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Overview on the Theme:
Industry bodies and others have delivered
'Wishlists' regarding corporate and IFS actions that
would be desirable in Budget 2016. There is still
time for decisions on a number of key tax variables
that could be introduced in Finance Bill 2016.
John O’Leary
Financial Services
Tax Partner, PwC
October 2015
How, and in what respects should companies expect the Minister to
act with regard to Budget 2016 John?
It is widely anticipated that the focus of the Finance Bill will be personal taxation.
It is expected that various reliefs will be introduced including a reduction in income
tax rates for middle income earners and a possible reduction in capital gains tax.
There is plenty of scope for improvement – Ireland has a marginal rate of tax of
52% (income tax 40% + USC 8% + PRSI 4%) applying to income of employees in
excess of €32,800 for a single person. This is to be compared with a marginal rate
of tax in the UK of 47% on incomes in excess of £150,000 (€208,000).
Various wishlists have been submitted by Representative Bodies in the
run up to the Budget 2016 in respect of taxes affecting companies.
From your knowledge of these, can you comment on what are likely to
be of most potential significance to companies?
Significant changes are not expected in the Budget in the corporate tax area.
The 12.5% corporation tax rate will remain the bedrock of Ireland’s tax policy but we
should have one eye on our competitors, in particular the UK particularly in light of
the recent decision to reduce the UK corporation tax rate to 18% by 2020. There are
other levers available to the Minister in the Budget to promote FDI e.g. the Minister
should provide certainty for companies and non-executive directors that the genuine
and reasonable business related travel expenses incurred on behalf of non-executive
directors in attending board meetings in Ireland will not attract a charge to tax.
There are strong indicators that this will be incorporated in the Budget/Finance Bill
which will be a positive impact for IFS groups with international boards.
It is possible that the Finance Bill will contain further positive measures e.g. a
strong case has been made by IFS industry bodies to improve the tax treatment of
debt instruments which qualify as Tier 1 capital. Ireland’s tax regime for such
instruments is currently not competitive. Irish banks and Irish subsidiaries of
foreign banks must be able to compete with their European peers to attract such
capital and it is important they (and their investors) are not treated less favourably
than their peers in other European territories, including the UK.
The SARP is a measure introduced to attract
senior executives and talented workers
to/back to Ireland, but is generally agreed to
have been ineffective because of limitations to
its use. Is there any chance that Government
could make this, or other incentives, more
effective in the next Budget, and if so how?
It is unlikely that the SARP rules will be expanded or
changed further. The requirement to have previously
worked overseas for the same employer was reduced
from 12 months to 6 months in last year’s Finance Act
and SARP relieves 30% of an employee’s income over
€75,000. To make the SARP more effective we would
like to see the complete removal of the income
threshold of €75,000 and the 6 month requirement.
However a further change to the SARP rules is not
expected this year.
The tax treatment of long term incentive plans
(“LTIPs”) is an area that could be addressed in the
Budget and Finance Bill and there is a significant
demand for change from the IFS sector. Currently
there is an element of tax relief for employees who
acquire shares in their employer companies where
the shares must be hold for a period of time. The
relief is limited in its application and to make the
relief more attractive to globally mobile employees
(or indeed to promote domestic companies to
support employee share participations) the
conditions could be relaxed e.g. the definition of
shares could be extended to include restricted stock
units, options over shares and phantom stock plans.
The August Exchequer Returns again
underline the potency of the Irish economic
recovery, and for the third year in a row are
pointing to a need to revise economic
projections upwards. This tax revenue
buoyancy is generally providing the
Minister with confidence to innovate in
regard to tax neutral measures that could
further increase the attractiveness of
Ireland as a jurisdiction for FDI. Which of
these could firms be expected to look out for
in Budget 2016?
The improvement in the Irish treaty network
(in particular Latin America and South East Asia)
would be a step to increase the attractiveness of
Ireland as a jurisdiction for FDI and one we would
hope the Minister continues to work towards.
In a post-BEPS era it is predicted that the number of
disputes between territories over taxing rights will
increase dramatically. In this environment it is
essential that the Irish authorities have the resources
and expertise to vigorously defend Ireland’s position
in disputes with larger countries. While there has
already been investment in this area in recent years
it is important that this continues into the future and
a statement this effect by the Minister would be
welcome.
Have there been developments in the past
several weeks, and running up to our
deadline (Friday September 18th), e.g. on
the BEPS front that are likely to be reflected
in the Finance Bill 2016.
With the upcoming release of the remaining BEPS
action papers, it is expected that Ireland remains on
track to introduce Country-by-Country Reporting
(CbCR) in the Finance Bill 2016. CbCR will require
multinational groups to provide information on their
global allocation of profit, taxes paid and economic
indicators among the countries in which they
operate. Companies should be prepared for CbCR as
a natural precursor to requests for even greater
granularity from tax authorities worldwide. The
ability to comply with such detailed data requests,
combined with the sensitivity of the information to
be provided, makes this development a significant
issue for management.
While it is expected that Ireland may introduce
further changes as a direct impact of the OECB BEPS
Actions paper, it is unlikely that any of these changes
will be made in this year’s Budget/Finance Bill.
The proposed Knowledge Development Box (KDB)
regime is expected to be introduced in the Budget
and will be an important part of our FDI offering
going forward. Having said this, given the OECD
has prescribed a narrowly defined regime, it remains
to be seen how effective Ireland’s KDB will be and
the appetite there will be for it. That being said the
introduction of a KDB regime is a reflection of the
Irish Governments direction of travel in continuing
to promote inward investment.
PwC
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