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Corporation Tax Regime

Amid the vast uncertainty of Brexit, the minister once again reiterated the firm commitment to maintain the 12.5% corporation tax rate. It has repeatedly been acknowledged that this is important in promoting certainty, stability and investment.

The Irish corporation tax receipts to September 2019 of €5.8 billion represented a 13.2% year on year increase. While positive, the minister highlighted the risk associated with overreliance on corporation tax, which has more than doubled since 2015 and is largely derived from a concentrated group of taxpayers and is vulnerable to broad global economic factors.

In that context the minister has published a Fiscal Vulnerabilities Scoping Paper which sets out proposals to address the vulnerability of public finances to the level of corporation tax receipts.

Overall the analysis concludes there is a risk in permanently increasing public expenditure on the back of the current level of CT receipts which may not be sustainable. The paper goes on to propose solutions for reducing the exposure to volatility in CT receipts, in particular ring-fencing of a certain “excess” portion of CT receipts so that these are not used to finance permanent, structural increases in spending.

Such excess would be set aside in the Rainy Day Fund. It is suggested this approach could be complemented by base broadening/rate increases elsewhere particularly in areas which would incentivise desirable social outcomes.

International Tax Developments

In light of the ongoing global tax reform movements driven by the OECD and the EU, the minister confirmed the focus on ensuring a transparent, sustainable and legitimate tax regime, consistent with international best practices. He noted that Ireland would continue to work through the actions set out in Ireland’s Corporation Tax Roadmap (issued in September 2018 in response to the Anti-Tax Avoidance Directive (ATAD) and the Coffey Review of Ireland’s Corporation Tax Code).

The key Budget measures are:

  • As part of the requirements under ATAD, the minister announced the introduction anti-hybrid measures. ATAD sets out a high level framework for counteracting hybrid mismatch outcomes which are required to be implemented into Irish law by 1 January 2020. The Department of Finance published in July 2019 a Feedback Statement which contains extracts from the proposed draft legislation. The final form of the measures will not be determined until the publication of the Finance Bill; however it is understood that Ireland’s policy intent is to adopt the ATAD framework measures but not to go beyond those measures. The new measures, will seek to counteract tax mismatch outcomes arising from cross border arrangements which result in deduction without taxation or double deduction outcomes.
  • Modernisation of Ireland’s transfer pricing rules, incorporating the 2017 OECD Transfer Pricing Guidelines (mentioned in the Transfer Pricing section)
  • EU mandatory disclosure 

Exit Tax

In line with the ATAD, Ireland amended its exit tax rules in 2018. The minister announced two technical amendments to the regime which took effect from Budget Day. The Irish exit tax applies by deeming there to be a disposal of assets for market value on the happening of certain events, where the assets are taken out of the Irish tax net without otherwise triggering a taxable event.

The main amendment has the impact of broadening the scope of the exit tax by removing the requirement in certain scenarios for the company transferring the asset or business to be resident in a Member State, and is consistent with the requirements under ATAD.

 A further amendment was made to clarify the timing of the taxable event, being the deemed disposal, in a case where the exit charge arises due to a company ceasing to be tax resident in Ireland. The clarification provides that the deemed disposal of assets by the company will take place immediately before the company ceases to be resident in Ireland.

So, what changes would we like to see?

To begin with, the lifetime gains limit should be increased from €1 million. By capping the limit at €1 million and imposing a 33% rate on the gains above this limit, Ireland is at a competitive disadvantage to many countries across Europe. Significantly, the UK offers a rate of 10% for the first £10 million of gains. Not alone would increasing the lifetime cap allow Ireland to compete internationally, it would also reduce the attractiveness for Irish entrepreneurs to set up businesses overseas. It is positive to see that Indecon’s recommendations include increasing the lifetime cap to €12 million for entrepreneurs who re-invest in a new business.

EU Mandatory Disclosure Regime (MDR)

EU Mandatory Disclosure Regime (MDR)