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 Header Item Financial Resolution No. 3: Value Added Tax (Continued)
 Header Item Financial Resolution No. 4: Corporation Tax

Tuesday, 13 October 2020

Dáil Éireann Debate
Vol. 999 No. 2
Unrevised

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Deputy Brendan Griffin: Information on Brendan Griffin Zoom on Brendan Griffin I very much welcome this reduction in the VAT rate, which is critical to the entire hospitality sector at this time. Contrary to what some speakers have said, this is very important for those operators, particularly as they plan for 2021. Amidst so much uncertainty, that certainty in regard to the VAT rate is important and is appreciated by a huge number of people who have been in contact with me this evening to express their gratitude to the Government for this measure.

I remind the House that those of us who supported this measure back in 2011, when it was initially introduced as a short-term measure although it ended up being there for seven years, saw at first hand what a huge impact it had in terms of restarting and giving a great stimulus to Irish tourism at that time. At this time and in the time ahead, this measure is very important. I call on every Member of the House to support it and to see it exactly for what it is, which is a huge boost to Irish tourism and to all the operators who are struggling at the moment. It will not solve all of the problems, but it is certainly a key factor contributing to the recovery that will come for Irish tourism. It is one measure among many that have been put in place by the Government that will help operators the length and breadth of this country, urban and rural, to get back on their feet again and to make Irish tourism a success into the future.

Deputy Peter Fitzpatrick: Information on Peter Fitzpatrick Zoom on Peter Fitzpatrick I welcome the introduction of the reduction in VAT. Coming from a Border area that has been struggling for a long time with Brexit and the coronavirus, I hope the Government will also consider the issue of the general rate of VAT. With regard to manufacturing and industry, I have been speaking to many retailers in Dundalk who are competing against Northern businesses and they believe it is very important that we look at the general rate of VAT. There are manufacturers and shops in Dundalk for which the full rate of VAT makes everything very expensive. It is very important that we all get our shoulder to the wheel and help one another. This measure was badly needed and the hospitality sector will really appreciate it. Nonetheless, I ask the Government to also consider reducing the general rate by 2% or 3% for the next 12 to 18 months to give retailers an opportunity to compete with everybody else.

  Financial Resolution No. 3 agreed to.

An Ceann Comhairle: Information on Seán Ó Fearghaíl Zoom on Seán Ó Fearghaíl I understand we are dealing with Financial Resolutions Nos. 4 to 6, inclusive, together.

Financial Resolution No. 4: Corporation Tax

Minister for Children and Youth Affairs (Deputy Roderic O'Gorman): Information on Roderic O'Gorman Zoom on Roderic O'Gorman I move:

(1) THAT section 288 of the Taxes Consolidation Act 1997 (No. 39 of 1997) be amended, in subsection (3C), by substituting “incurred before 14 October 2020 on the provision” for “incurred on the provision”.

(2) THAT paragraph (1) of this Resolution shall have effect as on and from 14 October 2020.

(3) IT is hereby declared that it is expedient in the public interest that this Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act 1927 (No. 7 of 1927).

Financial Resolution No. 4 ensures that Ireland's tax regime for intellectual property, IP, is consistent with international best practice with effect from tonight. As Deputies are aware, tax relief for the cost of capital assets used for the purpose of a trade is generally provided through the capital allowances regime. Like many other countries, Ireland has since 2009 granted capital allowances on certain intangible assets which a company manages, develops or exploits. These IP allowances encourage substantive activity and high quality employment in Ireland.

  The IP allowance rules are more restrictive than normal capital allowance rules and similar reliefs in other countries in some respects. However, the operation of the balancing charge mechanism has been identified as being less restrictive than most, but not all, other jurisdictions with similar reliefs. At present, no clawback of capital allowances arises where an intangible asset is disposed of after five years and the disposal proceeds exceed the cost not yet relieved through IP allowances. This differs from the treatment of a disposal within five years where any such excess would be treated as a taxable receipt to a company. Therefore, the Minister is moving to address this issue by amending section 288 of the Taxes Consolidation Act 1997 to provide that all intangible assets acquired from tonight will be fully within the scope of balancing charge rules.

  It is not anticipated that this amendment will give rise to significant additional tax revenue, given the current profile of claims as shown in Revenue data. Revenue understands that the type of intellectual property typically situated in Ireland includes items such as patents on pharmaceutical products. The value of this type of asset declines as the patent runs out and as the asset is depreciated in the company's accounts. Nevertheless, this is an important change to bring our rules in line with those applying internationally. It signals our commitment to taking action where it is needed and, given the type of measure, it is logical to implement it by way of financial resolution. This financial resolution will allow this change to take legal effect after tonight to ensure Ireland's tax regime for intellectual property, together with the broader corporation tax regime, remains competitive, legitimate and sustainable. I commend the resolution to the House.

An Ceann Comhairle: Information on Seán Ó Fearghaíl Zoom on Seán Ó Fearghaíl I call the Tánaiste, Deputy Leo Varadkar, to deal with Financial Resolutions Nos. 5 and 6.

Tánaiste and Minister for Business, Enterprise and Innovation (Deputy Leo Varadkar): Information on Leo Varadkar Zoom on Leo Varadkar I propose to speak on Financial Resolutions Nos. 5 and 6.

Financial Resolution No. 5 is an anti-tax avoidance measure. It provides that section 541 of the Taxes Consolidation Act 1997, that is, Act No. 39 of 1997, be amended with respect to disposals made on or after 14 October 2020, by insertion of a new subsection (6A). The purpose of this amendment is to correct an anomaly recently identified by the Revenue Commissioners whereby the same foreign currency transfer between accounts held by the same person has the potential to create significant capital gains tax, CGT, losses which could then be used to offset CGT gains, even though there is no economic loss.

It is not possible to cost this matter accurately other than to say that one example of which the Revenue Commissioners are aware to date involved the transfer of sterling between different accounts generating a CGT loss of approximately €3 million. Our concern is that if this anomaly is not corrected, it may facilitate the generation of further CGT losses, thus reducing overall tax revenue, whereas these losses did not really occur.

Because of the nature of this tax anomaly, a financial resolution is considered necessary. In order to provide certainty and to avoid creating any window of opportunity for the avoidance of transactions, we would like this to be done before business tomorrow morning.

Financial Resolution No. 6 is an amendment to section 629 of the Taxes Consolidation Act 1997 and relates to interest and deferred payments of the exit tax. The resolution provides for a technical amendment to the exit tax regime for companies introduced in budget 2019 as part of our commitments under the EU anti-tax avoidance directive, ATAD. The exit tax provisions impose a charge to tax on unrealised gains arising where a company migrates its residence or transfers assets offshore such as it leaves the charge to Irish tax. In accordance with ATAD, companies have the right in certain circumstances to pay the exit tax in equal annual instalments over five years and interest applies over the period of deferral.

This provision makes a technical amendment to the interest charging provision to ensure that it operates as intended and this change is being introduced by financial resolution to bring immediate clarity to this charging provision. I commend it to the House.

An Ceann Comhairle: Information on Seán Ó Fearghaíl Zoom on Seán Ó Fearghaíl Again, I wish to make clear that we are considering Financial Resolutions Nos. 4 to 6, inclusive. I call Deputy Boyd Barrett.

Deputy Richard Boyd Barrett: Information on Richard Boyd Barrett Zoom on Richard Boyd Barrett Financial Resolutions Nos. 5 and 6 seem fine to me. However, I want to express concern about Financial Resolution No. 4. The main mechanism through which some of the wealthiest corporations in the world avoid tax is through the category of intangible assets, such as patents on intellectual property, whereby big multinationals pay for the use of their own patents. For example, one subsidiary of a company pays another subsidiary of the same company for the use of its own patent and, by doing that, it can write down its profits. Effectively, it can charge itself whatever it likes.


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