Deloitte’s tax specialists in Ireland have analysed Budget 2020 and are pleased to provide our perspectives on what it means for you, your family and your business in the future.
We invite you to view our articles and some analytics about the Government’s financial position. Please also find a link to view and download our infographic. Feel free to follow our Budget commentary on Twitter at @DeloitteIreland. View our budget highlights video to watch a summary of Budget 2020.
While previous budgets took place against a backdrop of relatively strong and balanced domestic economic growth, the context and the environment for the current Budget is somewhat more challenging and has been developed “in the shadow of Brexit”.
Against a backdrop of potential domestic overheating and foreign disruption, Budget 2020 has been formulated on the assumption of a no-deal Brexit outcome at 31 October 2019. Accordingly, the Budget announced by the Minister involves a budgetary package of just over €2.9 billion for 2020.
Throughout the course of the Minister’s Budget speech, it has become apparent that the tax and fiscal policy for 2020 has been very much shaped by concerns relating to Brexit, the environmental agenda, EU and OECD developments, and pressing social issues such as housing and property. A range of Brexit related supports and measures were announced in the Budget, with a particular focus on the food/agri sector, vulnerable but viable businesses, and tourism.
The environmental agenda has undoubtedly gained significant traction in recent times, and its presence has been noted in the introduction of increased carbon taxes and a new nitrogen oxide charge on petrol and diesel cars in the Budget. Relief for hauliers who are likely to experience increased cost pressures as a result of Brexit, was announced and is a welcome development for those involved in this industry sector.
An increase in dividend withholding tax from the current rate of 20% to a new rate of 25% was announced with a view to improving cash flow for the Exchequer. With a range of exemptions at both domestic, EU and treaty level available for dividends paid to corporate shareholders, it is expected that the improved cash flow will be driven from dividends paid to individuals. While the withholding tax rate increase does not impact the final level of tax due by Irish tax resident shareholders, it is clear that the measure is also targeted at avoidance or non-declaration of dividend income by taxpayers to date, where a higher rates of tax should have been accounted for.
While we welcome the Minister’s ongoing commitment to the 12.5% corporate tax rate, it is clear that international tax developments at EU and OECD level continue to dominate the corporate tax agenda. Significant reforms to the Irish corporate tax code from 1 January 2020 were noted by the Minister in his Budget announcement.
Notable changes to Irish corporate tax rules will be the introduction of anti-hybrid rules from 1 January 2020 to deny tax benefits obtained in cases of cross border arbitrage through differing characterisations of instruments or entities for tax purposes. The true scope of the new rules will rest on the wording contained in the Finance Bill 2019.
Finance Bill 2019 will also see the introduction of revised Transfer Pricing rules in Irish law. The changes to our domestic Transfer Pricing rules are the most significant change in the Irish law in this regard since the introduction of Transfer Pricing in 2011. Continued guidance and stakeholder engagement on the new changes and their application in practice will be key in the coming months and years.
The ever present issue of housing and property was further highlighted in the Budget through extensions to the Help to Buy scheme, in addition to an increase in stamp duty on commercial property. While such changes are undoubtedly geared towards influencing the actions and investment decisions by property developers towards more residential construction, we would advise caution to the extent that such measures could unduly slow down commercial development and investment post Brexit. There are other potential measures on the tax policy side that could be considered to assist with supply in the residential sector.
While there were very limited changes on the personal tax side, a range of measures to assist with the cost of living were announced by the Minister. Measures to support entrepreneurship and Irish business were also announced, including positive changes to the R&D Tax Credit regime (increasing outsourcing limits and increasing the credit to 30% for small and micro companies). Some positive changes to the Key Employee Engagement Programme and Employment and Investment incentive are being introduced, and other tax reliefs which were due to expire have been extended to 2021 or 2022. Overall however, there continue to be opportunities to enhance a range of these measures further to support entrepreneurship and the domestic economy.
Overall, Brexit and other international pressures remain key challenges to the Irish economy in the short and medium term. 2019 has been a year of consultations on the various proposed changes to the Irish tax landscape, and it is our hope that this trend of stakeholder engagement continues as we move into the Finance Bill process.
We hope you will find Deloitte’s commentary on Budget 2020 useful and look forward to bringing you further insights on the Finance Bill when it is released.
If you have any questions on what the Budget means for you or your business, please do not hesitate to speak with your usual Deloitte tax adviser or any member of the Deloitte tax team.
Budget Perspectives 2020
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