• Finance Bill 2007 is grounded on the "Government’s progressive policies promoting fairness in the tax system so that the benefits of strong economic growth can be enjoyed by all taxpayers, especially low and middle income earners"

• The Bill includes a range of business friendly measures which will support continued growth and job creation

• Measures that recognise the important role that tourism plays in the economy including VAT measures to help Irish hotels compete globally for conference business and a Mid-Shannon Corridor Tourism Investment Scheme

• Arrangements to make it easier for ordinary taxpayers to get the full range of normal tax reliefs to which they are entitled

• Various measures aimed at combating tax evasion and avoidance

Finance Bill 2007 - Analysis from Ernst & Young and Sectoral Reactions

Department of Finance, Merrion Street, Dublin

The Minister for Finance, Mr Brian Cowen, T.D. today published Finance Bill 2007 which must be enacted by the Oireachtas by 6 April next. He said:

“This is the third Finance Bill that I will introduce to the House. In each of these Bills I have been able to bring in measures that make the tax system fairer. The tax burden on the low and middle income earner has been significantly lightened. When this Bill has been enacted 40% of income earners will have been removed from the tax net. The Bill delivers on our promise to middle income earners to ensure that 80% of all taxpayers in effect pay income tax at no more than the standard rate.”

The Minister said that the Bill confirms measures announced on Budget including:

•  increases in the personal and PAYE credits to ensure that those on the minimum wage will stay out of the tax net in 2007

• a reduction in the top rate of income tax to 41%

• increases in the standard rate bands to ensure that those earning the average industrial wage will not face a liability for the higher rate of tax in 2007.

•  increasing the personal credits and bands to ensure that at least 80% of income earners will pay less than 20% of their income in income taxes in 2007

•  a doubling of the ceiling on which first time buyers can claim mortgage interest relief

•  a number of business friendly measures aimed at Small and Medium Sized Enterprises, including revised preliminary tax payment arrangements for Corporation Tax, increased VAT registration thresholds, enhancement of the Tax Credit scheme for R&D expenditure and a renewal of the Business Expansion Scheme and Seed Capital Scheme

•  the introduction of VAT relief for conference related accommodation expenses from 1 July 2007 to allow Irish hotels to compete more favourably on the global stage for conference business.

•  measures to help taxpayers claim the tax reliefs to which they are entitled including measures designed to enable Revenue to make automatic repayments in respect of reliefs such as health expenses, trade union subscriptions and to allow age related tax credits to be credited automatically to the taxpayer. Also the two thresholds for claiming relief on health expenses, currently €125 for one person and €250 for a family, are being rationalised into a single threshold of €125. To further speed up the tax repayment process the Minister said that he is abolishing the requirement that the taxpayer who pays the medical expenses has to be related to the person in respect of whom the expenses were incurred.

• Improvements in or extensions to various tax reliefs for farmers.

4. The Minister highlighted a number of the other significant new measures in the Finance Bill as follows:

Business Expansion Scheme - As announced in the Budget, the Business Expansion Scheme (BES) and associated Seed Capital Scheme (SCS) are being renewed from 1 January 2007 for a seven year period to 31 December 2013.

In addition to the changes announced in the Budget, recycling companies will be added to the list of qualifying trades. There are also a number of amendments aimed at improving the operation of the schemes.

As the BES and the SCS are State aids, the continuation of the schemes and the proposed changes require the approval of the European Commission. The Department of Finance has already engaged with the Commission on this matter and it is expected that the formal application for approval will be made shortly. It is not certain when the European Commission will make its decision.

Stallion Stud Fees The Minister outlined on 7 December 2005, in his Budget 2006 Statement, that in the case of the horse and greyhound stud fee income the exemption will end on 31 July 2008 and that a new regime appropriate to the industry will be discussed with the European Commission. The Minister announced the details of the proposed new tax arrangements for stallion stud fees which will come into effect on 1 August 2008. This will replace the present tax arrangements which had been objected to by the EU Commission. With the present regime going from 31 July 2008 it is necessary to provide for new arrangements. The Bill accordingly provides for the taxation of stud fee income from stallions from 1 August 2008. It provides for the deduction of relevant expenses in arriving at taxable income in particular a deduction for the purchase cost of the stallion which involves writing this off over a useful economic life of four years. The tax arrangements are subject to clearance with the EU Commission.

Tax Relief for Farmers – the Minister indicated that the reliefs for farm consolidation and disposal of a farm on retirement mentioned in the Budget will be amended at Committee Stage to assist in the better utilisation of farm assets.

New Tax Incentive Scheme for Mid-Shannon Area – the Minister announced a new tax scheme aimed at encouraging the development of tourism infrastructure in the mid-Shannon area. A certification body will be established to vet proposed developments so as to provide quality assurance for the scheme. Such certification is aimed at establishing eligibility under the scheme before proceeding with any project. The qualifying period for expenditure under the scheme will be 3 years from the date of its commencement which will be done by way of Ministerial Order. It will not cover stand alone hotel or holiday cottage developments and the accommodation content of any qualifying development cannot be more than 50%. The designated areas involved are in a corridor of about 12 kilometres on either side of the river stretching from roughly the bottom of Lough Derg to Lough Ree. The tax relief will consist of accelerated capital allowances over 7 years for qualifying construction and refurbishment expenditure incurred in the qualifying three-year period. The scheme is subject to notification to the European Commission under the new regional aid block exemption guidelines.

Business Reliefs - the Bill contains a number of measures to help the financial services sector as well as a new relieving measure relating to the preliminary tax payments of companies within a company group.

Closure of Avoidance Loopholes – the Minister announced a number of measures which close off particular tax avoidance loopholes in different areas. These relate to certain collective investment undertakings, offshore funds, certain partnership profits, and VAT on short-term letting of residential property.

Other Measures - these include:

• Abolition of the requirement to obtain Revenue clearance for Residential Property Tax Properties in respect of the sale of certain properties

• Allowing first-time buyer relief from stamp duty in certain situations following a divorce or separation

Donations to the Irish Heritage Trust - A once-off increase in 2007 in the ceiling for donations to the Irish Heritage Trust from €6 million to €10 million in order to allow the donation of a collection of fine Irish paintings and furniture for display in Fota House.

Exemption of privately provided homecare services from VAT - To comply with the EU VAT Directive, it is necessary to insert a new section (61A) to the Health Act 1970. In this regard, the Department of Health have indicated that their legislation will not have passed all stages until mid-February. This timetable, if met, should make it possible to introduce the amendment either at Committee Stage or Report Stage of the Finance Bill.

Revenue Powers – The Minister said that he was introducing a number of new measures in the area of Revenue Powers to support Revenue in promoting tax compliance and combating tax evasion and avoidance. They are mainly intended to respond to developments at the operational level and to support Revenue’s electronic risk assessment system by providing for the furnishing of information in electronic format. There have also been two instances in the last two years of impersonation of authorised Revenue officers and the Bill will make it an offence to impersonate a Revenue Officer. Other measures include a clarification of the search powers available to Revenue when conducting an investigation with a view to prosecution. A measure which provides an element of balance in favour of the taxpayer is the reduction from 6 to 3 months in the period from the submission of a valid claim by a taxpayer to the start date for the accrual of interest on any overpayment involved.

Relevant Contracts Tax (RCT) - The Minister pointed out that he was making a number of changes in relation to the legislation governing the administration of Relevant Contracts Tax (RCT), the tax which principal contractors are obliged to deduct at a rate of 35% from payments made to certain subcontractors in the construction, meat processing and forestry sectors. The purpose of these amendments is to tighten controls and to discourage fraud and evasion as well as to give effect to commitments made in this area in Towards 2016.

Click here for Finance Bill, 2007

Click here for Explanatory Memorandum.

Click here for list of measures