Key measures expected in Budget 2022:
- The transposition of the ATAD interest limitation rules into Irish law, together with measures dealing with reverse hybrid mismatches.
- Amendments to the transfer pricing provisions dealing with the exclusion from the rules for certain domestic non-trading transactions.
- Further measures to support businesses that have been impacted by the COVID-19 pandemic. It is hoped that this will include some tax incentives to support these businesses through the next phase of recovery and renewal.
- Measures to support and incentivise climate action.
- Measures to reform and simplify the pensions landscape.
- A new tax credit for the digital gaming sector. It is expected to operate in a similar manner to the film tax credit regime and may be subject to a commencement order.
- The transposition of new EU tax transparency rules for digital platforms (DAC7) into Irish law. The new provisions are expected to apply from 1 January 2023
Implementation of the ATAD Measures
Interest limitation rules
An important part of Finance Bill 2021 will be the transposition of the ATAD interest limitation rules into Irish law with effect from 1 January 2022. Due to the complexity of the rules and their interaction with existing domestic provisions, the Department of Finance has consulted extensively with taxpayers and tax practitioners with a view to ensuring that Ireland’s ILR meets the standards required under ATAD while being clear and operable in practice.
The Second Feedback Statement on the ILR was published by the Department of Finance in July 2021. It brought welcome clarity on many of the points raised in the course of the consultations. However, PwC has responded to raise a number of continuing concerns that the manner in which the draft rules will operate alongside our existing domestic provisions could place an undue burden on taxpayers from an administrative perspective and put Ireland at a disadvantage compared to our EU counterparts.
In our response, we have suggested an approach to defining and interpreting several key terms within the rules. This includes some broadening of the definition of ‘interest group’ to ensure inclusion of all Irish entities that are within the worldwide financial consolidation and some changes to the application of the ‘de minimis’ threshold of up to €3m in determining the ‘allowable amount’. We would like to see clear and timely guidance on the meaning of ‘interest equivalent’ in determining what should be considered to be economically equivalent to interest. We have also provided feedback on the scope of application of the legacy debt exclusion as well as the exemption for long-term public infrastructure projects.
Further engagement is expected to take place over the coming weeks and it is hoped that many of the matters raised by stakeholders in response to the Second Feedback Statement will be addressed in Finance Bill 2021.
Reverse hybrid mismatches
Substantive ATAD hybrid mismatch rules were introduced in Finance Act 2019. We expect to see the remaining measures dealing with reverse hybrid mismatches transposed into Irish law in Finance Bill 2021. These rules must be implemented by 1 January 2022.
The Department of Finance also launched a Feedback Statement on the Anti-Reverse Hybrid Rule in July 2021. PwC has responded to highlight an issue in relation to the application of the carve-out provisions to collective investment undertakings.
Ireland's transfer pricing rules were extended to cross border non-trading transactions in Finance Act 2019. Section 835E TCA 97, which provided for an exclusion from the rules for certain domestic non-trading transactions, was revised in full in Finance Act 2020. However it was apparent that the amendments did not fully address a number of bona fide circumstances that should be covered by the exclusion. The section was therefore made subject to a Commencement Order to allow the Department of Finance sufficient time to consider the scope and effects of the measure and to ensure that it does not give rise to unintended consequences.
We understand that these matters will be addressed in the Finance Act 2021.
Climate action is a key area of government focus and tax policy is recognised as an important lever. PwC made a detailed submission to the Department of Finance in June 2021. It set out the tax measures which could be introduced in Budget 2022 to stimulate behavioural change and support decarbonisation efforts. Read our insights and recommendations here.
Recovery and Renewal: Supporting private businesses and SMEs
As Ireland emerges from COVID-19 restrictions, private business and SMEs will need continued support through the next stage of recovery and renewal. PwC made a submission to the Department of Finance in July 2021. It focused on a number of new and innovative tax incentives and other measures to support Irish businesses through this new stage. Read our insights and recommendations here.
Further measures have also been proposed by the ITI to support businesses impacted by the COVID-19 pandemic. These include:
- extending the debt warehousing provisions to certain corporation tax liabilities,
- extending the accelerated loss relief provisions by a further year,
- allowing a trading deduction for employers who settle tax liabilities arising under the Temporary Wage Subsidy Scheme on behalf of their employees,
- providing accelerated capital allowances for capital expenditure incurred in making necessary workplace changes.
Following consultation, the Interdepartmental Pensions Reform and Taxation Group has made several recommendations in relation to simplifying the pension landscape. Some measures are expected to be introduced in Finance Bill 2021, with further changes potentially to be implemented over the following years. They are expected to include the abolishment of the requirement to invest up to €63,500 in an AMRF and a number of changes to the PRSA regime as part of the simplification process and the abolishment of new Retirement Annuity Contracts and new Buy out Bonds.
Other matters raised
In its Pre-Finance Bill 2021 Submission, the ITI has also called for the following:
- legislative clarification to ensure that rent is a qualifying cost for the purposes of the R&D tax credit,
- the inclusion of a bona fide test in s135(3A) TCA 1997 to provide certainty for taxpayers selling shares in closely held companies,
- amendment to the Associated Companies Stamp Duty Relief provisions in s79 SDCA 1999 to ensure that relief is available on group transfers meeting the 90% association test where the test is not met through the holding of ordinary share capital (e.g. where the group structure involves partnerships or bodies corporate without a share capital structure),
- an exemption from the new stamp duty rate of 10% imposed on the multiple purchase of 10 or more residential units for independent living units that form part of the property of a nursing home business.
We are here to help you
PwC has been at the forefront of consultations with the Department of Finance and Revenue on key Budget and Finance Bill matters both directly and through representative bodies including the ITI and the CCAB-I. Our key aim is to ensure that all measures introduced and changes made are fair and appropriately targeted.
We are actively engaging with clients on matters of importance to them. Our teams have a depth of expertise and level of practical experience which makes them the leaders in their field. Please get in touch with us for further insights. Feedback would also be welcome on matters that may help in shaping the policy agenda for the items referenced above.