A snapshot of business tax changes in Budget 2018.
Acknowledging the potential impact of Brexit, in his Budget speech, the Minister for Finance announced a new €300 million Brexit Loan Scheme. The scheme is being introduced in order to assist Small and Medium-sized Enterprises (SMEs) to innovate and expand into new markets. The loans will be provided at a competitive rate to qualifying SMEs (including food businesses given their unique exposure to the UK market). The loan fund is backed by the European Investment Bank Group, the European Commission and the Strategic Banking Corporation of Ireland. It is aimed at helping with short-term working capital funding requirements of SMEs.
This scheme announcement follows on from the current Agricultural Cashflow Support Loan Scheme for farmers. That scheme was created to provide €150 million of loans to farmers at an interest rate of 2.95%. It is anticipated that the conditions for accessing the Brexit Loan Scheme will be similar.
As discussed below, the minister also announced a €25 million fund targeted at the development of further Brexit response loan schemes for the agri-food sector.
As discussed in our article “Consultation on Ireland’s Corporation Tax Code”, a Government commissioned review of Ireland’s corporation tax system, which was conducted by Seamus Coffey, has recently been published. The Coffey report’s recommendations included the reintroduction of a cap on the annual deductibility of capital allowances and related interest expense on expenditure incurred on intangible assets. Prior to its abolition in 2015, the cap was set at 80% of the profits related to intangible assets net of financing costs arising in the relevant tax year.
The minister announced that, in line with the Coffey report recommendation, the 80% cap will be reintroduced for expenditure incurred on intangible assets after midnight on Budget Day. Accordingly there is no change to the tax relief for expenditure on intangible assets incurred before midnight on Budget Day. It is important to note that the full amount of qualifying expenditure will continue to be deductible. The cap merely limits the deductible amount in a given tax year, with any unused excess carried forward for use in later years.
As well as announcing the measures regarding agricultural land leased for solar farm development (discussed below), the minister also announced a number of other stamp duty measures to support the agriculture sector.
Stamp duty consanguinity relief currently applies on the transfer of agricultural land to relatives, subject to meeting certain conditions. Up to now, the effect of the relief was to reduce the relevant stamp duty rate by 50%. Therefore, while the appropriate stamp duty rate on transfers of non-residential property was 2%, the effective stamp duty rate on transfers of agricultural land that met the conditions for consanguinity relief was 1%. This relief was due to expire on 31 December 2017. Whilst the stamp duty rate on transfers of non-residential property will increase to 6% for instruments executed on or after 11 October 2017, as mentioned in our Property & Construction section, the minister announced that consanguinity relief will be maintained at 1% for intra-family farm transfers of non-residential property and will be extended for a further three years until the end of 2020.
At present, where certain conditions are met, young trained farmers under the age of 35 can avail of a stamp duty exemption on transfers of agricultural land. The exemption was due to expire on 31 December 2018. The minister confirmed that the exemption would continue, but did not provide any additional information. Further details should be included in the Finance Bill.
The taxation measures were complemented by increases in funding for the Department of Agricultures, Food and the Marine and the announcement of a comprehensive package of Brexit response measures for 2018, including increased funding for “Brexit response loans” for the agri-food sector. These schemes will be developed in cooperation with the Strategic Banking Corporation of Ireland and others in 2018.
In his Budget speech, the minister referred to climate change as “the global challenge of our generation” which “must be met – for the sake of our children and future generations”. Indeed, in this era of Brexit and international tax upheaval, the minister should be commended for implementing tax measures which place climate change high on the Government agenda.
The minister announced that agricultural land leased for solar development will retain its status as agricultural land for the purpose of certain capital acquisitions tax and capital gains tax reliefs. The capital acquisitions tax relief concerned provides a measure of tax relief on the transfer of agricultural land by way of gift or inheritance provided certain conditions are satisfied. The capital gains tax relief provides a measure of tax relief on the sale of agricultural land on the retirement of a farmer.
The minister’s announcement is important as it will make it easier for solar farm developers to develop solar farms on lands which are the most suitable and cost efficient to develop (typically those which have close proximity to existing grid infrastructure). Various industry participants, including the solar industry representative body, ISEA, have made the point that farmers were reluctant to lease agricultural land to developers where the lease arrangement impacted on the agricultural status of their lands for tax purposes. This had been recognised by the Government and referred to by the former Minster for Finance, Michael Noonan, as a “genuine issue” for the industry.
Although the detail of these measures has yet to be announced, the minister did note that the initiative would be subject to the solar panels covering no more than 50% of the total farm acreage.
On other ‘green’ matters, the minister announced in his Budget speech that he was allocating €36 million to facilitate the expansion of the energy efficiency programmes across the public commercial and residential sectors. The minister also announced the allocation of €17 million to fund the rollout of the Renewable Heat Incentive and announced plans to incentivise the uptake of electric vehicles by introducing a 0% rate of benefit-in-kind for electric cars (as mentioned in our Employee Tax Issues section).
The minister also announced a welcome extension to the accelerated capital allowances scheme for certain energy efficient equipment to 2020 (it was previously scheduled to expire at the end of 2017). The scheme permits 100% capital allowances to be claimed in the year of first use for certain energy efficient equipment included on a list maintained by The Sustainable Energy Authority of Ireland.
Included in the list of Budget measures was an announcement regarding the use of technology to tackle risks identified by e-commerce and online businesses. There was also an announcement on building high level technical capacity to tackle complex tax avoidance and transfer pricing issues. The purpose of these initiatives is to yield additional tax revenues for the State and to protect Ireland’s tax base in the event of transfer pricing disputes between different countries (especially in light of the roll-out of Mutual Agreement Procedures which are designed to facilitate the resolution of cross-border transfer pricing disputes).