pre-budget-2016-press-release

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Deloitte publishes its view and predictions for Budget 2016

Press release

Tuesday 29th September 2015: Supporting indigenous businesses to stay in business longer, stimulating Irish entrepreneurship, equalising the tax treatment of the self-employed and employees, as well as a number of social priorities, including the housing shortage, are pressing business needs that should be addressed in Budget 2016, according to Deloitte’s pre-Budget report, which was published today. The business advisory firm is recommending action in a number of areas, outlined below.

Commenting on the report, Lorraine Griffin, Head of Tax at Deloitte, said, “There is no doubt that Ireland is gaining momentum economically and after a year of exceptional growth the Irish economy is set to become the fastest-growing economy in the EU for the second year in a row.  While this momentum is to be welcomed, Ireland is at a pivotal point in its economic recovery, and well-considered tax policies are required. The Government have the opportunity, through Budget 2016, to make changes that will secure growth, embrace change, ease the pressure on middle Ireland and address serious social pressures.”

“In particular, while Irish tax policy must ensure that Ireland remains a competitive location for foreign direct investment, it is equally imperative that entrepreneurial risk-taking and innovation are recognised and rewarded. In our report, we recommend a number of actions that could be taken to encourage and protect our indigenous businesses, to grow and scale our own entrepreneurs, and to alleviate pressures on individuals. We believe the outcome of such actions would copper fasten our recovery.”

Tax and entrepreneurship

• Deloitte’s view:

In our view, entrepreneurs should be encouraged to stay in business longer and to scale their businesses internationally. Budget 2016 needs to ensure that entrepreneurs are no longer over taxed and underappreciated. Our recommendations are designed to enable Ireland to offer entrepreneurs a truly competitive tax environment in which they can expand and contribute to a strong indigenous Irish sector. Pádraig Cronin, Vice-Chairman and Tax Partner, commented, “We feel there is an opportunity to encourage entrepreneurs to stay the course and scale their businesses internationally – replicating the success of Irish companies such as Kerry Group and Glanbia – thereby creating a robust ‘mittelstand’ in the Irish economy.”

• Deloitte’s recommended measure:

We do not believe the UK 10 per cent rate is optimum without a requirement to reinvest, as Ireland is not generating enough of a new generation of successful, large companies such as Kerry, CRH and Glanbia, for example. As such, we would recommend a tapering rate system that encourages long-term ownership. This would have a greater prospect of building up an Irish “mittelstand” that will pass ultimately through generations or achieve exit via an Irish IPO.

• Deloitte’s prediction:

The Government has the opportunity to make a “bold move” to improve the climate for entrepreneurship in Ireland, in line with its improving fiscal outlook.

Individuals

• Deloitte’s view:

We would like to see the Government do more to improve the tax competitiveness of Ireland for all people working here compared to other countries. 

• Deloitte’s recommended measure:

We would like to see the Minister outline a road map for reductions in tax for individuals based in Ireland to less than 50 per cent and to align the application of the Universal Social Charge between the employed and self-employed.

• Deloitte’s prediction:

We believe the Government will offer additional income-tax reductions for middle-earners.

Pensions

• Deloitte’s view:

If the Government are serious about defusing the pensions time bomb created by an ageing population and also encouraging entrepreneurship in Ireland, then steps need to be taken urgently both to make saving for retirement more attractive, and also to level the playing field between all employees and the self-employed.

• Deloitte’s recommended measure:

Equalise the tax-efficient pension funding capacity for the self-employed with that available to employees.

• Deloitte’s prediction:

The Government have stated that they intend to reform the Irish pensions system, but what guise this reform will take and when it will be implemented needs to be clarified. The upcoming Budget represents an opportunity for the Government to deliver a roadmap for reform of the Irish pensions system. Time will tell whether they take that opportunity.

Real Estate

• Deloitte’s view:

The Government have considerable work to do to encourage the real estate sector to create the much-needed housing that the growing population and economy desperately need. There are some practical solutions that the Government could take in Budget 2016 to promote residential development, which would pay dividends in terms of increased economic activity, less pressure on rents, and improving the attractiveness of Ireland as a country to relocate to.

• Deloitte’s recommended measure:

There is a need to accelerate the supply of residential housing as a matter of urgency and use all available channels (including the ongoing programme of social housing) to ensure that this happens to help alleviate homelessness. The act of increasing supply will help solve a lot of issues, including: stabilisation of rents; the creation of employment resulting in additional taxes; and facilitating our FDI expansion programme (with more people needing housing as expansion happens).

• Deloitte’s prediction:

The Government will make some efforts in this Budget to promote an increase in the supply of housing, which is a hot-ticket issue in advance of the next election.

Tax treatment of travel and subsistence expenses

• Deloitte’s view:

There is an opportunity for the concept of normal place of work to be brought into the 21st century and thereby reflect the modern reality of the workplace. This can be achieved by adopting a simple approach of treating the place where an individual performs most of the duties of their employment as the normal place of work. In instances where this is less clear, the individual could make an election to determine their normal place of work. Adopting this approach would also allow Non-Executive Directors (NEDs) who perform work outside of board meetings to have this properly recognised and allow their travel and subsistence expenses to travel to board meetings to be paid tax free.  Given the significant reliance by Irish businesses on non-resident NEDs, we believe they should benefit equally with Irish-resident NEDs in receiving these expenses free of tax in the performance of their duties.

• Deloitte’s recommended measure:

We recommend that the Government should legislate to provide clarity and guidance to employers and employees in respect of the ‘normal place of work’. This simple and transparent approach would provide certainty to the taxpayer and visibility to Revenue in respect of the individual’s operations.

• Deloitte’s prediction:

Although we wouldn’t necessarily expect it to be announced in the Budget, we would expect the Government to provide some additional clarification around the issue of the tax treatment of travel and subsistence expenses through the medium of the Finance Bill.

Ireland Inc and Foreign Direct Investment (FDI): 

Deloitte’s view: 

As the international tax landscape continues to change, in our view it is vital that Budget 2016 seeks to ensure Ireland’s competitive tax regime is retained and that Ireland continues to be a location of choice for FDI.

It is important that the Government consider the potential impact of the outcome of the OECD’s Base Erosion and Profit Sharing (BEPS) project on Ireland’s competitiveness, as well as ensuring that any future changes to be introduced in Ireland as a result of the BEPS project do not put Ireland at a competitive disadvantage. 

The Government need to consider whether additional resources are required within Irish Revenue to support the outcomes of the BEPS agenda.

Our view is that in order to continue to foster an innovative mind-set the application of the Knowledge Development Box (KDB) should be made as wide as possible. However, in the short term, we view the existing section 291A onshore IP allowance regime to be the most favourable regime for inward IP investments, and active consideration should be given to any additional measures that could enhance the application of s.291A further, within the overall framework of the BEPS agenda.

• Deloitte’s recommended measure:

Maintaining focus on encouraging foreign direct investment and making it easy to do business in Ireland – relevant factors would include attractive IP and R&D regimes, with clear guidance, as well as measures to ensure that Ireland can attract top talent and key executives.

• Deloitte’s Prediction:

We expect further details in relation to the KDB, including the rate, to be announced in Budget 2016.

 

For Further Information Please Contact

Aoibheann O’Sullivan

Murray Consultants

01 498 0300

0876291453

aosullivan@murrayconsult.ie

 

Claire Quinn

PR Manager

Deloitte

01 417 2356

cquinn@deloitte.ie

 

 

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The information contained in this press release is correct at the time of going to press.

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The information contained in this press release is correct at the time of going to press.

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