There are no major changes in Irish tax policy announced in today's Irish Budget. Its contents reflect the continued recovery in the Irish economy, yet is tempered by the risks inherent in the global economy, particularly the uncertainties of Brexit. We have summarised below the more significant announcements.
Key Messages from Mr Michael Noonan T.D., Minister for Finance on 11 October 2016:
On Brexit - "… the UK's exit from the EU may present opportunities to attract businesses that may move out of the UK…"
On Ireland's International Tax Strategy - "… we will ensure our corporate tax regime remains fair but competitive in the future."
On CCCTB- "Ireland will engage fully in discussions on this proposal while assessing whether it is in our best interests".
On corporate tax - "… Ireland's 12.5 per cent corporation tax rate will not be changed and nobody is asking for it to be changed."
The Irish Minister for Finance Michael Noonan made his Budget speech to the Irish Parliament on Tuesday 11 October 2016. As he has done in his previous five budgets, the Minister again reiterated Ireland's ongoing commitment to the 12.5% corporation tax rate. The Minister also published (i) an update on Ireland's International Tax Strategy highlighting how the Irish corporate tax regime meets the highest standards in tax transparency and (ii) two Brexit papers – 'Getting Ireland Brexit Ready' and 'UK EU Exit – An exposure analysis of sectors of the Irish economy' demonstrating the Government's commitment to being "Brexit ready".
The detail of the various measures announced (apart from the Brexit and tax strategy papers) will be contained in the Finance Bill, which will be published on 20 October 2016. The Bill itself should be adopted by 31 December 2016. At this stage the key points of interest for the international business community include the following:
12.5% corporate tax rate
Unchanged and commitment to the rate re-affirmed
Changes to the taxation of section 110 securitisation and Funds invested in Irish Real Estate assets
Limited restrictions on the tax benefit of s110 companies and regulated funds acquiring interests in Irish real estate are to be introduced
Tax strategy papers published
An update on Ireland's International Tax Strategy has been published
Two papers looking at the impact of Brexit on Ireland and relevant reponses have been published
Special Assignee Relief Programme (SARP)/Foreign Earnings Deduction (FED)
Both regimes have been extended to the end of 2020 with further enhancements to the FED
Entrepreneur relief enhanced
Capital gains tax in relation to entrepreneur relief reduced to 10% (general rate of CGT is 33%)
Changes to the taxation of securitisation/funds invested in Irish real estate assets
On 6 September 2016 the Minister for Finance published draft legislation to restrict the tax deductibility of payments of profit participating interest by a section 110 company in limited circumstances. The change will be restricted to the tax treatment of debt instruments deriving most of their value from Irish real estate. As such the changes proposed should not affect section 110 companies holding assets that do not derive their value from Irish land (e.g. mainstream CLOs, securitisations and other platforms such as asset leasing structures). In today's Budget speech the Minister reiterated the Government's intention to introduce legislative changes to the section 110 regime and he indicated that he would be bringing forward amendments to address the use of Irish regulated funds in acquiring Irish real estate. Further details on both will be included in the Finance Bill which is due to be published on 20 October 2016.
Update on Ireland's International Tax Strategy
The Update shows the progress made by Ireland in the last year and highlights how the Irish corporate tax regime meets the highest standards in tax transparency. Ireland is committed to the full exchange of tax information with its treaty partners as demonstrated, for example, by (i) improvements made in last year's Finance Act to enhance Revenue's ability to access and exchange information, (ii) the text of the OECD multilateral instrument to update tax treaties for BEPS recommendations and (iii) the approval by the Government of two new tax treaties and a new Tax Information Exchange Agreement. Ireland has also supported the work on the various iterations of the Directive on Administrative Cooperation to facilitate the automatic exchange of information on cross border tax rulings, CbC reporting, etc.
New transfer pricing rules were agreed at the OECD in May and Ireland is now considering the changes needed to ensure its transfer pricing rules meeting the standards set out in the OECD transfer pricing guidelines.
On the CCCTB the Government has indicated that Ireland continues to disagree with any harmonisation of tax rates, minimum levels of taxation or the inappropriate encroachment of State aid rules into the core Member State competence of taxation.
Getting ready for Brexit
The Government has published two papers on Brexit outlining how Brexit may impact the economy and the policy responses to Brexit that have been introduced in Budget 2017 to enable exposed sectors of Ireland's economy to remain competitive and to protect the public finances.The taxation measures announced with a view to getting "Brexit ready" include:
Reducing capital gains tax (10%) to help entrepreneurs,
Extending (until the end of 2020) and amending of the Foreign Earners Deduction to help exports to diversify their export and import markets, and
Extending of the SARP until the end of 2020 to assist businesses relocate key staff to Ireland
It is also intended to carry out a review in 2017 of the application of stamp duty (currently 1%) to stocks and marketable securities of Irish incorporated companies in the context of the sustainability of the stamp duty yield and the future UK relationship with the EU.
Key measures announced to support business
Extension of the Special Assignee Relief Programme (SARP): The aim of SARP is to attract mobile talent by reducing the equalisation cost to companies of assigning skilled individuals and key decision makers from abroad to take up positions in Ireland. This is achieved through reducing the tax burden on income in excess of €75,000 per annum. SARP is being extended for a further 3 years until 2020. The extension provides a period of certainty for foreign direct investment in Ireland.
Enhancement of the Foreign Earnings Deduction (FED): TheFED was introduced to support Irish businesses diversify their trade into foreign export markets by providing a deduction from an employee's salary of up to €35,000 when the employee travels to certain countries as part of their employment. FED is being extended for a further 3 years until the end of 2020 and the list of qualifying countries is being extended to include Colombia and Pakistan. In addition, the minimum number of days spent in a qualifying country is being reduced from 40 to 30. The enhancement broadens the scope of the incentive and provides continued support for businesses wishing to expand and diversify their trade in response to uncertain global trading conditions.
Intention to introduce a new share-based incentive scheme in Budget 2018:The announcement comes after a public consultation on the taxation of share-based remuneration earlier this year. The introduction of a new share-based incentive scheme re-affirms the Irish Government's commitment to encourage financial participation by employees as a way to increase competitiveness and support employment and growth. At this stage the scope of the incentive is unclear, however, the current focus appears to be on small-medium enterprises. In the coming months, the Irish Government will engage with the European Commission to ensure that the incentive complies with EU state aid rules.
For further information please contact a member of the Tax team.