Budget 2019 needs to Brexit proof Ireland to protect competitive climate, attract international talent and large-scale FDI and support Irish businesses and entrepreneurs to grow and scale – Deloitte

Report cautions against Ireland adopting more onerous Controlled Foreign Company rules than required under EU Anti-Tax Avoidance Directive

21 September 2018 Budget 2019 should be used to Brexit proof Ireland, improve Ireland’s competitive climate to attract international talent and large-scale FDI, as well as helping Irish businesses and entrepreneurs to grow and scale, according to the Deloitte Pre-budget report, published today.

Lorraine Griffin, Head of Tax, Deloitte, commented: “Despite its current growth, the Irish economy is being tested with social and economic challenges domestically and the landscape is challenging and changing. The economy is also contending with tough Brexit negotiations and a changing international tax environment expedited by US tax reform, EU tax policy changes and OECD tax developments.

“In our report we focus on a number of suggested measures including how to tackle infrastructure and housing supply, how to support indigenous businesses, entrepreneurs and serial entrepreneurship in Ireland, in addition to responding appropriately to international tax developments and reform, such as the introduction of the Controlled Foreign Company (CFC) rules – a requirement under the EU Anti-Tax Avoidance Directive (ATAD).”

The Deloitte report in summary:

Ireland Inc and Foreign Direct Investment

  • Cautions against Ireland adopting more onerous Controlled Foreign Company rules than required under EU Anti-Tax Avoidance Directive
  • Consideration should be given to extending BEPS Knowledge Development Box beyond 2020
  • Government should consider further enhancements to the R&D tax credit regime

Tax and entrepreneurship

  • Bring entrepreneur relief and the Employment Incentive and Investment Scheme (EIIS) in line with UK equivalents
  • USC for self-employed income should be more aligned with the employed income rate

Individuals

  • Indication of the likely timescale for change in relation to income tax regime would be welcome
  • Ongoing high rates of CAT and CGT continue to affect the level of transfer of wealth
  • Stamp duty rate on shares could be reduced to 0.5% in line with the UK rate

Real Estate

  • Immediate action is needed to keep existing landlords in the market and to attract new entrants to the market
  • The introduction of a personal tax credit for landlords should encourage new entrants to participate
  • Full interest relief on residential lettings should be re-instated immediately
  • Consideration should be given to allowing the Local Property Tax (LPT) as tax deductible for landlords
  • “Empty nesters” could be incentivised to downsize by introducing a stamp duty exemption
  • Consideration could be given to providing for a tax exemption on profits which relate to the development and sale of social housing
  • Next revaluation date for LPT is November 2019 – any changes made need to ensure LPT remains affordable

Global mobility, immigration and employment

  • The Key Employee Engagement Programme (KEEP) legislation could be amended to remove the award cap so that it is in line with the equivalent UK Enterprise Management Incentive regime
  • Extending KEEP scheme to employers who do not meet the SME thresholds would greatly enhance Ireland’s competitiveness in the global war for talent
  • Real-time payroll reporting is the most significant change in the PAYE regime since it was first introduced and it presents significant challenges to Irish employers to capture and report payroll data on a real-time basis for expatriate and mobile employees
  • Revenue need to provide greater clarity around the penalty regime for payroll corrections in the context of shadow payrolls and certain non-cash benefits where accurate information may not be available in real-time
  • Reinstatement of the long-standing practice of treating not more than 30 workdays as being incidental and exempt from payroll withholding would provide much-needed certainty to companies and would enhance Ireland’s attractiveness for businesses considering locating here as a result of Brexit and other global economic conditions
  • Certification under the Special Assignee Relief Programme should be extended to a more practical timeframe from 30 days to, for example, 90 days

On the measures likely to impact individuals, Griffin commented: “There is a need to consider the impact the tax regime for individuals is having on our entrepreneurial culture and on competitiveness; however there is also a real need to incentivise people back into the workplace and support people and landlords alike in the housing market.

“It would be a positive move if the standard income tax rate band was increased. This would be welcomed at a domestic level, and it would further enhance our international competiveness in attracting business travellers to Ireland.”

“There is a real opportunity for Ireland to position itself for the future and for future economic growth and stability. With that in mind, Ireland 2040 was a welcome announcement but we need to ensure there is momentum now and appetite to accelerate the development of infrastructure. Unless the current situation in relation to housing and rented residential accommodation in particular is addressed, it will impact on Ireland’s economy and our ability to attract investment and ensure new jobs can be created or retained here.”

The report also cautions against Ireland adopting more onerous rules than the EU Anti Tax Avoidance Directive (ATAD) requires. To do so would make Ireland less competitive than other EU countries which have implemented the rules contained in the ATAD as stated.

“Ireland has always competed internationally for investment and should continue to do so in an increasingly competitive environment. Ireland should play fair but play to win. On adoption of the new ATAD measures, Ireland needs to implement these rules in the context of competitiveness,” concluded Griffin.

 

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