I move: "That the Bill be now read a Second Time."
I am pleased to bring the Bill to the House at a time we can be optimistic. Ireland is continuing to recover from the most severe downturn in the history of the State, caused by crises in both the public finances and the banking system. The approach the Government has taken to engineer that recovery has had three overarching principles, namely, returning stability to the public finances, repairing the banking system and restoring sustainable growth to the economy. The Government is on track to bring the deficit under 3% of GDP by 2015; the banks are returning to more normalised operations and have accessed borrowing markets, and the economy is expected to record the third straight year of growth in 2013. Progress is real and tangible but much remains to be achieved.
The most recent Central Statistics Office, CSO, data show that in the first three quarters of 2012 GDP increased by 0.8% compared with the same period a year earlier. Growth continues to be driven by exports which increased by 3.2% in the same period, reflecting improvements in competitiveness and Ireland's enduring attractiveness as a destination for foreign direct investment. Our progress is reflected in investors' confidence in our ability to successfully tackle our economic and budgetary problems. For example, the yield on 2020 Government bonds has fallen from approximately 15% in July 2011 to 3.6% today.
On the fiscal side, the public finances have stabilised and the budget deficit is declining. The general Government deficit for 2012 is currently estimated to have been under 8% of GDP, down from an underlying deficit of 9.1% of GDP the previous year. This year the deficit will be reduced further to 7.5% of GDP, in line with commitments under the EU-IMF programme.
On the financial side, we have consigned the promissory notes and the annual payment of €3.1 billion every March to history. We have also removed the former Anglo Irish Bank and Irish Nationwide Building Society from the banking landscape. This success in dealing with legacy issues has been complemented by positive developments in terms of the sale of €1 billion of Bank of Ireland contingent capital notes and today's sale of Irish Life to Great-West Lifeco for €1.3 billion plus a €40 million dividend. These developments illustrate that there is value to the State's holdings in the banks and that the Government will sell these assets when the price and time is right for the taxpayer.
With regard to the Bill, the Government considers unemployment to be its biggest challenge. While job creation in the exporting sector is encouraging, it is domestic growth which will help us to make real progress in tackling this issue. That is why the Bill contains a package of measures designed to support small and medium enterprises. The Bill begins to implement the ten point tax reform plan announced in the budget. The plan includes measures such as reforming the three year corporation tax relief for start-up companies, increasing the cash receipts basis threshold for VAT, amending the close company surcharge to improve cash flow for SMEs and extending the foreign earnings deduction for work-related travel to certain additional countries. Another measure which will be important for this sector is the amendment of the "key employee" provision of the research and development tax credit regime by reducing from 75% to 50% the proportion of time that such an employee must spend solely on research and development activities to qualify for the credit. In addition, as outlined in my Budget Statement, I will extend the employment and investment incentive and the seed capital scheme for a further seven years. I have also decided to allow for investments in hotels, guesthouses and certain other self-catering accommodation to qualify for these incentives.
The introduction of the new JobsPlus scheme later this year will provide grants for employers to encourage them to employ individuals who have been on the live register for greater than 12 months. My Department has been working closely with officials of other Departments on the design of this initiative. It will provide a single, easy to understand, focused incentive in this area to replace a number of schemes. In recognition of this, the Bill provides for the closure of the Revenue job assist scheme, to be co-ordinated with the launch of the successor scheme to which I referred I announced the budget. The details of this will be announced in the coming days.
A provision that establishes a scheme for accelerated capital allowances in respect of the construction of hangars and ancillary airport facilities is included in this legislation. There is scope to place Ireland firmly on the map as a centre of excellence for the aviation industry, with all that may then ensue in terms of job creation. To support our thriving agrifood sector and build on the supports for this sector announced last year, the Bill provides for a capital gains tax relief to be available where the proceeds of a sale of farm land for farm restructuring purposes are reinvested for the same purpose.
The legislation also provides for pre-retirement access to funded additional voluntary contributions, AVCs. Individuals will be allowed a once-off option to withdraw up to 30% of the value of funded AVCs made to supplement retirement benefits. This is a restricted measure which will enable rather than incentivise certain individuals to access part of their pension savings beyond their regular or compulsory pension contributions.
As announced in the Budget Statement, the Bill will provide a new tax regime to allow for the introduction of real estate investment trust, REIT, companies in Ireland. It is hoped they will facilitate the attraction of foreign investment capital to the Irish property market.
The Bill contains a number of measures which demonstrate Ireland's positive reputation in international tax matters. As I noted in my Budget Statement, Ireland is one of the first countries in the world to conclude a new type of agreement with the United States to improve international tax compliance.
I will describe the main provisions contained in the Bill. Part 1 deals with the income levy, universal social charge, USC, and income, corporation and capital gains taxes.
Section 1 is an interpretation section. Section 2 makes provision for a USC charge, in specific circumstances, in cases where a balancing charge arises. It also exempts from USC amounts paid under pre-retirement access to AVCs. Section 3 provides for the changes to the USC announced in budget 2013 which applies the standard rates of USC to those aged 70 years and over, as well as to medical card holders - both PAYE and self-employed income earners - who have income in excess of €60,000 per annum. Section 4 provides for the extension of certain revenue administration powers in relation to the collection of income tax to the collection of USC, while section 5 relates to the "key employee" provision of the research and development tax credit, the threshold for which will be reduced to 50%.
Sections 6 and 43 amend sections 71 and 29, respectively, of the Taxes Consolidation Act 1997, TCA. These amendments counter potential avoidance mechanisms in relation to non-domiciled individuals. Section 7 provides for the closure of the Revenue job assist scheme, in line with the launch of the new JobsPlus scheme.
Section 8 gives effect to the budget day announcement that maternity benefit payments will be treated as taxable income with effect from 1 July 2013. As is the case with all social welfare payments, maternity benefit payments will continue to be exempt from USC. In addition and to ensure a fair and consistent approach, this section also provides that adoptive benefit and health and safety benefit payments will be treated as taxable income with effect from 1 July 2013. The section also provides for the making of regulations for the efficient collection and recovery of any income tax due on the benefits.
Section 9 provides for an extension of the foreign earnings deduction for work-related travel to a number of African countries which have been identified by the Department of Agriculture, Food and the Marine as having great potential for Irish agrifood exports.
The disregard for tax relief for third level fees is increased in section 10 in line with the scheduled increases in the student contribution announced by the Minister for Education and Skills.
Section 11 introduces legislation that will counter avoidance schemes, whereby employers utilise employee benefit trusts to provide loans or loans of assets for employees. Such schemes can involve the non-repayment of such loans, thereby leading to a gain for the employee, which is not subject to tax.
Section 12 makes a number of changes in respect of benefit-in-kind, BIK, legislation. In particular, it confirms that when a benefit is provided by any public body for an office holder or employee, whether employed directly by that body, a BIK charge applies. The budget change in the specified rates applicable to preferential loans is also confirmed, while a number of minor technical amendments will be made.
Section 13 deals with various issues relating to ex gratia payments, including the abolition of top slicing relief, which I announced on budget day. In addition, the section provides for the extension of the maximum lifetime limit of €200,000 that may be paid tax free to all termination or ex gratia payments. The section provides for the abolition of foreign service relief in respect of gratuity payments made on retirement or removal from office.
Section 14 provides for an amendment to the definition of "relievable amount" which will provide that the standard rate tax relief at source on a health insurance premium will be net of any "risk equalisation credit" under the new permanent health insurance risk equalisation scheme introduced by the Minister for Health in late 2012.
Section 15 makes changes to the basis of assessment for rental income or profits sourced from outside the State. The changes in effect mean that losses from foreign rental income cannot be offset against other foreign income such as income from foreign trades, pensions or dividend income. The long-standing Revenue practice of allowing foreign rental losses to be offset against foreign rental profits will continue.
Section 16 provides for pre-retirement access to funded additional voluntary contributions, to which I referred earlier. The section also amends certain requirements relating to the extension of the approved retirement fund option to all defined contribution pension arrangements provided for in the Finance Act 2011 by temporarily rescinding the increases set out in the Act in the specified income requirement for the approved retirement fund option and in the maximum set-aside amount for the purpose of an approved minimum retirement fund.
Section 17 introduces two new provisions which apply to individuals who are engaged in the trade of dealing in or developing land. The first relates to restrictions on the use of certain losses by individuals who are not actively engaged in a trade of dealing in or developing land until these losses have actually been realised. Also, provision is being made to ensure that where loans are taken out to acquire land by individuals engaged actively or otherwise in a trade of dealing in or developing land and these loans are subsequently released or forgiven, the amount forgiven is treated as a receipt of income.
Section 18 provides for the changes to the scheme of tax relief for donations to approved bodies that I announced in the budget.
Section 19 relates to stock relief. The Finance Bill extends the general 25% rate and the 100% young trained farmer rate of stock relief to 31 December 2015. The Bill also extends the definition of registered farm partnerships for the purposes of the enhanced 50% stock relief - 100% for certain young trained farmers - to other registered farm partnerships such as beef or sheep farm partnerships. Both the 50% and 100% rate of reliefs are subject to State aid clearance from the European Commission. As part of this process, the Department of Agriculture, Food and the Marine had to give assurances that certain conditions would be adhered to in relation to the 100% young trained farmer rate. The Bill makes provision for these conditions.
Section 20 relates to film relief. Following a review of the relief by my Department, film relief will no longer be available to investors in qualifying films. Instead, a payable tax credit will be paid directly to a producer company. I am setting the rate of the tax credit at 32%, which is a substantial saving to the taxpayer since relief is currently given to investors at a rate of 41%.
The extension and change to the employment and investment incentive and seed capital scheme, to which I referred earlier, are provided for in section 21.
Section 22 increases deposit interest retention tax, DIRT, by three percentage points, with effect from 1 January 2013, as announced in budget 2013.
Section 23 modifies the definition of an "investment certificate" to facilitate the issuing of Islamic bonds.
Section 24 reduces the tax credit available for donations of heritage property to the State from 80% of the market value of the property to 50%. The section also makes a number of other changes to permit the donation of ancillary buildings and land along with heritage properties, which may be necessary for the provision of access or parking facilities for tourists.
Section 25 provides for the offset of unutilised foreign tax credits against universal social charge liabilities. It also provides for an additional tax credit in respect of foreign tax paid on certain dividends from EU or EEA treaty partner countries, by reference to the nominal rate of tax in the payer's jurisdiction. This latter change is being made on foot of a ruling by the Court of Justice of the European Union.
Section 26 makes two technical amendments to update definitions in the Taxes Consolidation Act, section 79C.
Section 27 increases the amount of group expenditure on research and development activities excluded from the incremental basis of calculation from €100,000 to €200,000.
Section 28 makes a technical amendment to the Taxes Consolidation Act, section 246, and provides an exemption from withholding tax on interest payments to approved pension schemes.
Section 29 relates to the living cities initiative. I announced in my budget speech that proposals for targeted tax incentives in already identified regeneration areas would be examined. As this is a pilot scheme, it will be confined to certain designated areas for the time being. Due to the requirement to obtain EU state aid approval, this provision will be subject to a commencement order.
Amendments to the Taxes Consolidation Act are made in section 30 to establish an accelerated capital allowances scheme pertaining to the aviation sector, as I outlined.
Section 31 contains the enabling legislation to allow for the implementation of an International Tax Information Exchange Agreement with the United States of America to Improve Tax Compliance and Provide for Reporting and Exchange of Information concerning Tax Matters which was signed at the end of 2012.
Section 32 amends the close company surcharge rules and increases the de minimis amount of undistributed investment and rental income which may be retained by a close company without giving rise to a surcharge from €635 to €2,000. The same increase will apply in respect of the surcharge on undistributed trading or professional income of certain service companies.
Section 33 extends the three year corporation tax exemption for start-up companies and allows that any unused relief arising in the first three years of trading, due to insufficiency of profits, may be carried forward for use in subsequent years. This is subject to the maximum amount of relief in any one year not exceeding the eligible amount of employers' PRSI in the year in question.
Section 34 introduces an amendment to reduce from ten years to five years the period in which a specified intangible asset must be used in the trade to avoid a clawback of allowances.
Section 35 updates the list of specified non-commercial State sponsored bodies that qualify for exemption from income tax and corporation tax. The section also introduces a clarification that grants or subsidies paid under the wage subsidy scheme, as administered by the Department of Social Protection, are exempt from income tax and corporation tax.
Section 36 reinstates a technical provision to ensure the appropriate amount of trading losses is brought forward when making a claim for value basis relief.
Section 37 clarifies certain conditions necessary to qualify for group relief for corporation tax losses.
Section 38 increases the rates of tax applying to life assurance policies and investment funds by three percentage points with effect from 1 January 2013.
Section 39 provides for the introduction of a tax regime for real estate investment trust, REIT, companies in the Taxes Consolidation Act. I referred to this earlier. Subject to meeting a number of criteria, including a requirement to distribute 85% of its property income by way of property income dividend, the regime provides a tax exemption in respect of the income and chargeable gains of a property rental business. The section also provides that property income dividends paid by the REIT will be subject to dividend withholding tax and will be taxable in the hands of the shareholders.
Section 40 restores the tax transparency treatment of investment limited partnerships, ILPs, established under the Investment Limited Partnerships Act 1994. It does so by inserting a new section 739J in to the Taxes Consolidation Act. The section also updates certain other provisions of the Act to refer to the new section 739J.
Section 41 provides for the capital gains tax rate increase from 30% to 33%, as announced on budget day. Section 42 replaces references to "Irish currency" in certain provisions of the Taxes Consolidation Act 1997 with the term "the currency of the State". Section 43, as described with section 6, is an amendment to counter potential avoidance mechanisms.
Section 44 amends the provisions relating to the tax treatment of certain profits, known as "carried interest", received by venture fund managers, the purpose of which treatment is to attract venture capital investment into this country.
Section 45 relates to changes in capital gains tax, CGT, relief introduced in last year's Finance Act for individuals who dispose of agricultural assets to their children and certain other individuals. The amendments ensure that relief will apply to such disposals by individuals aged 66 years or over on or after 1 January 2014 where the consideration for the disposal is €3 million or less. In addition, it provides for the aggregation of the consideration for disposals made on or after 1 January 2014 by such individuals for the purposes of the €3 million lifetime limit introduced in last year's Act.
Section 46 provides for the relief from CGT for farm restructuring that was announced in the budget. The relief will apply to a sale, purchase or exchange of agricultural land in the period from 1 January 2013 to 31 December 2015 where Teagasc has certified that a sale and purchase or an exchange of agricultural land was made for farm restructuring purposes. The commencement of the relief is subject to receipt of EU state aid approval.
Part 2 deals with excise. Section 47 gives effect to the increase in the rates of tobacco products tax, which, when VAT is included, amounts to 10 cent on a packet of 20 cigarettes with pro rata increases on other tobacco products. The section also provides for a further increase of 50 cent per packet of roll-your-own tobacco.
Section 48 makes some technical amendments to the mineral oil tax provisions of Chapter 1 of Part 2 of the Finance Act 1999. Section 49 introduces a new section in mineral oil tax law to provide for a partial relief - by way of repayment - for auto diesel used in the course of business by qualifying road haulage and bus operators. I had announced that this would apply to tax compliant licensed hauliers but, following consideration, I have decided to extend this relief to tax compliant licensed passenger transport operators.
Section 50 amends general provisions of excise law, including provisions to ensure that repayment of overpaid excise duty does not result in unjust enrichment. Section 51 defines terms used in the provisions of general excise law, while sections 52 and 53 amend provisions of general excise law for the powers of Revenue officers for excise purposes as well as the delegation of powers, functions and duties. Section 54 provides for the indictable offence of illicit production of tobacco products, as well as an offence of the selling or delivery of unstamped tobacco products.
Section 55 amends the betting duty provisions by clarifying the provisions in respect of relief from betting duty for so-called laid off bets. This involves the deletion of existing provisions and the inclusion of a relief provision in line with other excises, and it also provides for the necessary amendments, subject to commencement, when the provisions with regard to remote betting contained in the Finance Act 2011 are commenced.
Section 56 gives effect to the increase in the excise rates of alcohol products tax, which VAT inclusive amounts to 10 cent on a pint of beer or cider and a standard measure of spirits and €1 on a standard bottle of wine.
Sections 57 and 58 provide for a relief from electricity tax and natural gas carbon tax in respect of electricity and natural gas intended for use in the context of diplomatic relations in the State, in accordance with EU law. Section 59 provides for a number of amendments in preparation for the commencement of solid fuel carbon tax with effect from 1 May 2013, as I announced in the budget. This section also provides for a relief from solid fuel carbon tax in respect of solid fuel intended for use in the context of diplomatic relations in the State, in accordance with EU law.
Section 60 amends a number of definitions for vehicle registration tax, VRT, purposes. Section 61 gives effect to the revised system of VRT, which was introduced from 1 January 2013. Section 62 extends the period for the VRT relief for hybrid and flexible fuel vehicles, while sections 63 and 64 are minor technical amendments.
Part 3 deals with value added tax. Section 65 is an interpretation section. Sections 66 and 69 provide that receivers, liquidators or any other persons exercising a power are liable to VAT in respect of services they make on behalf of a defaulter, including obligations under the capital goods scheme and options to tax. Section 69 also includes the strengthening of a general anti-avoidance measure as regards sales to connected persons. Section 67 is an anti-avoidance measure with regard to the supply of vouchers supplied to businesses outside the State for resale. Sections 68 and 73 relate to the entitlement of fund managers to deduct input VAT and bring our law into line with the EU VAT directive. Section 73 also provides that the services threshold applies to public bodies in respect of supplies made by them of sporting facilities. Section 70 increases the VAT cash receipts basis threshold from €1 million to €1.25 million with effect from 1 May 2013. This change is part of the ten point tax reform plan for small businesses announced in the budget.
Section 71 reduces the farmer's flat rate addition from 5.2% to 4.8% with effect from 1 January 2013, as announced in the budget. The 4.8% rate continues to achieve full compensation for farmers. Section 72 is a technical change that allows the Revenue Commissioners to make regulations relating to evidence of business controls regarding the issue and receipt of invoices.
Part 4 deals with stamp duties. Section 74 is an interpretation section. Section 75 introduces a number of technical amendments consequential to the stamp duty self-assessment provisions introduced in the Finance Act 2012. Section 76 inserts three new sections into the Stamp Duties Consolidation Act 1999, SDCA, and deletes section 36. It also deletes section 82 of the Finance (No. 2) Act 2008, which contained similar provisions that were never commenced. These new sections will counteract stamp duty avoidance measures that involve resting in contract, licensing and long lease arrangements. Section 77 amends section 81AA of the SDCA to extend the relief from stamp duty on transfers of agricultural land, including farm houses and buildings, to young trained farmers until 31 December 2015.
Section 78 amends sections 88(2) and 90(3) of the SDCA. It relates to section 40 in respect of amendments to the taxation of investment limited partnerships and updates the SDCA to ensure that an existing exemption from stamp duty on transfers of units in investment limited partnerships will continue to apply. It provides separately that the exemptions for the transfer of foreign shares and certain financial services instruments will apply in the case of securitisation transactions.
Section 79 amends section 123B of the SDCA, which provides for the stamp duty charge on cash, combined and debit cards. This amendment will continue the exemption from stamp duty for a basic payment account on a permanent basis. Some technical amendments have also been made to the definition of "basic payment account".
Section 80 gives effect to the new rates of the health insurance levy for 2013. The rates for 2012 remain in force until 30 March. From 31 March, the rates will vary depending on the age of the person insured - over or under 18 years - and the level of cover.