Lorraine Griffin: head of tax at Deloitte Ireland
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While previous budgets took place against a backdrop of relatively strong and balanced domestic economic growth, the context and the environment for the current Budget is somewhat more challenging and has been developed in the shadow of Brexit.
In pre-Budget statements issued by the minister, it was noted that economic growth of 3.9% was forecast for 2019. The minister’s comments are reflective of a marginally better position, forecasting GDP growth of 5.5% for 2019, and a 0.7% growth forecast for 2020.
Against this backdrop of potential domestic overheating and foreign disruption, Budget 2020 has been formulated on the assumption of a no deal Brexit outcome at 31 October 2019. Accordingly, the Budget announced by the Minister involves a budgetary package of €2.8billion for 2020 with various strands of expenditure available to be deployed to specific areas in the event of a No Deal outcome. In particular, focus is to be given to help “vulnerable but viable” firms adjusting to a No Deal Brexit outcome. The provision of support was made clear in the minister’s speech as a key area for focus with €650m made available to support the agriculture, enterprise and tourism sectors in the event of a No Deal, with €220m of this funding to be deployed immediately
The environmental agenda and climate change concerns were also highlighted as key areas driving tax policy and public expenditure, with the minister describing climate change as “the defining challenge of our generation”.
This environmental agenda has been very much driven by key tax changes including an increase to the carbon tax, the introduction of a nitrogen oxide emissions base charge on new diesel and petrol passenger vehicles and the introduction of greater reliefs to incentivise the purchase and use of hybrid and electric vehicles by Irish consumers.
Helpfully, the Minister indicated that the Finance Bill will provide additional relief through the Diesel Rebate Scheme to hauliers who may experience disruption and additional costs arising from Brexit uncertainties.
Overall, Budget 2020 can be described as one leaning towards the environmental agenda and driving forward with Ireland’s Climate Action Plan.
Reference was made in the lead up to Budget 2020 to the vulnerabilities in public finances arising from the high concentration of volatile corporation tax receipts.
While we welcome the Minister’s reference to continuing commitment to the 12.5% rate of tax, international tax developments at EU and OECD level continue to dominate the corporate tax agenda.
Notable changes to Irish domestic tax rules include the introduction of anti-hybrid rules from January 1, 2020 to deny tax benefits obtained in cases of cross border arbitrage through differing characterisations of instruments or entities for tax purposes.
Finance Bill 2019 will also see the introduction of revised transfer pricing rules in Irish law as discussed in the Transfer Pricing summary.
Lastly, Finance Bill 2019 will see the introduction of rules with respect to the reporting of specific cross border arrangements under the EU Mandatory Disclosure Regime (“DAC”). Budget 2020 and Finance Bill 2019 will undoubtedly be dominated by the EU and OECD agenda, set against a backdrop of Brexit uncertainty.
In light of the increasingly tight labour market, a number of measures announced by the Minister are likely to be helpful in terms of attracting and retaining talent. In particular, adjustments to the Key Employee Engagement Programme (KEEP) and Employment and Investment Incentive (EII) Scheme are welcome steps in the right direction to support businesses in their fight for talent and investment. However, given the range of concerns raised by stakeholders as part of a consultation on these reliefs, there remains much work to be done in this area to bring the Irish reliefs in line with our British counterparts and to ensure Ireland remains competitive.
An increase in dividend withholding tax from the current rate of 20% to a new rate of 25% was announced with a view to improving cash flow for the exchequer. With a range of exemptions at both domestic, EU and treaty level available for dividends paid to corporate shareholders, it is expected that the improved cash flow will be driven from dividends paid to individuals.
While the withholding tax rate increase does not impact the final level of tax due by Irish tax resident shareholders, it is clear that the measure is targeted at avoidance or non-declaration of dividend income by taxpayers to date, where a higher rates of tax should have been accounted for.
The amendments to the research and development tax credit regime heralded by the minister are a welcome step in the right direction in terms of supporting small, indigenous Irish businesses and allowing innovation to prosper within our start-up and scale-up eco-system. The relief is an important stimulus for investment and in creating new, and sustaining existing, employment. It aligns with the continuing theme of this Budget in focusing on developing Irish businesses and supporting the SME sector.
The issue of the property market has undoubtedly been a key theme in this year’s Budget culminating in an increased stamp duty on commercial property, an extension of the Help to Buy Scheme and a targeted focus on the tax affairs of certain institutional investors.
Given the increasing demand for housing across the country, the issue of property related measures features heavily in this year’s Budget and is likely to continue to be an area of focus in Finance Bill 2019.
Overall, Brexit and other international pressures remain key challenges to the Irish economy in the short and medium term. 2019 has been a year of consultations on the various proposed changes to the Irish tax landscape, and it is our hope that this trend of stakeholder engagement continues as we move into the Finance Bill process.
We hope you will find Deloitte’s commentary and analysis on Budget 2020 to be useful and look forward to bringing you further insights on the Finance Bill when it is released on 17 October 2019.
We invite you to review our articles and some analytics about the Government’s financial position and also to try our Tax Calculator (available shortly) to work out what personal tax implications this year’s Budget will have for you and your family.
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