Firms to stick with accounting standard

Listed firms must choose the accounting standard under which they will report their accounts and then stick with it, under measures introduced in the Finance Bill.

The new rules will make it almost impossible for firms that choose to report according to International Financial Reporting Standards (IFRS) to switch back to Irish generally accepted accounting principles (GAAP) in the future.

The Bill also outlines how companies moving to the new standards can expect their tax liability to be calculated.

Where a company prepares its individual accounts on the basis of IFRS, these accounts will then be used as the "starting point" for the calculation of taxable profits.

The Department of Finance acknowledged yesterday that this could affect the levels of corporation tax revenue that will in future flow into the Exchequer.

"It is not possible to predict these effects at this time," the Department said.

The new rules also aim to eliminate confusion over the accounting treatment under IFRS of matters such as bad debt provisioning, revenue recognition, capitalisation of revenue expenditure and intangible assets.

The clarifications were welcomed by the Institute of Chartered Accountants in Ireland. Institute president Mr Terence O'Rourke noted, however, that the area would probably not be fully clarified until the enactment of new companies legislation.

The new Bill also contains a provision allowing companies to treat interest on bank loans from other EU countries as a deductible expense against total profits.

IFSC companies will feel the effects of a number of other business provisions in the Finance Bill, many of which arise out of requests made by the companies themselves.

One such measure ensures that new investment vehicles called Common Contractual Funds will be tax transparent, irrespective of the assets they contain. This will mean investors in the funds will be taxable on returns according to their own circumstances.

The measure was welcomed by IFSC representative body, Financial Services Ireland (FSI).

The body also welcomed measures adjusting rules on the establishment of holding companies in the State. The changes, which remove financial thresholds on the favourable tax treatment of holding companies, were made in response to issues raised by the European Commission.

The Finance Bill also makes technical adjustments to rules on encashment tax, a withholding tax for the deduction of income tax from foreign dividend income. This tax is currently withheld by banks and stockbrokers located in the Republic but this will not occur in future where the bank is doing nothing more than clearing a dividend cheque.