The minister announced the introduction of a new COVID-19 related support scheme, the CRSS, specifically targeting sectors which have been impacted significantly by the restrictions set out in the Government’s Plan for ‘Living with COVID-19’. The CRSS applies from 13 October 2020 until 31 March 2021, and will operate on a self-assessment basis.
The scheme as currently envisaged will apply to businesses operating in sectors that are impacted by Level 3 COVID-19 restrictions and in particular the accommodation, food, arts, recreation and entertainment sectors. Other sectors may qualify if Level 4 or 5 restrictions are imposed with the result that they are either forced to close or reduce their footfall. While these other sectors were not expanded upon by the minister, we would expect that the health and leisure and non-essential retail industries should qualify if additional COVID-19 restrictions are imposed. Whether non-customer facing industries, such as the construction industry, will be eligible for the scheme is uncertain, but from the information available so far, this appears unlikely given the minister’s reference to a lack of “access by customers” being an eligibility requirement of the scheme.
In order to qualify for the scheme:
Once these two conditions are satisfied the business can apply to Revenue for a cash payment (similar to the TWSS scheme). This cash payment represents an advance credit for trading expenses which are deductible for income and/or corporation tax purposes (ACTE) relating to the period (no earlier than Budget Day) in which the restrictions are effective. Payments will be calculated, subject to a maximum weekly payment of €5,000, based on:
Once Level 3 restrictions or above apply to a county/region, qualifying businesses can enrol in the CRSS in the first week the restrictions apply, with valid claims for the entire period the restrictions are imposed being paid within 2-3 working days. The payments will cease automatically once the Level 3 restrictions or above end. Where restrictions are extended by the Government, an additional claim can be made. It is not yet clear whether or not such payments will be subject to tax, but we would not expect tax to be imposed as this would run counter to the scheme.
The CRSS is a very welcome development to impacted businesses, albeit somewhat limited. However, it must be considered in the context of the existing wage subsidy scheme and the reduced 9% VAT rate for the hospitality and tourism industries as part of a package of measures.
It is hoped that the measures announced by the minister will help to prevent the closure of businesses which operate in the sectors most exposed to COVID-19, allowing them to operate successfully once the relevant restrictions have been lifted.
The estimated cost of the scheme is €40 million for each week Ireland is at Level 3 in every county.
Under this relief, entrepreneurs pay a special CGT rate of 10% when they dispose of qualifying business assets. The full rate of 33% then applies to gains above the lifetime limit of €1 million.
In respect of a sale of shares in a qualifying company, the change proposed by the minister would see a taxpayer meet the required holding period where they owned 5% or more of the shares of that company for at least three continuous years at any time. Previously, it was necessary to own 5% or more for a continuous three year period in the five year period falling immediately before the disposal. The change will provide more flexibility for working entrepreneurs to qualify for the relief as they can now qualify even where their shareholding has fallen below 5% in the years leading up to the disposal. For example, an entrepreneur who has owned 5% of a company for a continuous three year period can now dispose of a 2% interest, continue to own the remaining 3% for a further four years, and then dispose of the remaining 3% with both sales qualifying for Entrepreneur Relief. The second sale of 3% would not have qualified previously. This measure will come into effect 1 January 2021.
It will still be necessary for the entrepreneur to be an employee or director of the company who has spent at least 50% of their working time for three continuous years, out of the five years falling immediately before the disposal, in service to the company in a managerial or technical capacity.
The retention of Entrepreneur Relief and the change introduced by the minister should be welcomed. However, it is disappointing that that the Government has decided to retain the current rate of CGT whilst omitting to introduce any significant improvements for entrepreneurs and SMEs. It is hoped that the new Commission on Taxation might produce further initiatives to help stimulate this vital segment of the economy and that such initiatives will be taken up by Government in a meaningful way.
As noted in the Indirect Taxes section, the flat rate VAT addition that is available to unregistered farmers will increase from 5.4% to 5.6% from 1 January 2021. The flat rate addition compensates unregistered farmers for VAT on their farming costs.
The minister also announced a number of stamp duty measures to support the agricultural sector.
Stamp duty consanguinity relief is designed to facilitate and encourage intergenerational farm transfers. This relief reduces the stamp duty rate from 7.5% to 1% on the transfer of agricultural land to close relatives, provided certain conditions are met.
This relief was due to expire on 31 December 2020, but it will be extended for a further three years until the end of 2023.
Stamp duty farm consolidation relief provides for a reduced rate of stamp duty of 1% (compared to 7.5%) where a farmer disposes of and purchases land and/or exchanges land with another farmer in order to consolidate an existing farm. Stamp duty at 1% is applied to the excess of the value of the land acquired over the value of the land disposed of, where the acquisition and disposal take place within a 24 month period.
The relief is designed to encourage the consolidation of farm holdings in order to improve the operational efficiency and viability of farms for a period of five years from the date of the transfer.
This farm consolidation relief was due to expire on 31 December 2020, however, the minister announced that it will be extended for a further two years until the end of 2022. This coincides with the expiration date of the equivalent CGT farm consolidation relief.
The above taxation measures were complemented by increases in funding for the Department of Agriculture, Food and the Marine to enable the sector to cope with challenges faced in respect of COVID-19, Brexit and climate change.
Following the significant growth which has occurred within the gaming sector over the past 10 years, the minister announced his intention to commence work on developing a tax credit for the digital gaming sector, with a view to supporting qualifying activity from January 2022 onwards.
It is not yet clear what type of credit will be available, what will constitute “qualifying activity”, or how the credit will operate in practice. That said, this is a welcome announcement and we look forward to further developments on how the credit will operate in practice (e.g. aligned to R&D credit or akin to film corporation tax credit).
The Knowledge Development Box (KDB) introduced by Finance Act 2015, targeted incentivising companies to undertake innovative activities in Ireland by providing for a reduced 6.25% effective rate of tax on certain income that is generated from qualifying IP.
The minister announced an intention to extend the KDB relief scheme for a further two years, applying to accounting periods commencing before 1 January 2023. It is likely that a further extension to the KDB will be considered prior to the next ‘sunset clause’.
Accelerated wear and tear allowances are available to companies which purchase certain energy-efficient equipment for their trade. Instead of receiving allowances for expenditure over the standard period of eight years, allowances are granted in full in the year of acquisition. Recognising the importance of energy efficiency to the green agenda, the minister announced an intention to extend the regime by three years up to accounting periods ending 31 December 2023.
Furthermore, the minister announced that the energy efficiency criteria for the scheme will be re-assessed to ensure the categories of equipment availing of the scheme remain appropriate and reflect the most up-to-date efficiency standards.
Over many years efforts have been made to streamline the relief and increase its attractiveness to both investors and companies alike, including increasing the investment limits and moving to a system of “self-certification” whereby companies can self-certify that they qualify for the relief (rather than relying on Revenue pre-approval).
The minister announced that a review of the scheme will be carried out later this year to identify how the scheme can be further enhanced to help the SME sector in the current crisis. The review will focus on measures such as improved support for start-ups, the potential to attract capital from a broader range of investors and the potential to include energy-efficient projects within the remit of the EII. This review is much welcomed as the SME sector has suffered greatly due to the lockdown measures imposed and reductions in consumer spending.
We welcome the opportunity to provide feedback to the Department of Finance.
A reimagined film corporation tax credit (FCTC) relief was introduced in Finance Act 2013 to promote the Irish film industry by encouraging investment in Irish-made films. The scheme provides relief in the form of a corporation tax credit related to the cost of the production of certain films. The relief is due to expire at 31 December 2024.
The minister previously introduced a time-limited, tapered regional uplift of 5% for productions made in areas designated under the state aid regional guidelines to support the development of film production outside of the main production hubs. The FCTC regional uplift was due to expire in 2022. The minister announced that the FCTC regional uplift will be extended by one year to 2023 given that the intended incentive effect of the relief in 2020 was largely eroded by COVID-19 related production shut-downs.
Where the regional film development uplift applies, the FCTC relief will now be available at the following rates for the following periods:
The transfer of a foreign currency bank deposit out of a bank account is regarded as a disposal of a “debt” within the charge to CGT in certain circumstances.
The minister has introduced a change such that no chargeable gain, or allowable loss, will arise where the deposit is moved to another account belonging to the same person (either with the same or different bank) where it remains in the same foreign currency. This measure is effective from 14 October 2020. The main purpose of this change would appear to be to prevent the realisation of an allowable loss from currency speculation where the deposit is transferred between bank accounts but is not truly divested of.
The minister reiterated the intention to establish a Commission on Welfare and Taxation, as committed to in the Programme for Government. The Commission will independently consider how best the tax system can support economic activity while ensuring that there are sufficient public funds. The Commission will have particular regard to the impact of the COVID-19 pandemic, as well as long-term developments such as ageing demographics, the move to a low carbon economy and the rise of digital automation. The minister committed to announcing details over the coming weeks of the membership of the Commission, its resources and terms of reference.
The last report of a Commission on Taxation was in 2009 and although 11 years ago, there was a very similar mandate. Many of the 240 non-binding recommendations to Government at the time could be revisited, albeit by reference to the low carbon and automation agendas.