Neasa Hourigan (Dublin Central, Green Party)
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153. To ask the Minister for Finance his plans to bring forward legislation to address tax avoidance where it may not be possible to address arrangements within the existing code; and if he will make a statement on the matter. [2981/23]

Michael McGrath (Cork South Central, Fianna Fail)
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Significant work has been, and continues to be, done to ensure the Irish tax code is in line with new and emerging international tax standards.

The January 2021 update to Ireland’s Corporation Tax Roadmap highlights the actions that have been taken and will continue to be taken in the process of corporation tax reform, adding to the significant level of reforms Ireland had already undertaken.

In this regard, legislation has been enacted by the Oireachtas in recent Finance Acts in respect of:

- defensive measures against listed jurisdictions through enhanced Controlled Foreign Company Rules,

- the application of the Authorised OECD Approach for the attribution of profits to branches

- updated transfer pricing rules, and

- mandatory disclosure rules.

Following the signing into law of Finance Act 2021, Ireland has now completed transposition of the EU Anti-Tax Avoidance Directives (ATADs), as follows:

- A new Exit Tax and Controlled Foreign Company rules were introduced in Finance Act 2018, and our General Anti-Abuse Rule already met the required standard.

- Anti-Hybrid rules were introduced in Finance Act 2019. and

- Anti-Reverse Hybrid rules and an Interest Limitation Ratio were introduced in Finance Act 2021.

As set out in the update to the Corporation Tax Roadmap, there are commitments to introduce a series of measures to further reform our corporate tax code including possible actions in respect of outbound payments from Ireland. A public consultation has been completed regarding the potential introduction of measures to apply to such payments, including to jurisdictions on the EU list of non-cooperative jurisdictions for tax purposes and no or zero tax regimes.

In October 2021, Ireland was among almost 140 jurisdictions that agreed, through the OECD/G20 Inclusive Framework on BEPS, a two-pillar solution to address tax challenges arising from the digitalisation of the economy.

- Pillar One will see a reallocation of a portion of taxing rights on profits of large multinational corporations to market jurisdictions, i.e., countries where the end-consumers and users of products and services are based. It applies to multinational groups with turnover in excess of €20 billion annually and profitability greater than 10%. The threshold will be reduced to €10 billion after 7 years.

- Pillar Two will see the adoption of a new global minimum effective tax rate of 15% applying to multinational groups with global revenues in excess of €750 million.

Pillar One will be implemented through an international agreement known as a Multilateral Convention (MLC). Work on the detailed provisions of the MLC to implement Amount A of Pillar One and its Explanatory Statement is ongoing at an international level.

Council Directive (EU) 2022/2523 will give effect to Pillar Two across all of the EU, including Ireland. The Directive was agreed in December 2022 and requires implementation by 31 December 2023. Legislation will be brought forward to transpose the Directive in Finance Bill 2023.

Work is continuing at the OECD on finalising the two-pillar solution. Officials from the Department of Finance and Revenue are actively engaged in all aspects of that work.

It should also be recognised that Ireland has a longstanding General Anti-Avoidance Rule, which goes beyond the standard required in the EU Anti-Tax Avoidance Directives and serves as a deterrent for tax avoidance behaviour. Taxpayer behaviour is continuously monitored by Revenue and if, as part of a compliance review, possible non-compliance with relevant legislation is identified, Revenue undertakes appropriate compliance interventions. In addition, should any deficiencies in the legislative provisions be identified, they will be brought to the attention of my Department.

Revenue is strongly committed to identifying and challenging tax avoidance, including schemes that would seek to rely on Ireland’s Double Taxation Agreements such as the exploitation of a mismatch of Irish and Maltese rules in relation to company residence and domicile, which could have led to income falling out of charge in Ireland and in Malta, resulting in double non-taxation of the income concerned. In November 2018, Ireland entered into a Competent Authority Agreement (CAA) with Malta under the Ireland-Malta Double Taxation Convention to deter these arrangements. As a result, section 23A(2) of the Taxes Consolidation Act 1997, which can result in a company incorporated in Ireland being regarded as not tax-resident in Ireland, will not apply to an Irish-incorporated but Malta-managed company in the circumstances outlined in the CAA. Accordingly, under section 23A of the Taxes Consolidation Act 1997, such an Irish-incorporated company will be resident in Ireland and the relevant payments to it will come within the charge to Irish corporation tax.

As regards this type of arrangement, or any other aggressive tax planning, I will not hesitate to propose legislation to address tax avoidance, where it may not be possible to address arrangements within the existing code.

Fergus O'Dowd (Louth, Fine Gael)
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154. To ask the Minister for Finance his views on the possible easing of VAT rates for retrofitting works or renewable energy works for domestic purposes, to assist homeowners in reducing reliance on energy providers in a crippling energy crisis; and if he will make a statement on the matter. [2996/23]

Michael McGrath (Cork South Central, Fianna Fail)
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The VAT rating of goods and services is subject to EU VAT law, with which Irish VAT law must comply. In general, the Directive provides that all goods and services are liable to VAT at the standard rate unless they fall within Annex III of the Directive, in respect of which Member States may apply either one or two reduced rates of VAT. Ireland currently operates two reduced rates of VAT, 13.5% and 9%, as permitted by the Directive.

Building materials are not included in the categories of goods and services on which the EU Directive allows a lower rate of VAT or an exemption to be applied, and so they are liable to VAT at the standard rate. By way of special derogation from the general rule though, Ireland is permitted to continue its long-standing practice of applying a reduced rate, currently 13.5%, to the supply of ready-to-pour concrete and certain concrete blocks but there are strict restrictions on this derogation, including that the rate cannot be reduced below 12%.

Under the EU VAT Directive the supply of construction and retrofitting services is liable to VAT at the standard rate generally across the EU but Ireland applies a 13.5% reduced rate of VAT to all construction services under a derogation from the EU VAT Directive, again subject to strict restrictions.

Construction services that consist of the “renovation and repairing of private dwellings, excluding material which account for a significant part of the value of the service supplied” can benefit from the reduced rate of VAT, currently 13.5%. This means that where a building contractor carries out home improvements and the material cost does not exceed two-thirds of the costs of the improvements then the reduced rate of 13.5% applies to the total construction service. A consequences of this is that a VAT registered building contractor will generally be entitled to recover VAT at the standard rate on most building materials purchased while the contractor is only liable to change VAT at the 13.5% reduced rate on the total supply (including the materials and labour elements of the job) to the homeowner. The difference in rates between the 23% input VAT and the 13.5% output VAT should normally be reflected in the VAT inclusive costs to the homeowner.

Following amendments to Annex III of the VAT Directive, agreed in April 2022, it now includes a category for "the supply and installation of solar panels on and adjacent to private dwellings, housing and public and other buildings used for activities in the public interest." Outside of the above category in Annex III, the supply of solar equipment, is liable to VAT at the standard rate, currently 23%.

It was decided not to make any change to this rate because of the fact that when solar panels are supplied as part of a “supply and install” contract, they may be subject to VAT at the reduced rate of 13.5%.

Pearse Doherty (Donegal, Sinn Fein)
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155. To ask the Minister for Finance the estimated cost of extending the reduced rates applicable to petrol and diesel until the end of June 2023; his plans regarding rates of excise in the context of the cost-of-living crisis; and if he will make a statement on the matter. [3148/23]

Michael McGrath (Cork South Central, Fianna Fail)
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I am advised by Revenue that the estimated total cost of extending the reduced rates of Mineral Oil Tax (MOT) applicable to petrol and diesel until the end of June 2023 is €240.5 million.

The breakdown of costs is shown in the following table.

These estimates are based on recent consumption data and do not account for any behavioural change.

As per the 2022 Finance Act these reduced rates are set to expire on 28th February 2023. In making any decision the Government will balance the costs of the measures in question against their impact.

Mairead Farrell (Galway West, Sinn Fein)
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156. To ask the Minister for Finance to provide an update on the review of section 110 of the Taxes Consolidation Act 1997 regime; and if he will make a statement on the matter. [2822/23]

Michael McGrath (Cork South Central, Fianna Fail)
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The Commission on Taxation and Welfare considered how the overall balance of taxation might shift in order to sustainably fund public services over the longer-term. It published its report in September 2022.

The Commission published a number of recommendations on the taxation of investment products and on the Real Estate Investment Trust (REIT), Irish Real Estate Funds (IREF) and section 110 tax regimes. That is why, in his Budget speech, my predecessor announced the intention to commence a review of these areas.

Specific detail on the parameters of such a review and timelines are still being worked out and once a thorough consideration of the matter takes place, I will share the terms of reference in due course.

Cormac Devlin (Dún Laoghaire, Fianna Fail)
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158. To ask the Minister for Finance the number of persons impacted by income tax changes brought in on 1 January 2023; and if he will make a statement on the matter. [3081/23]

Michael McGrath (Cork South Central, Fianna Fail)
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As the Deputy will be aware, Budget 2023 included a significant income tax package amounting to a cost of €1.13 billion in 2023 and consisted of both personal income tax and Universal Social Charge (USC) changes.

In relation to the income tax changes, the Standard Rate Cut-Off Point for single persons was increased by €3,200 or 8.7 per cent from €36,800 to €40,000, with commensurate increases for persons who are married/in civil partnerships. In addition, the main tax credits – the personal tax credit, employee tax credit and earned income credit - were all increased by just over 4.4 per cent or €75 each from €1,700 to €1,775. The home carer tax credit was also increased by €100 from €1,600 to €1,700 which equates to a 6.3 per cent increase. Overall, it is expected that 2.1m taxpayers (64 per cent of all taxpayer units) will benefit from Budget 2023 income tax package measures, with the balance of taxpayers generally exempt from income tax or their income tax liability being offset by their tax credits.

It is also important to point out that the income tax changes were carefully designed to ensure that workers do not find themselves in a position where they pay more income tax solely as a result of wage growth inflation in 2023. For example, due to the Budget changes, it is estimated that 44,400 taxpayer units will remain outside the income tax net and 98,800 taxpayer units will be removed from the higher rate of income tax.

Turning to the USC, the ceiling of the band for the 2 per cent rate was also increased by €1,625 from €21,295 to €22,920. This will ensure that a full-time worker on the minimum wage, who benefited from the increase in the hourly minimum wage rate from €10.50 to €11.30, will remain outside the top rates of USC. It is estimated that this change will benefit around 1.6m taxpayers. It is also worth pointing out that the USC concession for medical card holders who earn less than €60,000 per annum was extended for a further year, which means such individuals will continue to pay a reduced rate of USC in 2023. It is tentatively estimated that this measure will benefit around 120,000 taxpayer units.

Further details of the Budget 2023 tax measures can be located at the following link:

www.gov.ie/en/publication/ccc22-budget-2023-taxation-measures/