Impact on the TMT sector
The budget reaffirms the 12.5% corporate tax rate, enhances the R&D tax credit retime, recognising the need for a competitive tax regime which continues to be both internationally reputable and flexible to encourage growth for indigenous TMT companies and increased FDI into the TMT sector.” - Joan O’Connor, Deloitte Tax partner and head of TMT
Overall, Budget 2014 is positive for both indigenous and multinational TMT companies. Deloitte commends the introduction of positive measures in respect of the R&D tax credit regime in response to The Economic and Fiscal Divisions’ review of the Research & Development tax credit over the past number of months. In particular the phasing out of the 2003 base year would greatly enhance the regime for those TMT companies that are currently penalised as they had high levels of R&D expenditure in 2003. The R&D credit regime remains an important cashflow tool for SME TMT companies and therefore it is positive to see the regime being enhanced. However a number of measures announced to enhance the credit availability for the SME sector fall short of what is needed, to fund and stimulate the indigenous TMT sector. One of the most valuable ways of stimulating economic growth is to nurture and encourage our entrepreneurial activities and the SME sector. The measures introduced in the budget show recognition of their direct impact on job creation and the Government’s willingness to take action. The CGT relief for re-investment in trading assets is a positive and timely move given the increasing number of M&A deals whereby shareholders are cashing out currently. However, such shareholders have to wait until the new business is disposed of in order to benefit from the relief. Individuals may have been more incentivised to invest if the rate of tax applicable on the gains originally crystallised was deferred or indeed if the tax rate applicable was lower, as is the same in some other countries. It is positive that there were no increases in the personal income tax rates. However, changes to the pension regime, the expiry of the reduced 4.5% rate of employer PRSI, and changes to sick leave benefit, will have an impact for the TMT sector which is employment intensive. There is acknowledgement that our international tax strategy has to be flexible to attract new FDI while being solution oriented and proactive in terms of the OECD and G20 objectives on profit shifting.