Key messages from Mr Michael Noonan T.D., Minister for Finance on 15 October 2013.
On Ireland's corporation tax rate:
"The tax rate is settled policy. We are 100% committed to the 12.5% corporation tax rate. This will not change."
On attracting foreign direct investment:
"I want Ireland to play to win. That is why I will continue to examine ways in which Ireland can ensure that our corporate tax regime remains competitive."
On the OECD BEPS project:
"Let me be crystal clear. Ireland wants to be part of the solution to this global tax challenge, not part of the problem"
The Irish Minister for Finance, Michael Noonan, made his Budget speech to the Irish Parliament on Tuesday, 15 October 2013. The timing represents a departure from the traditional December date for the Budget to be presented to the Irish Parliament. This change in the timetable is in response to two regulations known as the "two-pack" which require the draft Budget to be published by 15 October each year and adopted by the following 31 December.
The Budget measures announced are aimed principally at stimulating the creation of jobs by building on the 10 Point Tax Reform Plan announced in last year's Budget. In all the Minister announced that 25 pro-business and pro-jobs measures are to be introduced. In addition the Budget seeks to secure Ireland's exit from the Bailout Programme with the budget bringing the deficit down to 4.8% of GDP, beating the IMF target.
We await publication of the Finance Bill in the next few weeks for further details of measures announced and we will deal with these further in a separate tax alert. However key points of interest for the international business community include:
- 12.5% rate will not change: Ireland's commitment to the 12.5% corporate tax rate and to winning further foreign direct investment was reaffirmed. Against this backdrop the Minister referred to the OECD Base Erosion and Profit Shifting Project noting that global challenges require global action and that Ireland is playing an active part in the process. As part of Ireland's commitment to the BEPS project it was announced that a new international tax strategy statement setting out Ireland's objectives and commitments in relation to the issues is being published.
- Change to Irish corporate tax residency rules: Legislation is to be included in the Finance Bill to change the Irish corporate tax residency rules so as to eliminate mismatches that can result in Irish companies having no jurisdiction of residence for tax purposes. While we await further details when the Finance Bill is published, we understand that the change will have no impact on structures where a company incorporated in Ireland is definitively resident in another jurisdiction for tax purposes.
- International Tax Strategy document published: Ireland's International Tax Strategy statement highlights among other things that (i) Ireland participates constructively and purposefully in relation to international tax matters (ii) Ireland ambitiously pushed forward the international tax reform agenda during its EU Presidency earlier this year (iii) Ireland is very much involved in the process of addressing the issue of aggressive tax planning (iv) Ireland's 12.5% corporate tax rate is statute based with all companies operating in Ireland being fully chargeable to 12.5% tax on Irish trading profits and (v) Ireland has full exchange of tax information with partners through 69 double tax treaties, 22 tax information exchange agreements and was one of the first countries to sign a FATCA intergovernmental agreement with the US.
- CGT rollover relief and other measures to encourage entrepreneurial activity: A number of measures were announced under the "Build Your Business Initiative" to encourage entrepreneurship, innovation and investment. These measures include (1) capital gains tax (CGT) relief for entrepreneurs who reinvest the proceeds from the disposal of assets on which CGT was previously paid (2) implementing key recommendations of a review of the R&D tax credit system relating to outsourcing, qualifying expenditure and improving the 'key employee' provision and (3) removing the Employment and Investment Incentive from the high earners restriction for 3 years.
- R&D credit enhancements: As regards the R&D tax credit (i) the level of qualifying expenditure which benefits from the credit without reference to the 2003 base year is being increased from €200,000 to €300,000, (ii) the amount of expenditure on R&D outsourced to third parties which can qualify for credit is increased from 10% to 15% of the total spend on R&D in a year and (iii) the barrier to the uptake of the key employee provision whereby the tax credit can be used to reduce an employee's personal income tax liability is to be tackled by way of amendment.
- Use of REIT investment for purposes of Immigrant Investor Programme: A Real Estate Investment Trusts (REITs) regime allowing investors to finance property investment in a risk diversified manner was introduced last year in Finance Act 2013. It has been proposed to add REIT investments to the 5 investment options already in place under the Immigrant Investor Programme in order to encourage investment in REITs.
- Property CGT exemption extension: In Budget 2012 the Minister announced an incentive whereby a gain arising on property purchased by the end of 2013 would be exempt from capital gains tax (33%) where held for at least seven years. This exemption is being extended to property purchases in the period to the end of 2014.
- Stamp duty exemption on ESM shares: The transfer of shares generally attracts stamp duty at 1% of their market value. Transfers of shares listed on the Enterprise Securities Market of the Irish Stock Exchange are to be exempt from stamp duty.
On the Irish domestic/personal tax front key changes include:
- Introducing a new higher (41%) single rate of tax on investment products and life assurance policies from 2014 to replace the current 33% and 36% rates applying depending on the nature of the payment. This higher rate will have no impact on non-Irish tax resident investors. Similarly a new higher (41%) single rate of Deposit Interest Retention Tax is being introduced. The aim in introducing these measures is to incentivise investment and spending in the economy.
- A levy is to be introduced on domestic banks within the banking sector to make an annual contribution of €150 million to the Exchequer over the next three years.
- The pension levy of 0.6% introduced to fund the Jobs Initiative in 2011 will be abolished from the end of 2014 and will be replaced with an additional levy on pension funds of 0.15%.