Financial services industry
Insight from Deirdre Power, Partner, Deloitte on Budget 2015.
There are a number of welcome announcements that will benefit the FS sector. The measures to phase out and ultimately eliminate the “Double Irish” may require some (if any) FS companies to review how they have structured their activities. However of much wider appeal are the enhanced R&D and IP regimes that were announced today, together with the future introduction of a new “Knowledge Development Box” regime. Indeed these changes, together with the addition of new competent authority resources and an ongoing commitment to expansion of our tax treaty network, reflect the fact that the Government has listened during recent consultation processes to attempt to ensure Ireland remains competitive.
The FS industry is a global one with operations located in all corners of the world. Like many industries, the success of FS companies depends on the skills and expertise of their key executives and employees. For some time, the FS industry has sought changes to the SARP regime given the mobile nature of the industry and its executives. We very much welcome the SARP changes proposed in the Budget that would see a more workable and practical way of attracting such senior FS talent to Ireland. The changes proposed to the foreign earnings deduction (“FED”) will also be of benefit to the FS sector.
Workers and the pension industry (asset managers/pension providers/insurance companies) will be glad to see the pension levy reducing from the current rate of 0.75% to 0.15% in 2015, with no future plans to prolong its existence post-2015.
Deposit-takers will need to ensure they factor in the introduction of the DIRT relief for first time home buyers, to allow savings (as deposits for their home) to accumulate tax free.
The Minister also reiterated the importance of the FS sector to the economy and their commitment to the revised Strategy for the International Financial Services sector being led by Minister for State, Simon Harris. Consultation is underway with the finalisation of the strategy expected in early 2015.
Budget 2015 was built on “Rate, Reputation and Regime” – the 3 “Rs”. This year’s budget once again reiterates the certainty of the Irish 12.5% corporate tax rate, but also sets out the stall for managing Ireland’s reputation and regime. The enhanced framework around R&D, IP and the new “Knowledge Development Box” is something that FS companies should consider. In particular, the FS industry has not always fully maximised the benefits of the R&D rules and this is an area of opportunity.
It cannot be underestimated the number of new FS projects or expanded operations that Ireland has lost in the past, because it became difficult to attract senior executives and talent to Ireland with our uncompetitive 52% personal tax regime. Mobile executives not only consider lifestyle, availability of schools, accommodation, healthcare and other aspects in making a relocation decision, but the first question asked is always about the personal tax environment. The improvements to the SARP regime will make a difference. It sends a positive message that Ireland wants to bring the expertise here, welcoming not just mobile executives but also the projects/businesses they sponsor.
We are all very aware that our tax regime and our reputation are under the spotlight. Indeed many of the countries shining the light are countries against which we are competing for projects and have tax regimes that lack transparency. In the case of the US, they have a domestic tax framework that needs to be overhauled in order to be fit for purpose. With that as a backdrop, the approach taken in the Budget is measured, but clearly sending a message that we are moving forward.
The Minister has done well in balancing his three “Rs”, but I would like to add another one to it – “Recovery”.