Confidence in uncertainty Budget perspectives 2018

Transcription

1 Confidence in uncertainty Budget perspectives 2018

2 Budget 2018 Contents Contents Introduction 03 Ireland Inc. and Foreign Direct Investment 05 Tax and Entrepreneurship 08 Individuals 09 Financial Services 11 Technology companies 12 Real Estate 15 Global Mobility & Employment Taxes 16 Transfer Pricing 17 Indirect Taxes 19 02

3 Budget 2018 Introduction Introduction Deloitte s tax specialists in Ireland have analysed Budget 2018 and are pleased to provide our perspective on what it will mean for you, your family and your business in the future. Much like last year, the government is operating against a backdrop of strong and increasingly balanced domestic economic growth, together with continued improvement in employment rates. However, despite positive economic indicators, the Government has relatively limited fiscal space, and the breadth of challenges and competing demands remain much the same as last year. In an Irish context, this ranges from the undersupply of housing and residential accommodation and continued demand for public services, to the difficulties inherent with securing support from a minority government. Any budgetary decisions must also be considered in light of international uncertainty surrounding Brexit, EU developments and potential US tax and trade reforms. Notwithstanding these challenges, Budget 2018 significantly increased expenditure across a range of sectors, including capital expenditure. Additional investment measures announced for residential accommodation, transport, improved health services and continued investment in education are particularly welcome. These measures are important steps to address the needs of a growing economy, where there is a critical need to address these areas and build capacity for the future. 03 There was a clear focus in Budget 2018 on a range of property relates measures, including a significant hike in the commercial stamp duty rate, as well an increase in the vacant site levy. A range of other measures were announced to address the housing crisis, with a view to stimulating supply. It will be important to closely monitor the overall impact of the tax and nontax measures announced today in terms of outcomes on the commercial and residential property sectors. A range of welcome measures to help support business, in particular the agri-food sector, and insulate the economy from a Brexit perspective were also announced. The Brexit SME loan scheme and additional supports announced should assist Irish exporters in dealing with future Brexit shocks, and provide them with greater supports to develop new markets. Other areas that will be welcomed by the business community, include the new share based remuneration scheme for SMEs, KEEP, which could prove an effective tool for attracting and retaining key staff. The retention of the 9% VAT rate for tourism and hospitality sectors will also come as a welcome boost. However, there was little else within Budget 2018 in terms of the entrepreneurship agenda, with the current CGT entrepreneur relief remaining unchanged, and small positive changes in the earned income tax credit. Therefore, concerns will remain in relation to the ongoing disparity between the employed and self-employed, and the continued burden of high marginal rates. These areas shall require continued focus in the coming years and are consistently cited as barriers to entrepreneurship. A clear strategy to reduce the personal tax burden on work/earned income remains a key priority for the future, and as such we welcome proposals to raise the standard rate income tax band, and the targeted changes to USC. However, we would also like to see a broader review of the personal tax regime, which continues to be increasingly complex, marked by high marginal tax rates by international standards with a range of inequalities. It is hoped that the consultation in relation to PSRI and USC reform may give a platform to address these broader personal tax issues. On the corporate tax agenda, last year Government commissioned an independent review of the corporation tax code, with the resulting Coffey Report being published a number of weeks ago. The Minister today announced a public consultation on the report s recommendations, and this consultation addresses key issues such as the extension of transfer pricing rules, implementation of OECD BEPS and EU ATAD measures, etc. We welcome such open dialogue and look forward to sharing our views on these consultations in due course. Budget 2018 has sought to ensure that everyone will have a little bit extra in their pockets in 2018, as well as prioritising investment in key areas, including measures to support charities, enhance foreign aid, address climate change, and support SMEs in a Brexit context. Key revenue raising measures to underpin this agenda are sharply focused on a range of property measures, sugar tax, duty on cigarettes, changes to the IP tax regime, but also some notable estimates in relation to tax revenues which will be raised from Revenue audit activity. We hope you will find Deloitte s commentary on Budget 2018 to be useful and look forward to bringing you further insights on the Finance Bill when it is released. We invite you to view our articles and some analytics about the Government s financial position, and also to try our Tax Calculator to work out what personal tax implications this year s Budget will have for you and your family. If you have any questions on what the Budget means for you or your business, please do not hesitate to speak with your usual Deloitte tax adviser or any member of the Deloitte tax team. Lorraine Griffin Tax Partner and Head of Tax Tel: lorgriffin@deloitte.ie

4 Confidence in uncertainty Budget 2018 Get our perspective here deloitte.ie Property Business Personal Will Budget 2018 help to rebalance the demand and supply of property? Vacant site levy to increase from 3% to 7% from 2019 on undeveloped vacant sites Supporting international competitiveness of Irish companies 300m Brexit loan fund to be made available to SMEs Budget 2018 measures to assist lower and middle income earners Universal Social Charge rates to be 0.5%, 2%, 4.75% and 8%, with increase in entry point to 4.75% rate Home Building Finance Ireland to be established to finance 750m in residential development projects Strong commitment to 12.5% corporation tax rate and to the sustainability of Ireland s International Tax Strategy Increase to income tax standard rate band of 750 per annum for single individuals and married one earner couples Stamp duty on nonresidential property increased from 2% to 6% Introduction of Key Employee Engagement Programme to assist SMEs in attracting and keeping skilled employees 5 per week increase on social welfare payments and State pension from March 2018 These are bold initiatives aimed at bringing affordable property to the market Budget 2018 supports Ireland s commitment to fostering competitiveness for SMEs and MNCs Budget 2018 continues to reduce the income tax burden on the lower paid 04

5 Budget 2018 Ireland Inc. and Foreign Direct Investment (FDI) Ireland Inc. and Foreign Direct Investment The Minister launched an update on Ireland s International Tax Strategy and formally announced that consultation on the recently published Coffey report on the Corporate Tax Code opens today, until 30 January He has listed the areas for consultation ranging from transfer pricing to financing and a territorial system of corporate tax. This is an opportunity for companies and interested parties to engage with the Department on their views and recommendations. The Minister has reiterated that the 12.5% corporate tax rate is competitive and core to the Irish tax system. He has also focused on the fact that tax is a member state competence and that each country has equal right on decisions on tax issues. This is particularly pertinent given the current discussion on tax decisions moving from being a state competence to being subject to a form of qualified majority voting at EU level. The detail in the budget statement is confined to a reintroduction of the minimum corporate tax of 20% on IP profits where IP amortisation and related interest is claimed against IP income. This is effective for IP purchased from midnight tonight. The change recognises the level of IP purchased over the last five years and more particularly over the last two years. In practice, it is a timing difference to smooth the relief and ensure a level of tax receipts from the IP profits over the period of amortisation. The other significant detail to note is that Ireland has informed the EU Commission that, as in their view Ireland s existing interest deduction rules are at least equally effective to the rules contained in the EU ATAD, Ireland will avail of the derogation and are thus not required to implement the new rules on interest caps until 1 January The wider legislative agenda and timetable for implementation driven by the OECD and the EU which is dealt with in the Coffey report is the backdrop for discussion and form of implementation over the next 6 to 9 months. Decisions made after consultation concludes in late January 2018 will frame the Budget 2019 and are likely to be of considerable importance in the future design of the corporation tax code. Since Mr Coffey finished his report at the end of June, issues such as recent US Tax reform proposals, digital tax proposed by EU states in the EU and a proposal to remove tax as a country competence have come to the fore. The Minister has today commented that he believes that a global solution is required to address digital tax issues. There is ongoing consultation at OECD level on digital tax with the OECD due to report in spring Multinationals are currently assessing the implications from the OECD, EU and countries own unilateral measures together with their advisors. The challenge is in part fact specific to their own group, and depends on their industry sector, their scale of operations across the continents, their customer base and their need to change as a result of the various measures to be introduced over the next 5 years under OECD and EU tax rules. This analysis combined with uncertainty as to the date of US tax reform, a market shift towards digitisation in virtually every industry and a desire by France to ensure a more closely aligned Europe post Brexit (to be executed potentially through a trade-off for market reform) makes outcome assessment challenging for groups. Understanding the political dimensions driving change, the impact of future change of law and practice on the current financial structures, market results and brand is crucial to managing the risk and impact whether in the short, medium or long term. Part of this process of planning involves consultation and we are available to consult with government on the form and timing of the proposal measures for introduction and to provide input into the wider EU debate. Joan O Connor Tax Partner, Corporate and International Tax Services Tel: joconnor@deloitte.ie The outcome of consultation at Irish government level and OECD and EU level will set the corporate tax code framework domestically and the changes in other trading partner countries will be of crucial importance for the next decade. In our view, the decision whether to participate in that debate needs to be made now and appropriate consultation with ourselves and relevant industry groups is necessary to ensure appropriate planning and ultimately decisions based on best facts, prior experience and evidence can be made at management and board level for the group. 05

6 Budget 2018 Tax and Entrepreneurship Tax and Entrepreneurship There was very little in Budget 2018 for Irish entrepreneurs. No changes were made to the CGT entrepreneur s relief. There was a small increase of 200 in the earned income credit to 1,150. However there is still a mismatch between this and the employee equivalent credit which is currently 1,650. As we face into a post Brexit world, SME s will likely need to consider expanding their business into European and international markets other than the UK. In order to assist SME s and food businesses which will be heavily impacted by Brexit, the Minister has announced a loan scheme of up to 300m to assist these companies in managing their working capital requirements. A new Key Employee Engagement Programme (KEEP) has been introduced to assist SME s attract and retain top talent. Where employees are given share options as part of their remuneration package, any gains arising to employees on the exercise of these options will be liable to CGT on a disposal of shares rather than being subject to income tax, USC and PRSI on exercise of their share options as is currently the case. The Key Employee Engagement Programme will be welcomed by entrepreneurs as a measure to incentivise their key employees. Up to now, the exercise of share options by employees of SME s created potential cash flow issues as the employee had to fund the tax on the exercise of their share options out of after tax income. For employees of SME s there is no market to dispose of part of their shareholding, in contrast to a key executive of a large multinational who could sell part of their shares to fund the tax payable on exercise of the options, The Brexit Loan Scheme should be of assistance to a number of SME s to assist them in expanding into foreign markets. However this is a funding measure and does not provide any tax incentives to entrepreneurs who have taken significant risks to grow their business and create employment. It is disappointing that the Minister for Finance did not make any further enhancement to the CGT entrepreneur relief that was originally introduced in Finance Act Given that we are at a time where non-irish entrepreneurs may be considering their location options post Brexit, this would appear to be a missed opportunity for Ireland. Since the introduction of the relief, the general view would appear to be that the relief does not do enough to incentivise Irish entrepreneurs. Previous Department of Finance Budget commentary itself positioned a change to entrepreneur relief to bring the relief more in line with the equivalent relief in place in the UK. In the UK gains of up to 10 million are taxed at a 10% rate. Therefore with only the first 1m of gains qualifying for a reduced 10% rate of CGT in Ireland, there still remains a significant disparity between the Irish and UK reliefs. The recent Deloitte survey highlights how the high marginal tax rate of up to 55% is a major barrier to Irish entrepreneurship as it penalises individuals from accessing cash to enjoy the fruits of their labour and risk-taking. It is disappointing that creative measures are not being considered by our Government to encourage entrepreneurship in this country. Joanne Whelan Tax Partner and Head of Private Client Services Tel: jwhelan@deloitte.ie David Shanahan Partner - Tax Tel: dshanahan@deloitte.ie Niall Glynn Partner Tel: nglynn@deloitte.ie 06

7 Budget 2018 Individuals Individuals A number of measures were announced in Budget 2018 that will have an impact on individual s taxation. The key areas in which changes were announced are as follows: An increase in the standard rate band for income tax of 750 to 34,550 for single earners. For married one income couples, the standard rate band increases from 42,800 to 43,550. The USC 2.5% rate is to be reduced to 2%. The ceiling for this band is to be increased to 19,372 from 18,772. The 5% rate is to be reduced to 4.75%. Thus, the marginal rate of tax on incomes up to 70,044 will be 48.75% going forward Increase in the home carer tax credit from 1,100 to 1,200 Increase in the earned income tax credit from 950 to 1,150 Medical card holders with income of up to 60,000 will continue to pay USC at the lower rate (now 2%) for a further two years. Expenses incurred prior to the letting of a property are to be allowed as a deduction for tax purposes. This applies for properties that have been unlet for 12 months or more. If the property is removed from the rental market within 4 years then the relief will be clawed back. A cap of 5,000 will apply per property. No increases to the CAT thresholds. Agricultural land used for solar panel purposes (covering up to 50% of the land) will qualify for CAT agricultural relief and CGT retirement relief Consanguinity relief for inter family farm transfers, which applies stamp duty at a rate of 1%, is to continue. While the changes announced in relation to income tax are welcome, the level of taxation in Ireland remains stubbornly high and acts as a disincentive to attracting talent into Ireland, particularly in this crucial period before the UK leaves the European Union. In addition this high level of taxation is a disincentive to domestic business owners and entrepreneurs. Any downward change to the Universal Social Charge rates has to be welcomed. However, the government did not introduce any reduction to the 3% surcharge on self-employed individuals earning over 100,000. The marginal rate of income tax for such individuals remains at 55%. As the surcharge was introduced as an emergency Young trained farmers stamp duty relief is to continue The much lauded merger of Universal Social Charge and PRSI has been announced, although no details for implementation were published. A working group is to be established to explore the proposed merger. measure it was hoped that it would be reviewed but to date there appears to be no desire to remove the surcharge or even decrease it slightly. The implementation of changes arising from the USC/PRSI merger working group is likely to take some time. The complexities of each of these charges, the interaction of the changes and how they apply to taxpayers will be a difficult area to negotiate. The changes to the rental sector are welcome, but are limited. Given the level of vacant property in the country it was hoped that more significant measures to encourage individuals to make properties available for renting would have been introduced. Joanne Whelan Tax Partner and Head of Private Client Services Tel: jwhelan@deloitte.ie Having regard to the increases in property values in the last number of years, and the changes to CAT residential relief, it was hoped that the tax free thresholds for gift and inheritance tax might have been increased closer to their pre-recession levels. Overall the taxation measures introduced were significant in number, but not in impact. The overall policy has been to improve matters for middle income earners. This has been slowly achieved over the last few Budgets. However, the high marginal rate of tax is not a positive message for Ireland in its bid to win new enterprises as a result of Brexit. 07

8 Budget 2018 Financial Services Financial Services We continue to read news headlines on Brexit on a daily basis and the implications for the Irish economy and the various sectors of the economy. Unfortunately many of those headlines are reporting the potential negative impact of Brexit. The Minister acknowledged in the Budget that SMEs will need to innovate and look to new European and international markets and in this regard he announced a Brexit Loan Scheme to assist SMEs with working capital needs and to give such businesses time to put in place the required changes to help their business grow in the future. There have been a number of financial services companies that have announced that they intend to locate in Ireland or expand operations, including JP Morgan, Bank of America, Barclays, TD Bank, Beazley, Chaucer, Standard Life and Legal & General. However the competition is fierce and there have been a number of high profile financial services groups that have chosen other European locations such as Frankfurt, Paris or Luxembourg. While at this stage many companies have made their decision on where they intend to locate, there are a number of companies that are still considering the matter. Also international tax changes in the context of BEPS (including transfer pricing) and the ATAD mean that now more so than ever there is an increased focus on having the appropriate people and substance located in country. Therefore it is important that Ireland s tax strategy is formulated so that the regime is competitive and provides incentives for businesses to locate in Ireland. Businesses require as much as possible stability and certainty in tax policy and therefore while there may not be significant room, given budgetary constraints, to introduce new incentives, at a minimum we should be aiming to maintain those principles. Given this it was positive to hear the Minister for Finance state that certainty is important in forming tax policy and the country s tax strategy. Also, in that context it was positive to hear the Minister for Finance reaffirm the government s commitment to maintaining the 12.5% rate of tax, as he confirmed that the 12.5% rate remains a core part of Ireland tax offering. The Minister also announced a public consultation phase in respect of the review of Ireland s corporation tax code and in particular following the recent publication of the Coffey report on the matter. When companies are considering relocating, for example from the UK or alternatively where they are considering new investment or expansion, countries are compared across a matrix under a number of different factors. Regulation, the regulatory regime and the local regulator s approach is often a critical factor for financial services companies when they make a decision on where to locate. Other factors are also important including tax and therefore it is important that the government is constantly monitoring how Ireland scores on the matrix of relevant factors, when compared with the other competing countries and whether there is more we can do, or what changes should be considered in respect of the factors where we don t score as well as we should. Conor Hynes Tax Partner, Financial Services Tax Tel: chynes@deloitte.ie 08

9 Budget 2018 Real Estate Real Estate On balance and in line with our predictions, the budget as it relates to Property, contains little in terms of tax measures. The stamp duty increase is being used to fund the cost of some of the Income tax and USC measures and it remains to be seen what impact this will have on the market. A lot of property has been bought over the past 4 years and many are now in asset management mode. A lower rate of duty in our view would have been more measured and would assist in keeping ourselves competitive in the Real Estate international markets. Whilst the housing crisis is really bad and will get worse, there are no radical measures in the budget to significantly move the dial to retain investors in the market or drive supply. In fact, the vacant site levy is to be increased to 7%, which in turn will have to be passed on to purchasers of residential units. Most developers and funds who buy lands with a view to developing same have to go through a long planning process and fund it from their own equity and even then, when shovel ready, a bank will not lend on an entire site but is more likely to do so in phases. In the meantime it looks like the levy will have to be paid. This measure needs further thought. There was no movement in VAT, no change in the interest relief for rented residential property, no deduction for LPT, all of which were flagged for discussion by many commentators. There was a change in the 7 year capital gains tax exemption for investors and allows an exit after 4 years, which will help straddle the exit for some investors who want to sell earlier. It s interesting that some commentators generally felt this measure was being used to hoard land for sale but the facts are that a developer or fund buying land to develop and sell would not be entitled to claim it. We await the Finance Bill for more detail and any potential new measures. Stamp Duty on commercial property The rate of stamp duty on commercial property has been increased from 2% to 6%. Any person who purchases commercial property from midnight tonight will be affected. It has been well flagged that the rate was set to increase in the budget and it is now confirmed that the rate of 6% applies for instruments executed from midnight tonight. A stamp duty refund may be available in respect of land for development of houses under a refund scheme. This is subject to developers commencing development within 30 months of land purchase. Perhaps a rate increase in Stamp Duty on commercial property is warranted considering the rates in the past of up to 9% and in the light of tax cuts in other areas. The rate is for commercial property only and not residential. In many cases commercial property needs to be bought and sold in order for residential housing to be built on it. It had been mooted that the rate would be increased to 4% which would have been fairer and would keep us competitive in our offering to foreign investors. The impact that this will have on transactions remains to be seen. Padraic Whelan Tax Partner and Head of Real Estate Group Tel: pwhelan@deloitte.ie 09

10 Budget 2018 Real Estate Capital Gains Tax Relief on land and buildings For those who bought investment property before the 31 December 2014 cut off point the budget proposes to reduce the hold period for the exemption from 7 years to 4 years so that owners of qualifying assets can sell those assets between 4th and 7th anniversaries of their acquisition and still obtain full CGT relief. What action should be taken? Consider whether the exemption applies and whether you wish to avail of the exemption by selling property once the 4 year hold period has expired. The relief was introduced to stimulate activity in the property market. It applies to disposals of land or buildings acquired in Ireland or in any EEA State between 7 December 2011 and 14 December There is full relief if the land or buildings is held for 7 years. The relief tapers if the land is held for more than 7 years e.g. if it is held for 8 years before disposal 7/8ths of the gain is exempt. This proposal to reduce the hold period from 7 years to 4 years to free up land for housing, is to be welcomed. It could facilitate an earlier disposal strategy for some. Vacant Site Levy The Vacant Site Levy can apply to sites which have the potential to provide housing to meet local housing need and demand. It is calculated on the market value of a site determined by the local authority. The standard levy rate of 3% which will apply from 1 January 2019 for property which has been held in 2018, will be increased to 7% for each subsequent year. A site must be vacant for a minimum period of 12 months before it can be subject to the vacant site levy. Each planning authority is required to establish and maintain a vacant site register. The levy is applied to sites exceeding.5 hectares in area. If you have received a notification from the local authority or own a site which exceeds.5 hectares for more than 12 months, and is suitable for residential development, this levy could affect you, and you need advice. There are real and significant issues with this proposal. Where developers are not in a position to develop all their land, planning is slow and finance is not available yet. For example many developers are phasing developments due for genuine strategic and commercial reasons and may be liable to pay the levy on such lands. The 7% levy increase could result in raising the cost of house building because they would have to charge on the cost. Help to buy scheme and mortgage interest relief The scheme which provides assistance to those buying new homes has been continued for another year. The relief is given through a rebate of income tax computed at 5% of the purchase price of the home up to a maximum of 400,000, pro rata for values below this level, and it won t be available to a person buying a new home costing more than 600,000. This relief is early in the process and we need to wait to determine whether it is achieving its objective. It seems to be helping first time buyers to buy property. The mortgage interest relief was due to expire by 31 December It is proposed to continue until 2020, whereby the relief is 75% for 2018, 50% for 2019 and 25% for This is another measure which hopefully will encourage more houses to be built. Landlords - Interest Relief on borrowed money to buy rental residential property The restriction on interest relief on money used to buy residential property will continue on a phase basis so that 85% of interest payable which is otherwise allowed, is available as a deduction against rental income received from 1 January 2018, and 90% for 2019, 95% for 2020 and 100% et seq. for Pre letting expenses relief is proposed to encourage owners of vacant residential property to bring the property into the rental market. The relief applies to property vacant for 12 months or more. There is a cap of 5,000 per property. It is business as usual and no change here. However in our view the reinstatement of full interest relief on borrowed money to buy rental property should be immediately restored rather than on the drip. The question of a deduction against rent for property tax is a discussion point given it is akin to rates on a property and would perhaps be one of a number of changes that would help landlords stay in the rental market. The pre letting expenses relief is to be welcomed. 10

11 Budget 2018 Global Mobility & Employment Taxes Global Mobility & Employment Taxes In one of the key measures, the new Key Employee Engagement Programme (KEEP) for SMEs was unveiled. The KEEP will be a share scheme similar to the Enterprise Management Incentive scheme in the UK and will be positively received by private Irish companies and their employees. This will defer the tax on exercise of share options until the point of sale, at which point Capital Gains Tax will apply. This will remove some of the blockers that currently exist - such as an illiquid market for sale and valuation requirements for example - while also providing a tax effective way of remunerating employees. The Minister also made some small changes in the context of income tax. A primary measure was the reduction of the lower USC rates of 2.5% to 2% and 5% to 4.75%. He also announced an increase in the band ceiling for the 2% rate by 600 to 19,372. The standard rate tax band is increasing by 750 to 34,550 for single individuals and to 43,550 for married one earner couples. Unfortunately the higher rate of 8% is unchanged which means the marginal rate of tax remains at 52%. The potential merger of USC and PRSI has been well flagged. The Minister announced the establishment of a working group to plan, over the next year, the process of amalgamating USC and PRSI over the medium term. He stated that a key objective is that this process does not narrow the tax base but ensures that the personal tax system is both competitive and resilient in the future. Other measures include an increase in the National Training Fund levy from 0.7% to 0.8% from 1 January This is in effect an increase in employer s PRSI from the current rate of 10.75% to 10.85%. Further increases of 0.1% in 2019 and 2020 respectively subject to the implementation of the reforms stemming from the independent review of the NTF announced in July In keeping with the stated policy of moving Ireland to electric vehicles the Minister announced that a 0% benefit-in-kind rate is being introduced for electric vehicles for 1 year. This is intended to allow for a review of benefitin-kind on vehicles with a view to informing decisions for the next budget. In addition electricity used in the workplace for charging vehicles will also be exempt from benefit-inkind. This will be welcomed by employees and employers. An item not referenced in the Minister s speech is the application of a range of compliance interventions in preparation for PAYE Modernisation. He has set out that resources will include enhanced ICT capacity for data matching and analytics. These interventions are expected to yield 50M in Employers will need to ensure that they are happy with the current operation of payroll so as to be prepared for any such intervention. Daryl Hanberry Tax Partner and Head of Global Employer Services Tel: dhanberry@deloitte.ie 11

12 Budget 2018 Global Mobility & Employment Taxes The new KEEP share scheme for SMEs is a welcome announcement in the area of reward and talent retention. The Minister has not taken the opportunity to announce any broader changes to the taxation of share schemes, which will be disappointing for domestic and foreign MNCs who do not meet the SME thresholds. However, it would be hoped that there would be a continued focus by the Government on the area of reward in 2018, particularly given the working group on merging the USC and PRSI. The changes to USC and income tax will be positively received. However, at 52%, we still have one of the highest marginal rates in the OECD. There were no references to changes to the Foreign earnings Deduction or the Special Assignee Relief Programme but administrative changes may potentially be introduced in the Finance Bill. Given that, in the Brexit context, most companies have chosen to increase their presence in a number of locations, now is the time to ensure we are competitive in attracting the bulk of the talent to Ireland, and capitalise on this important opportunity from a jobs creation perspective. It is not surprising that the merger of USC and PRSI has not been implemented in this budget. This is a tricky measure to introduce with a number of challenges including the current variance in the application of these charges, the exemption from PRSI for those age 66 or over and a cumulative approach for USC as compared to a week one basis for PRSI. From an inbound mobility perspective a single social insurance charge, being social security, would likely see a reduction in the marginal rate applying to inbound assignees who remain subject to their home county social security. This may help in the attraction of inward investment. The increase in expected yield from compliance interventions will potentially create additional administrative costs for companies. While it is important that companies pay their taxes, it would be hoped that any increased interventions will be accompanied by greater guidance on how to deal with areas open to interpretation. 12

13 Budget 2018 Transfer Pricing Transfer Pricing Following on from the Independent Review of the Irish Corporate Tax Code (the Coffey Report ) published by the Department of Finance last month, The Minister announced in his Budget speech his intention to initiate a public consultation process relating to the measures announced in the Coffey Report, which include a number of key transfer pricing measures. The consultation period will run from 10 October 2017 to 30 January A separate consultation document was released as part of the Budget papers which includes specific questions pertaining to transfer pricing proposals contained in the Coffey Report. Whilst Budget 2018 did not contain any specific transfer pricing related measures, the expectation is that a number of the recommendations included in the Coffey Report will be implemented into Irish law by Companies within the scope of Irish transfer pricing laws and also companies which are currently outside the scope of Irish transfer pricing laws have the opportunity to provide their views on the Coffey Report recommendations by the 30 January 2018 deadline. The new international standard relating to transfer pricing is the 2017 OECD Transfer Pricing Guideline which was published in July 2017 and represent a significant refinement to existing transfer pricing rules that many jurisdictions base their domestic transfer pricing laws upon. While no changes to Ireland s transfer pricing laws were announced in the Budget, companies need to be aware that several other jurisdictions now follow the new guidelines. Companies should review their The Minister s announcement of a public consultation period is welcomed. The Coffey Report contained a number of far-reaching measures which have the potential to materially impact Ireland s transfer pricing landscape including: Implementing Action 8 to 10 and the remaining parts of Action 13 of the OECD BEPS reports; Extending transfer pricing rules to nontrading and capital transactions; Removal of the current exemption (SME exemption) for certain small and medium sized enterprises; and transfer pricing policies and pricing to ensure that they are aligned to the latest guidance in those jurisdictions that now formally follow the new guidelines. We are now seeing more aggressive positions taken by tax authorities upon audit and companies need to be fully aware of how the new guidelines impact their businesses. Repealing pre 1 July 2010 grandfathered arrangements and bringing them within the scope of transfer pricing law. A number of measures including removal of the SME exemption and bringing pre 1 July 2010 arrangements within the scope of Ireland s transfer pricing regime are likely to have a disproportionate impact on smaller corporate groups. In any decision to implement these changes, the impact on smaller taxpayers should be considered in terms of cost and time needed to implement such changes and balance any final decision on potential tax revenues that could be expected to be generated for the Exchequer. With respect to the expansion of Ireland s Gerard Feeney Head of Transfer Pricing Tel: gfeeney@deloitte.ie transfer pricing laws to non-trading and capital transactions, it is noteworthy that other parts of Ireland s tax laws already include measures with comparable concepts to the arm s length principle which deal with such transactions, in particular capital transactions, and therefore any consideration of whether additional measures are needed should form part of the review process. In relation to the 2017 OECD Transfer Pricing Guidelines, it is likely that that these updated guidelines will be adopted into Ireland s domestic transfer pricing laws in full by 2020 at the latest. 13

14 Budget 2018 Indirect Taxes Indirect Taxes The Minister announced the introduction of a sugar tax for drinks that contain at least 5g of sugar per 100 ml. The rate will be 30c per litre where the sugar content is at least 8g per 100ml and 20c per litre where the sugar content is between 5-8 g per 100ml. The 9% VAT rate for the hospitality sector, which was introduced in 2011, will continue to apply. The only VAT increase announced by the Minister is that the VAT rate on the use of sunbeds will increase from 13.5% to 23%. The Minister linked the increase to the connection between sunbeds and cancer. The sugar tax, the increase in the rate of excise duty on the cigarettes and the increase in the rate of VAT on sunbeds will mainly affect consumers. The sugar tax will also have a significant impact on the soft drinks industry while the refunds for charities should benefit all charities registered with the Charities Regulator. Charities should ensure that they meet the criteria for refunds. Charities should now prepare for the impending changes and in the first instance they should consider what steps need to be taken to ensure that they meet the qualifying criteria for refunds. For the majority of businesses the indirect tax changes will not have an impact. As the sugar tax will be effective from April 2018 businesses liable for the new tax will have to ensure that their systems will capture the required data to enable them calculate their liability so that they are fully compliant from a tax perspective. They should also review all their products to establish the impact of the tax on profitability and consider what mitigating measures should be taken. Pascal Brennan Tax Partner and Head of Indirect Tax Tel: pbrennan@deloitte.ie The only change to tax on the old reliables was an increase in excise duty of 50 cents per pack of 20 cigarettes and pro-rata on other tobacco products which is likely to be welcomed by the health lobby. There was also a welcome announcement for charities which, effective from 2019, will be able to claim back a proportion of the VAT that they incur based on their non-state funded expenditure. To be entitled to a refund a charity must be registered with the Charities Regulator, have tax clearance and provide a set of audited accounts. The minimum claim will be 500 and the total refunds for the sector for 2019, which will be based on expenditure incurred in 2018, will be capped at 5m. We welcome the health driven changes which should encourage a change in consumers habits with consequent health benefits. While the sugar tax will directly impact the soft drinks industry it also provides an incentive for the industry to develop more healthy products as consumer tastes and attitudes change. We also welcome the introduction of VAT refunds for charities. However, we note that the total refunds for the sector are capped at 5m with each charity receiving the same proportional refund. This lack of certainty of the exact amount of an individual charity s VAT refund will make it difficult for it to budget for the refund. To eliminate this problem the cap should be lifted. This would also eliminate pressure on charities as we assume, that under a cap model, all refunds will have to be submitted by a certain date. In any event it is vital that the process for refunds is simplified so that the administrative cost of applying for a refund is kept to a minimum. While there was no change to the 9% VAT rate that applies to the hospitality sector, which benefits the sector right across the entire country, it is noteworthy that there was no reduction to the 13.5% rate of VAT that applies to the sale of new houses. While a number of changes were introduced to benefit housing it seems that the government was unconvinced that a reduction in the VAT rate would reduce the sales price of new homes. 14

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