Written Answers Nos. 58-65
58. Deputy Pearse Doherty asked the Minister for Finance the planned date on which Ireland will no longer be subject to post-programme surveillance having repaid at least 75% of the financial assistance it has received from other member states, the EFSF and other sources. [49704/13]
View answerPost programme surveillance is a long standing feature of IMF assistance programmes. In the European context, Regulation No 472/2013 which is part of what is known as the “Two-Pack”, now provides for a similar arrangement for euro area member states in a post-programme situation. This is quite normal and is part of the wider governance changes that have been put in place at the EU level for all Member States to improve the way the euro area functions. In fact, these new governance arrangements help deal with some of the major problems that faced the euro area in the past and they will help avoid such problems emerging in the future. These new governance arrangements provide reassurance to the markets. They provide an early warning system if problems begin to emerge, they reduce the risk of contagion spreading from one Member State to another, and they increase peer review pressure to help ensure responsible policies are pursued by all Member States in the euro area. This is important for small Member States with very open economies such as Ireland. Of course, it works both ways and we must act responsibly too and the post-programme surveillance arrangements must be seen in that context.
Under the “Two-Pack” regulation on strengthening economic and budgetary surveillance a Post-Programme Surveillance process will be put in place and maintained for a member country until the balance outstanding under EU-sourced financial assistance falls below 25% of the total. EU-sourced financial assistance includes loans from the European Financial Stability Facility (EFSF), European Financial Stabilisation Mechanism (EFSM), and from the bilateral lenders. The average maturities for the EFSF and EFSM loans were extended by an average of seven years following agreement in Dublin in April. In the case of the EFSF, the details of the maturity extension have been agreed. However, for the EFSM loans which are funded differently, the details of the maturity extension will not be known until the existing loans mature. It is therefore not possible to give a definitive estimate of the date on which Post-Programme Surveillance will cease.
59. Deputy Ciarán Lynch asked the Minister for Finance if he will consider the concerns raised by a person (details supplied) in County Limerick regarding the issue of carbon taxation; and if he will make a statement on the matter. [49727/13]
View answerThe Revenue Commissioners advise me that the application of solid fuel carbon tax (SFCT) is heavily dependant on the regulatory regime for coal put in place by the Department of the Environment, Community and Local Government. The regulatory regime established higher standards for coal supplied in the State compared with Northern Ireland, and provides for enforcement of those standards. Suppliers who produce and supply solid fuels unlawfully are subject to investigation and prosecution by local authorities and other State agencies charged with enforcing environmental regulations and with preventing such supply.
SFCT commenced in May, so it is probably too early, taking account of seasonal factors, to assess the effectiveness of the regulatory framework put in place to enable its implementation. However, my officials will continue to monitor the SFCT on an ongoing basis.
In terms of the scale of the shadow economy in the fuel sector, I am advised by the Revenue Commissioners that while there is no reliable estimate of its size, they are very aware of the risks, particularly given the price differentials and the different levels of taxation with Northern Ireland. I am also advised by the Commissioners that solid fuel traders are subject to the full range of compliance interventions and enforcement provisions applied by Revenue for self-assessed taxes. Suppliers who suspect, or have evidence, that illegal and/or untaxed solid fuel is being sold in their area should report this to their Local Authority and to Revenue, respectively, either directly or through their representative associations. Reports of this nature have been received recently by Revenue and, as with all such reports, are being treated confidentially and will be risk assessed and where appropriate investigated for unpaid tax liabilities.
60. Deputy Billy Timmins asked the Minister for Finance if preferential tax treatment for public sector pensions is proposed in the Finance Bill; the basis for same; if the same policy applies to the private sector; and if he will make a statement on the matter. [49736/13]
View answer65. Deputy Joanna Tuffy asked the Minister for Finance if he will provide an update on the rules on defined benefit pensions; and if he will make a statement on the matter. [49773/13]
View answerI propose to take Questions Nos. 60 and 65 together.
As both questions 60 and 65 relate to the changes to the Standard Fund Threshold (SFT) regime announced in my 2014 Budget Statement and reflected in the recently published Finance (No.2) Bill 2013, I propose to deal with them together.
The primary purpose of the changes I am making to the SFT regime is to further restrict the capacity of higher earners to fund or accrue large pensions through tax-subsidised sources. The SFT regime does not and was never intended to impact on the vast majority of ordinary workers in either the public or private sector who are on middle or lower incomes.
The SFT regime addresses the problem of pension overfunding and excessive pension accrual by dealing with it at the point of pension drawdown in retirement rather than by applying restrictions to pension savings or accrual upfront. The regime achieves this by imposing a penal tax charge on the value of retirement benefits above set limits when they are drawn down. In this way it acts to discourage the building up of large pension funds in the first place or unwinds the tax advantage of such overfunding by clawing back, through the penal tax charge, the tax relief granted.
The changes I am making can be summarised as follows:
- firstly, the absolute value of the SFT is being reduced, with effect from 1 January 2014, from €2.3m to €2m;
- secondly, the valuation factor to be used for establishing the capital value of defined benefit (DB) pension rights at the point of retirement, where this takes place after 1 January 2014, is being changed from the current standard valuation factor of 20 to a range of higher age–related valuation factors that will vary with the individual’s age at the point at which the pension rights are drawn down;
- thirdly, in calculating the capital value of a DB pension at the point of retirement, transitional arrangements provide for a “split” calculation where part of the pension had already been accrued at 1 January 2014 so that the part accrued up to that date will be valued at a factor of 20 and the part accrued after that date valued at the appropriate higher age-related valuation factor; and
- finally, the reimbursement options, introduced in Finance Act 2012, for public servants affected by chargeable excess tax are being amended and extended.
As occurred on the occasion of the introduction of the SFT regime in 2005, and again when the value of the SFT limit was reduced to €2.3m in 2010, the legislation contained in the Finance Bill provides for an individual who has pension rights on 1 January 2014 in excess of the new lower SFT limit of €2m, to claim a Personal Fund Threshold (PFT) from Revenue in order to protect or “grandfather” the value of those rights on that date. This is subject to a maximum PFT of €2.3m, and individuals with PFTs from 2005 or 2010 retain those PFTs.
As before, the “grandfathering” provisions contained in the legislation reflect legal advice from the Attorney General. However, unlike previous occasions, the grandfathering arrangements this time around had to take cognisance not just of the reduction in the absolute level of the SFT from 1 January 2014, but also of the increase, from that date, in the factors for converting DB pension rights into capital value equivalents. It is for that reason, lest there be any suggestion that the changes had retrospective application, that DB rights accrued up to 1 January 2014 are to be capitalised at the existing valuation factor of 20, both for the purposes of determining if there is a PFT and for the purposes of placing a capital value on those rights at the time of retirement, where that takes place after 1 January 2014.
The changes and grandfathering arrangements outlined above apply, as appropriate, to both DB and defined contribution (DC) pension arrangements in both the private and public sectors. As regards DB pension arrangements, it is irrelevant whether an individual is a higher paid civil/public servant or a highly paid member of a private sector DB scheme, the same SFT rules apply to all such arrangements.
Specifically, the new lower SFT limit will apply to both DC and DB arrangements. Those in DC pension arrangements can seek a PFT from Revenue if the capital value of their arrangements exceeds €2m on 1 January 2014, subject to a maximum PFT of €2.3m. If the value of their DC pension arrangements is below the SFT on 1 January 2014, their funds can continue to accumulate up to €2m through further tax-relieved pension contributions and fund growth, subject to the various annual contribution and earnings limits that apply, without any risk of a chargeable excess arising. Members of DB pension arrangements can equally aspire to a maximum “tax–relieved” fund of €2m. However, in the case of DB pension arrangements, members of such arrangements do not have individual “earmarked” funds (as is the case in DC arrangements) and this, coupled with the fact that the value of pension benefits in DB arrangements reflect a “benefit promise” based on salary and service as compared to the market value of the pension funds in DC arrangements, dictates that the capital value of pension rights arising under DB arrangements has to be determined in some other way.
The SFT regime provides (and has always provided) a simple formula for this purpose. The formula essentially requires the annual amount of pension payable to an individual under the arrangement to be multiplied by a valuation or capitalisation factor in order to establish the capital value, both for PFT purposes and for the purposes of establishing the value of DB pension rights at the point of retirement. Up to now, a single valuation factor of 20 has been used for these purposes. In light, however, of the major criticism levelled at the existing SFT regime, that the fixed rate conversion factor of 20:1 was inequitable relative to DC pension arrangements given the higher market annuity rates that those with DC pension arrangements could face if they were to purchase annuities, I have moved to introduce higher age-related factors. This will substantially improve the equity between DC and DB arrangements and as between those who retire at younger ages and those who retire later in life. These are significant changes.
The value of DB pension rights accrued up to 1 January 2014 will, under the grandfathering requirements, be valued for the purposes of the SFT regime at the existing factor of 20. If the capital value so determined exceeds the new lower SFT limit of €2m, such individuals may seek a PFT from Revenue, subject to the overall limit of €2.3m referred to earlier. In such cases, additional pension benefits accrued after 1 January will be valued using the relevant higher age-related factor and will, as for DC arrangements, be fully exposed to chargeable excess tax. Where the capital value of DB rights is less than €2m on 1 January, such individuals may continue to accrue pension rights up to the SFT limit but those additional rights will be valued at the relevant higher age-related factor.
Whether DB or DC arrangements are involved, on each occasion that an individual becomes entitled to receive a benefit under a pension arrangement for the first time (called a “benefit crystallisation event” or BCE) they use up part of their SFT or PFT, as the case may be. At each BCE, a capital value has to be attributed to the benefits that crystallise and the value is then tested against the SFT or the individual’s PFT, as appropriate, by the pension scheme administrator. For DC pension arrangements, the capital value of pension rights when they are drawn down after 1 January 2014 is simply the value of the assets in the arrangement that represent the member’s accumulated rights on that date, in other words the value of the DC fund at the point of drawdown. In the case of DB pension arrangements, the default position is that the capital value of such rights drawn down after 1 January 2014 is determined by multiplying the gross annual pension that would be payable to the individual by the appropriate age-related valuation factor. If the DB arrangement provides for a separate lump sum entitlement (otherwise than by way of commutation of part of the pension) e.g. most public service schemes, the value of the lump sum is added to the capital value of the DB pension to arrive at the overall capital value.
However, reflecting the grandfathering requirements referred to earlier, where part of the DB pension has been accrued at 1 January 2014 and part after that date, the transitional arrangements provide for the part accrued at 1 January to be valued at the factor of 20 and the part accrued after that date at the appropriate higher age-related factor.
When the capital value of a BCE, either on its own or when aggregated with earlier BCEs, exceeds the SFT, or an individual’s PFT, the excess is subject to an immediate tax charge at 41%, which has to be paid upfront by the pension fund administrator and recovered from the individual. In addition, when the remainder of the excess is subsequently drawn down as a pension (or, for example, by way of a distribution from an Approved Retirement Fund or vested Personal Retirement Savings Account) it is subject to tax at the individual’s marginal rate, thus giving rise to an effective income tax rate on a chargeable excess of some 65%, excluding any liability to USC and PRSI.
The Finance Bill also amends and extends the reimbursement options, introduced in Finance Act 2012, for public servants affected by chargeable excess tax who are required to reimburse the public sector pension fund administrator for the upfront payment of the tax to Revenue. Unlike affected individuals in the private sector, public servants cannot minimise or prevent the breaching of the SFT or PFT by ceasing contributions or benefit accrual. The focus of the changes is to reduce the amount that can be recovered from the net retirement lump sum payable to the individual to a maximum of 20% of the net lump sum (from 50%) and to include the option of reimbursement of the pension fund administrator solely by way of a reduction in the gross pension payable over a period not exceeding 20 years.
61. Deputy John Lyons asked the Minister for Finance if he will query a case with the Revenue Commissioners (details supplied) involving a self-employed person who believes they are entitled to an additional rebate due to a period when they had ceased trading and were on sick leave. [49737/13]
View answerI am informed by the Revenue Commissioners that the person’s tax affairs were the subject of a Revenue audit in 2010. In the course of the audit a number of material discrepancies were identified in the person’s VAT and RCT returns. No explanation for the discrepancies was supplied. The person has subsequently made several approaches to Revenue seeking a refund of tax which he considers is due to him. On each occasion he has been advised that the question of any tax refund will not be considered until a satisfactory explanation of the discrepancies, which were set out in Revenue’s letters to him dated 16 November 2011 and 5 July 2012, has been furnished.
62. Deputy Simon Harris asked the Minister for Finance if the affidavits and resolution report published by the Central Bank following the transfer of the business of Newbridge Credit Union to Permanent TSB will be forwarded to the Director of Public Prosecutions for investigation; and if he will make a statement on the matter. [49738/13]
View answerThe Central Bank has placed the affidavit and the Resolution report, in relation to Newbridge Credit Union, on its website*. Any enforcement issues arising at Newbridge are a matter for the Central Bank, in the first instance, in its capacity as Regulator of the Credit Unions.
Section 33AK, subsection (3)(a) of the Central Bank Act 1942 requires the Central Bank to report information to other bodies, including the Garda Síochána if it is suspected that a criminal offence has been committed by a supervised entity or that a supervised entity has contravened a provision of the relevant Act. However, I understand that no such offences have been identified by the Central Bank.
*www.centralbank.ie/press-area/press-releases/Pages/CentralBankconfirmstransferofNewbridgeCreditUniontopermanenttsb.aspx
63. Deputy Pearse Doherty asked the Minister for Finance the arrangements or proposed arrangements that are in place with the German bank KfW to aid Irish small and medium enterprises or other economic sectors. [49749/13]
View answer81. Deputy Dara Calleary asked the Minister for Finance if the German bank KfW holds or has applied for a banking licence here; and if he will make a statement on the matter. [49823/13]
View answer82. Deputy Dara Calleary asked the Minister for Finance if a memorandum of understanding is being drawn up between the Irish and German authorities regarding the role that KfW bank will take in making credit available to Irish business; and if he will make a statement on the matter. [49824/13]
View answer83. Deputy Dara Calleary asked the Minister for Finance the expected level of credit KfW will make available to Irish business; and if he will make a statement on the matter. [49825/13]
View answer84. Deputy Dara Calleary asked the Minister for Finance if KfW will lend directly to Irish businesses or through Irish banks as intermediaries; and if he will make a statement on the matter. [49826/13]
View answer85. Deputy Dara Calleary asked the Minister for Finance if he expects KfW to compete directly with the State-supported banks for the provision of credit to small and medium sized enterprises; or if he sees the bank meeting a currently unfulfilled role; and if he will make a statement on the matter. [49827/13]
View answer86. Deputy Dara Calleary asked the Minister for Finance if the role envisaged for KfW is complementary to an alternative to the programme for Government commitment to establish a strategic investment bank; and if he will make a statement on the matter. [49828/13]
View answerI propose to take Questions Nos. 63 and 81 to 86, inclusive, together.
As the Deputy will be aware, the Taoiseach mentioned in this House last week that he had held discussions with Chancellor Merkel. Germany is keen to help and specifically to find ways to reinforce Ireland’s economic recovery by improving funding mechanisms for the real economy, including access to finance for Irish SMEs. The German Government has asked KfW, the German development bank, to work with the German and Irish authorities swiftly, in order to deliver on this initiative at the earliest possible date.
Officials of my Department, have already exchanged working papers on this subject with KfW and the German Ministry of Finance. We have held a consultation with the German embassy in Dublin which helped pave the way for discussions with the German Ministry which were held in Berlin yesterday and further discussions will be held with KfW and other key stakeholders over the coming weeks both here and in Germany.
I am keen to see the establishment of a healthy and balanced relationship. As we are trying to ensure that any initiative that comes out of this process is as effective as it can be, we will be discussing approaches that meet the strategic objectives of both States and ultimately facilitate lending to the real economy, in particular SMEs in Ireland. This relationship may take the form of a Memorandum of Understanding or a contract or indeed we may formalise that relationship in some more appropriate fashion.
KfW’s model in Germany is to lend through commercial banks. Whereas in the case of their agreement with Spain they provided a loan to ICO, the Spanish state investment bank who then lent the funding on to the commercial banks in Spain. All appropriate options will be considered in the course of the discussions with KfW for the Irish case.
KfW hold a banking licence in Germany and under the rules of the EU can passport into Ireland if this was deemed necessary without a requirement to obtain an Irish banking licence. I should note that KfW’s IPEX bank (its Import Export Bank) notified the central bank of its intention to passport into Ireland in January 2008. However, this is unrelated to the recent announcement.
As the Deputy will be aware, the Government has decided to establish the Ireland Strategic Investment Fund (ISIF) which will absorb the National Pensions Reserve Fund (NPRF). Using the Ireland Strategic Investment Fund, we will maximise our resources to enhance growth in the Irish economy and improve key infrastructure to maintain Ireland's attractiveness as a place to do business and to create employment. Officials of my Department are currently preparing the necessary legislation which I anticipate will be enacted early next year. Already, in the lifetime of this Government, the NPRF has established funds that support both strategic projects and a number that support SME financing.
Further assessment of the need to create a Strategic Investment Bank over and above the contribution expected from the ISIF will be informed by the requirements of the economy once the Government’s key immediate objectives for the repair of the banking system have been completed.
We have not set targets for any Strategic Investment Bank as its role has yet to be fully defined and due to State Aid considerations its potential market is likely to be somewhat prescribed. Experience in other countries suggests that any lending facilitated by a state investment institution like KfW or an Irish State Investment Bank is generally complementary to lending already taking place in an economy and can in fact assist commercial banks with access to cheaper credit lines such as from the European Investment Bank.
64. Deputy Eoghan Murphy asked the Minister for Finance the position regarding payment of the property tax where a house is sold in 2013, but the contract is not finalised before 1 November 2013, thereby making the vendor liable for the charge in 2014 although he would no longer own or occupy the property in that tax year; if the vendor is entitled to a refund from the Revenue Commissioners in any circumstance; and if the purchaser is entitled to a refund from the Revenue Commissioners where the tax for 2014 formed part of the sale agreement on the understanding at the time that there was a liability on the property, but which is no longer the case following recent clarification from the Revenue Commissioners regarding exemptions for non-first-time buyers. [49753/13]
View answerIn accordance with the Finance (Local Property Tax) Act 2012 (as amended), liability for Local Property Tax (LPT) will arise where a person owns a residential property on the liability date, which was 1 May 2013 for 2013 and for subsequent years, 1 November in the preceding year.
As I informed the House in my replies to a number of Questions on this matter, most recently in my reply to Questions Nos. [49518/13] and [49556/13] on 19 November 2013, where a liable person sells their residential property between 2 November 2013 and 31 December 2013, provided that they owned the property on 1 November 2013, they will be liable to pay LPT on that property for 2014. I also noted that detailed guidance on LPT issues arising in the context of the sale or transfer of a residential property was prepared by the Revenue Commissioners in consultation with the Law Society and is available on the Revenue website at http://www.revenue.ie/en/tax/lpt/sale-transfer-property.html.
For a tax such as LPT to function properly, legislation must specify a liability date for the tax to have application for a particular year. Whatever date is prescribed, the question of liability when there is a change of ownership has to be managed, and I expect that the LPT liability involved is likely to be factored in during negotiations between the parties on the sale price and the closing date of a particular contract.
An individual selling a property will often be purchasing another property at around the same time. While a vendor who owns a property on 1 November 2013 is liable for the 2014 LPT on that property, if s/he does not purchase another property before 1 November 2013 s/he will not be liable for the 2014 LPT on that "replacement" property - whoever is the owner as of 1 November 2013 will be liable.
I am advised by the Commissioners that no refund of 2014 LPT arises in the case of a vendor who owned the residential property on 1 November 2013, as s/he is the liable person on the relevant liability date. A purchaser who buys a residential property after 1 November 2013 is not liable for LPT for 2014 and as such, the question of a refund of LPT does not arise. However a person who purchases a residential property after 1 November 2013 but on or before 31 December 2013 may qualify for an exemption from LPT for 2015 and 2016 provided they occupy the property as their sole or main residence and continue to do so until the end of 2016.
