The December Budget was heralded as perhaps the greatest giveaway Budget in the history of the State. Since then, however, the Minister for Finance has had to face his EU counterparts and take the flak for what was regarded as a Budget that breached EU guidelines on spending. Undaunted, the Minister has published a Finance Bill that, to some extent, continues the "giveaway" policy.
Most focus in recent days has centred on the new savings scheme under which, having saved a predetermined amount over five years, the taxpayer can look forward to a terminal bonus given by the State equal to 25 per cent of the final day balance. This is undoubtedly generous in view of returns currently available on the market to savers.
There was much talk prior to the Budget about changes in the taxation of share options and the Bill contains details of the switch from income treatment to capital gains tax treatment on the exercise of options. This will reduce the option holder's tax bill from 42 per cent to 20 per cent, but only if a series of conditions - such as the availability of options to the wider workforce - are met.
One major change in tax administration that will be felt by the self-employed and others under the self-assessment system is the change in the tax year to a calendar-year basis. Taxpayers (and their advisers) will have significant mindset adjustments with regard to filing dates and tax payment dates. Commencing in respect of the (short) tax year to December 31st, 2001, and thereafter in respect of each calendar tax year, the most important date in the taxpayers' diary will be October 31st. The important dates until now have been November 1st (for the payment of preliminary tax), January 31st (for the filing of a Return of Income) and April 30th (for the payment of any balance of tax due). With the introduction of the tax year running on a calendar-year basis, one date will be used for all of these obligations. This is simpler to remember than the current system and there is a benefit to the extent that preliminary tax (which is the major tax payment in any year) will be payable three months later than before, but there is a significantly increased administrative burden on the taxpayer to comply with all of these on/by the same date.
The Bill flags a relaxation in the treatment of certain interest payments made by Irish resident companies to affiliates abroad - where such interest may previously have been treated as a non-deductible distribution, it can now be treated as tax deductible where it is paid by a trading company to an affiliate in the EU or in a country with which Ireland has a Double Tax Agreement, or where it is paid by a licensed bank or an IFSC company to an affiliate in any location.
Also announced are changes that give effect to the decision of the European Court of Justice in a case (the "St Gobain" case) dealing with double taxation relief and certain types of group relief. The measures introduced will effectively put an Irish branch of an EU resident company on the same footing as an Irish resident company where the branch suffers foreign tax on income subject to Irish tax or where the branch transfers assets to another group member also operating in the State.
However, the sting in the tail is found in the abolition of the exemptions that applied to the repatriation of foreign dividends and foreign branch trading income. The exemptions applied where the Minister had issued certificates approving the exemptions on a case-by-case basis. No exemption will now be available unless a certificate has been issued before February 15th, 2001.
The Bill also announces a termination date of December 31st, 2003, for the Foreign Earnings Deduction relief (FED). The FED allows a deduction (up to a maximum of £25,000 (€31,770)) from employment income where an Irish resident performs some employment duties outside Ireland and the UK. Originally there was no upper limit to this relief and it was seen as an important incentive for Irish employees to take up temporary positions abroad at a time when Irish business influence was expanding beyond these shores.
As expected, tax relief is given in respect of the cost of a taxi licence, either where the car is used only by the licence holder or where it is used partly by the licence holder and partly rented out under a "cosy arrangement". The cost of the licence can be written off for tax purposes over five years.
Where a person holds two licences, one on a vehicle that is driven only by the licence holder and the other on a vehicle part used by the licence holder and part let, it appears that the person may be able to claim the relief in respect of the cost of both licences. The relief is retrospective to November 21st, 1997.
Enda Faughnan is head of tax at PricewaterhouseCoopers
