Paschal Donohoe (Dublin Central, Fine Gael) | Oireachtas source

I welcome the opportunity to address Dáil Éireann on the Withdrawal of the United Kingdom from the European Union (Consequential Provisions) Bill 2019 and, in particular, the elements of it which I have proposed as Minister for Finance. The Government remains firmly of the view that the only way to ensure an orderly withdrawal of the United Kingdom from the European Union is to ratify the withdrawal agreement as endorsed by the European Council and agreed with the British Government. The Government remains focused on the ratification of the withdrawal agreement and the negotiation of an ambitious and comprehensive future EU-UK partnership. However, we must also be prepared for the possibility that the United Kingdom will leave the European Union without an agreement. We are doing all we can to avoid this happening, but we need to be ready in case it does.

The Withdrawal of the United Kingdom from the European Union (Consequential Provisions) Bill 2019 follows on from the Government's contingency action plan published in December 2018 and the measures being undertaken at EU level via the European Commission's contingency action plan. The purpose of the Government's Bill is to protect citizens and the economy by putting in place the necessary measures to mitigate some of the worst disruptions and discontinuities that would arise as a result of a no-deal Brexit. As Minister for Finance, my objective is to protect the economic and financial interests of the state and support the work of the Revenue Commissioners so as to minimise the disruption to trade to the greatest extent possible. My Department is working within the whole-of-government approach and co-ordinating closely with the agencies, including the Central Bank of Ireland and the National Treasury Management Agency, NTMA, which is also heavily involved in developing and implementing plans and measures to protect the economy to the greatest extent possible.

As I have outlined previously, Brexit, in whatever form, is an historic challenge and, as we approach it, we must continue to be clear that membership of the Single Market and the customs union is a core element of our economic strategy and will not change. Ireland will remain an active and enthusiastic member of the European Union and the Government is committed to working with the European Commission to ensure the closest possible relationship between the European Union and the United Kingdom and to protect the interests of businesses and citizens as much as possible. The legislative amendments I have proposed in the areas of taxation and financial services will form an important part of this contingency planning.

Part 6 of the Bill provides for the modification of income tax, corporation tax, capital tax and stamp duty legislation in order to ensure continuity for business and citizens in their current access to certain taxation measures, including reliefs and allowances. Part 6 also makes provision for the introduction of postponed accounting for VAT on imports from third countries, an important measure to mitigate the cash flow burden on businesses should the United Kingdom leave the European Union without a withdrawal agreement. It also provides for the retention of certain capital taxes and VAT anti-avoidance provisions. There are seven chapters in this Part of the Bill.

The proposed amendments to income tax are covered in chapter 2, sections 16 to 41, inclusive, where various sections of the Taxes Consolidation Act 1997 will be amended to ensure income tax measures will continue to apply to existing beneficiaries should the United Kingdom leave the European Union without an agreement. The relevant legislative provisions will, as far as practicable, be extended to include the United Kingdom in order to maintain the status quoin the immediate future. The measures covered are diverse and include the artists' exemption; the exemptions from income tax of hepatitis and HIV compensation payments and foster care arising in the United Kingdom; the application of the seafarer allowance and the fisher tax credit to Irish taxpayers serving on UK-registered vessels; ensuring continuity of relief for small and medium enterprises benefiting from the employment and investment incentive, start-up refunds for entrepreneurs, the key employee engagement programme and preservation of existing pension reliefs for Irish taxpayers; the retirement arrangements for professional sportspersons to ensure Irish taxpaying sportsmen and sportswomen who retire to the United Kingdom can avail of the relief; and the continuation of various reliefs in respect of charitable donations and charities' incomes.

The proposed amendments to corporation tax are covered in chapter 3, sections 42 to 47, inclusive. In broad terms, they seek to maintain the status quoin the tax treatment of certain transactions or corporate group structures in the immediate aftermath of a UK exit from the European Union without an agreement. The purpose of the amendments is to minimise disruption to businesses to the greatest extent possible. For example, the amendments proposed in section 42 relating to charges on income for corporation tax purposes will ensure certain interest payments made by companies to recognised banks, Stock Exchange members and discount houses carrying on business in the United Kingdom will continue to qualify for the relief. Similarly, the amendments proposed in sections 45 to 47, inclusive, aim to retain reliefs for certain start-up companies, companies engaged in research and development activities and gains realised on certain transfers of chargeable assets owned by UK companies.

The proposed amendments to capital taxes are covered as part of chapter 2, section 41; chapter 4, sections 48 and 49; and chapter 7, section 60. The amendments are proposed in order to allow for continuity of existing provisions, in the main capital gains tax and capital acquisition taxes covering investment and farming reliefs, as well as amendments to cover specific capital gains tax anti-avoidance measures.

VAT is covered in chapter 5, sections 50 to 53, inclusive. The main change being proposed is in section 51 which provides for the introduction of postponed accounting for VAT. This is a significant measure that will alleviate VAT burdens on businesses as a result of Brexit. The change allows businesses to account for VAT on imports in their bi-monthly VAT return, instead of having to pay VAT at the point of importation, which normally applies to imports from third countries. This mirrors the existing VAT system for trade from the United Kingdom and will avoid the cash flow burden for businesses trading with the United Kingdom of having to pay VAT up-front and also the administrative burden of operating new systems. The amendments proposed in section 52 are an anti-avoidance measure.

With stamp duties, chapter 6 sets out the proposed amendments to the Stamp Duties Consolidation Act 1999 which are covered in sections 54 to 59, inclusive. The aim of the amendments is to maintain the status quo. The amendments proposed in sections 54 to 57, inclusive, provide for a continuation of stamp duty reliefs on the acquisition of stocks and marketable securities, the reconstructions or amalgamations of companies and the demutualisation of assurance companies. The amendments proposed in sections 58 and 59 provide for a continuation of stamp duty levies on certain life insurance and non-life insurance premiums. Today the Government approved two amendments to be included in the Bill on Committee Stage related to duty free sales and the operation of the VAT retail export scheme between Ireland and the United Kingdom post Brexit.

Turning to Part 7 of the Bill, legislative amendments are proposed to extend the protections contained in the settlement finality directive to Irish users of UK-based settlement systems for trading in financial instruments once the United Kingdom becomes a third country. This legislation is related to the Irish market's reliance on CREST, a central securities depository, CSD, based in the United Kingdom to settle trades in Irish listed financial instruments. A central securities depository is a specialist settlement system that holds financial instruments such as shares on behalf of investors and facilitates transfers in ownership through electronic book entry, rather than the actual physical transfer of paper certificates.

It is a key component in financial market infrastructure that enables the safe and efficient trading of financial instruments.

In the event of a no-deal Brexit, the European Commission has already adopted a temporary and conditional equivalence decision for UK-based CSDs under the central securities depository regulation, CSDR, for a period of two years. This will allow the Irish market to continue settling trades in CREST while the transition to Euroclear Bank, a CSD based in Belgium, is completed. The proposed amendments to the settlement finality regulations are required to support implementation of the Commission equivalence decision and allow Irish participants to continue accessing CREST. The settlement finality directive ensures that transfer orders of financial instruments entered into designated settlement systems by market participants are legally binding. It provides legal certainty to market participants that trades will fully settle even if one of the parties attempts to revoke the trade or becomes insolvent prior to settlement. Recital 7 of the directive grants member states the discretion to extend the protections of the directive to third country systems. At the time of the directive's transposition into Irish law through SI 624 of 2010, Ireland did not exercise this discretion as CREST was based in another member state - the UK. Following the UK's decision to leave the EU, it will become a third country for the purposes of EU legislation and, therefore, it becomes necessary to implement recital 7 in Irish law, as I am proposing in this Bill, in order to ensure that the protections under the directive continue to apply to Irish market participants.

Regarding the designation of settlement systems, I, in my role as Minister for Finance, will decide on the designation of a system following a recommendation by the Central Bank of Ireland. The Central Bank is required to conduct an equivalence assessment of the United Kingdom's legal system as it relates to settlement finality to ensure it is equivalent to the relevant Irish laws and that the rules of the individual system comply with the requirements set out in Regulation No. 7. The proposed legislation allows for the withdrawal of a designation if the Central Bank of Ireland deems that either UK law or the rules of the system no longer comply with the requirements set out in the legislation. The legislation also allows for the temporary designation of settlement systems that are already designated by the Bank of England under settlement finality. The introduction of this legislation will ensure that there is no disruption to existing market activity in the event that the UK withdraws from the EU without ratification of the withdrawal agreement.

Finally, Part 8 of the Bill provides for contract continuity in respect of contracts of insurance. If the UK withdraws from the EU without ratification of the withdrawal agreement, it will become a third country from 30 March 2019 with regard to the EU's regulatory framework for insurance and financial services. UK and Gibraltar insurance undertakings or insurance intermediaries will, therefore, no longer be able to write new business in Ireland and will not have the authority to continue to service contracts that were concluded before Brexit. The servicing of contracts would include activities such as paying out on claims or accepting premium payments. Therefore, certain measures are necessary to protect Irish customers to ensure the continuity of these services post Brexit.

The Central Bank has indicated that a significant majority of insurance undertakings have proposed appropriate contingency plans that have already been implemented or will be implemented. In addition, most of the larger insurance intermediaries are taking the necessary action to resolve this issue. However, there is a legitimate concern, that some smaller UK-Gibraltar insurance undertakings and insurance intermediaries, which, admittedly, represent a very small portion of the overall market, will not have implemented contingency plans in place on time or because they do not propose continuing to operate in the Irish market post Brexit.

This Part, therefore, caters for these situations and ensures that Irish policyholders who hold existing life and non-life insurance policies with insurance undertakings or through insurance intermediaries operating in Ireland from the UK or Gibraltar will not be affected due to those undertakings or intermediaries losing their right to conduct business in EU members states post Brexit. To do so, the Part provides for a temporary run-off regime, which, subject to a number of conditions, will enable such firms to continue to fulfil contractual obligations to their Irish customers for a period of three years after the date of the withdrawal of the UK from the EU. The measure is exclusively in place for existing policies and does not allow these firms to issue new policies. This temporary run-off regime is established by amendment to the two sets of regulations that provide for the regulation of insurance undertakings and insurance intermediaries, namely, the European Union (Insurance and Reinsurance) Regulations 2015 and the European Union (Insurance Distribution) Regulations 2018.

Finally, Deputies should note that this regime is in line with the principles set out by the European Commission and the European Insurance and Occupational Pensions Authority, EIOPA, in that it does not allow for new business to be written, it is temporary in nature and is in line with the principles set out in the Solvency II directive. These factors have been key considerations for my Department and the Central Bank in developing this regime. Indeed, EIOPA, in its recommendations for the insurance sector in light of the United Kingdom withdrawing from the European Union, which were published on 19 February, has effectively endorsed this approach. I am confident, therefore, that these measures should ensure that Irish policyholders are protected in the event of a no-deal Brexit.

I hope this gives Members a good outline of the issues in this Bill that are covered by the Department of Finance. The breadth of the issues ranges from sportspeople to settlement systems, which indicates the complexity of this Bill and the complexity of the undertaking that lies ahead. The passage of the Bill is vital to ensure that in the event of a disorderly Brexit, we have done all we can to protect the interests of our State and citizens.

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