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 Header Item Financial Resolution No. 1: Tobacco Products Tax (Continued)
 Header Item Financial Resolution No. 2: Capital Gains Tax

Tuesday, 9 October 2018

Dáil Éireann Debate
Vol. 973 No. 2

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(Speaker Continuing)

[Deputy Simon Harris: Information on Simon Harris Zoom on Simon Harris] I reassure Deputies that this is not the entire response of the Government in respect of reducing the number of people smoking. We have a range of supports through the health service. These include the HSE QUIT campaign, a multimedia QUIT campaign service, a specialist counselling staff and, as Deputy Sherlock alluded to, we have nicotine-replacement therapies covered by the GMS. I will take up the point that he raises. I also agree in regard to the issue of smuggling. I am pleased to inform the House that Revenue continues to attach a very high priority to this and seized approximately 32.4 million cigarettes with a value of €19.5 million in 2017. This House has taken a number of measures in recent years in the Finance Act 2012 and the Finance Act 2013 to try to continue to beef up and improve the powers of Revenue in that area. This is a sensible measure and I commend it to the House.

Financial Resolution No. 1 agreed to.

Financial Resolution No. 2: Capital Gains Tax

Minister of State at the Department of Finance (Deputy Michael D'Arcy): Information on Michael  D'Arcy Zoom on Michael  D'Arcy I move:

(1)THAT Chapter 2 of Part 20 of the Taxes Consolidation Act 1997 be amended, with effect from 10 October 2018, by substituting the following for sections 627 and 628:
“Charge to exit tax

627. (1) (a) In this section and in section 628 -
‘designated area’, ‘exploration or exploitation activities’ and ‘exploration or exploitation rights’ have the same meanings respectively as in section 13;

‘Directive’ means Council Directive (EU) 2016/1164 of 12 July 2016 laying down rules against tax avoidance practices that directly affect the functioning of the internal market;

‘exploration or exploitation assets’ means assets used or intended for use in connection with exploration or exploitation activities carried on in the State or in a designated area;

‘market value’ means the amount for which an asset can be exchanged or mutual obligations can be settled between unconnected willing buyers and sellers in a direct transaction;

‘relevant event’ means one of the events referred to in subsection (2);

‘tax’ means corporation tax or capital gains tax chargeable by virtue of subsection (2);

‘the new assets’ and ‘the old assets’ have the meanings respectively assigned to them by section 597;

‘third country’ means a territory other than the State or another Member State;

‘transfer’, in relation to assets, means any transaction whereby (apart from the effect of this section) no liability to corporation tax or capital gains tax in respect of the assets, the subject of the transfer, arises, notwithstanding that those assets remain under the legal or economic ownership of the same entity.

(b)For the purposes of subsection (2), paragraph (c) of section 29(3) shall apply as if the reference in that paragraph to a trade were to a business and as if the references to a branch or agency were to a permanent establishment.

(c)A word or expression that is used in this section or section 628 and is also used in Article 5 of the Directive shall have the meaning in this section or section 628 that it has in that Article.
(2)For the purposes of the Capital Gains Tax Acts, a company shall be deemed to have disposed of the assets referred to in whichever of the following paragraphs is appropriate, other than assets excepted from this subsection by subsection (5), and to have immediately reacquired the assets at their market value (at the time of the occurrence of the event concerned) on the occurrence of any of the following events:
(a)the company, being a company that is resident in a Member State (other than the State), transfers assets from a permanent establishment in the State to its head office or to a permanent establishment in another Member State or in a third country;

(b)the company, being a company that is resident in a Member State (other than the State), transfers a business (including the assets of the business) carried on by a permanent establishment of that company in the State to another Member State or to a third country; or

(c)the company ceases to be resident in the State and becomes resident in another Member State or in a third country
   (3)    (a) Tax shall, notwithstanding subsection (3) of section 28, be chargeable at the rate of 12.5 per cent in respect of chargeable gains accruing on a disposal of assets to which subsection (2) applies (in paragraph (b) referred to as a ‘deemed disposal of an asset’), but this is subject to paragraph (b).
(b)A chargeable gain accruing on a deemed disposal of an asset arising from the occurrence of an event referred to in subsection (2) shall be chargeable at the rate specified in subsection (3) of section 28 where the event forms part of a transaction to dispose of the asset and the purpose of the transaction is to ensure the chargeable gain accruing on the disposal of the asset is charged to tax at the rate specified in paragraph (a) rather than the rate specified in subsection (3) of section 28.

(c)In this subsection ‘transaction’ has the meaning assigned to it by section 811C.
       (4)     Section 597 shall not apply where a company referred to in subsection (2)(c)-
(a)has disposed of the old assets, or of its interest in those assets, before the event referred to in subsection (2)(c), and

(b)acquires the new assets, or its interest in those assets, after that event,

unless the new assets are excepted from this subsection by subsection (5).
(5)Where at any time after the event referred to in paragraph (c) of subsection (2) the company referred to in that paragraph carries on a trade in the State through a permanent establishment—
(a)any assets which, immediately after the event referred to in subsection (2)(c), are situated in the State and are used in or for the purposes of the trade, or are used or held for the purposes of the permanent establishment, shall be excepted from subsection (2), and

(b)any new assets which, after that time, are so situated and are so used or so held shall be excepted from subsection (2), and references in this subsection to assets situated in the State include references to exploration or exploitation assets and to exploration or exploitation rights.
(6)This section shall not apply to an asset—
(a)which relates to the financing of securities,

(b)which is given as security for a debt, or

(c)where the transfer takes place in order to meet prudential capital requirements or for liquidity purposes, where the asset is due to revert to the permanent establishment or the company, as the case may be, within 12 months of the transfer.
      (7)Neither section 628A nor 629 shall be construed as having effect in relation to this section as it stands substituted by virtue of a resolution of Dáil Éireann passed on 9 October 2018.
Value of certain assets to be accepted for purposes of Capital Gains Tax Acts

628.  Where exit tax is charged in a Member State (other than the State) in respect of an asset by virtue of Article 5(1) of the Directive, the value of that asset established under the law of that Member State for the purposes of that charge to tax shall be taken, for the purposes of the Capital Gains Tax Acts, as the acquisition cost of that asset unless that value does not reflect its market value.”.
(2)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).

An Ceann Comhairle: Information on Seán Ó Fearghaíl Zoom on Seán Ó Fearghaíl Amendment No. 1 is out of order.

  Amendment No. 1 not moved.

Deputy Brendan Howlin: Information on Brendan Howlin Zoom on Brendan Howlin I move amendment No. 2:

  To insert the following new section into the Resolution after section 628:
"Report on Exit Tax

A628A. The Minister shall within one month from the passing of this Resolution prepare and lay before Dáil Éireann a report on the number of companies that have been liable for the provisions of sections 627 and 628 of the Taxes Consolidation Act 1997 in each of the last 5 years inclusive of 2018; the total revenue raised in each year under these provisions; and the additional revenue that could be raised in 2019 if the Exit Tax was chargeable at a rate of 33 per cent.".

I have been dealing with budgets for a long time in this House. When I saw the financial resolutions there was something unusual. They are normally in the ministerial pack which is circulated during the course of the Minister's speech. They were not but I found them later. Two of the resolutions, this one and the next one, are unusual in that they do not need to be passed tonight. The idea of the financial resolutions is that there is usually a degree of urgency about a matter, such as a tax increasing from midnight for a particular and urgent reason.

  Serious questions must be asked as to why this measure is tabled for tonight and not, in the normal way, in the Finance Bill, where there would be reports, teasing out, Committee Stage debate and all of that. That is not happening on this resolution. The capital gains exit tax is being reduced in this proposal from 33% to 12.5%. The Minister's own budget book tells us that this will actually not raise any money. If we look at the financial tables, it says zero for this tax. If this is not really used and there is no impact on revenue, as the Minister is telling us in the published tables accompanying his budget speech, then leaving the rate at 33% would not impact on revenue unless there is something we are not being told.

  This tax measure is aimed at ensuring patents, intellectual property and other assets cannot be moved abroad to no tax locations so as to avoid tax. That is good. The budget document states that this change is part of Ireland's commitment to implementing the anti-tax avoidance directive. We have no issue with that. We support it and these rules are long overdue. The Labour Party has called for a standing commission on taxation for exactly these reasons. The question should be asked as to why the rate is being cut by nearly two thirds. There is no explanation for that. If this is never used, as would be implied by the zero impact on revenue, it has no impact and will not raise any additional money, as the budgetary documentation seems to imply, then why should the rate not be set at 33%? I refer to it not just being set but maintained because that is the rate.

  Chartered Accountants Ireland published a useful note on its website on 1 October last. It says regarding the exit tax that Ireland currently has rules that provide for an exit tax. To give people an understanding of what we are talking about here, that is where the Irish tax-resident company moves its tax residence away from Ireland, broadly, and that exit event triggers a deemed deposal of assets at market value for capital gains tax purposes, resulting in the potential normal capital gains tax of 33% applying. There are some exemptions to the rule and in practice it is not a significant issue for most Irish tax-resident companies. That is what the Chartered Accountants Ireland publication says. Under the EU's anti-tax avoidance directive, the existing rules will be tightened significantly, making it more difficult to escape the Irish tax charge on migration of tax residence. This could be assessed as making it more difficult to move valuable assets such as intellectual property out of Ireland but will possibly encourage existing groups to stay. That could be seen as a positive move.

  In reality, anything that reduces flexibility for existing groups or potential groups of new investors is not a good thing. All EU countries, however, will be obliged to introduce similar rules by January 2020 at the latest. There we have the nub of it. Under Article 5 of the anti-tax avoidance directive, we are obliged to have a measure compliant with the directive by January 2020. We have plenty of time to do this. We could do it in the convenience of the Finance Bill when we can go through this in some detail and not deal with it in 40 minutes with no notice and no background papers. That is why I have tabled the amendment seeking at least, if it is passed tonight, a report on it within a month. I am conscious of time but I want to say a few other things about it.

  First, it begs the question of why the urgency. The Minister might give us some indication of why this midnight stroke of a pen approach to this long debated, and long in gestation, but distant timeline of January 2020 needs to be done suddenly and urgently tonight. It is unusual for such a major tax change, that apparently according to the documentation will have no impact on revenue, to be rushed through via budget resolution. In my long experience here, the normal way to deal with this matter would be by way of a proposal in the Finance Bill. The original sections 627 and 628 were anti-tax avoidance measures. They set a tax rate of 33% for capital gains that will accrue because this is, by the definition of the current law, a capital gain that will accrue. It is now envisaged that capital gains would not be taxed at the capital gains rate of 33% but would actually be taxed at the corporation tax rate of 12.5%. Why is that? Why is that neutral in respect of the volume of money that it will generate?

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