Budget 2017: Finance Bill to target vulture funds
His declaration on better controls of controversial special purpose vehicles (SPVs) formed part of what was generally seen as being a pro-business budget, with the 9% Vat rate for the hospitality sector maintained; the start-your-own business scheme for entrepreneurs extended; entrepreneur relief revised and a share-based incentive scheme for SMEs introduced.
The crackdown on SPVs will see the Government tighten Section 110 of the 1997 Taxes Consolidation Act, which has allowed overseas investors (including vulture funds) to aquire and house distressed property loans and other risky assets worth billions of euro in Ireland without having to pay tax on profits made on them.
“When this section was introduced, the intention was that it would benefit the financial services industry, and it has done so,” Mr Noonan said in his Budget 2017 address yesterday.
However, he added: “It is now being used in relation to property in a way that was never intended. I have published draft amendments to Section 110 to address these unintended uses. I am aware that further amendments are necessary to address other issues arising in relation to funds and property. I will publish these in the Finance Bill after appropriate consultation has taken place.”
The Government expects to yield €50m in the first year of Section 110 restrictions. Central Bank data, published last week, showed there were 822 tax-efficient SPVs resident in Ireland sitting on combined assets worth €324bn, as of the end of last year.
Mr Noonan also said the Finance Bill will, as of next May, contain measures to restrict the opportunity for offshore defaulters to use the voluntary disclosure regime.
“I will introduce a new strict liability criminal offence to facilitate the prosecution of serious cases of offshore tax evasion,” Mr Noonan told the Dáil, adding that €5m has been allocated to Revenue to recruit 50 extra staff.
Last month, Revenue said that it yielded a combined €1.37m under its offshore assets and funds investigation remit in the second quarter of the year.
The proposed SME share-based incentive scheme will not be introduced until Budget 2018 and will require the approval of the European Commission beforehand. Overall, measures aimed at SMEs and the self-employed were only given cautious welcomes. The SFA said there is nothing to ‘Brexit-proof’ SMEs, while Isme said the self-employed continue to be treated unfairly and still more needs to be done for entrepreneurs.
The start-your-own business scheme has been extended for two more years and entrepreneur relief has been improved with capital gains tax on the disposal of assets worth up to €1m halving to 10%. Mr Noonan said he would review the €1m limit in future budgets.
“By announcing his intention to keep this threshold under review Minister Noonan has recognised one of its shortcomings,” said CPA Ireland director David Fitzgerald. “The equivalent threshold in the UK is £10m. For the measure to have a widespread impact for SMEs it must be increased.”
Deloitte’s head of tax Lorraine Griffin said the change is not enough to “move the dial in terms of driving entrepreneurship”.
“The measures to close the disparity between the employed and self-employed are also to be welcomed, but there is more focus required in the coming years,” she said.
Mr Noonan said the start-your-own business scheme extension will be “of real benefit” to long-term jobless.
