Good news on pensions and tax is coupled with tougher anti-avoidance rules, writes Colm Kelly.

The Finance Bill requires careful reading and action on the part of the business community to take advantage of the opportunities offered.

Once again it contains a number of measures clearly driven by the EU's requirement to have a level paying field across member states on taxation issues.

Last year's Act contained a series of measures designed to make Ireland more appealing as a holding company location. Most significantly, an exemption from capital gains tax was announced on gains arising on the disposal of shareholdings in trading companies in an EU country or in a country with which Ireland has a double tax treaty.

However, this legislation was subject to EU approval.

That approval was granted in September 2004 but required some changes to be made to the original legislation.

The most important change is the removal of thresholds relating to the value of the shares being sold that had been set in order to qualify for the exemption (€15 million for a 10 per cent holding and €50 million for a 5 per cent holding). The Commission felt that these thresholds could limit the use of the exemption by Irish business, thus favouring inward investors. These value thresholds have now been replaced with a flat 5 per cent shareholding requirement and the amended position applies retrospectively to February 2004. This is good news for both indigenous and multinational business and allows Ireland to be marketed as an attractive location.

The common contractual fund (CCF) was introduced about 12 months ago to allow pension assets to be pooled in a tax-transparent structure.

Changes announced in the Bill are designed to allow for a non-UCITS version of the CCF (thus broadening the products in which the CCF can invest) and to extend the range of qualifying investors to include all forms of institutional investment.

Asset pooling is of particular interest to institutional money managers and multinational companies with multiple occupational pension plans.

Some of the cost inefficiencies inherent in the need to maintain multiple pension schemes can be mitigated by pooling the assets of a number of pension funds in a single regulated vehicle. The CCF is designed to facilitate pooling while ensuring that the tax treaty benefits normally enjoyed by pension funds are not disturbed. For tax purposes each investor in the CCF is treated as directly owning the underlying investments while the CCF is treated as a regulated entity and is managed accordingly.

While it may take some time before true pan-European pension schemes emerge, these measures put Ireland in a strong position to compete as the market develops.

Further positive developments are flagged in the area of cross-border pension arrangements. As part of the EU's efforts to create a single market for financial services, the Commission has called on all member states to eliminate any tax discrimination against pension funds domiciled in other EU states. The Bill contains provisions extending the right to receive tax deductions for pension contributions to any scheme established in another EU member state.

It also allows workers coming into Ireland to continue to contribute to an existing overseas pension plan, provided the pension provider is within the EU.

The Bill contains a series of detailed measures in relation to the tax consequences of the accounting move from Irish generally accepted accounting principles (GAAP) to International Financial Reporting Standards (IFRS).

The measures in the Bill are aimed at ensuring that no income drops out of taxation and that no income is double-counted for taxation on the changeover to IFRS. However, the necessary adjustments will be made over a five-year period rather than in the changeover year. Further clarification is promised in a statement of practice to be issued by the Revenue later in the year.

Needless to say, it's not all about business opportunity and, as the Minister promised, the Bill contains further anti-avoidance measures. Once again, the powers afforded to the Revenue have been extended to allow it pursue investigations focused on the use of insurance products as a means to hide undeclared income.

The Revenue has already had significant success in pursuing undeclared money in offshore bank accounts and it is now seeking to employ similar tactics in examining these insurance products. New powers in the Bill allow the Revenue to inspect the records held by an assurance company in respect of a sample of policies and to use whatever information is gathered to seek a High Court order to secure wider access to the records of the assurance company in relation to policies and policy holders.

Colm Kelly is head of tax and legal services at PricewaterhouseCoopers