I move: "That the Bill be now read a Second Time."
When I made my 2016 Budget Statement in the Dáil three weeks ago, I stated the top priority was to keep the recovery going, while providing relief and better services for the people. The Finance Bill 2015 provides the legislative basis for the taxation measures. As I outlined on budget day, the taxation measures are just one element of the overall budget package designed to support families. The Social Welfare Bill the Tánaiste introduced to the House today includes key provisions that will support working families, including increases in family income supplement and child benefit. The increase in the minimum wage will be introduced on 1 January 2016 and the legislation to give effect to the provisions of the Lansdowne Road agreement will be dealt with by the Minister for Public Expenditure and Reform, Deputy Brendan Howlin, on Committee Stage next week. The Revised Estimates Volume for 2016, due to be published in December, will outline in greater detail the expenditure allocations and programmes announced by the Minister, Deputy Brendan Howlin, in the budget.
Taken together, all of the budget measures are sensible, affordable steps that will keep the recovery going, increase the progressivity of the income tax system and bring benefits to every family. They have been designed to make work pay, support families and encourage entrepreneurship. The good news is that the economy continues to grow strongly, the public finances are in a strong position and we will exit the corrective arm of the Stability and Growth Pact this year.
The latest Exchequer return figures published on Tuesday are positive, but we know that the job of recovery is not yet complete. Our recovery is strong but we must continue to nurture it as the benefits of a growing economy have not yet been felt by all. There is work to do and the Government and the country continue to do it. We all know what has to be achieved and it is only natural that we may have different opinions at times as to how best to achieve our objectives. For me, one of the welcome aspects of Budget 2016 is the debate it has generated and the way in which so much information on how it was prepared is in the public domain. I see this as very positive as it reflects the Government's commitment to openness and transparency. It also reflects how much we value input from all sides.
I note, in particular, that Governor Honohan of the Central Bank provided me, as is the norm, with his insights and advice on the economy in advance of Budget 2016. He rightly highlighted some of the key risks facing the economy, including any potential for mismanagement of the public finances and the use of once-off revenue to underpin long-term expenditure commitments. I strongly point out that Budget 2016 represents the first budget under the new fiscal rules which are designed to prevent the boom bust cycles of the past from recurring. However, the economy is not yet performing at full capacity and for that reason, the Government has introduced a modest fiscal package to reduce unemployment, fix the supply side of the economy and reward and incentivise work. Under the EU fiscal rules which were adopted into Irish law after the fiscal stability treaty, Ireland must implement a 0.6% of GDP improvement in the structural balance in 2016. The Department of Finance forecasts show that Ireland will make a 0.8% structural improvement; we are, therefore, doing more than is required.
Furthermore, one-off proceeds from asset sales such as the State's shareholding in the banking sector cannot be used to finance day-to-day expenditure. The statistical treatment of such revenue is such that it will primarily be directed towards reducing Ireland's elevated debt level. This will help to underpin Ireland's fiscal sustainability in the medium term. I know also that Professor McHale of the Irish Fiscal Advisory Council, IFAC, initially suggested we make a 1% structural adjustment because of the position in the economic cycle. He later corrected the record and acknowledged that only a 0.6% adjustment was required and that Ireland was going beyond this by making an adjustment of 0.8%. The IFAC will publish a detailed response to Budget 2016 in the fiscal assessment report later this month and I look forward to its assessment.
I would now like to draw attention to some of the main themes of the Finance Bill. As Members know, the Government has set a key objective for the years ahead of ensuring every family will be better off in employment. We must strike the right balance between rewarding work for the very lowest paid and keeping the tax base as broad as possible. My aim is to make it more attractive to return to work, to stay in work, to ensure work rewards individuals adequately and to encourage emigrants to return home.
From 1 January next year, the Bill will increase the entry threshold to USC from €12,012 to €13,000, removing over 40,000 workers from the scope of the charge entirely. It is estimated that over 700,000 income earners will not be liable to USC at all from next year. It should be noted that this figure includes individuals with incomes in excess of €13,000 as not all income is within the scope of USC. Most social welfare payments are not liable to the charge. The Bill also provides for reductions in the three lowest rates of USC. The amount of income liable at the second USC rate is also being extended to ensure a full-time worker on the new increased minimum wage will not enter into the third rate of USC which is being reduced to 5.5%. The Bill also provides for the introduction of an earned income credit to the value of €550. This will be available to those with earned income who do not have access to the PAYE credit. This will be a significant benefit to small business-owners across the country, including small retailers, publicans, farmers and tradesmen.
As the Taoiseach stated, it is essential that work pays more than welfare. This is the second Finance Bill that has allowed me the opportunity to reduce taxes on low and middle income workers. The marginal tax rate has reduced to below 50%, to 49.5%, an important milestone on the path to making work pay.
The Finance Bill is also about putting more money in the pockets of individuals and families. These changes mean that every worker and pensioner who currently pays income tax or USC, or both, will benefit from the budget changes. Taking account of the tax and expenditure measures, for example, a family with two children on a single income of €35,000 will see take home pay increase by €57 a month owing to the budget; a single person working full time on the minimum wage, earning €17,542, will see an increase of 4.2%, or €708 a year; a family with three children, with the parents working in the civil or public service and earning €55,000 and €50,000, respectively, will have an additional €196 per month in their pocket; while a self-employed worker earning €40,000 will see a gain of €1,002 in his or her annual net income, an increase of 3.5%. I am sure this package which will deliver modest increases in people's wages from 1 January is one that is supported by the majority of Members.
I now turn to the further development of the economy. The Finance Bill will implement the knowledge development box, KDB, as announced in the budget. The knowledge development box will provide for a 6.25% rate of corporation tax to apply to the profits arising to certain patents and copyrighted software which are the result of qualifying research and development carried out in Ireland. The Government has committed that the KDB will comply with OECD rules once introduced. It will be the first and only OECD-compliant box in the world. The OECD rules allow a third category of assets to qualify in respect of very small companies, namely, those with annual income from intellectual property that is less than €7.5 million and a annual global turnover of €50 million.
This requires certification by an independent non-tax authority as "patentable but not yet patented". The Finance Bill allows this additional category of assets to qualify for the KDB, pending a commencement provision linked with the introduction of separate legislation by my colleague, the Minister for Jobs, Enterprise and Innovation, to amend the powers of the Irish Patent Office to allow it to make the certification for the purposes of the KDB.
To provide robust safeguards around the quality of qualifying patents, the legislation allows only patents that have undergone a substantive examination to qualify for the KDB. To ensure the KDB includes patents granted by the Irish Patent Office, the Minister for Jobs, Enterprise and Innovation will also be amending patent legislation to make sure Irish patents include a substantive examination for novelty and innovative steps. In the meantime, the Finance Bill will allow all unexamined patents - Irish and otherwise - that have been certified by an independent patent agent to be included in the KDB for one year only, until 1 January 2017.
Also announced in the budget was the introduction of country by country reporting as agreed as part of the OECD base erosion and profit shifting, BEPS project. This introduces a requirement for multinationals with Irish parent companies to file country by country reports on their income, activities and taxes with the Revenue Commissioners. This measure illustrates Ireland's commitment to implementing the OECD BEPS recommendations.
The Finance Bill also introduces a petroleum production tax. The Bill will bring into law the fiscal terms for oil and gas recommended in the Wood Mackenzie report published by the Government in June 2014. The tax will apply to licences issued from June 2014, including licences arising from the 2015 Atlantic margin licensing round. In another measure to support industry and entrepreneurs, the three year corporation tax relief for startup companies is being extended to the end of 2018.
Before moving to examine the Bill in detail, I remind Deputies that, as I indicated in my Budget Statement, my Department will be examining the various proposals made in the report on the marine taxation review. As regards the recommendation on the provision of appropriate tax treatment in order to support a proposed new decommissioning scheme for fishing vessels, subject to examining the detail of any proposed scheme as approved by the European Commission and to the Government being re-elected, appropriate amendments will be made to the tax code in next year's Finance Bill to assist in maximising the take-up of such a scheme.
In respect of the recommendation to extend the seafarer's allowance to fishermen, my officials advise that this would not be permitted under state aid rules. However, they will work closely with the Department of Agriculture, Food and the Marine to consider if a different relief to target fishermen could be implemented in next year's Finance Bill.
I will now take Deputies through the Finance Bill. They will appreciate that in the limited time available I cannot describe every section in detail.
Part I of the Bill deals with the universal social charge, income tax, corporation tax and capital gains tax. Sections 2 to 4, inclusive, provide for the income tax and USC changes I have outlined. In addition, section 2 provides for an exemption for employees for USC on employer contributions to a personal retirement savings account, PRSA, to bring the USC treatment of such contributions into line with employer contributions to occupational pension schemes.
Section 6 provides that vouched expenses incurred by non-resident, non-executive directors travelling in the course of their duties will be exempt from income tax.
Section 8 extends the home renovation incentive for a final year, to end on 31 December 2016.
Section 10 provides that an employer may provide an employee with a single annual non-cash benefit to a maximum of €500 without applying PAYE, PRSI and USC to that benefit. It is intended that this measure will commence on 1 January; however, I will bring forward an amendment on Committee Stage to enable it to apply from the date of publication of the Bill.
Section 13 removes from the list of specified reliefs, for the purposes of the high earners' restriction, the exemption from income tax for profits and gains from the management of woodlands.
Section 15 amends the film tax credit following the budget announcement of an increase in the cap on qualifying eligible expenditure to €70 million per production. It also clarifies the definition of broadcaster and amends the information that will be published on films qualifying for the credit. The latter change will bring our disclosure obligations into line with those specified in the relevant EU state aid guidelines. These amendments are subject to EU approval under state aid rules.
Section 16 makes a number of amendments to the employment and investment incentive, EII. Certain changes to the terms of the incentive are made in order to ensure it complies with the European Commission's general block exemption regulations from a state aid perspective. In addition, the incentive is being extended to companies which already own and operate nursing homes for the purposes of raising funding which can be spent on extending the nursing home or residential care units associated with that nursing home. These changes were included in a Financial resolution and came into effect on budget night. Therefore, the increased amounts companies can raise under the incentive in a single year and in their lifetime which I announced last year have come into effect.
Section 17 makes a number of amendments to certain tax reliefs for farmers. First, it extends the period for which stock relief is available until 31 December 2018. Second, it makes a number of amendments to the registered farm partnership regime. Third, it introduces limited tax relief for succession farm partnerships.
Section 18 gives effect to the legislation which implements the petroleum production tax, PPT, which I have mentioned. The PPT will be charged on net income on a field by field basis, on a sliding scale between 0% and 40%. In addition, a minimum PPT of 5% of the field's gross revenue, net of transportation costs, will apply to fields in each year of production, regardless of the profitability ratio. The tax will be payable annually, with the scope for more frequent payments in the light of developments in the Irish offshore. It will increase the maximum marginal tax take on a producing field from 40% to 55%.
Section 20 amends the due date for the filing of the annual encashment tax return which had been due on 20 January. This date is being pushed out to 15 February as the original deadline was proving difficult for industry to comply with.
Sections 24 and 26 make minor amendments to the Taxes Consolidation Act 1997 regarding the introduction of Irish collective asset management vehicles and alternative investment funds. These changes bring the tax regime into line with the regulatory regime and ensure Ireland will maintain its place as an internationally renowned centre for funds management and administration.
Section 25 amends the tax code in respect of capital allowances for certain aviation service facilities to comply with EU state aid de minimis guidelines. The amendments were brought into effect by a Financial resolution on budget night.
Section 27 provides that additional tier 1, AT1, capital instruments are to be regarded as debt instruments for corporate and withholding tax purposes. This will ensure the same tax treatment will apply to these instruments as in other European countries.
Section 28 extends the three-year start-up corporation tax relief for new start-ups commencing to trade in the next three years.
Section 30 contains the legislation that will implement the knowledge development box, as I announced in the budget and to which I referred earlier, and will provide for a 6.25% rate of corporation tax to apply to the profits arising to certain patents and copyrighted software which are the result of qualifying research and development carried out in Ireland.
Section 31 introduces country-by-country reporting in line with the approach agreed as part of the OECD BEPS project. This introduces a requirement for multinationals with Irish parent companies to file country-by-country reports of their income, activities and taxes with the Revenue Commissioners. It will apply for fiscal years beginning on or after 1 January 2016 and the first reports must be filed with Revenue by the end of 2017. The section also enables the Revenue Commissioners to make regulations setting out further details of the information required to be filed and to provide for reports to be filed by other group companies in certain circumstances.
Section 32 transposes an amendment to the EU parent subsidiary directive into the Taxes Consolidation Act 1997 to include a general anti-avoidance rule. Section 33 replaces the existing capital gains tax relief applying to disposals of qualifying business assets by individual entrepreneurs and business people with a simplified relief which will apply from 1 January 2016. It is a capital gains tax rate of 20% rather than the general rate of 33% to the first €1 million of qualifying gains.
Section 34 amends section 29 of the Taxes Consolidation Act 1997 under which a capital gains tax charge arises where a non-resident disposes of certain specified Irish assets - mainly land or buildings - or shares deriving their value or the greater part of their value from such assets. The amendment will prevent an avoidance practice whereby a substantial amount of cash is put into a company shortly before a sale of shares in that company so that on the date of the sale, the shares derive their value mainly from the cash and not from the land or buildings.
Section 36 amends an anti-avoidance provision designed to prevent individuals avoiding capital gains tax by transferring property to controlled companies abroad. This amendment will modify the section to allow for bona fide transfers undertaken for commercial reasons.
Section 38 amends tax provisions which provide for a deferral of tax when an Irish company is restructured and amalgamated involving the transfer of business to another Irish company or when there is a transfer of assets within a group of companies. The amendments are aimed at preventing the misuse of the reliefs to avoid the payment of capital gains tax on the chargeable gains arising when assets are disposed of to a third party.
Section 40 provides for the budget announcement that the reduced rate of alcohol product tax available for beer brewed in small breweries may be claimed up-front or by repayment. This is subject to a commencement order and will come into operation once the Revenue Commissioners have made the necessary changes to the collection system. This section also updates the definition of "counterfeit goods" to reflect the new definition in EU legislation.
Section 41 clarifies and extends the powers of Revenue officers to search premises, vehicles and computers, including mobile phones, for information which may be of value in the investigation of excise offences. This includes the introduction of new definitions and extends provisions for the retention and interrogation of computers and mobile phones for information which may be of value in the investigation of excise offences.
Section 42 gives effect to the increase in the rates of tobacco products tax which came into effect on budget night. Section 45 amends the definition of "motor caravan" in VRT legislation to provide that the Revenue Commissioners may prescribe the dimensions of what constitutes a motor caravan for VRT purposes.
Part 3 deals with value added tax, VAT. The VAT-related amendments in the Finance Bill do not signal any major policy changes and are largely technical in nature. Their primary focus is to prevent fraud, provide clarity and correct anomalies in the existing VAT consolidated Acts. Section 49 extends the VAT reverse charge mechanism to certain supplies in the wholesale gas and electricity sector and to gas and electricity certificates. This is a fraud prevention measure. Section 57 extends the VAT exemption for betting and betting exchange services to such services when provided to customers located outside the State.
Part 4 deals with stamp duties. Section 59 adds an additional qualification for the purposes of the young trained farmer stock relief. The new qualification is the Bachelor of Science (Honours) in Agriculture awarded by Dundalk Institute of Technology. Section 60 extends the relief from stamp duty on transfers of agricultural land, including farm houses and buildings, to young trained farmers until 31 December 2018.
Section 61 provides for the new stamp duty charge on cash cards, combined cards and debit cards. The current position is that stamp duty is charged annually at the rate of €2.50 for each cash and debit card and €5.00 for each combined card, subject to certain exemptions which are to remain unchanged. This flat rate charge is being replaced with a 12 cent charge on withdrawals of cash from ATM machines using these cards, which will be capped at either €2.50 in the case of cash and debit card withdrawals or €5 in the case of combined card withdrawals. The new basis of charge and the revised reporting requirements for issuers of cards are to come into effect on 1 January 2016.
Part 5 deals with capital acquisitions tax. Section 64 increases the group A tax-free threshold for transfers of gifts and inheritances from parents to their children and below which capital acquisitions tax does not apply by about 25% from €225,000 to €280,000 with effect from 14 October 2015.
Part 6 deals with miscellaneous matters. Section 66 will provide for the capital gains tax treatment of return of value payments received by those Irish shareholders in Standard Life whose options for such treatment got delayed in the post beyond the deadline date set by the company and who were defaulted into receiving payments which would otherwise be treated under income tax rules.
Section 67 inserts a new subsection into section 2 of the Taxes Consolidation Act 1997 following the signing into law of the Marriage Act 2015 to provide for the tax assessment of same-sex married couples. Section 70 implements Council Directive 2014/107/EU, which is known as DAC 2, into Irish law. This directive deals with the exchange of financial account information and is based on the OECD common reporting standard which Ireland legislated for in last year's Finance Act. The section also provides for the repeal of the savings directive. The savings directive has been effectively replaced by DAC 2 and is due to be repealed by the end of the year.
Section 71 deals with Revenue's powers to request information about taxpayers from third parties and financial institutions. The amendments will ensure that Revenue are able to seek the same information regardless of whether a taxpayer conducts business through their own name or through an online user name. As with Revenue's existing powers, information can only be sought by Revenue where it is reasonable to believe that the information is relevant to a tax liability. These amendments will also ensure that Ireland continues to comply with international best practice on the exchange of tax information.
Section 72 will require both property managers and public offices to return additional information on let property that can be used to assist the Revenue Commissioners in their profiling and targeting of tax non-compliant persons. Sections 77 to 80 provide for the new fuel grant to replace the excise repayment on fuel element of the disabled drivers and disabled passengers scheme, which was declared incompatible with the EU energy tax directive by the Court of Justice of the European Union. The introduction of the fuel grant will ensure that no beneficiary of the scheme loses out as the result of the court's decision. This measure will cost €10 million in 2016 and in a full year. These sections also ensure that the grant shall not be liable to tax and provide for an offence for furnishing false information for the purpose of receiving the grant.
Section 81 provides that the water conservation grant, administered by the Department of Social Protection, will be exempt from taxation. Section 83 relates to the National Treasury Management Agency's need to buy back and cancel securities as part of its regular operations.
At this stage, there are still a few matters under consideration for inclusion in the Finance Bill that I may bring forward on Committee Stage. I will, of course, also give consideration to the constructive suggestions put forward during our debate here this week.
