One can feel the width as well as the weight of the 1999 Finance Bill. Not since 1992 has there been anything as physically substantial as its 326 pages. The content includes a rich mixture of measures, some highly technical, which will be of acute interest to sectors directly affected, but not of more general application. Also of course, many of the provisions included in the Bill have been flagged already, either in last December's Budget statement or in a press release on January 21st, including the phasing in of the 12.5 per cent standard rate of corporation tax.
Some new measures appearing for the first time are of more general interest. For instance, Irish registered non-resident companies (IRNRs) have created a degree of controversy over recent years both because of the large numbers involved and because of a feeling that in some cases their activities have brought the Republic - and particularly the IFSC - into a degree of disrepute in international circles.
The proposed solution to the IRNR "problem" is to be two-pronged. One will be by way of company law amendments in a Bill to be published shortly. The Finance Bill proposes other solutions. Up to now Ireland has used a management and control test for determining corporate residence. It is now proposed that companies registered in the Republic after February 11th will be automatically tax resident here. The point in all this of course is that resident companies are required to pay tax on their worldwide income while non-resident companies are taxable only on Irish source income.
Many foreign-owned Irish manufacturing enterprises operate through IRNR structures. Mercifully, this has been recognised in the Bill in two ways. There is an exemption from the incorporation test of residence for a non-resident that carries on a trade in the Republic and is ultimately controlled from an EU or other tax treaty country. For non-trading companies there is also an exclusion where the residence is in a tax treaty country and, under the relevant treaty the company is not regarded as resident in the Republic. Existing relevant companies not benefiting from these exemptions have until October 1st 1999 only to reorganise their affairs. After that they will become automatically Irish resident and subject to Irish tax on their foreign income.
A dividend withholding tax, applicable from April 6th 1999 was flagged in the December Budget statement. The details are included in the Bill. As expected there are various exemptions from the 24-per-cent-rate withholding tax which will apply, broadly, where the recipient is an individual resident in a tax treaty country, an Irish resident company, a corporation ultimately controlled from a treaty country, a charity or a pension fund. Two matters of detail will be of interest. Firstly, it is confirmed that the withholding tax will apply to scrip dividends which means that for companies offering this facility, shares up to the value of a cash dividend net of withholding tax are all that may be made available. The other relates to stapled stock arrangements where, for instance, a shareholder in an Irish-quoted company is given the option of taking his dividend either from the Irish parent or from, say, a British subsidiary. Clearly if the dividend is taken from the British subsidiary, an Irish withholding tax cannot be applied. In this event the Irish resident parent is required to make a return to the Revenue Commissioners of the details of the shareholders and the distributions concerned.
Then there are enhanced Revenue powers. Perhaps not surprisingly in view of current tribunal proceedings, the Bill proposes to broaden the existing powers of Revenue officials to access the bank accounts of named individuals where there is reason to believe that the financial institution possesses information which would be relevant in calculating the individual's tax liability. It is significant that a number of the new powers may be brought into effect by order of the Revenue Commissioners rather than by an Appeal Commissioner or a High Court judge. Revenue is also being permitted to conduct on-site audits of banks and other financial institutions and to audit their DIRT returns and the non-resident declarations which they hold.
The Bill provides the detail on SAYE schemes announced in December's Budget statement. Under a scheme of this type, employees of a company who contract to save regular amounts will be exempted from tax on any interest on their savings and will be allowed to purchase shares in the employer company at a discount of up to 25 per cent on the market value of the shares at the time they commenced the savings programme.
All in all a Finance Bill which will go down in history as it sets out the framework for the Republic's tax regime for the millennium.
Enda Faughnan is head of tax at PricewaterhouseCoopers in Ireland
