Global Mobility, Immigration and Employment
A number of items that were relevant last year remain relevant for Budget 2018.
The Minister noted last year that a new share based remuneration scheme for Small and Medium sized enterprises (SMEs) will be introduced in Budget 2018. Share based remuneration has long proven to be an effective tool for rewarding, motivating and retaining employees. In turn, positive employee performance can drive growth for the company. We expect that the new regime will be similar to the UK Enterprise Management Incentive scheme. This will allow share options to be granted to employees of qualifying companies and defer the point of taxation to the date when the employee disposes of the shares. It is also possible that a favourable regime for Capital Gains Tax will apply to such a disposal of shares.
Brexit and Mobile Employees
Over a year on from the Brexit vote, it is now becoming clearer as to how Ireland will be impacted from the decision to relocate employees and associated functions from the UK. A number of announcements have been made by companies around their decision to increase their presence in Dublin, particularly in the Financial Services industry.
However, now that the high-level planning has been carried out, the implementation steps to be taken are in full swing and the issue that is constantly being referred to is that of our high marginal rate of tax at 52%. We have one of the highest marginal rates in the OECD and even the Special Assignee Relief programme, which exempts income above €75,000 from income tax, compares unfavourably to other competitor locations.
Given that most companies have chosen to increase their presence in a number of locations, now is the time to ensure we are competitive in attracting the bulk of the talent to Ireland, an important opportunity from a jobs creation perspective.
The trend in the Budget over the past few years has been to promise Revenue increased resources for audits and then use that increased income to fund other tax initiatives. This has resulted in companies having to deal with more and more Revenue audits. In principle, there is a logic to this argument in ensuring the correct amount of tax is collected. However, this has had a knock-on effect in the number of resources companies require to deal with such Revenue enquiries.
A new share scheme for SMEs will be important to drive share ownership within private companies in Ireland as it will remove some of the blockers that currently exist (such as an illiquid market for sale, valuation requirements etc) while also providing a tax effective way of remunerating employees. We do believe wider changes to the taxation of share-based remuneration should be implemented in order to offer broader incentives to all employees rather than just those employed by SMEs. Whether this is feasible as part of Budget 2018 is questionable given the level of fiscal space available, but it would be an ideal opportunity to signal as part of a review of the personal tax system, in particular the taxation of work, how Ireland might work towards and over what timeline to a more competitive overall tax system in the context of share based reward.
It is positive to hear An Taoiseach refer to bringing the marginal rate of tax below 50%. Thus far we have seen no new ground-breaking changes from the Government which would attract companies and their employees to Ireland. In fact, the most dramatic change has been to Revenue guidance on the taxation of mobile workers which brings those who travel to Ireland for more than 30 days in a calendar year into the Irish payroll net. This move makes Ireland far more challenging to deal with for business with cross border travellers coming in and out of Ireland. We now have a far more challenging regime in this area as compared with our EU counterparts. This has resulted in a significant administration and compliance burden on business, adds to the lengthy red-tape that already applies to reliefs such as the Special Assignee Relief Programme and in our view, is unlikely to provide any material benefit for the exchequer in terms of cash receipts.
Care needs to be taken not to unnecessarily increase the levels of administration that companies have to deal with in relation to employment taxes while at the same time ensuring the correct amount of tax is collected. It would be useful for Revenue to provide clear and easy to implement guidance on frequent audit topics, particularly where there is a change in practice or multiple interpretations such as the taxation of professional subscriptions.
We predict that the new share scheme for SMEs will be introduced along the lines of the EMI scheme in the UK and will be positively received by private Irish companies and their employees. Unfortunately, we do not see any broader changes being made at this point to the taxation of share schemes, which will be disappointing for domestic and foreign MNCs who do not meet the SME thresholds – but Government should, in this instance, provide a commitment to reform the taxation of share based reward, to make it more competitive, in the near term.
We predict that given the current fiscal constraints, there will be no radical changes to the income tax regime. Instead we would be hopeful of minor changes that at least reduces administration for companies while having a limited cost to the exchequer. Optimistically, there may be some movement on the marginal rates of tax or at least a timeline to bring below 52%.
We predict increased resources will again be given to Revenue, and have noted increased levels of Revenue audit activity around payroll taxes. Businesses should look at carrying out a health-check or review of their payroll taxes before year-end.