Two tax changes in relation to property have been introduced by the Minister for Finance, Mr McCreevy, to close down what the Department says are "tax avoidance arrangements".
The two changes, introduced as amendments to the committee stage of the Finance Bill, involve stamp duty legislation and interest relief related to the acquisition of buildings. The stamp duty changes were prompted by Revenue information that three possible separate cases involving a tax liability of up to €10 million were in the pipeline. The interest relief measure is a further tightening of a tax scheme already being closed off as part of the Finance Bill.
The stamp duty amendments relate to Section 80 of the Stamp Duties Consolidation Act 1999, which give an exemption from stamp duty in the case of certain company reorganisations.
Stamp duty on the sale of commercial property is charged at 9 per cent, a level which the property industry claims is limiting activity and driving funds offshore. Under the stamp duty changes, Mr McCreevy announced first that the Section 80 exemption would only apply where the transferor has legal and beneficial entitlement to the property. He also announced - in a change seen by the tax industry as more significant - that where a firm acquires the undertaking of another company in exchange for the issue of shares to the shareholders of that other company, any relief granted under section 80 will be clawed back if those shareholders dispose of those shares within two years.
Both these changes are designed to stop complex corporate structures being used in commercial property deals to allow taxpayers to avail of the reduced 1 per cent stamp duty rate, rather than paying the full 9 per cent rate.
The Revenue Commissioners were aware of three "possible" cases which, if they transpired, could have cost the Exchequer up to €10 million, according to a Department of Finance spokeswoman. It was thus seen as "prudent" to introduce the amendment. The change will be effective in respect of legal documents executed on or after yesterday.
Some tax advisers argue that the change could lead to difficulties in some legitimate cases of corporate restructuring and sale. The Department and the Revenue, however, obviously feel that some schemes were being developed purely to avoid tax, rather than being part of a legitimate reorganisation and that the latter will still be subject to relief when shareholders hold onto shares for two years.
The interest relief change is an amendment to a measure announced last year and already included in the Finance Bill. This related to a move by the Minister to stop a group of investors purchasing the AIB building in the IFSC from getting the advantage of capital tax allowances attached to the building.
The change outlined yesterday is designed to deal with cases where such a building is first acquired by a company and the individuals subsequently acquire shares in the company with borrowed money. This change will take effect in respect of interest paid on or after yesterday where the shares concerned were acquired on or after that date.
This change appears to be driven by a desire to close off the use of such an arrangement, rather than by specific information that schemes such as this are in the pipeline.
