Renewed efforts to limit tax avoidance

The Government has stepped up its efforts to limit tax avoidance by introducing a range of new measures in the Finance Bill.

The Bill contains eight anti-avoidance measures that relate to a number of different tax areas, including stamp duty, capital acquisitions tax and VAT.

"This will reassure taxpayers that all those liable to tax are required to pay their fair share," the Minister for Finance, Mr Cowen said yesterday.

The new provisions include a measure to stamp out the practice whereby holders of life assurance policies can defer exit tax by "rolling over" investments when the policy term is complete.

Department of Finance officials quoted from documentation used to market such policies, highlighting references to avoiding tax "ad infinitum".

The Bill aims to ensure that the exit tax will now always be paid at the end of the original designated investment period.

The Bill also aims to eliminate a practice whereby some housebuyers were attempting to avoid stamp duty by taking out individual rather than joint conveyances on property purchases.

This meant, for example, that a couple buying a house for €500,000 would each draw up a contract for a purchase worth €250,000. Each contract would attract stamp duty at 4 per cent and would thus result in two payments of €10,000.

Applying stamp duty on the €500,000 purchase price would however result in a payment of €37,500, based on duty of 7.5 per cent. The Department of Finance said claims based on this type of strategy had failed and would now certainly fail in the future.

The Government has also closed a loophole that allows shareholders to avoid 42 per cent income tax on their dividends by "selling" businesses and paying capital gains tax at 20 per cent, only to retain them in practice.

Other anti-avoidance measures contained within the Bill include the recognition under Irish law of limited partnerships established abroad. This will stop such partnerships availing of more beneficial tax treatment.

Three of the new measures relate to VAT. The Bill makes it clear that a party other than a private person who receives a lease of property which is surrendered or assigned must pay the VAT that is due on the transaction.

The Bill also provides that a property can be sold without incurring VAT where the seller was not entitled to deductability when he or she acquired or developed the property.

Another change will close a loophole involving money transfer services where they were being offered by a non-EU company through an Irish intermediary. The "place of supply" for VAT purposes will now be the Republic rather than abroad.

A loophole involving the claw-back of stamp duty and capital acquisitions tax on agricultural, business and "young farmer" reliefs has also been closed.