The Finance (No.2) Bill 2011 was published on 19 May, 2011 which provides for the tax changes outlined in the Jobs Initiative announcement on the 10 May 2011.

The Jobs Initiative included a number of measures dealing with business and employment taxes, including:

·        Abolition of Employer’s PRSI charge on share based remuneration

·         Temporary halving of the lower rate of Employer’s PRSI (which will appear in a Social Welfare Bill to be published in early June)

·         Amendment of the R&D tax credit regime to enhance flexibility in how companies can account for the credit

·         Temporary reduction in the 13.5% rate of VAT to 9% in respect of tourism-related services

·         Introduction of a 0.6% levy on the capital value of pension funds to fund the job creation measures

·         No Change to the 12.5 corporate tax rate

·         The minimum wage will be increased from €7.65 back to the previous level of €8.65 per week from 1 July 2011.

 Research & Development tax credit regime

Finance (No.2) Bill 2011 introduces positive and welcome amendments to the R&D tax credit regime. The proposed technical amendments are designed to provide greater flexibility for companies to account for the benefit of the R&D tax credit and will be helpful to existing Irish subsidiaries of multinational companies in competing for internationally mobile R&D projects.

The Irish R&D tax credit regime is an important and successful lever used to help attract international R&D activities to Ireland.

The technical amendments will, in certain circumstances, increase the payroll liability cap on the quantum of the credit that is entitled to be monetised. The Bill also extends the definition of payroll liabilities to include the Income Levy, Parking Levy and Universal Social Charge.

The technical changes will also have the impact of accelerating the ability of certain companies to access a refund of the R&D credit and it may also have the effect of increasing the amount of credit which can be refunded in cash for certain loss making companies.

A further change enhances the accounting treatment flexibility. The change relates to the amount of the credit which can be repaid in cash. Previously this was calculated as the greater of:

·         The corporation tax payable by the company for the 10 years prior to the accounting period preceding the period in which the expenditure was incurred, or

·         The amount of PAYE, PRSI and levies, which the company is required to remit in the period in which the R&D expenditure was incurred

This has now been amended to be the greater of:

 ·         The corporation tax payable by the company for the 10 years prior to the accounting period preceding the period in which the expenditure was incurred, or

·         The amount of payroll liabilities, which the company is required to remit in the period in which the R&D expenditure was incurred and, subject to certain restrictions, the immediately preceding period equal in length

The restriction applies where a company has made cash refund claims in previous years and is computed as the lower of:

·         The excess of cash refund amounts claimed in all prior accounting periods over the amount of payroll liabilities for these periods and,

·         The amount of payroll liabilities in the immediately preceding period equal in length.

Reduced rate of VAT

The introduction of this second reduced VAT rate will take effect from 1 July 2011 and will be in respect of certain goods and services (mainly related to tourism) for the period 1 July 2011 to 31 December 2013.

The 9% rate applies to restaurant and catering services; hotel and holiday accommodation; admissions to cinemas, theatres, certain musical performances, museums and art gallery exhibitions; fairgrounds or amusement park services; the use of sporting facilities; hairdressing services; printed matter such as brochures, maps, programmes, leaflets, catalogues and newspapers.

From 1 January 2014 the VAT rate applicable to these services will revert back to 13.5%, please see below for further details on what services the reduced rate applies to and also the list of common services where the 13.5% rate still remains applicable.

•              Catering and restaurant supplies, including vending machines and take-away food (excluding alcohol and soft drinks sold as part of the meal)

•              Hotel lettings, including guesthouses, caravan parks, camping sites etc

•              Cinemas, theatres, certain musical performances, museums, art gallery exhibitions

•              Fairgrounds or amusement park services

•              Facilities for taking part in sporting activities including green fees charged for golf and subscriptions charged by non-member-owned golf clubs

•              Printed matter e.g. newspapers, brochures, leaflets, programmes, maps, catalogues, printed music (excluding books)

•              Hairdressing services.

Supplies of goods and services remaining at the 13.5% rate

•              Bakery products, excluding bread

•              Residential property

•              Building services related to residential property, including installation

•              Routine cleaning of residential property

•              Minor repairs of bicycles, shoes or leather goods, clothing or household linen

•              Non-oral contraceptive products

•              Goods used for the agricultural production of bio-fuel

•              Agricultural services

•              Certain nursery or garden centre stock

•              Animal insemination services and livestock semen

•              Children's car safety seats

•              Waste acceptance and disposal services

•              Greyhound feeding stuff and live poultry and live ostriches

•              Fuel for power and heating, coal, peat, timber, electricity, gas (other than auto LPG), heating oil

•              Non-residential property

•              Building services related to non-residential property, including installation

•              Routine cleaning of non-residential property

•              Concrete

•              Tour guide services

•              Short-term hiring of cars, boats, caravans, mobile homes, tents or trailer tents

•              Repair and maintenance of cars, other vehicles, vessels and aircraft

•              Health studio services

•              Jockey services

•              Photographic services including photographic prints

•              Car driving instruction

•              Veterinary services

•              Certain works of art, antiques and literary manuscripts

 

Practicalities of applying this new VAT rate;

•              Time of Supply - In general, goods and services supplied before 1 July 2011 are liable to VAT at the rate in force at the time of supply, namely 13.5%. However, where goods and services are supplied in June 2011, by a trader who is obliged to issue a VAT invoice, and that trader issues the invoice after 30 June 2011, the rate in force in July applies, namely 9%.

•              Supplies to private customers - A trader supplying goods and services to private individuals should always apply the VAT rate in force at the time of supply.

•              Credit Notes - Any VAT credit note or debit note relating to a supply of goods or services, which contains a VAT adjustment, should show VAT at the rate in force at the time the original invoice was issued. For example, if goods are supplied in June 2011 and a credit note is issued in July 2011 (due perhaps to an adjustment in the price of the goods or services), the rate of VAT on that credit note is 13.5%. This is because the goods or services were supplied when the rate of VAT was 13.5%.

•              Advance Payments - If any advance payments, including a deposit, are received by a trader before 1 July 2011 it is subject to VAT at 13.5%. However, where the trader is obliged to issue a VAT invoice for that payment, and the invoice is issued after 30 June 2011, the new rate applies, namely 9%.

•              Continuous Supplies - When payments for continuous supplies are made, due at fixed intervals over an agreed time-frame, and are invoiced and due before 1 July 2011, they should be treated as taxable at the 13.5% rate; where invoiced and due after 30 June 2011, they should be treated as taxable at the 9% rate. This applies even if the interval over which the supplies take place spans the time both before and after I July 2011.

•              Existing Contracts - Where a contract to supply goods or services is entered into before 1 July 2011, and the contract is not completed until after that date, the agreed VAT inclusive price may be subject to an appropriate adjustment due to the change in the VAT rate, unless there is agreement to the contrary between the contracting parties.

Employer’s PRSI

The application of Employee’s and Employer’s PRSI on share based remuneration, which was introduced by Finance Act 2011, has now been reversed. The Employer’s PRSI charge on such remuneration will be abolished, the change being effective from 1 January 2011. It is uncertain whether employees PRSI will still be applicable and we await the Social Welfare Bill 2011 to confirm the position of the changes.  

The lower 8.5% Employer’s PRSI rate will be halved to 4.25% for employees earning less than €356 per week with effect from 1 July 2011. This provision is expected to apply until 31 December 2013.

The Employer Job (PRSI) Incentive Scheme is to be retained until the end of 2011. This provides for a 12 month employer PRSI exemption in respect of qualifying new positions which are filled by qualifying new employees during the 2010 calendar year.

The proposed changes to Employer’s PRSI are not dealt with in the Finance Bill and instead will be dealt with in a Social Welfare Bill which is due to be issued in early June.

Pension Fund Levy

The Finance (No. 2) Bill 2011 gives effect to the pensions fund levy announced by the Minister for Finance as part of the Jobs Initiative. It will be in the form of a temporary levy on the market value of assets under management in pension funds.

The levy will be applied as an annual stamp duty charge at a rate of 0.6% per annum and will apply for four years.

The Key points are as follows:

·         The levy will be at a rate of 0.6% per annum.

·         The levy will apply from 2011 to 2014.

·         The value basis for 2011 is 19 May 2011 and for subsequent years it can be 1 January or an earlier accounting date used by the pension scheme.

·         Payments are to be made twice a year and the first payment for 2011 is due on 25 July 2011 and the second payment on the 25 October 2011 and for the remaining years the payment dates will be 25 March and 25 September. Interest and penalties will apply if payments are late.

·         The accountable person for the levy is generally the administrator of the scheme.

The levy will be payable by most private pension arrangements approved by Revenue. These include:

·         Occupational defined benefit and defined contribution schemes (including Additional Voluntary contribution (AVCs) arrangements)

·         Personal Retirement Savings Accounts (PRSAs)

·         Personal Retirement Bonds (PRBs) and

·         Retirement annuity contracts

The Levy will not apply to:

·         Approved Retirement Funds (ARFs)

·         Pension annuities secured, in the name of the individual, with an insurance company

·         Pension assets in respect of an employee whose employment in relation to the scheme is and/or always has been outside the state and

·         Pension funds where the trustees have already taken the decision to wind-up the scheme prior and the employer is insolvent

·         Public Sector pension arrangements.

Air Travel Tax

Finance (No.2) Bill includes legislation providing for the reduction of the air travel tax to zero at some date in the future upon the introduction of a ministerial order.