Fi­nance Bill de­liv­ers a ‘Cin­derella mo­ment’ for com­mer­cial stamp duty

Sunday Independent (Ireland) - Business & Appointments - - FRONT PAGE -

BUD­GET day is re­ally a pre­view of the forth­com­ing at­trac­tions in the Fi­nance Bill. The first draft of the Bill was pub­lished on Oc­to­ber 19 and it has a long trip ahead of it be­fore be­ing signed into law. The Bill’s Com­mit­tee stage starts in Novem­ber and his­tory shows that this stage has pro­duced sig­nif­i­cant amend­ments, so there may be more law to read through later.

So far we’ve seen the ex­pected pro­vi­sions for an SME share-based re­mu­ner­a­tion regime and the re­stric­tion on tax de­pre­ci­a­tion on in­tan­gi­ble as­sets that were men­tioned in the Bud­get. But there’s al­ways more in the Bill than the Bud­get. This year’s Bill did not dis­ap­point with new tax­ing pro­vi­sions for em­ploy­ees of health in­sur­ance com­pa­nies re­gard­ing re­duced-cost health or den­tal in­sur­ance poli­cies, amend­ments to the domi­cile levy, ad­just­ments to com­pany fi­nanc­ing pro­vi­sions and var­i­ous anti-avoid­ance amend­ments.

So a lot go­ing on, but one of the main rev­enue-rais­ers in Bud­get 2018 was the in­crease in stamp duty on non-res­i­den­tial prop­erty from 2pc to 6pc with ef­fect from mid­night on Bud­get night and this is be­ing put on the statute books.

How­ever, the Bill still al­lows the pre­vi­ous 2pc rate to ap­ply where bind­ing con­tracts were in place be­fore that Cin­derella mo­ment, the in­stru­ments are ex­e­cuted be­fore Jan­uary 1, 2018 and the in­stru­ment con­tains a state­ment to that ef­fect. The fur­nish­ing of an in­cor­rect state­ment is re­garded as a Rev­enue of­fence which can give rise to mone­tary penal­ties and maybe a Shaw­shank Re­demp­tion ex­pe­ri­ence.

The above tran­si­tional mea­sure is wel­come; the sig­nif­i­cant duty in­crease fo­cused the minds of those con­clud­ing trans­ac­tions when Bud­get day came along as in­vestors saw the price of their ac­qui­si­tion po­ten­tially in­crease. How­ever, the clock is tick­ing on that tran­si­tional re­lief.

The Tax Strat­egy Group pa­pers are re­quired read­ing at bud­get time. The stamp duty pa­per (TSG 17/12) notes that in re­cent years, the rate of stamp duty on prop­erty has re­duced sig­nif­i­cantly, from rates of up to 9pc to rates of 1pc and 2pc on res­i­den­tial prop­erty and 2pc on non-res­i­den­tial prop­erty. The pa­per ex­plains that the stamp duty yield on non-res­i­den­tial went from €48.51m in 2012 to €255.92m in 2016. That’s al­most a 400pc in­crease in yield over four years. Not too shabby. The yield from res­i­den­tial stamp duty “only” went from €56.9m to €131.84m in the same pe­riod.

Ei­ther way things are on the up. And so is the im­plied tra­jec­tory of the stamp duty yield once rel­e­vant trans­ac­tions con­tinue.

There­fore one can see why ques­tions have been raised on this deja vu ap­proach be­cause stamp duty is a trans­ac­tions tax. As we know, tax af­fects trans­ac­tions and vice versa! The min­is­ter con­firmed that re­liance has on this stamp duty move is not the be-all and end-all given that it forms only a small el­e­ment of next year’s tax take. The strat­egy pa­per notes that there is now less re­liance on trans­ac­tion-based prop­erty taxes be­cause of the lo­cal prop­erty tax which may not be vul­ner­a­ble to a fall in the vol­ume of trans­ac­tions.

The strat­egy pa­per also refers to the staff con­clud­ing state­ment of the 2016 IMF Ar­ti­cle IV Con­sul­ta­tion and Post Pro­gramme Mon­i­tor­ing mis­sion, which iden­ti­fied the “mit­i­ga­tion of the scope for boom-bust cy­cles as in­te­gral to the pol­icy chal­lenges of com­plet­ing the re­cov­ery and strength­en­ing the re­silience of the econ­omy to shocks”. It notes that among the state­ment’s con­clu­sion was the view that de­mand pres­sures in the com­mer­cial real es­tate mar­ket needed to be closely mon­i­tored and pol­icy tools ac­ti­vated if risks to fi­nan­cial sta­bil­ity emerge. One such tool in­cluded in­creases in the rate of stamp duty on com­mer­cial prop­erty be­yond the then rate of 2pc with the state­ment say­ing the yield from each 1pc in­crease would be of the or­der of €100m.

This pol­icy tool has now been ac­ti­vated pre­sum­ably not be­cause of risks to fi­nan­cial sta­bil­ity but to fund the fi­nance bill ex­pen­di­tures such as re­duced in­come tax bills e.g. the full year USC re­duc­tion is es­ti­mated to cost €206m.

The stamp duty move has been crit­i­cised as po­ten­tially im­pact­ing in­vestors’ de­ci­sions in such prop­erty which in turn im­pacts trans­ac­tions. As I said in my pre­vi­ous col­umn, rais­ing the rate to 4pc may have been seen as a more pro­por­tion­ate re­sponse as op­posed to a 200pc in­crease in the rate overnight.

A 400pc in­crease in yield over the pre­vi­ous four-year pe­riod has been fol­lowed by a 200pc in­crease in rate at the end of that pe­riod seek­ing to bring in­creased yield of €376m (ac­cord­ing to the bud­get doc­u­ments). The bill has to progress through var­i­ous stages and the mea­sure may be vig­or­ously de­bated at those times.

As a form of quid pro quo the min­is­ter had an­nounced that a stamp duty re­fund may be avail­able in re­spect of land for de­vel­op­ment of houses. He men­tioned that this would be sub­ject to de­vel­op­ers com­menc­ing within 30 months of land pur­chase. This is not in the Bill as ini­ti­ated so more to come on that one. Separately, some pre-ex­ist­ing anti-avoid­ance mea­sures were amended to en­sure they won’t in­ter­fere with EU law. Restrict­ing a per­son’s free­dom to es­tab­lish a gen­uine en­ter­prise in an­other Mem­ber State or to make cer­tain cross-bor­der in­vest­ments less at­trac­tive is a red-line for the EU Courts. If a tax­payer is en­gaged in wholly ar­ti­fi­cial ar­range­ments then that’s some­thing those courts have no time for at all; the court will rule them out of or­der from an EU law per­spec­tive. You can al­most hear Al Pa­cino’s thun­der­ing “You’re out of or­der! They’re out of or­der! This whole place is out of or­der!” in And Jus­tice for All (1979), pic­tured, when­ever the “ar­ti­fi­cial” word is re­ferred to by the Court. This is a wel­come amend­ment in that it seeks to en­sure that the in­no­cent do not suf­fer for the guilty. So like the Bud­get there was a “lit­tle for a lot” in the bill and some­times “a lot for the few” when it comes to anti-avoid­ance mea­sures. Watch this space! Tom Maguire is a Deloitte tax part­ner

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