) will not be restricted.
As a result of these changes, securitisation companies which purchased loans secured on Irish property at a discount could now be subject to Irish corporation tax at the rate of 25% on a significant part of the gains realised on those investments.
In response to Brexit, the Department of Finance announced that there will be a review of the charge to stamp duty on sales and transfers of stocks, shares, and marketable securities of Irish incorporated companies. Under current legislation, the transfer of such property is subject to Irish stamp duty at a rate of 1%.
The review, which is to be carried out in 2017, is welcome, as Ireland’s rate of stamp duty on such transfers is higher than many other jurisdictions, including the UK which has general rate of 0.5%. The review will take account of the sustainability of the tax yield, the UK’s future relationship with the EU and competitiveness issues. The elimination of stamp duty on transfers of such assets would enhance Ireland’s attractiveness as a location for Foreign Direct Investment.
The rate of deposit interest retention tax (DIRT) will be reduced by 2% each year for the next four years from a current rate of 41% to 33% in 2020.
Historically, the rate of DIRT has moved in lockstep with the exit tax applicable to life assurance policies and investment in fund products. However, the reduction in rate announced by the minister will only apply to DIRT. Payments from life assurance policies and investment funds will remain taxed at the 41% rate.
The rate of DIRT in 2020 will equate with the current rate of capital gains tax (CGT). Assuming the CGT rate remains the same, this should level the playing field between deposit investments and direct investment in capital growth assets. However, if the rate differential were to remain on life policies and investment funds this would create an unfair disadvantage. Investors’ preferences for longer term deposit products could be a consequence of these measures but would be dependent on their view of future interest rates.
Finance Act 2015 extended the bank levy to 2021. In Budget 2016, it was announced that a new basis for calculating the levy would be introduced and it was expected that this new basis would be announced in Budget 2017. However, it would now seem likely that details will not be announced until the publication of the Finance Bill.
Budget 2017 is the second budget in a row where the choices have been about how to distribute benefits; read our professional tax analysis.