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

I move: "That the Bill be now read a Second Time."

Two weeks ago, I made my Budget Statement and outlined the many challenges that our economy had gone through. Despite those challenges and issues, we have economic growth that is broadly based, public capital investment will increase by 22% and the unemployment rate has fallen to 5.3%. Tax revenues are largely in line with forecasts and we expect to meet our revised target of €58.6 billion this year. The Department of Finance is forecasting GDP growth of 5.5% for this year, up from 3.9% in the stability programme update. We have eliminated the deficit and are projecting a surplus of 0.2% of national income.

That said, we cannot for a moment underestimate the challenge that Brexit poses to the economy. In the event that the UK leaves the EU with an agreement, we will continue to build on this surplus. Brexit is the main immediate threat to the Irish economy. It is a threat to the wider European economy and, ironically, it is a threat to the UK economy, in particular the Northern Ireland economy. Similar to today's events, that communities are grappling with the consequences of planned job losses in the coming weeks, months and years reminds us of the many challenges materialising before us. We find ourselves facing an uncertain situation over which we have relatively little influence. This is all the more reason to take care with policies that we can control and influence.

Due to recent actions, we are in a strong position to mitigate some of the worst effects of Brexit if we are forced to do so. In the event of a no-deal Brexit, we will intervene in a sustained and meaningful way to support jobs and our economy. We have a package of €1.2 billion to be called on if needed. If we must intervene in this way, our surplus will move to a deficit of 0.6% of national income. We hope that the withdrawal agreement is ratified, but it is only prudent to remain cautious until it has taken place. This is the context within which budget 2020 was framed, and the Bill sets out the legislative provisions required to give effect to the budget.

I will begin with income tax and enterprise supports. The Bill provides for a number of significant enterprise taxation supports by way of broadening access to the key employee engagement programme, KEEP, the employment investment incentive, EII, and the research and development tax credit. The Bill extends the special assignee relief programme, SARP, and the foreign earnings deduction, FED, to the end of 2022. The Bill further provides for income tax measures announced on budget day, applying increases to the home carer's credit and the earned income tax credit. It also provides for the extension of the help-to-buy scheme to the end of 2021.

The House will be aware of, and has adopted, the decisions that I have recommended in respect of carbon prices. There is broad support to move to the target of €80 per tonne by 2030. However, we know that this change will not be easy for everyone. Instead of a large increase in any one year, therefore, I am committing to a €6 increase as a first step towards the 2030 target. It is my ambition to increase this move each year. This €6 increase applied from budget night to auto fuels, but I have decided to delay its application to other fuels until May 2020 after the winter heating season. The increase will raise €90 million in 2020, all of which will be ring-fenced to fund new climate action measures that will protect the most vulnerable in society, support sustainable mobility projects, deliver new agri-environmental schemes and invest in our low-carbon future.

This approach is supported by the Climate Change Advisory Council, the report of the Oireachtas Joint Committee on Climate Action and the recommendations of the Citizens' Assembly on climate change, which also point in that direction.

I will briefly summarise other climate-related tax changes. I am replacing the 1% diesel surcharge introduced last year with a nitrogen oxide, NOx, emissions-based surcharge, to apply from 1 January 2020. In addition, in this Bill, I am introducing an environmental rationale to benefit-in-kind for commercial vehicles from 2023. The Bill will also extend the benefit-in-kind zero rate on electric vehicles to 2022 and extend VRT reliefs for conventional and plug-in hybrids to 2020, subject to CO₂thresholds. The Bill will reduce qualifying CO₂thresholds for reliefs in respect of capital allowances and VAT reclaim on commercial vehicles, and provide additional relief through the diesel rebate scheme to hauliers to compensate that sector for the increased cost of fuel. I am equalising electricity tax rates for business and non-business.

One of the main strengths of Ireland's corporate tax regime is the certainty we offer investors through a stable, consistent and transparent policy regime. Investment decisions that bring jobs to Ireland are long-term decisions and, therefore, certainty is important. It also worth reflecting that often the problems in the international tax system have come not from the actions of governments but from advisers and business designing complex plans to exploit mismatches or gaps in legislation. Those days must come to an end. While governments worldwide are doing their part but, globally, tax advisers, lawyers, and the professional services industry must also play their part. It is in the long-term interests of all. The Bill includes a number of significant changes to address the issue of tax avoidance. I am making changes to Irish real estate funds, IREFs, to address aggressive tax planning activities identified by Revenue on examination of IREF accounts filed this year. I outlined in my Budget Statement that analysis of these structures is ongoing, and I intend to make some further amendments on Committee Stage to ensure that the aggressive activities of some entities do not negatively impact on bona fide, third-party lending in vehicles funding much-needed development projects. I am also making amendments to the real estate investment trust, REIT, regime and to the taxation of securitisation vehicles to strengthen anti-abuse measures and ensure appropriate taxation is collected. I am also updating existing transfer pricing rules and extending their scope and application. The changes take account of the latest 2017 version of the OECD transfer pricing guidelines and significantly extend the scope of the rules in line with the recommendations in the Coffey review.

As part of our commitment to implementing the anti-tax avoidance directive, ATAD, I am introducing new anti-avoidance measures this year in the form of ATAD-compliant, anti-hybrid rules. The purpose of anti-hybrid rules is to prevent arrangements that exploit differences in the tax treatment of an instrument or entity under the tax laws of two or more jurisdictions to generate a tax advantage. They will apply to all corporate taxpayers from 1 January 2020. The Bill makes amendments to the treatment of investment limited partnerships, ILPs, and puts the long-standing treatment of stock borrowing and repurchase transactions on a legislative footing. These amendments are being introduced in conjunction with the introduction of ATAD anti-hybrid rules to ensure that the existing treatment of ILPs is clear in legislation. As well as tackling avoidance, these reforms enhance the legitimacy of our corporate tax regime internationally.

I will now refer to each Part. Part 1 deals with income tax, corporation tax, capital gains tax and the universal social charge, USC. Section 1 is the interpretation section. Section 2 provides that the reduced rate of universal social charge, USC, for full medical cardholders whose individual annual income does not exceed €60,000. It will be extended for a further year until the end of the 2020 tax year. Section 3 deals with the increased value of the home carer credit. Section 4 deals with the earned income credit. Section 5 deals with benefit-in-kind on employer-provided vehicles. The exemption for electric cars and vans with a market value of less than €50,000 is extended to 31 December 2022. A new charging regime for employer-provided cars will take effect from 1 January 2023.

Section 6 extends an exemption from tax for payments made to compensate individuals for expenses incurred in the donation of a kidney to also include those who donate a lobe of a liver. Section 7 makes a technical amendment to the Magdalen restorative justice ex gratia scheme. Sections 8 to 10 deal with SARP, KEEP and FED. Section 11 seeks to maintain the status quofor qualifying UK residents by allowing them to retain entitlement to certain allowances. Sections 12 to 14 deal with payments, including certain payments to foster parents, training allowances and student grants. Section 15 extends the help-to-buy scheme. Section 16 provides tax relief for pension contributions made by a company to occupational pension schemes set up for employees of another company in certain circumstances. Section 17 extends the living city initiative. Section 18 is the adjustment of the qualifying CO₂thresholds for capital allowances.

Section 19 makes two technical amendments to the general rules on deductions for tax purposes. Section 20 includes Children's Health Ireland, Enterprise Ireland and the National Oil Reserves Agency, NORA, which is a designated activity company, DAC, in the list of specified non-commercial State-sponsored bodies that qualify for exemption from certain tax provisions under the Taxes Consolidation Act 1997. Section 21 amends section 845C to extend the treatment afforded to additional tier 1 instruments to comparable instruments with equivalent characteristics issued by companies other than regulated financial institutions. Section 22 deals with certain corporation tax measures. Section 23 increases the rate of dividend withholding tax, DWT, from the standard rate of income tax of 20% to a rate of 25% and increases the rate for distributions to certain non-residents in a similar manner. Section 24 amends Chapter 2 of Part 29 of the Taxes Consolidation Act 1997 in respect of additional supports for micro and small companies.

Section 25 makes a number of amendments in respect of the Ell scheme. I covered sections 26 to 31 earlier. Section 32 amends section 1035A of the Taxes Consolidation Act 1997. Section 33 inserts Chapter 3 into Part 28 of the Act. It relates to the tax treatment of stock borrowing and repurchase, repo, arrangements. Section 34 amends section 604B of the Taxes Consolidation Act 1997. The section provides for capital gains tax relief for the purposes of farm restructuring. Section 35 amends section 616(1) of the Taxes Consolidation Act 1997 to provide interpretations for the purposes of Chapter 1 of Part 20 of the Act. Section 36 amends section 621 to correct an inconsistency in the treatment of an allowable loss in comparison with a chargeable gain. Section 37 makes changes to the exit tax.

Part 2 deals with excise. Section 38 confirms the budget day increase. Section 39 confirms the budget increase in the carbon component of mineral oil tax on mineral oils used as auto fuels from 9 October 2019. Section 40 makes a number of amendments to the Finance Act 1999 to bring national law concerning fuel oil used for private pleasure navigation in line with EU rules. Section 41 provides for an enhanced relief under the diesel rebate scheme.

Section 42 provides for an increase to the production threshold for eligibility to claim 50% relief from alcohol products tax for beer brewed in small breweries. Section 43 provides for the equalisation of the rates of electricity tax referred to earlier. Sections 44 and 45 provide for an increase to the natural gas carbon tax.

Section 46 amends section 64 and section 77 of Chapter 1 of Part 2 of the Finance Act 2002 and inserts a new section 68A to that Act to provide a relief from betting duty and betting intermediary duty.

Section 47 amends the definition of the European Union in respect of Italy to exclude certain territories. This amendment transposes a legal measure that has been approved at EU level.

Sections 48 and 49 refer to the nitrogen oxide emissions that I referred to earlier. Section 50 deals with extension of the vehicle registration tax, VRT, relief for hybrid electric vehicles and plug-in hybrids until 31 December 2020.

Part 3 of the Bill deals with VAT. The first section is the interpretation section.

The second section, which is section 52, reduces the carbon dioxide threshold from 156 g to 140 g per kilometre for business vehicles qualifying for a VAT deduction. The section also removes the possibility of deducting VAT on services used to effect a transfer of the ownership of goods within the scope of transfer of business relief.

Section 53 amends section 108 of the Value-Added Tax Consolidation Act 2010 to ensure that the powers contained in section 108 can be used in respect of mutual assistance requests received by the Revenue Commissioners.

Section 54 amends Part 2 of Schedule 3 to the Value-Added Tax Consolidation Act 2010 by inserting a new paragraph 3A to provide that food supplements will be subject to VAT at a rate of 13.5%. I should make it clear that foods for specific groups such as infant formula, vitamins and minerals such as folic acid licensed as medicines by the Health Products Regulatory Authority, HPRA, and fortified foods such as fortified cereals, will continue to benefit from the zero rating for VAT purposes.

Part 4 deals with stamp duties. Section 55 is the interpretation section.

Section 56 amends Schedule 1 to the Stamp Duties Consolidation Act 1999 to give effect to the budget increase in the rate of stamp duty applying to conveyances or transfers and lease premiums of non-residential property from 6% to 7.5% It amends section 83D to take account of the new rate of 7.5%. The 6% rate will continue to apply for purchasers or lessees with binding contracts in place before 9 October and where the sale or lease is executed before 1 January 2020. Sections 57 and 58 provide that Gibraltar-regulated insurers will continue to be liable to the current levies on insurance policies on their Irish business in the event of the UK leaving the EU.

Section 59 amends the Stamp Duties Consolidation Act 1999 to maintain the fixed annual levy of €150 million. The levy is charged on the deposit interest retention tax, DIRT, paid by the relevant financial institutions in a series of base years. This measure came into effect on budget night.

Section 60 imposes a stamp duty charge of 1% where the acquisition of a company is effected by means of a particular type of scheme of arrangement under Part 9. The usual stamp duty charge in respect of the sale or transfer of shares did not apply, as this type of arrangement does not involve a conveyance or transfer on sale. This measure came into effect on budget night.

Part 5 deals with the capital acquisitions tax. Section 61 is an interpretation section.

Section 62 amends the section of the Capital Acquisitions Tax Consolidation Act 2003, which deals with the information to be supplied to Revenue and the Probate Office. Section 63 amends section 86 of the Capital Acquisitions Tax Consolidation Act 2003, which provides for an exemption from inheritance tax for beneficiaries inheriting certain dwelling houses. Section 64 increases the group A tax-free threshold from €320,000 to €335,000.

Part 6 is the final part and deals with miscellaneous matters. Section 65 is the interpretation section.

Section 66 gives effect to certain provisions of an EU directive to introduce a mandatory disclosure regime for certain cross-border transactions. Section 67 makes several amendments to the tax appeal procedures contained in Part 40A of the Taxes Consolidation Act 1997. Section 68 will allow the collection of disputed tax to be suspended in cases subject to a mutual agreement procedure. Section 69 removes the requirement that the hard copy of an electronic tax return should be approved by Revenue. Section 70 allows the Revenue Commissioners to reduce a PAYE assessment downwards without the taxpayer having to formally appeal. Section 71 amends section 1001 of the Taxes Consolidation Act 1997 to allow entities to which a fixed charge on book debts has been transferred to notify Revenue of the transfer. Section 72 amends a Schedule to the Taxes Consolidation Act 1997 which lists all international tax agreements entered into by Ireland. Section 73 and Schedule 2 provide for minor technical amendments to a selection of Bills. Section 74 deals with the care and management of taxes and duties. Section 75 contains provisions related to the Short Title, construction and commencement of the Bill.

As is customary with the Finance Bill, there is still a number of small matters under consideration that I may bring forward on Committee Stage. I hope that the debate on the important provisions contained in the Bill can be conducted in its typically constructive way. I will always listen to other views and to suggestions to improve the Bill, and to Committee Stage amendments. I commend the Bill to the House.

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