Uncertainty provides opportunity, Deloitte publishes its pre-budget 2020 perspectives has been saved
Uncertainty provides opportunity, Deloitte publishes its pre-budget 2020 perspectives
Budget 2020 needs to protect, encourage and incentivise entrepreneurs so they can to continue to invest in and expand Irish businesses.
Budget 2020 should aim to strategically position Ireland to take full advantage of unique opportunities presented by future uncertainties, according to Deloitte Ireland’s pre-budget 2020 perspectives document that was published today. Opportunities include:
- Tax and Entrepreneurship: Further enhancements could be made to the Employment and Investment Incentive Scheme (EIIS) and a positive and simple change would be the introduction of full tax relief in the year in which the investment is made.
- Individuals: We predict a reduction in USC rates applicable to low earners, with the deficit to the Exchequer being set off by a reduction in PAYE credits available to high earners. We also envisage a slight increase in the Group A threshold on the lifetime exemption for gifts from parents to children.
- Real Estate: It would be good to announce, in advance of the Budget 2020, the retention of the Help-to-Buy scheme which has helped first time buyers.
- Ireland Inc. and Foreign Direct Investment: It is vital that the Government reaffirms its commitment to the 12.5% corporate tax rate as part of Budget 2020.
- European Agenda: The continued implementation of the EU’s Anti-Tax Avoidance Directive (ATAD) will introduce substantial change to Irish tax law, particularly with respect to anti-hybrid legislation. The anti-hybrid rules carry with them a risk to Ireland’s tax competitiveness where they go beyond the requirements of the ATAD and we would hope to see revised rules in line with those.
- Global Mobility, Immigration & Employment Taxes: Measures we would like to see include a roadmap to reduce the 52% marginal rate of tax, along with enhancements to the Special Assignee Relief Programme, improvements to the Key Employee Engagement Programme, changes to our existing unfriendly regime for Short Term Business Visitors and clarifications on the penalty regime in a post PAYE Modernisation environment.
Speaking about entrepreneurship, Lorraine Griffin, Head of Tax at Deloitte said, “As the deadline for the UK to leave the EU draws closer, it is more important than ever that our tax system encourages entrepreneurship and incentivises entrepreneurs to continue to invest in and expand Irish businesses. When we look at the perspective of individuals it is imperative that a budget policy be implemented which will capitalise on our economic growth and strength, rather than a reactionary, curtailed policy. Now is the time to protect our indigenous sector and to encourage entrepreneurs to continue to be innovative and creative, and to reward them for their contribution to our nation’s success story.
“Budget 2020 should aim to strategically position Ireland to take full advantage of unique opportunities presented by future uncertainties, while at the same time ensuring a stable and attractive environment for investment going forward.”
2019 was a year of consultations. 2020 will be a year of implementation
During 2019 we saw a large number of public consultations on corporate tax changes, ATAD implementation, transfer pricing, incentives for small and medium sized businesses and the Research and Development (R&D) tax credit. The consultation process on these key topics has reflected a need amongst stakeholders for Ireland to remain competitive in terms of its tax and talent strategy.
Commenting on this Ms Griffin said, “As we move toward 2020, we expect that the outcome of some of those consultations will now be put in place through Budget 2020. The strategic positioning of Ireland, in the wake of Brexit, particularly in the funds and financial sector, must be supported by a competitive income tax regime and a continued investment in housing, infrastructure and education. In addition, there is a need for a coordinated, comprehensive strategy to attract and retain key talent in Ireland and we expect to see some developments emerging in this area in this budget.
We very much welcome the ongoing consultations. Given the uncertainty created by Brexit, coupled with imminent changes to the tax landscape, such consultation will continue to be vital to Ireland’s continued economic success and we expect to see even more of this in the coming months and years.”
An overview of the areas discussed in Deloitte’s pre-budget 2020 perspectives document include:
Tax and Entrepreneurship
Updates to existing and the introduction of new tax measures are needed to support entrepreneurs during this time of economic growth and uncertainty. In particular, further enhancements should be made to the Employment and Investment Incentive Scheme (EIIS) and Capital Gains Tax (CGT) Entrepreneur Relief. Any legislative amendments to remove the SME exemption from the scope of our transfer pricing rules would be unwelcome. Many EU countries have adopted similar SME exemptions.
- Our prediction: CGT Entrepreneur Relief is currently subject to an external review and it is unlikely that changes will be made to the scheme pending the outcome of that review. As there were significant changes made to the EIIS scheme last year, any further changes this year would likely be minimal. A positive and simple change would be the introduction of full tax relief in the year in which the investment is made. A practical solution to address the taxation of earn-out consideration for entrepreneurs would also be a welcome and easily implemented measure. We expect transfer pricing rules will be changed. However, excluding domestic-only transactions from the scope of the new rules would reduce the time and cost burden on those groups.
In order to protect our economy from Brexit, which undoubtedly is the greatest uncertainty facing this generation, it is imperative that Ireland secures a strong indigenous sector. A renewed CGT code would fuel the appetite of individuals to re-invest in, and contribute to private capital projects. In turn, a stronger indigenous sector places the economy in a safer environment without solely relying on Ireland’s FDI model and corporation tax receipts which has been the trend of late.
With respect to the self-employed, this Government has an opportunity to incentivise individuals while yielding a good return to the Exchequer. In terms of upholding our standards of domestic living, this budget needs to focus on keeping older workers in employment, while attracting talent from other countries. In order to sustain or increase labour market participation, a more favourable income tax regime is an absolute requirement.
- Our prediction: We do not expect too much movement in the way of tax incentives or the improvement of current tax reliefs. We predict a reduction in USC rates applicable to low earners, with the deficit to the Exchequer being set off by a reduction in PAYE credits available to high earners.
We envisage a slight increase in the Group A threshold as the Government seeks to deliver on its promise of reaching a €500,000 lifetime exemption for gifts from parents to children.
The main driver of demand in Dublin in particular, at present, is large scale institutional buyers. There have been rumours that a higher rate of stamp duty might be targeted at such buyers. If this were to happen, most experts believe it would deter investment and given all are agreed that the main level of activity we are seeing is in this sector, then one “to do” is not to change stamp duty rates for the foreseeable future.
In terms of viability, the cost of both land and building are making a lot of schemes unviable. Whilst a VAT decrease has been tabled in the past, it hasn’t been well received. However, changes will have to happen as it will take many years for the market to deliver the housing needed without some form of assistance through the tax system.
In past years, many smaller landlords became landlords almost by default - however many of these landlords have sold up. High personal tax rates do not make it easy to remain in the market. We need to encourage such investors back to the market and a lower rate of tax should be considered in order to do this. The reality is that the fund investors and the Real Estate Investment Trusts (“REITs”) have an effective 20% rate, so why not match that for those in the population who can afford to help rebuild and rehouse our fellow citizens? It would be a fair measure.
- Our prediction: We don’t anticipate significant changes in Budget 2020, however it would be good to announce in advance of the Budget 2020, the retention of the Help-to-Buy scheme which has successfully helped first time buyers invest in their future.
Higher VAT rates across Europe including Ireland are a legacy of the last economic crisis. However, maintaining the status quo is not always the best answer and we would welcome a targeted reduction of the VAT rate in relation to the construction and provision of residential property.
- Our prediction: Given the uncertainty over Brexit and the constraints on our discretion in relation to VAT we do not envisage that there will be significant VAT changes. There will likely be technical changes and some Brexit enabling measures. The most impactful change may be the levying of VAT on food supplements.
Ireland Inc. and Foreign Direct Investment
It is with no surprise that changes in the area of international tax are expected in Budget 2020. Certainty is vital for companies as they make investment decisions. We hope that there are no surprises in Budget 2020 such as the immediate introduction of the revised Exit Tax rules on Budget Day last year.
FDI competitor locations have continued to introduce changes to their national tax regimes, like lower corporation tax rates. Along with changes to other key factors relevant to investment decisions such as access to a highly skilled labour force, cost competitiveness and sufficient infrastructure, it is with no surprise that the FDI landscape has become a lot more competitive in recent years. It is vital that the Government therefore reaffirms its commitment to the 12.5% corporate tax rate as part of Budget 2020.
· Our prediction: Amendments to our tax legislation are imminent due to the deadlines for implementing changes such as the anti-hybrid mismatch provisions and the EU Mandatory Disclosure Regime. Furthermore, the reform of the transfer pricing rules will possibly be the most significant change for most Irish corporates. While we welcome the Government’s commitment to proactive consultation regarding proposed new taxation measures, given the significance and complexity of many of the changes expected and the short timeframe for implementing same, it will be important that the Government does so in a manner that is clear, unambiguous and provides certainty for taxpayers.
The European Agenda
The continued implementation of the EU’s Anti-Tax Avoidance Directive (ATAD) will introduce substantial change to Irish tax law, particularly with respect to anti-hybrid legislation. In our view, the anti-hybrid rules carry with them a risk to Ireland’s tax competitiveness where they go beyond the requirements of the ATAD.
- Our prediction: It is hoped that revisions to the anti-hybrid rules will take account of comments submitted to the Department given the need to maintain Ireland’s ability to compete for investment on the world stage. ATAD implementation matters will continue to dominate the tax agenda going forward, together with an increased focus on tax transparency through the introduction of EU Mandatory Disclosure rules.
With the looming spectre of BEPS 2.0 on the horizon, Budget 2020 is the time in which Ireland should be looking to increase its competitiveness across the international FS industry. We must be aware of what the jurisdictions we compete with for investment are doing, what initiatives they are introducing and how they implement the various international tax changes so as to avoid a loss of competitiveness. Consideration should be given to enhancing the Knowledge Development Box and existing R&D tax credit regime to continue to attract FinTech companies to Ireland and to benefit those already operating here.
- Our prediction: From an FS perspective the focus will likely be on the introduction of anti-hybrid rules. We should expect to have certainty as to when the interest limitation rules are to be introduced. Unfortunately, if it is introduced in Budget 2020, legislation is likely to be drafted in a very short period of time.
Global Mobility, Immigration & Employment Taxes
The 52% marginal rate of tax is one is one of the biggest barriers multinationals face when trying to get senior employees to relocate to Ireland. The entry to the higher rate of tax should be increased. At the very least a roadmap should be put in place to demonstrate to workers when this burden will be reduced. We would also hope to see enhancements to the Special Assignee Relief Programme to remove unnecessary administrative burdens, improvements to the Key Employee Engagement Programme to bring more companies into the regime, changes to our existing unfriendly regime for Short Term Business Visitors and clarifications on the penalty regime in a post PAYE Modernisation environment.
- Our prediction: We predict that there will be significant amendments to the KEEP scheme to encourage uptake by employees of Irish private companies. However, unfortunately we do not expect to see an extension of the regime beyond the SME sector. We remain hopeful that there will be some practical changes introduced to reduce the administrative burdens for employers, but given experience over the past few years, this is more in hope than expectation.
Issued by Murray on behalf of Deloitte Ireland
Notes to editors
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