On 14 September 2020, the Department of Finance published the Budget 2021 Tax Strategy Group (TSG) papers. The papers, published each year, set out tax policy matters for consideration by the TSG and wider stakeholders in the context of the upcoming Budget.

We analyse some of the measures that are under consideration by the Government and the likelihood of their inclusion in the upcoming Budget.

Interest Limitation Measures

Under the European Anti-Tax Avoidance Directive (ATAD) EU Member States were required to introduce interest limitation measures with effect from 1 January 2020 unless they had measures that offer equivalent protection from base erosion through interest deductions in their existing law. In which case, a Member State can defer the introduction of ATAD interest limitation measures until 1 January 2024. The Irish Government’s position is that existing Irish law is at least equally as effective as the measures contained in ATAD at preventing base erosion through interest deductions. However, the EU has signalled that it does not agree with Ireland’s position. As such, the Department of Finance has commenced work on the introduction of ATAD interest limitation measures with effect from an earlier date.

The TSG paper on corporation tax discusses in detail the issues relevant to the introduction of interest limitation measures and the various challenges that introducing such measures with effect from 1 January 2021 would pose. It seems clear from the paper that the Government will defer the introduction of ATAD interest limitation measures until 1 January 2022 with extensive public consultation to begin later this year and to run into 2021.

Other corporate tax related measures

The paper also signals that the Knowledge Development Box (KDB), which is due to expire at the end of 2020, will be extended by either 1 or 2 years. The merits of each option are discussed in some detail in the paper.

The paper also signals the Department of Finance’s intention to consult with business on the implementation of measures to counteract reverse hybrid mismatches with effect from 1 January 2022 – another requirement of ATAD.


As one would expect, a recurring theme throughout all of the papers is the economic challenges posed by COVID-19 – including the need to support businesses through the challenges social distancing presents and to promote economic recovery whilst at the same time putting public finances on a sustainable footing.

In that context the papers consider various measures to support businesses in the near term and also to collect more revenues in the longer term – some of which are discussed below:

VAT changes?

Various bodies, including KPMG, have suggested various VAT measures to support businesses impacted by COVID-19, including a reintroduction of the 9% VAT rate for the tourism and hospitality sector that applied in the years following the financial crisis. The VAT TSG paper discusses in detail various options that are available to the Government to promote economic recovery through changes in VAT rules and rates though it is not clear which, if any, option will be chosen beyond that which was included in the July Stimulus package – a reduction in the standard rate to 21% from 1 September 2020 to 28 February 2021. With regard to a reduced rate for the hospitality sector, the VAT paper notes that the main issue effecting demand at the moment is not prices or a lack of disposable household income (which it notes has more impact on demand) but rather social distancing requirements and the fact that many businesses cannot operate at full capacity.

Capital and savings tax changes?

The Capital and Savings Tax TSG paper suggests that the Government may seek to increase revenue from Capital Acquisitions Tax (CAT), either through an increase in the rate of CAT or through a reduction in the group exemption thresholds or changes to the small gifts exemption. Reducing the scope of business property / agricultural relief is also considered though seems less likely on the basis that it may contravene the policy objectives of the reliefs which seek to promote the transfer of businesses / farms to the next generation and in turn economic activity.

The capital taxes paper contains an interesting discussion on Capital Gains Tax (CGT). The paper acknowledges that Ireland has one of the highest CGT rates of EU and other competitors and that the rate of CGT can influence investment behaviour and economic activity. It also comments that Ireland has a number of important CGT reliefs which help counteract relatively high CGT rates.

In this context, the paper signals that Budget 2021 could include a temporary reduction in the rate of CGT to promote economic activity and investment. It notes that certain sectors of the economy have been more impacted than others and hence a rate reduction could be targeted.

The paper also discusses whether more fundamental reforms to the capital gains tax system should come down the line – various options are considered which could include a reduced rate with certain defined assets subject to a higher rate or a single reduced rate in line with the EU and UK average. Rate reductions could be complemented with a narrowing of CGT exemptions. The paper discusses in detail the arguments for and against the enhancement / retention of CGT Entrepreneurs Relief, which was revised in Finance Act 2019.

The paper also suggests that an increase in the rate of Deposit Interest Retention Tax (DIRT) from 33% to 41% or somewhere in between could be considered to encourage spending and as part of a package of measures to stimulate growth in the economy – though it notes that the current lack of spending is due largely to social distancing measures and therefore, also taking into account low interest rates, the impact of an increase in the DIRT rate of itself would likely be limited.

Stamp duty

The TSG paper on stamp duty signals that an increase in the rate of stamp duty on homes costing more than €1m could be included in the upcoming Budget. Reference is made to the higher rates that apply to such properties in the UK, including higher rates of stamp duty on second homes and a surcharge on purchases by non-residents though the paper does not appear to suggest that Ireland is minded to follow in the UK’s footsteps entirely. The paper also comments that the TSG will monitor the impact of COVID-19 on the housing market more generally as well as the impact of the temporary waiver of stamp duty on homes under £500K in the UK as part of its recent stimulus package.

The paper also suggests that the stamp duty refund scheme, which was introduced in Finance Act 2017 to encourage the construction of residential property, could be enhanced in the upcoming Finance Bill.

A Wealth Tax?

A topic that has been the subject of discussion in many countries in the context of rebalancing public finances post COVID-19 is a wealth tax. It appears that a wealth tax is not on the cards at the moment – the stamp duty paper notes that some of the challenges with a wealth tax include the difficulty in calculating and collecting it, the fact that most Irish wealth is in people’s homes which are already subject to Local Property Tax and the range of other Irish taxes that apply to tax wealth including CAT, CGT and stamp duty.

Climate change

A paper dedicated to climate change has been published which sets out various measures under consideration in assisting Ireland in meeting it’s climate commitments as well as the challenges that it faces. It would seem likely that there will be an increase in carbon taxes and possibly electricity tax in the upcoming budget. The paper also includes extensive discussion on the reform of VRT and the taxation of company cars as well as potential measures to assist the Agri-sector in reducing carbon emissions. Measures in relation to these matters may also be included in Budget 2021.


Again, this year a paper dedicated to Brexit has been published. The paper notes that the Government recently published the General Scheme of a Bill which seeks to preserve the status quo in relation to a range of important measures across various areas, including VAT, corporation tax and income tax. The Bill will replace many of the measures that were included in the Withdrawal of the United Kingdom from the European Union (Consequential Provisions) Act 2019 (more commonly referred to as the Brexit Omnibus Act) which was enacted in preparation for a No Deal Brexit.

The Brexit TSG paper also sets out the various preparations and actions by the Government in relation to Brexit to date and commits to continue in this vein in Budget 2021, noting however, that regardless of the outcome of the ongoing EU-UK trade negotiations, there will be important changes at the end of the year which businesses should prepare for now.

Income Tax

In line with the Programme for Government published earlier in the year, the Income Tax paper commits to no increases to income tax or USC rates. In addition, the paper comments that there will be no changes to income tax credits or bands in Budget 2021 but envisages that credits and bands will be indexed linked to earnings from Budget 2022 onwards subject to economic conditions.

It would appear likely that Class S PRSI contributions for self-employed workers will increase in Budget 2021 and successive Budgets to bring the current rate in line with employers PRSI rates. It would also appear likely that the range of benefits available to the self-employed will also be increased over time, e.g. illness benefit, etc.

A number of other measures in relation to rebalancing the taxation of the employed and the self-employed are also under consideration.