Move will raise more money in the short term from multinational sector in Ireland
about 4 hours ago
Updated: about 2 hours ago
Cliff Taylor
Apple is amongst the multinationals believed to have moved intellectual property to Ireland over the past couple of years. Such moves were a key factor behind the huge jump in Irish GDP in 2015.
The Government is to raise more money in the short term from the multinational sector by limiting the use of a key tax allowance related to the transfer of intellectual property to Ireland.
The move, recommended in a report for Government by economist Séamus Coffey, will mean that multinationals are able to write off investment in moving intellectual property (IP) assets such as copyrights, patents and trademarks to Ireland more slowly, raising an additional €150 million for the exchequer next year.
In future, capital allowances relating to investment in IP assets can only be claimed against a maximum of 80 per cent of the income arising from these assets during the year. Multinationals will still be able to write off the full cost over time, so additional revenue to the exchequer in early years will mean less later on.
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The move is believed to have followed some consultation with major players, some of whom have transferred IP assets to Ireland in recent years. The Minister announced that the restriction would only apply to IP moved to Ireland from now on, meaning there will be no restriction on assets moved here in the past few years.
These moves have followed pressure on the big players to move these assets out of tax havens. The move of IP to Ireland was a key factor behind the huge jump in Irish GDP in 2015.
The Government also published a short paper on corporate tax, outlining the steps it had made in line with tax changes led by the OECD process on Base Erosion and Profit Sharing (BEPS) and changes led by the EU. It also announced a consultation process on changes recommended in the Coffey report, with a deadline of January 30th.
The publication of the document “points out to the naysayers the facts of what we’ve actually done on the OECD and EU agenda and gives certainty to the corporate sector on where we are going”, according to Feargal O’Rourke, managing partner of PwC.
Ireland is coming under pressure on its corporate tax regime from threatened EU changes and also the fall-out from the ruling that Apple owed Ireland €13 billion in back tax.
http://www.irishtimes.com/business/economy/tax-break-on-intellectual-property-changed-to-raise-funds-1.3251422
Minister says he has received assurances from Revenue that changes will deliver tax yield without hindering activity
about 3 hours ago
Eoin Burke-Kennedy
At a press briefing on Tuesday evening, Paschal Donohoe said his department has carefully assessed the level of activity currently under way in the commercial property sector. Photograph: Dara Mac Donaill
Minister for Finance Paschal Donohoe said he has received assurances from Revenue that the increase in stamp duty on commercial property transactions will deliver the required tax yield without dampening activity in the sector.
The trebling of commercial stamp duty from 2 to 6 per cent announced in the budget is expected to net the exchequer €376 million per annum and ranks as the single largest revenue-raising measure.
It will pay for the bulk of the cuts to USC and income tax.
At a press briefing on Tuesday evening, Mr Donohoe said he received figures from the Revenue Commissioner in relation to the yield the stamp duty change would deliver while his department has carefully assessed the level of activity currently under way in the sector.
“And we’re confident that the yield we have on that figure will be delivered.”
Minister Donohoe also noted that the revenue expected to flow from stamp duty on property next year will still only be half what it was during the boom.
Stamp duty on commercial property transactions was originally 9 per cent but this was reduced to 2 per cent after the crash to stimulate activity in the sector.
“Time after time we put in place a tax measure to get a sector to recover and then when the sector has recovered we don’t change the measure back.”
“This has meant that over time we’ve had a tax base where personal taxation has had to pay more and more,” he said.
On concerns that stamp duty is an unreliable tax and posed a risk to the Government’s tax base, Minister Donohoe said: “The measure is undoing a tax concession that was put in place to help that sector recover and we’ll be using a portion of that tax yield to allow us balance our books, to allow us change personal taxation and to allow us increase investment in public services.”
Overall it was about broadening our tax base and making it more resilient, he said.
http://www.irishtimes.com/business/economy/budget-2018-donohoe-says-stamp-duty-changes-will-not-dampen-supply-1.3251498
Rise in price of cigarettes and new sugar tax on sweetened drinks the key clawbacks
about 7 hours ago
Updated: about 4 hours ago
Eoin Burke-Kennedy
Minister for Finance and Public Expenditure & Reform, Paschal Donohoe TD delivers the 2018 budget to Dáil Éireann.
Minister for Finance Paschal Donohoe also announced a raft of measures to tackle the housing crisis in the budget
Middle-income earners and two-income families were the main, albeit modest, beneficiaries of Budget 2018 with a combination of USC cuts and a widening of the top income tax band likely to deliver an increase just under 1 per cent in average take-home pay.
In his first budget, Minister for Finance Paschal Donohoe also announced a raft of measures to tackle the housing crisis, including a new State-run lending vehicle to get builders on to sites, a doubling of the proposed vacant site tax levy and a bigger capital allocation for social housing.
The biggest revenue-raising measure and the one that drew the ire of the building lobby was a trebling of stamp duty on commercial property transactions from 2 per cent to 6 per cent, which is expected to net the exchequer nearly €400 million a year.
As expected, Mr Donohoe’s tax measures centred on cuts to the USC, which benefitted anyone earning more than €13,000 a year, the income limit at which people are liable for the charge.
The lower rate of USC was reduced from 2.5 per cent to 2 per cent, while the ceiling for this rate was lifted to €19,372 to ensure workers on the minimum wage do not pay the higher rate.
Rate
The Minister also reduced the standard 5 per cent USC rate to 4.75 per cent, which applies to the next €51,000 of income, thereby reducing the top marginal rate of tax on income up to €70,044 to 48.75 per cent.
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Budget 2018 main points: everything you need to know
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Inside Business Budget 2018 Podcst
The threshold at which people enter the higher rate of income tax was also raised by €750 for a single person to €34,550.
The changes mean a person earning an average income of €36,920 will gain €246 per annum, or €4.76 a week, while a person earning €55,000 will gain €291 per annum, or €6 a week.
“We cannot hope to remain competitive if someone on a relatively low income and who decides to work a few hours’ overtime has nearly half that extra money taken in tax,” Mr Donohoe said.
Social welfare payments, including the State pension, the disability allowance, the carer’s allowance and both jobseeker’s allowance and benefit, will be increased by €5 a week as part of the €1.2 billion budget adjustment.
The only clawback from taxpayers was a 50 cent hike on the price of a pack of cigarettes but alcohol, petrol and diesel, perennial budget targets, were left untouched.
From next April, the Government will, however, introduce a new sugar tax of 30 cent per litre on sweetened drinks with more than eight grams of sugar per 100ml in a bid to combat obesity.
Measures
As flagged in advance, the budget contained a range of measures to address the housing crisis, including a hike in the proposed vacant site levy from 3 per cent to 7 per cent.
In practice, this means landowners who do not develop their land will pay the original 3 per cent levy in 2018 and then become liable for an increased rate of 7 per cent from 2019 onwards.
Mr Donohoe also announced plans to make up to €750 million of the Ireland Strategic Investment Fund (ISIF) available for a new State agency – to be known as the Home Building Finance Ireland (HBFI) – to provide cheap loans to developers.
There was also a commitment to build 53,000 social homes by 2021 with some 4,000 to be delivered next year, and an additional €149 million for the Housing Assistance Payment (Hap) scheme.
Mr Donohoe confirmed the establishment of the so-called rainy day fund in 2019, which will receive an initial capital injection of €1.5 billion from the ISIF and an annual payment of €500 million thereafter.
http://www.irishtimes.com/business/economy/budget-2018-middle-income-earners-main-beneficiaries-in-donohoe-s-first-outing-1.3246997
Joe Tynan, PwC: Donohoe clear on his intent to deliver tax measures focused on certainty
about 5 hours ago
Updated: about 4 hours ago
Joe Tynan
“From a personal tax perspective, Budget 2018 continues the trend of providing modest income tax adjustments aimed at easing the tax burden on lower and middle income workers.”
Proactive engagement on international tax reform remains vitally important.
Ireland is on course to have the fastest growing economy in the euro zone for a fourth consecutive year, influenced strongly by our ability to attract inward investment. Having expanded very strongly over the past two years, the economy is set to grow at a more sustainable pace in 2017 and 2018.
To maintain this growth and international attractiveness, Minister for Finance Paschal Donohoe has been clear on his intent to deliver a balanced budget, with tax measures focused on prolonged stability and certainty.
From a personal tax perspective, Budget 2018 continues the trend of providing modest income tax adjustments aimed at easing the tax burden on lower and middle income workers.
From a corporate tax perspective, much of our road map continues to be influenced by the international sphere. Our continued active engagement in initiatives being undertaken by the OECD and EU in the area of international tax reform is therefore of critical importance.
Digital economy
Our economic success is heavily influenced by the strength of our digital economy. Ireland is a global frontrunner in this “new industrial revolution”, with OECD data showing our share of global digital exports to be more than 30 times larger than our overall share in the global economy.
With the growing digitalisation of the global economy, the taxation of digital firms has come into international focus. It is widely perceived that insufficient tax is paid by these firms and that international tax reform is required to update tax rules, which were designed for the traditional economy and not for activities which are increasingly based on intangible assets and data.
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Budget 2018 main points: everything you need to know
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Budget 2018: Increases in housing, health and social welfare
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Budget 2018: Have questions? Our expert team is here to answer to answer them
Ireland is strongly committed to continuing to support the OECD in its work to reform the international corporate tax system, believing that global solutions are needed to ensure that tax is paid by companies where value is created.
The European Commission recently announced its plans to look at digital taxation, suggesting that plans to harmonise tax rules across the bloc, known as the common consolidated corporate tax base (CCCTB), could be used to incorporate new rules on digital tax. A levy based on turnover in a given country has been suggested.
The Government is expected to contest any such moves at EU level towards corporate tax consolidation or turnover taxes on digital companies.
Under the spotlight
Given Ireland’s recent and continued success in attracting foreign direct investment in the technology sector, it is not surprising that our tax regime has come under the spotlight.
The findings in the Apple state aid case prompted the Department of Finance to commission the Coffey report, which was released last month. The over-arching message from this report is that our current corporate tax system is transparent, competitive and fair.
Both the OECD and the EU recognise our tax regime as an open and transparent regime which is broadly fit for purpose. Ireland recently received the highest compliance rating on tax transparency from the OECD in its latest peer review reports published in August.
The Coffey report does make a number of key recommendations around overhauling Ireland’s transfer pricing regime, recalibrating its existing IP regime and introducing a competitive territorial regime. The Minister has announced the start of proactive consultation with business on these recommendations to determine what changes should be made, which is very welcome.
One recommendation to be implemented with immediate effect is the reintroduction of the 80 per cent cap for new spend on intellectual property. This means that, in any given year, 80 per cent only of the associated income can be offset by IP amortisation and related financing expenses.
The measure is aimed at ensuring some smoothing of corporate tax revenues over time. Any excess deductions can be carried forward to subsequent years without limit. While the change is unlikely to have any impact on a company’s effective tax rate, it can affect cash taxes in any given year.
In the face of growing external challenges and opportunities, the measures announced by the Minister should ensure that the State continues on a stable and sustainable path for growth. However, our ongoing proactive engagement on international tax reform measures remains vitally important.
Joe Tynan is head of tax at PwC
http://www.irishtimes.com/business/economy/budget-2018-engaging-on-international-tax-reform-vitally-important-1.3249779
Inside Business: Little protection against Brexit fallout
about 4 hours ago
Out team of experts discuss Paschal Donohoe’s maiden budget.
In Budget 2018 Minister for Finance Paschal Donohoe has done a little for everyone and avoided major controversy. But has he done enough to keep the economy growing sustainably, to prepare Ireland for Brexit or to help increase the supply of housing?
Inside Business Budget 2018 Podcst
To look at the measures introduced in today’s budget, Business Editor Ciarán Hancock is joined by Fiach Kelly and Cliff Taylor of The Irish Times, Peter Reilly, tax policy leader with PrciewaterhouseCoopers, and Marian Finnegan, chief economist with Sherry Fitzgerald.
http://www.irishtimes.com/business/economy/budget-2018-podcast-something-for-everyone-in-the-audience-1.3251401
Minister’s plans on ‘more appropriate accommodation’, sugar and Brexit decoded
about 5 hours ago
Updated: about 4 hours ago
Laura Slattery
Finance Minister Pascal Donohoe TD speaks to Fiach Kelly of The Irish Times outside Leinster House following the delivery of his Budget 2018. Video: Bryan O’Brien
Minister for Finance Paschal Donohoe has had it up to here with Brexit already. Probably.
Corrosive crisis
“I am very aware of the corrosive impact on Irish society of homelessness. I am also aware that many people living in the private rented sector wish to find more appropriate accommodation or move to their own home, but at the moment cannot do so.”
The Minister’s blissfully cough-free speech was – appropriately enough – delivered on a date that was designated both World Homeless Day and World Mental Health Day, two issues that often overlap. Donohoe characterised homelessness as the sharpest end of a spectrum of thorny housing issues, for which the most obvious solution in his mind is to increase the supply of homes. When he talks about “more appropriate accommodation” here, he means somewhere that doesn’t involve paying extortionate rents for foldaway beds in miserable, mould-infested rental properties, or indeed seeing such dismal places listed on Daft.ie and crying because you can’t afford even that.
Housing perspective
“Our actions to support the housing sector, though, are bearing fruit. Commencement notices for new housing are up 47 per cent. Planning Permissions are up 49 per cent. And we are increasing our ambitions for what we will build directly.”
This percentage increase in residential housing commencements sounds respectable, even good, but the phrase coming from a low base – a very low base – has rarely been more apt. Department of Housing statistics show that there have been just under 12,000 housing commencements in the first eight months of the year, indicating the annual total will be about 18,000. To put this in perspective, analysts at Davy Research say the State’s true housing need between now and 2021 is “at a minimum” 35,000 units a year and is “perhaps as high” as 50,000 units a year. So it really is time to get the shovels out and build some decent places to live.
Sugary shove
“I am introducing a tax at a rate of 30 cent per litre on drinks with over 8 grams of sugar per 100 millilitres and a reduced rate of 20 cent per litre on drinks with between 5 and 8 grams of sugar per 100 millilitres.”
Anyone for a Diet Coke? How about a fat Sprite? (Its sugar content falls into the 5-8 grams bracket rather than higher-taxed fat Coke bracket.) Donohoe’s confirmation that a sugar tax will be implemented from April has come in a week in which US economist Richard Thaler won the Nobel prize for economics for his work on “nudge theory”, which espouses the idea that humans can be subtly guided in the direction of what’s good for them without heavy-handed interventions or compulsion. In this instance, relegating sugar-laden drinks to awkward corners of shops would constitute a “nudge”, while a sugar tax is more of a full-on shove. In a full year, it’s also expected to be a €40 million bonanza.
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Paschal Donohoe’s speech
Corporation ‘offering’
“In the area of corporation tax, we have seen unprecedented change and reform in recent years. Ireland has played its full part in this. We have a stable and competitive corporation tax system, which is internationally recognised as one of the most transparent in the world. Our position is clear. The 12.5 per cent tax rate is, and will remain, a core part of our offering.”
It’s more usually the likes of investment services firms and management consultancies, not countries, that have “offerings”, but then this part of Donohoe’s speech was a message direct from the headquarters of Ireland Inc. The words “our position is clear” do, of course, acknowledge that other positions are available: Brussels has long disliked the Irish 12.5 per cent rate enjoyed so much by multifarious multinationals and in the great Brexit kerfuffle, it will come under pressure again. And even if it does stay intact, the UK might well cancel out the foreign direct investment (FDI) advantage this tax rate gives Ireland by slashing its own rate to something similar post-Brexit.
VAT job not done
“Tourism continues to be a national success story. That said, one clear impact of the UK’s decision has been a continuing weakness in the value of sterling . . . Accordingly, I have decided not to change the VAT rate on the tourism and services sector in Budget 2018. ”
The prosecco will be flowing in hotels and restaurants after the Government retained the reduced 9 per cent rate of VAT for tourism-related businesses. Although the Department of Finance had earlier advised Donohoe that the special rate, first introduced in 2011, had “done its job”, he clearly took one look at the southerly trend for visitor numbers from Britain and thought better of abolishing it. The good news for anyone who paid to read this in print is that newspapers are also subject to the reduced 9 per cent rate, while the bad news for anyone who paid to read these exact same words in a digital format is that – thanks to Europe – the VAT was 23 per cent.
Global philosophy
“I share the Taoiseach’s view that Ireland is not a country at the edge of Europe, but at the centre of the world. That is why I am announcing increased allocations for the Department of Foreign Affairs and Trade and the Department of Defence.”
Here a beautiful picture is conjured up of the Minister and the Taoiseach engaging in heartfelt philosophical discussions about Ireland’s place in the world and coming up with the logically impossible but rhetorically strong conclusion that Ireland is the heart of everything on Earth. Pythagoras, Aristotle and Galileo would thoroughly disapprove. Donohoe was in fact referencing the “an island at the centre of the world” cover line Time magazine used on its interview with Leo Varadkar back in July, when he noted that globalism had been good to Ireland. The time has now come for a post-crisis Ireland to give back by increasing its budget for overseas development aid.
Gender-proofing
“I am also pleased to say that work on equality and gender proofing of the budget continues. The Government is working with partners such as the Irish Human Rights and Equality Commission to achieve the goal set out in the Programme for Government relating to equality and gender-proofing of budget measures.”
Gender-proofing budgets, or ensuring measures do not disproportionately favour or disadvantage one particular sex, has been a topic of rising profile in recent years. Research suggested Ireland’s austerity budgets had the hardest impact on single-parent households, the majority of which are headed by women. But equality remains the classic long-finger issue. While Donohoe said the Government would “provide leadership” and study best international practice in this area, it’s all a bit of a work-in-progress. A 24-page policy paper published on Tuesday suggests various Government departments will be asked to assess the impact of their policies on gender equality. What will happen if those policies fall short of ideal? The smart money is on nothing.
Brexit Brexit Brexit
“This budget is important, but we cannot rest there. As we take the next step on our national journey in the face of growing external risks, especially Brexit, we must think bigger and plan for the longer term. While today I am announcing capital spending not just for next year but for the next four years, this is just the first step.”
That painful word “Brexit” popped up a total of 15 times in Donohoe’s speech, which was even more times than the words “challenge” and “opportunity”. The Minister’s announcement of a €4.3 billion capital expenditure allocation up to 2021 was, in effect, the trailer before the main feature, which will be the Government’s publication of a 10-year capital plan. Hurrah. But, frankly, with Westminster back to talking about the no-deal scenario and some economists predicting Brexit won’t actually happen, all bets are off. Donohoe claimed Budget 2018 was about making “sensible and long-term investments to benefit us now into the future”, but being sensible in a nonsensical world won’t be easy.
http://www.irishtimes.com/business/economy/budget-2018-reading-between-the-lines-of-donohoe-s-speech-1.3249840
‘Squeezed middle’ and low-income earners among main beneficiaries of income tax changes
about 5 hours ago
Fiona Reddan
Minister for Public Expenditure and Reform, Paschal Donohoe, outlines changes in USC and tax bands rates in his Budget 2018 speech. Video: Oireachtas
Minister for Finance Paschal Donohoe increased the threshold at which people start paying the higher rate of income tax
Everyone was a winner in Budget 2018, with the so-called “squeezed middle” and low-income earners the main beneficiaries of income tax changes.
However, no one is set to clean up as savings will be moderate, with tax cuts meaning that families and individuals are set to save up to €468 a year come next January.
The biggest gains look set to go to those earning less than €14,500 on the minimum wage, the self-employed and one-income families, while medical card holders and those aged over 70 will continue to enjoy a reduced rate of USC for another two years.
“Those on lower incomes will benefit proportionately a bit more,” said Ken O’Brien, a tax director with Pwc, adding that the measures would proportionately benefit higher earners less.
As expected, Minister for Finance Paschal Donohoe increased the threshold at which people start paying the higher rate of tax of 40 per cent, but the scale of the increase was lower than expected, at €750 rather than €1,000, or 0.25 of a per cent. “It’s not a lot of money,” Mr O’Brien said.
It means that someone can now earn €34,550 before they start paying the higher rate of tax, while the threshold will rise from €42,800 to € 43,550 for married one-earner couples. This will cost the exchequer €132 million on an annual basis.
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Tax net
However, unlike in previous budgets, which took about one million income earners out of the tax net by raising the levels at which people must start paying the USC and income tax, Mr Donohoe decided to leave the entry point of USC at €13,000, and instead cut the rate at which USC is levelled.
“Proportionally there is already a very high number of people out of the tax net,” Mr O’Brien said.
Mr Donohoe announced a 50 basis point cut in the 2.5 per cent rate of the universal social charge (USC) to 2 per cent, a €600 increase in this ceiling to €18,722, and a cut to the 5 per cent rate, which will drop back to 4.75 per cent.
The limited scale of the cuts indicates the difficulties in cutting taxes and balancing budgets, as well as the importance of USC to the State’s coffers.
“Our hands are tied even if we wanted to spend more money,” Mr O’Brien said.
The total cost of USC measures is given as €177 million. It means that the marginal rate of tax will decline from 49 per cent to 48.75 per cent for those earning up to €70,044, and, as Mr O’Brien noted, should diminish the disincentive on people to work more. However, he added that the top marginal rate of tax remained 52 per cent for those earning above €70,044 – which was still too high.
“The fact remains there is an income tax rate of 52 per cent for earners over €70,044, which is hindering us in the global race for talent,” said Irish Tax Institute president David Fennell.
Two years
Mr Donohoe also announced an extension of another two years to the reduced rate of USC for medical card holders. It means that these card holders and individuals aged 70 years and older whose aggregate income does not exceed €60,000 will now pay a maximum USC rate of 2 per cent.
Mr Donohoe did not signal how the much vaunted merger of USC and PRSI will work, apparently leaving this to a working group which will publish a strategy later. A key objective of this process, Mr Donohoe said, was that it “does not narrow the tax base but ensures that our personal taxation system is both competitive and resilient in the future”.
Mr O’Brien said it was “not surprising” that the Government has pushed the timeline on this given the complexity of the process.
Benefit in kind is also to change, with the Minister announcing a 0 per cent rate of benefit in kind on electric cars for 2018.
http://www.irishtimes.com/business/economy/budget-2018-cuts-to-income-tax-and-usc-set-to-save-families-up-to-9-a-week-1.3247336