Key messages from Mr Paschal Donohoe, the Irish Minister for Finance and Public Expenditure & Reform on 10 October 2017:
On corporate tax
"The 12.5% tax rate is and will remain a core part of our offering."
"We are a stable and competitive corporation tax system, which is internationally recognised as one of the most transparent in the world."
"Ireland must compete not only on the rate but on the ability to offer certainty."
"[SMEs] will need to innovate and increasingly look to new European and international markets other than the UK."
On the Coffey Report
(Review of Ireland's Corporation Tax Code) – "The report recognises the importance of certainty and identifies the need for consultation."
On the Update on Ireland's International Tax Strategy
"This year alone we received the highest international rating for tax transparency and our Knowledge Development Box has been assessed by our international peers as meeting tough new standards agreed at OECD and EU level."
Paschal Donohoe made his Budget speech to the Irish Parliament on Tuesday 10 October 2017. This was the first Budget of the Minister who assumed the mantel of Minister for Finance from Michael Noonan earlier this year. As has become tradition with Budget Day speeches over the last number of years the Minister for Finance again reiterated Ireland's ongoing commitment to the 12.5% corporation tax rate.
The detail of the various measures announced will be contained in the Finance Bill which will be published on 19 October 2017. The Bill itself should be adopted by 31 December 2017. 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
Stamp duty on commercial property - Stamp duty rate increased from 2% to 6% with immediate effect but with the potential for a refund
Capital allowances for intangible assets - 80% limitation on the quantum of relevant income against which IP depreciation and related interest is deductible in any one year
Key Employee Engagement Programme announced - Provides for an advantageous tax treatment on share options
Stamp duty on commercial property
The Irish commercial property sector attracted €4.5bn in investment in 2016. Prior to December 2011 the stamp duty rate on transfers of non-residential property was up to 9% depending on the transaction value. At the end of 2011 a flat rate of 2% on all transaction values was introduced and has remained the same until now. The 2% rate reflected the exceptionally difficult market situation in 2011 and the lack of commercial output that applied at the time. However, the Minister has decided to revisit the 2% rate given the commercial real estate market is now performing strongly and the Government now want to re-balance construction activity towards residential investment instead. Effective immediately the stamp duty on commercial property transactions is being raised to 6%. However, in tandem with this increase a stamp duty refund scheme is to be introduced in relation to commercial land purchased for development of housing. The refund will be subject to certain conditions, to be detailed in the Finance Bill, and will require developers to have commenced development within 30 months of the land being purchased.
Capital allowances for intangible assets
Earlier this year the Government sought a review of Ireland's corporate tax legislation. The review culminated in the publication earlier this year of the Review of Ireland's Corporation Tax Code (i.e. the Coffey Report) which is a roadmap for Ireland to implement a range of reforms over the coming years up to the end of 2020. One of those suggested reforms aimed at ensuring the sustainability of Ireland's corporation tax receipts has been taken up by the Minister as part of Budget 2018. The tax deduction for capital allowances for intangible assets, and any related interest expense, will be limited to 80% of the relevant income arising from the intangible asset.
Key Employee Engagement Programme (KEEP)
The Minister for Finance announced that a new tax incentive is being introduced to facilitate the use of share-based remuneration by unquoted small and medium enterprise (SME) companies to attract key employees. Gains arising to employees on the exercise of share options granted in accordance with the rules of the new "Key Employee Engagement Programme" (KEEP options) will be liable to capital gains tax on disposal of the shares, in place of the current liability to income tax, USC and PRSI on the exercise of share options. This incentive will be available for qualifying share options granted between 1 January 2018 and 31 December 2023.
This news will be welcomed by the SME sector but the devil will be in the detail of the Finance Bill, which is due to be published on 19 October 2017. In particular, we await further details on the conditions that will enable companies to treat their share options as qualifying KEEP options, and also whether - and at what level - a cap may apply to this favourable tax treatment.
Update on Ireland's International Tax Strategy
The Update shows the continuing progress made by Ireland in the last year. It serves three purposes. Firstly it provides concrete evidence of measures already undertaken to ensure Ireland continues to meet the highest international standards in corporation tax. Secondly, it allows the Government to set out future objectives. Thirdly it demonstrates that Ireland intends to handle future reform with a steady hand (e.g. re-affirming the 12.5% corporate tax rate, having a transparent tax system, etc.). Developments noted in the last twelve months include:
Ireland was one of the first ten jurisdictions to be assessed for the second time under new terms of reference by the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes, achieving the top rating of Compliant;
signing up to the BEPS multilateral instrument;
continued commitment to global automatic exchange of information through implementation of the third and fourth revisions of the Directive on Administrative Cooperation and actively supporting work at EU level on the fifth iteration of the Directive; and
actively engaging in the OECD's BEPS project and work of the Task Force on the digital economy.
Public consultation on the Coffey Report
As noted above, in September last year the Government sought a review of Ireland's corporation tax code. The Coffey Report was delivered on 30 June 2017 to the Government and makes 18 key recommendations. Among the recommendations are that a consultation is carried out on (i) the implementation of the Anti-Tax Avoidance Directive, (ii) implementation of Actions 8, 9 and 10 of the BEPS initiative, (iii) Ireland's domestic transfer pricing rules and (iv) the effects of moving to a territorial corporation tax base and simplification of the computation of foreign tax credits. The consultation is to run from 10 October 2017 to 30 January 2018.
Public consultation - Review of stamp duty on share transactions
This time last year the then Minister for Finance Michael Noonan, in tandem with making his Budget 2017 speech, published two Brexit papers, one of which, "Getting Ireland Brexit Ready" included a commitment to conduct a review in 2017 of the application of stamp duty to stock 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. The Department of Finance issued notification late last month of a public consultation reviewing stamp duty on share transactions. The consultation is to run until 5 p.m. on 31 October 2017. The purpose of the consultation is to review the rationale for retaining stamp duty (1%) on share transactions in its current form in the context of a changing financial and economic environment. In particular the Minister is inviting submissions regarding a number of mattes including:
whether stamp duty on share transactions continues to be justified;
the extent to which Brexit related developments should influence policy on reducing or eliminating stamp duty on share transactions;
what direct impact stamp duty on share transactions would have on Ireland's competitive position post-Brexit; and
whether reducing or eliminating stamp duty on shares will result on an increase in availability of equity finance for corporate entities.
For further information please contact a member of the Tax team.