by Amanda Banks, Tax-News.com, London Monday, February 08, 2010

Irish Finance Minister, Brian Lenihan has published the Finance Bill 2010, which gives effect to numerous taxation measures announced in last December’s budget, including a 0.5% cut in value-added tax and the introduction of a 'domicile levy'.

Speaking on the release of the Finance Bill, Lenihan stated that:

• Provision of tax measures to facilitate the the development of Islamic finance in Ireland, covering any financing arrangement that is compliant with the principles of Shari’a law. The tax treatment applicable to conventional finance transactions will be extended to embrace Islamic finance.
• Introduction of a package of reforms relating to Capital Acquisitions Tax (CAT) to modernise and simplify the CAT regime, while delivering immediate and significant benefits to taxpayers, their legal advisers and the Revenue Commissioners.
• Provisions relating to the approval of institutions for the purposes of health expenses relief are being amended so as to remove the requirement that they must be approved before tax relief on expenses incurred in such institutions can be allowed. These institutions are mainly nursing homes (located in Ireland and abroad) and foreign based hospitals. The relief is being refocused on expenses incurred by or on the advice of a medical practitioner.
• The Life Insurance Levy, introduced in Finance Act 2009, is being removed from pension products in order not to discourage pension investment.
• The existing R&D tax credit is being amended to cover situations where a company carries out R&D activities in different facilities in separate geographical locations, and the activities in one of those facilities is permanently discontinued.
• The tax treatment of dividends received by companies in Ireland is being amended to increase the attractiveness of the country's tax regime in this area.

  The amendments involve (i) charging tax at 12.5% (instead of 25%) on foreign dividends paid out of trading profits in relation to countries with which Ireland does not have a tax treaty; (ii) simplifying the arrangements under which foreign dividends are treated as sourced from trading or non-trading profits; (iii) providing tax exemption to foreign dividends forming trading income from portfolio investments (holdings of less than 5%, primarily insurance companies);

• Extension of unilateral credit relief in respect of withholding taxes on royalty income from non-treaty countries to all trading companies. Companies currently entitled to manufacturing relief are also entitled to unilateral credit relief in respect of withholding taxes on royalty income from non-treaty countries but this ends on December 31, 2010, as part of the closure of the 10% Corporate Tax Manufacturing regime.
• Enhancement of the capital allowance scheme for intangible assets which was introduced in Finance Act 2009 to improve its effectiveness.
• The Remittance Scheme introduced in Finance (No.2) Act 2008 is being enhanced to improve Ireland’s ability to attract highly skilled individuals capable of acting as ‘magnets’ to attract economic activity. The scheme will now cover both European Union and European Economic Area nationals, while the condition that persons covered by the scheme must remain in Ireland for a minimum of 3 years is reduced to 1 year.
• A package of measures is being introduced to improve the attractiveness of Ireland as a base for internationally-traded services, particularly financial services. These include: exemption from completion of non-resident declarations for foreign investors in Irish domiciled funds that are not marketed within Ireland; more clarity with regard to the tax treatment that would apply to foreign funds that are managed from Ireland under the recently adopted UCITS IV (Undertakings for Collective Investments in Transferable Securities) Directive provides for the establishment and operation of a UCITS ‘Management Company Passport; extension of stamp duty to accommodate mergers of investment undertakings.
• Measures are being introduced across the tax regime to ensure that Exchequer receipts are not eroded by the use of tax avoidance schemes.
• Provisions are being introduced to abolish a number of tax expenditures in line with the recommendations of the Report of the Commission on Taxation. These include:
• Relief available to ‘passive’ investors under the Significant Buildings and Gardens Scheme.
• Gifts of property to the state.
• BIK exemption of employer-provided art objects.
• Tax relief on service charges. This will come into effect in 2012 and will mean that charges paid in 2010 can be claimed against tax in 2011.
• Capital Allowances for childcare facilities.
• Relief for long-term care policies.
• The Windfall Tax, introduced as part of the NAMA (National Asset Management Agency) legislation, is being amended and extended.
• A revised classification system for the registration of vehicles is being introduced from January 1, 2011. The new system will reflect the categories used for vehicle classification at European level under a number of Directives.
• Lastly, the 2010 Finance Bill provides for the ratification of a further six Double Taxation Treaties (DTAs) between Ireland and: Bahrain, Belarus, Bosnia and Herzegovina, Georgia, Moldova and Serbia.



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