Budget Breakfast Briefing

Transcription

1 Budget 2017 Breakfast Briefing 12 October 2016

2 Fergal Cahill

3 Jean McCabe President Ennis Chamber

4 Newsletter CTS Cahill Taxation Services /cahilltaxation

5 Agenda Introduction Personal Taxes VAT & Excise Capital Taxes Farmer Taxation Business Taxes Anti-avoidance & Revenue Powers Conclusions

6 Main Points Further reform of USC Continued focus on entrepreneurship Property measures to tackle supply Measures to improve rural Ireland Measures to prepare Ireland for Brexit Conservative and constrained Budget, owing to economic uncertainties.

7 Supplying the Housing Market Help-to-Buy Scheme Increase in CAT threshold Higher ceiling for rent-aroom relief Increase in interest deductibility for landlords Living City Initiative extended Home Renovation Incentive Scheme extended Various infrastructure funds established

8 Supporting the Rural Economy Earned Income Credit Income averaging Flat-rate Addition increase CGT exemption for bogs SEAI Energy Efficient Equipment New low cost flexible loan fund for farmers New Fishers Tax Credit Farm Restructuring Relief extension

9 Getting Ireland Ready For Brexit Retention of 9% VAT rate FED & SARP extended Income Averaging for farmers Increase in Earned Income Credit CGT Entrepreneur Relief Establishment of Rainy Day Fund in 2019 Increase in Revenue Customs Staff Revised Debt/GDP target of 45% - ability to borrow

10 Economic Picture Forecast growth at 4.2% for Forecast growth at 3.5% in Forecast growth at 3% in subsequent years. Deficit Target 0.9% of GDP in 2016 (target of 0.4% in 2017). Tax receipts almost 500m ahead of schedule in first 9 months of Slight wobble in August.

11 Economic Picture Unemployment levels decreasing: Currently 7.9% Expected 7.2% in 2017 (high of 15% in 2012) Forecast of 5.9% by Debt levels still high but reducing: Current Debt/GDP ratio is 93.8% (off a high of 120% in 2012) Projected Debt/GDP ratio of 71.96% by end of 2016.

12 Uncertain Times New Government Apple EU State Aid Ruling Brexit Therefore, Budget conservative as a result ( 300m of taxation measures)

13 Personal Tax More to do No changes of substance to our personal tax regime. Ireland is comparatively a low tax jurisdiction for companies but a high tax jurisdiction for individuals. Entry level to marginal rate of 49% is only 33,800 tax rate on income over 70,000 is 52%. Much work needs to be done in the personal tax area to make Ireland an attractive place to work and live. We have a very progressive tax system in Ireland.

14 Global Tax Analysis 2016* Tax paid at salary level of 18,000 Ireland 600 Switzerland 1,120 United Kingdom 1,696 United States Netherlands 2,300 2,522 Spain Sweden 3,066 3,200 Singapore 3,614 France 4,032 Germany 4,818-1,000 2,000 3,000 4,000 5,000 6,000 *Based on information from KPMG & the Irish Tax Institute

15 Global Tax Analysis 2016* Tax paid at a salary level of 35,800 Switzerland United States Ireland United Kingdom Singapore Sweden Spain 6,040 6,333 6,954 7,393 7,654 8,279 8,813 France Netherlands 10,294 10,476 Germany 12,949-2,000 4,000 6,000 8,000 10,000 12,000 14,000 *Based on information from KPMG & the Irish Tax Institute

16 Global Tax Analysis 2016* Tax paid at salary level of 75,000 Singapore 13,040 United States 18,479 Switzerland United Kingdom Spain Sweden Ireland France 21,351 21,920 24,351 26,413 26,482 26,905 Netherlands Germany 30,351 32,980-5,000 10,000 15,000 20,000 25,000 30,000 35,000 *Based on information from KPMG & the Irish Tax Institute

17 Global Tax Analysis 2016* Tax paid at salary level of 150,000 Singapore 24,998 United States 41,959 Switzerland 50,423 United Kingdom Spain France Ireland Germany Sweden Netherlands 57,759 57,855 62,395 65,482 66,212 69,238 70,815-10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 *Based on information from KPMG & the Irish Tax Institute

18 Caroline Kennedy

19 Budget 2017 Personal Taxes

20 Personal Taxes Decreases in rates of USC Increases in USC bands Changes to self-employed tax credits No change in Income Tax rates and tax bands Very modest changes overall

21 Earned Income Credit An earned income credit of 550 was introduced for selfemployed taxpayers in Budget Budget 2017 increased earned income tax credit by 400 to 950. Applicable to taxpayers earning self-employed trading or professional income and to business owners who are ineligible for a PAYE credit on their salary income. Further increases in the credit expected in the coming years. The plan is to align credit with the employee tax credit (currently 1,650).

22 Tax Bands Taxpayer Tax Band 2016 Tax Band 2017 Difference Single/Widowed 33,800 33,800 - Married One Income Married Two Incomes Single Parent 42,800 42,800-67,600 67,600-37,800 37,800 -

23 Tax Credits Taxpayer Tax Credits 2016 Tax Credits 2017 Difference Personal - Single 1,650 1,650 - Personal - Married 3,300 3,300 - Employee Credit 1,650 1,650 - Single Person Child Carer 1,650 1,650 - Home Carer 1,000 1, Age Credit Single Earned Income Credit Fisher s Tax Credit - 1,270 1,270

24 PRSI PRSI Rate 4% 4% Self-Employed PRSI 4% 4% Employer PRSI 10.75% 10.75% Employer Lower Rate PRSI 8.5% 8.5%

25 USC PAYE Earners Pre-Budget 2017 Post-Budget 2017 Band Rate Band Rate Income < 13,000 Exempt Income < 13,000 Exempt First 12,012 1% First 12, % 12,013-18,668 3% 12,013-18, % 18,669-70, % 18,773-70,044 5% Balance 8% Balance 8% *USC rate for a medical card holder, over 66 years with income < 60k reduced from 3% to 2.5%.

26 USC Self-employed Pre-Budget 2017 Post-Budget 2017 Band Rate Band Rate Income < 13,000 Exempt Income < 13,000 Exempt First 12,012 1% First 12, % 12,013-18,668 3% 12,013-18, % 18,669-70, % 18,773-70,044 5% 70, k 8% 70, k 8% Balance 11% Balance 11%

27 Income Tax Top Rate Income Tax 40% 40% PRSI 4% 4% Universal Social Charge* 5.5% 5% Total 49.5% 49% *52% for individuals earning between 70, and 100,000. *55% for self-employed earning over 100,000 (USC 11%).

28 Single Person Employee Annual Income Net Wage 2016 Net Wage 2017 Difference 20,000 18,448 18, ,000 28,442 28, ,000 48,518 48, ,000 84,518 84,

29 Married Couple One Income Employee Annual Income Net Wage 2016 Net Wage 2017 Difference 20,000 19,148 19, ,000 30,332 30, ,000 51,968 52, ,000 87,968 88,

30 Married Couple Two Incomes* Annual Income Net Wage 2016 Net Wage 2017 Difference 20,000 20,000 20,000-35,000 34,030 34, ,000 59,409 59, ,000 97,036 97, *Assumes both spouses earn same income

31 Single Person Self-Employed Annual Income Net Wage 2016 Net Wage 2017 Difference 20,000 17,007 17, ,000 27,342 27, ,000 47,418 48, ,000 81,918 82,

32 When do we enter the tax doors (Single Person)? Enter Income Tax at Enter 16,500 USC at 13,000 Enter PRSI at 18,305

33 Deposit Interest Retention Tax Budget 2014 increased the rate of DIRT from 33% to 41% with effect from 1 January Budget 2017 has introduced a rolling reduction of 2% per annum for a period of 4 years until the rate of DIRT returns to 33%. Accordingly, the rate applicable from 1 January 2017 will be 39%.

34 Foreign Earnings Deduction Relief from income tax available to individuals who are tax resident in Ireland but spend a significant amount of time working in a relevant state. Budget 2017 has extended the FED until Budget 2017 has also expanded the definition of a relevant state to include Colombia and Pakistan from 1 January In addition, the minimum number of days spent abroad has been decreased from 40 to 30 per annum.

35 Special Assignee Relief Programme Relief from income tax available to individuals who are assigned from abroad to work in Ireland. Available to employees with income over 75,000. Relief in the form of a deduction for 30% of income over 75,000. Budget 2017 has extended the SARP for a further 3 years until 2020.

36 Budget 2017 Indirect Taxes

37 VAT No change in rates. Low rate of 9% for tourism sector retained. Flat Rate addition for farmers increased from 5.2% to 5.4%.

38 Excise Increase of 50 cents on pack of 20 cigarettes. Relief from excise duty for beer produced by microbreweries extended. No change to motor tax and fuel. Sugar tax flagged for 2018 in line with UK.

39 VRT VRT relief for the purchase of hybrid electric vehicles is being extended to 31 December Relief for electric vehicles and motorcycles is being extended to 31 December No changes to headline rates of VRT.

40 Sinéad Dooley

41 Budget 2017 Capital Taxes

42 Capital Acquisition Tax Threshold Effective 14 October 2015 New Threshold Group A 280, ,000 Group B 30,150 32,500 Group C 15,075 16,250 CAT Rate 33% 33% Note: Changes to Section 86 Dwelling House Exemption were expected in 2016 but no changes were introduced.

43 Capital Gains Tax No change in the current standard rate of CGT of 33%. CGT Entrepreneur Relief: The reduced rate of 20% applying to the disposal in whole or in part of a business up to an overall limit of 1m in chargeable gains is being reduced further to 10%. The overall limit of 1m is expected to increase in future years. Will this mean transactions will be delayed until future years?

44 Capital Gains Tax How does one structure businesses that may be sold in the future? Pros and cons to both personal ownership and corporate ownership (to discuss later). We expect that the use of a holding company will still be prevalent given exemptions from CGT under Section 626B and the ability to extract dividends tax free. However, a 10% rate of CGT is very attractive. When structuring a business from the outset, one needs to have one eye of the future to determine best structure and weigh up the pros and cons.

45 CGT/CAT Rate in Ireland CGT Rate 20% 33% CAT Rate 20% 33% Exemption from parent to child CGT Retirement Relief 521, ,000 Relief available for any investor over age 55 Age cap reduces the incentive to pass on business after age of 66

46 Budget 2017 Property Measures

47 Help-to-Buy Scheme Rebate of income tax paid over the previous four tax years for First-Time Buyers of a newly built home. Relief capped at 5% of purchase price up to a value of 400,000 i.e. maximum relief of 20,000. The rebate for houses of 400,000 to 600,000 will be capped at 20,000. No rebate will be paid on house purchases of over 600,000. Mortgage applicants must apply for a mortgage of 80% of the purchase price of the house.

48 Help-to-Buy Scheme The Minister stated that he discussed the scheme with the Governor of the Central Bank who has agreed that any rebate received will be reckoned in full in the calculation of the deposit required to be eligible for a mortgage under the Central Bank s rules. The Scheme will apply to the purchase of newly built primary residences by first time buyers from the 19th of July this year until the end of Second hand properties are not included. Is it of benefit to returning emigrants?

49 Help-to-Buy Scheme Couple 1 Couple 2 Couple 3 Purchase Cost 200, , ,000 Income Tax Paid (last four years) Potential Rebate (maximum of 5% of 400,000) 40, , ,000 10,000 20,000 20,000

50 Interest Relief Rented Residential Property Currently, the deduction available for qualifying interest payments is restricted to 75%. The restriction is being amended to 80% in It is planned that the restriction will decrease by 5% each year, such that a 100% deduction will be allowed by Budget 2016 increased the allowable deduction to 100% for properties let to tenants in receipt of certain social housing support for a period of 3 years.

51 Living City Initiative Tax Relief currently available to owner-occupiers who refurbish residential properties in cities. Applies to special regeneration areas in the centres of Dublin, Cork, Limerick, Galway, Waterford and Kilkenny. Deduction of 10% of qualifying expenditure over 10 years. Deduction available against Total Income. Commercial properties tax relief over a 7 year period by way of accelerated capital allowances of 15% (10% in year 7).

52 Living City Initiative Budget Changes: The scheme is being amended to include landlords. The restriction for residential applicants that the property was previously used as a dwelling is being removed. The limit on the floor size of the property and the minimum amount of qualifying expenditure is being increased.

53 Other Home Renovation Incentive Scheme ( HRI ) Scheme The HRI Scheme is being extended by two years to 31 December Rent-a-Room Relief Currently, an individual can receive an income tax exemption for letting out a room or rooms in their PPR up to a maximum limit of 12,000. The ceiling for the exemption is now being increased to 14,000 from 2017 onwards.

54 Stamp Duty No changes introduced to stamp duty. Residential at 1% (2% where purchase price exceeds 1m). Commercial at 2%.

55 Budget 2017 Farmer Taxation

56 Capital Allowances Currently, companies are entitled to accelerated capital allowances for energy efficient equipment. "The aim of this scheme is to help Irish businesses of all sizes, not only to reduce their energy use, but crucially to save money." Minister of Communications, Energy and Natural Resources The scheme of accelerated capital allowances is administered by the Sustainable Energy Authority of Ireland ( SEAI ). SEAI maintain a register of eligible products. Extensive list of products listed on

57 Capital Allowances Capital allowances are typically available at a rate of 12.5% over 8 years. Where qualifying energy efficient equipment is acquired, 100% of the expenditure qualifies for capital allowances in the year the equipment is acquired. The Budget has extended the scheme to sole trades for The scheme should therefore be attractive to farmers looking to upgrade equipment in 2017.

58 Capital Allowances A sole trader, liable to income tax at the marginal rate of 52%, purchases energy efficient equipment for 10,000 Example Qualifying Cost 10,000 10,000 Capital Alls Year % 100% Year 1 1,250 10,000 Tax Saving Year ,200 Capital Alls Years 2 8 8,750 - Tax Saving Year 2 8 4,550 -

59 Income Averaging A farmer can base his/her taxable profits in any one year on the average of his/her profits over the previous 5 years (previously 3 years). Once a farmer opts for averaging, it is difficult (and often penal) to opt out of averaging. In difficult years, a farmer s assessable profits based on averaging may be greater than actual profits in that year. In recognition of the fact that 2016 has been a particularly difficult year for farming, the Budget has introduced an opt out in a single year of unexpectedly poor income. Details awaited in the Finance Bill.

60 Income Averaging Example Option 1 Option 2 Average Profits 30,000 30,000 Profit ,000 12,000 Decision 2016 Averaging Opt Out Assessable ,000 12,000 Assessable 2017 (et seq) 30,000 37,000

61 Capital Gains Tax Raised Bogs Payments under the new raised bog restoration incentive scheme to relevant owners and rights holders of raised bogs will be exempt from CGT. The measure is intended to assist with the restoration of selected raised bogs in the country, in line with the Active Raised Bog in Ireland s Special Area of Conservation Network project which has recently been approved by the European Commission. The project is reported to be worth over 5.4m and will run from 2016 to 2020.

62 Farm Restructuring Relief from CGT for disposals of farm land where the proceeds are reinvested in new farm land within 24 months. Requires certification from Teagasc. Applied to sales between 1 January 2013 and 31 December Budget announced an extension to the relief from CGT until 31 December Limited application e.g. a farmer living in Clare but with a farm in, say, Tipperary, could qualify for the relief if he sells the land in Tipperary and re-invests the proceeds in purchasing a farm in Clare.

63 VAT Flat Rate Addition is being increased from 5.2% to 5.4% Increase in number of farmers registered for VAT e.g. a farmer with property may have to register for VAT. Once registered for VAT, the farm sales become chargeable to VAT (at a rate of 5.4%). Increased number of Revenue audits into VAT registered farmers. There are pros and cons to VAT registration for farmers.

64 Budget 2017 Business Taxes

65 Today s Sponsor 13bn

66 EU State Aid Findings

67 Apple Sales International Sales & Marketing HO Apple Sales International Distribution HO Manufacturing - Ireland Irish Incorporated Company But not resident anywhere Three Divisions

68 Apple EU State Aid Findings How were manufacturing division profits taxed in Ireland? Submission to Irish Revenue to attribute taxable profits to Irish branch. Cost plus model agreed very prevalent at the time Agreement to tax manufacturing profits on a cost plus 10%

69 Apple EU State Aid Findings Example: Irish Manufacturing operation taxed in Ireland on a cost plus 10% basis. If costs are 100m, taxable profits in Ireland are 10m taxed at 12.5% Tax Liability 1.25m What happened after 1991? Apple got BIG!

70 Apple Sales International Profits Marketing Distribution Manufacturing

71 Apple EU State Aid Findings Problem was that sales and distribution profits went through the roof. However, manufacturing costs in Cork only increased modestly. Therefore, the profits attributable to the Cork branch were disproportionally low. Therefore, the effective tax rate in Apple Sales International was only 0.005%. Majority of profits not taxed anywhere. EU found that Head Office existed on paper only.

72 Apple EU State Aid Findings In retrospect, the 1991 treatment looks completely out of proportion. However, at the time it was agreed it was fine. Should the terms have been reviewed some time between 1991 and 2016? YES It was reviewed in 2007 but no changes were made. The structure was eventually changed in 2015 but the EU had already commenced its State Aid review.

73 What if Ireland loses the Appeal? How will Revenue collect 13bn from Apple? Will they seek a judgement? Will they send the Sheriff?

74 Ireland s Corporate Tax Regime Where are we? Where does this leave our 12.5% corporation tax rate? Is it at risk? Brexit What is the biggest threat to our 12.5% rate?

75 Ireland s Corporate Tax Regime Where are we? The Minister used the Budget as an opportunity to provide an update on Ireland s International Tax Strategy. Maintenance of 12.5% rate remains the corner stone of Ireland s corporate tax strategy. Introduction of a Knowledge Development Box in Finance Act 2015 rate of 6.25% for R&D profits. Ireland is actively participating in the OECD s BEPS project Country by Country reporting introduced in pricing rules will be brought into line. Our transfer Anti-Tax Avoidance Directive agreed in June hybrid mismatches, interest deductibility rules and Controlled Foreign Company rules.

76 Ireland s Corporate Tax Regime Where are we? Ireland participating in a lot of different programmes aimed at aggressive international tax planning. Exchange of Information between participating countries. Mandatory disclosure of aggressive tax schemes. Directive on Administration Cooperation tax transparency amongst EU States. Anti Money Laundering Rules Companies (Accounting) Bill 2016 non disclosure structures adversely affected. More far-reaching than expected (transparency). Tax Treaties negotiating and updating.

77 Budget 2017 Anti-Avoidance & Revenue Powers

78 Section 110 Companies Taxation of Irish Rental Income Rate Individual 50% - 55% Companies 25% - 40% Non Resident Company 20% Section 110 Company 0%

79 Section 110 Companies Bank Vulture funds S 110 Company 400m Tax: ca. 100m+ Loan Interest payable Taxable Profits: 400m 0 Caymans 400m

80 Section 110 Companies A Section 110 company is a special purpose vehicles (SPVs) established in Ireland to securitise assets. Perceived misuse of S110 by companies set up to hold distressed loans and mortgages to avoid paying tax on Irish property related transactions. 'Specified Property Business' excluded from benefits of S110 status. Lots of airplay in media on the use of these structures. Draft legislation already published financial sector not happy with draft wording. Final legislation awaited in Finance Bill. Will Revenue review existing S110 companies?

81 Revenue Offshore Evasion Budget announced targeted compliance interventions against those engaged in offshore tax evasion. Programme will use advanced analytics techniques to the range of new data sources available through FATCA, EU and OECD exchange of information initiatives. New legislation will be published to encourage qualifying disclosures. Deadline for making disclosures will be 1 May Introduction of a strict liability offence for failure to return details of offshore accounts or other assets. Panama Papers

82 Revenue Resources Announcement of increase in resources by 50. Targeted interventions. Increase in audit and investigation activities. Increase in real time interventions catch it before it happens. Enhancing IT systems capacity for data matching and data analytics. Consumption behaviour models. LPT register rental income being trapped.

83 Budget 2017 Conclusions

84 Tax Rates Bad Rates 55% 51% 49.5% 41% 40% 33% Good Rates 25% 19% 12.5% 10% 3.3% 0%

85 Tax Rates Bad Rates 55% 51% 49.5% 41% 40% 33% Good Rates 25% 19% 10% 3.3% 0% Trading

86 Tax Rates Bad Rates Surcharge 55% 51% 49.5% 41% 33% Good Rates 19% 12.5% 10% 3.3% 0% Investment Income

87 Tax Rates Bad Rates CGT & CAT 55% 51% 49.5% 41% 40% Good Rates 25% 19% 12.5% 10% 3.3% 0%

88 Tax Rates Bad Rates 55% 51% 49.5% 41% 40% 33% Good Rates Retirement Relief 25% 19% 12.5% 10% 3.3%

89 Tax Rates Bad Rates 55% 51% 49.5% 41% 40% 33% Good Rates Section 626B 25% 19% 12.5% 3.3% Entrepreneur Relief

90 Structuring Businesses Personal or Corporate Ownership? OR Company

91 Conclusions On the positive side: Continued reform of USC Reduction in marginal rate of tax for middle income earners to 49% positive Taxation reform for self-employed welcome a lot more to do. CGT Entrepreneur Relief

92 Conclusions On the negative side: Capital Acquisitions Tax rate of 33% - too high Capital Gains Tax rate of 33% - too high CGT Entrepreneur Relief should have went further. Will his announcement delay sales until 2018? Entry level to top rate still too low at 33,800

93 Disclaimer This report is confined to the Irish tax implications for the transaction and does not address any other tax or non-tax matters. Our report is based on our interpretation of what we consider to be the relevant Irish tax law and Revenue practices as of the date of this presentation. It is understood that we have no responsibility to update this report for any changes in tax law or Revenue practices which occur after today s date. In common with any complex transaction such as this, where the interpretation of legislation is involved, no guarantee is given that the Revenue authorities or a court will not take different opinions to those expressed in this presentation. Our opinion is based on our understanding of the transaction as outlined above and how the transaction is to be implemented and administered. Clearly, any failure to implement the transaction in the manner intended and any change to the proposed investment structure could have different tax consequences and/or adverse tax consequences. Our report is based on the background documentation and property valuations provided and we have not enquired into the accuracy or otherwise of the information set out therein. This report is solely for the use of the parties to the transaction and their advisers, and solely for the purposes of this transaction. It may not be given to or relied upon by any other party.

94 TAX SPECIALISTS TAX EXPERTS Contact us: Suite 2 Aras Smith O Brien Bank Place, Ennis, Co. Clare, Ireland. V95 P48D n p E info@cahilltaxation.ie

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