Key messages from Mr Paschal Donohoe, the Irish Minister for Finance and Public Expenditure & Reform on 8 October 2019:
"… it is a challenge Ireland has the measure of."
On corporate tax reform
"Ireland has a competitive corporation tax rate. It has served us well and it will not be changing."
"The certainty of Ireland's corporation tax rate and our broader regime is an important factor in promoting investment here at a time of growing global uncertainty."
Paschal Donohoe made his Budget speech to the Irish Parliament on Tuesday 8 October 2019. The Budget was shaped in the shadow of a "No Deal" Brexit looming on 31 October 2019. The detail of the various measures announced, apart from those introduced with immediate effect by way of Financial Resolution later tonight, will be contained in the Finance Bill 2019 which will be published on 17 October 2019. The Finance Bill 2019 itself should be adopted by 31 December 2019.
At this stage the key points of interest for the international business community include the following:
Stamp duty on commercial property – The stamp duty rate has been increased from 6% to 7.5% with immediate effect
In 2018 the Minister for Finance increased the stamp duty rate on commercial property transfers from 2% to 6%. The increase at that time was justified on the basis that the Government wanted to rebalance construction activity towards residential investment given the commercial real estate market was performing strongly. Today the Minister has announced a further increase from 6% to 7.5% to further stimulate residential building again because the commercial property market continues to perform strongly.
The existing 6% rate will apply to instruments signed before 1 January 2020 where a binding contract existed prior to 9 October 2019.
Stamp duty on scheme of arrangement – A 1% stamp duty rate for a scheme of arrangement involving a 'cancellation scheme' has been introduced with immediate effect
The Government is introducing a new 1% stamp duty charge where a scheme of arrangement involving a 'cancellation scheme' in accordance with Part 9 of the Companies Act 2014 is used to effect the sale of a company. Prior to this change it was possible to transfer ownership of a company through a Court approved process without a stamp duty charge.
Dividend withholding tax (DWT) – The DWT rate is to be increased from 20% to 25% from 1 January 2020 and a modified DWT regime is to be introduced from 1 January 2021
As a revenue raising measure the rate of dividend withholding tax (DWT) which companies pay directly to Revenue in lieu of tax owed by their shareholders is to increase. The current rate of DWT of 20% is to increase to 25% from 1 January 2020. The stated reason for this is to better align the amount of tax remitted by companies with the income tax and universal social charge (USC) ultimately payable by an individual taxpayer. From 1 January 2021 Revenue will introduce a modified DWT regime that will utilise real-time data collected under the modernised PAYE system to allow a personalised rate of DWT to be applied to individual tax payers based on the actual rates of tax they pay. These two changes to DWT should not change the underlying amounts of tax that are due but will have a cash flow benefit for the Exchequer and increase taxpayer compliance.
The increase in the rate should have little impact on most international investors as there are broad exemptions from DWT where companies are owned by investors in EU or double tax treaty jurisdictions or are subsidiaries of listed companies.
Property investment funds and REITs - Anti-avoidance measures are being introduced with immediate effect
A review was completed by Revenue earlier this year of the first financial statements (i.e. IREF returns) filed under the Irish Real Estate Fund (IREF) regime. Revenue identified some IREFs as having engaged in 'aggressive behaviour' to avoid tax including by using excessive interest charges to shelter profits from Irish property. As such a number of anti-avoidance measures are being introduced by way of Financial Resolution tonight to include new limitations on interest expenses to prevent over-leveraging and a measure to combat the artificial avoidance of gains on redemption of IREF units.
In addition the Minister indicated a number of targeted amendments will be made to the Real Estate Investment Trust (REIT) regime to ensure an appropriate level of tax is paid on property gains by a REIT in particular where a REIT leaves the REIT regime.
Anti-Tax Avoidance Directive (ATAD) – new anti-hybrid mismatch rules to be introduced
As expected and as previously flagged by Government the Finance Bill 2019 will introduce new anti-hybrid mismatch rules in line with Ireland's commitments under ATAD. The rules will apply to all corporate taxpayers from 1 January 2020. These rules will address tax arbitrage whereby differences in the tax treatment of an instrument or entity under the tax laws of two or more countries generates a tax advantage (e.g. through a tax deduction in one country without taxable income recognition in another country or by way of a double deduction).
Transfer Pricing – Ireland's transfer pricing rules are to be reformed
In February the Department of Finance conducted a public consultation on Ireland's transfer pricing rules taking into account the recommendations of the Coffey report. On 2 September 2019 it published a transfer pricing 'Feedback Statement'. Today the Minister for Finance confirmed his intention to reform Ireland's transfer pricing rules to ensure they are in line with up to date OECD standards. Reforms will include incorporating the OECD 2017 Transfer Pricing Guidelines into Irish law and extending the rules to cover cross-border non-trading and material capital transactions. The new rules are to apply from 1 January 2020.
For further information please contact a member of the Tax team.