A Strategic Commission on Timely Taxation is required now to assist in the evacuation from the Jurassic economy

Tom Maguire | Business Post Column

“A challenging time for Ireland. A time when firm action is needed to strengthen our economy so that it sustains and creates employment and continues to provide resources for those in need.” That could’ve been written this morning but it was written over a decade ago.

Those were among the opening words of the report of the 2009 Commission on Taxation, or as I call it COT1.0. The economy was doing okay the last time I commented in these pages on potentially setting up the sequel in COT2.0. Sure there were things that could be changed; isn’t there always? But no one would have believed the virus’s inbound trajectory which would shift the economy to Jurassic status. And yet in just a few short weeks that Velociraptor brought about a St Patrick’s day and an Easter like no others.

Since COT1.0, we’ve seen the OECD’s Base Erosion and Profit Shifting Initiative (BEPS); the EU’s two Anti-Tax Avoidance Directives (ATAD), huge changes in our law to cater for these and we’re due to see a new-fangled restriction on corporate tax deductions for interest paid by companies later this year. It would be preferable if the brakes were put on that restriction but the EU Commission might say otherwise given their views to date.

We also saw a large part of the planet sign up to a new giant tax treaty (the Multilateral Instrument (MLI)). The MLI was part of the OECD’s BEPS initiative and sought to deal with, according to the OECD, the avoidance of €240 billion in tax annually between those countries. All this and then the Velociraptor came bringing with it an eerie similarity to when COT1.0’s report was published.

However, this time is different. Now the economy is in cryostasis, not yet paralysis, with a view to its awakening as soon as is possible. We’ve seen the measures taken to help with the economy’s hibernation, the Temporary Wage Subsidy Scheme (TWSS), the non-application of interest on late payments of VAT etc. by certain companies, the Revenue Commissioners’ speedy approach to tax refunds and so on. All were needed to preserve business and to allow it prepare for the “reboot”. We felt the need, the need for speed and that’s how these measures came about…Fast.

The reboot button will be pushed at the right time given we don’t need additional Velociraptors flanking us from all sides. When that button is pushed then the reboot measures should be good to go. Tax needs to play its part so that when this happens, the focus for business should be on business doing its thing.

Right now, there are many voices shouting with many valuable ideas being suggested for increased liquidity and so on. But this column’s all about tax and many important suggestions are being made there too. They include improved loss relief provisions, putting “paused trading” losses on a similar footing with “terminal loss” claims, which would allow for increased refunds of prior years’ tax paid. Other suggestions have included allowing tax deductions for certain interest expenses and annual payments when the liability arises as opposed to when they are paid; a deferral of the application of certain withholding taxes on business as opposed to investment income; to name but a few. None of these suggestions will bring about a ka-ching moment for taxpayers but would rather serve to facilitate valuable liquidity swashing around the repairing economy.

Everybody will have their own views reflecting the needs of each of their individual constituencies. COT1.0 had almost twenty members from very diverse backgrounds to include tax advisors, lawyers, members of industry, trade unions, academics, economists and so on. This allowed diverse opinions to be aired in connection with appropriate application of tax law to the various membership constituents. 

As part of #GE2020, many political parties had suggested a COT2.0 to do a “deep dive” into tax law to determine its appropriateness for where the economy was at and where it needed to go. However, that suggestion was made in the pre-Jurassic era. Such a diverse meeting of minds needs to happen now such that appropriate and varied consideration can be given to reclaiming our economy from the dinosaurs for all constituents and no one can be left behind. Of course all this is already happening but the dedicated group could respond in the SWAT team mode I’m suggesting below so that appropriate and swift action is taken along the lines discussed earlier and more.

To be clear, I’m not proposing COT2.0 as a full nuts and bolts review of tax legislation would take too long; COT1.0’s work rightly took over a year. Instead I’m suggesting a Strategic Commission on Timely Taxation (SCOTT). Those diverse groupings could make their tax and economic experts available full-time for a defined period, weeks not months, where they could meet virtually and put together the necessary actions to include those mentioned earlier. The group should also comprise legislation drafters from the Revenue Commissioners such that there’s not only a report at the end of it but also legislation which can be readily deployed at short notice into any national recovery plan. This is an “ask not what your country…” moment. 

Of course it’s ambitious but we’ve been here before although without the structured diverse interaction. Remember the passing of the Emergency Measures in the Public Interest (Covid-19) Act 2020 into legislation. That was initiated on March 24th, signed into law by the President on Friday March 27th with the necessary law drafted over the previous weekend. The TWSS was section 28 of that Act. According to the Revenue Commissioners and based on data to 9th April, over 41,000 employers registered with Revenue for the TWSS and over 219,400 employees had received at least one payment, of which approximately 80% have also received a top-up payment from their employer. All this happened between March 27th and April 9th. Let that sink in for a second.

The difference with SCOTT is it will allow diverse and affected groupings to put their ideas together, debate additional ones and then draft the tax legislation in one virtual war-room. Writing law at warp speed is precarious at best but it can be managed appropriately by allowing matters to be resolved through guidance as was done with TWSS. This is not the time to sacrifice the good for the perfect.

Irrespective of the constitution of the next government, looking at strategic tax measures right now is not optional. Don’t get me wrong, I’m not suggesting that COT2.0 shouldn’t happen, on the contrary I think we need a full under the bonnet look-see at our tax legislation, but SCOTT needs to happen first. It can morph into a fully-fledged COT2.0 after that but, right now, let’s just focus on what’s in harm’s way. This is a time where we can’t be SCOTT-free. 

Please note this article first featured in the Business Post on 19 April and was re-published kindly with their permission on our website.

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