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Business tax

Business tax

Employment and Investment Incentive (EII)

The minister announced in his Budget speech that, following a recent review of the EII incentive, he intends to bring forward a priority package of measures in the Finance Bill to address the main problems which were identified with the EII incentive during the review to increase the efficiency and effectiveness of the incentive. We await further details in the upcoming Finance Bill of the proposed changes. 

Film corporation tax credit relief

The film corporation tax credit relief was introduced to promote the Irish film industry by encouraging investment in Irish made films which make a significant contribution to the national economy and the Exchequer. The scheme provides relief in the form of a corporation tax credit related to the cost of the production of certain films. The credit was due to expire at 31 December 2020, but the minister has extended this to 31 December 2024 in order to support the continued growth of the industry in Ireland.

The minister also announced that a regional uplift to the film corporation tax credit relief, will also be introduced, for productions made in areas designated under the State Aid regional guidelines. Full details of the relief will be set out in the Finance Bill.

Relief from corporation tax for certain start-up companies

A relief from corporation tax for certain qualifying start-up trades was introduced in Finance Act (No. 2) 2008. The relief was due to expire for qualifying trades which commenced after 31 December 2018. The minister announced that the relief is to be extended for a further three years. It will therefore be available to companies which commence qualifying trades in the period up to 31 December 2021, where the relevant conditions are met.

Since 2011, the amount of corporation tax relief available is linked to the amount of employer’s PRSI paid by the company in each accounting period, subject to a maximum of €5,000 per employee and an overall annual corporation tax liability limit of €40,000 on qualifying income and gains (with marginal relief available where the company’s corporation tax liability would otherwise be between €40,000 and €60,000).

A review of the relief was published with Budget 2019. The report sets out that while unemployment rates have significantly decreased since the introduction of the relief, enterprise survival rates from the last five years show that start-up companies continue to struggle to survive. The report concludes that the relief continues to support job creation and employment at a minimal cost to the Exchequer when contrasted with the potential cost of unemployment support for the employees of the companies claiming the relief. It recommended that the relief should be extended for a further three years. The importance of retaining the link to employer’s PRSI was emphasised as this measure serves to encourage start-ups to retain employees. A further evaluation is to be carried out in 2021.

Accelerated capital allowances scheme for gas-propelled vehicles

The minister announced that a new accelerated capital allowances scheme for gas-propelled vehicles and refuelling equipment will be introduced. The purpose of the scheme is to encourage the uptake of gas-propelled commercial vehicles as an alternative to diesel. Currently, capital allowances on such vehicles are available on a straight line basis over an eight year period, where certain conditions are met. Details of the new accelerated scheme will be set out in the Finance Bill.

Crowdfunding

The minister announced that the Department of Finance and the Central Bank will begin work on the regulation of crowdfunding in Ireland. As part of this process, a review of the withholding tax obligations for peer-to-peer lending activities will be carried out with a view to making appropriate amendments following the introduction of regulations.

Existing legislation requires the deduction of income tax at the standard rate (currently 20%) from yearly interest paid by companies, or by any person to another person whose usual place of abode is outside of Ireland, unless a specific exemption applies. Such exemptions do not extend to yearly interest paid to an Irish tax resident individual.

Agri-business measures

While recognising the significant contribution that agriculture makes to the economy, the minister acknowledged that the sector is facing a number of threats, with Brexit posing specific challenges. He also recognised that 2018 has been a difficult year for farmers and has extended a number of farming related tax measures.

Stock relief provides for an additional income tax deduction for stock increases during the tax year. This has been extended for a three year period until the end of 2021. This extension applies to the three separate stock relief measures, which are:

  • the general 25% stock relief
  • the 50% stock relief for registered farm partnerships
  • the 100% stock relief for certain young trained farmers

Income averaging allows certain farmers to pay tax based on average profits over a five year period and is intended to assist farmers in dealing with the income volatility associated with the industry. Eligibility for this relief has been extended where the farmer, or their spouse/civil partner, carries on another trade/employment, or holds/controls more than 25% of the share capital in a trading company.

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 it will be extended for a further three years to 31 December 2021.

The financial resolutions passed on Budget Day announced an increase in the VAT rate from 9% to 13.5% on the sale of bloodstock. However, the sale of bloodstock to farmers should continue to qualify for the 4.8% VAT rate.

These taxation measures were complemented by increases in funding for the Department of Agriculture, Food and the Marine and other Brexit related support, including a new Future Growth Loan Scheme that will be available to the agriculture and food sectors as well as other SMEs.

Review of the workload and operations of the Tax Appeals Commission

The new tax appeals process was introduced in 2016. Following a commitment in Budget 2014 by the then Minister for Finance to reform the role, functions and structure of the Office of the Appeal Commissioners, the Tax Appeals Commission (TAC) was established on 21 March 2016. The TAC replaced the Office of the Appeal Commissioners.

The minister introduced the reforms to ensure an enhanced and cost-effective appeal mechanism for tax cases. This was to provide transparency and increased certainty for taxpayers and to ensure that the appeals process was fully independent, with no actual or perceived bias in the operation of the appeals system.

The main reforms made to the tax appeals process were as follows:

  • Appeals are now made in the first instance to the TAC (rather than to the Revenue Commissioners)
  • Hearings of the TAC (by default) are in public – although an appellant can request the hearing to be private
  • Determinations of the TAC are written and published (albeit redacted).

An appeal against a determination of the TAC can only be made on points of law to the High Court. Access to the Circuit Court for a full rehearing of the case, which had been a feature of the previous model, was withdrawn.

A difficult beginning

Since it was established, the TAC has struggled to manage its substantial case load. The TAC was initially set up with just two Commissioners and thirteen staff members. In its 2017 Annual Report, the TAC highlighted various challenges that have hampered its ability to progress appeals as efficiently as it would have liked.

On its establishment, the TAC assumed the existing case load of the Office of the Appeal Commissioners, a total of 2,731 legacy appeals. The TAC also received 901 fresh appeal notifications in 2016 (excluding legacy appeals transferred by Revenue that year) and 1,751 in 2017. There has been a further increase in the number of appeals in 2018, budgetary constraints, a shortage of staff and inadequate premises from which to operate.

These challenges have resulted, in practice, in long delays in setting hearing dates and the subsequent issue of determinations.

Independent review

An independent review of the workload and operations of the TAC was commissioned by the minister during 2018 and was published on Budget Day. The review concluded that there are changes that can be made to the governance, resourcing and operational practices of the TAC which would assist in clearing the current backlog of cases and equip the organisation to deliver on its mandate in accordance with the objectives originally set. Key recommendations arising from this review are as follows:

Governance

The minister should appoint a Chairperson, Accounting Officer and Head of Office. In addition to the normal duties of Commissioner, the Chairperson would be responsible for overseeing case allocation, quality assurance, consistency and management of the operations of the TACIn the recruitment of Commissioners, attention should be paid to ensuring that there is a balance of professional backgrounds (i.e. tax practitioners; legal professionals with tax experience; former Revenue officials) to ensure a balance of approach by the TAC to its work.

Independence

The provision of corporate supports (including internal audit, health and safety services, risk management) for the TAC should be a responsibility of the Department of Finance in the short term. For the longer term, the Civil Service Management Board should be asked to consider how best a shared service solution for these areas might be progressed for the TAC and other small agencies as the need arises in the futureThere should be re-engagement between Revenue and the TAC in relation to the provision of IT systems design, support and hosting facilities.

Additional resources

Significant additional resources need to be added to the TAC to enable it to deal efficiently with the volume of current cases and clear the backlog of legacy cases.

Dealing with the backlog

The TAC should identify and categorise the case load to determine the scale of the backlog of current cases. It should then put a plan in place to deal with the backlog. The plan should indicate a timeframe for the elimination of the backlog and targets for progress against which progress can be reportedThe TAC should communicate with all parties to appeals caught up in the backlog outlining the approaches being taken and identifying when progress might be expected in relation to different categories of appeals.

Process improvements

The TAC should publish indications for expected timeframes for finalisation of determinations following the hearing of an appeal. A target of two months is suggested. The TAC should report on progress in meeting this target. The TAC should formalise liaison arrangements with Revenue to facilitate greater efficiency in the operation of the appeals process.

There should be an exploration of how alternative dispute resolution procedures might be accommodated at different stages of the appeals process.

The minister confirmed that he fully supports the recommendations of the review.