The budget statement for 2017 delivered by Ireland’s Minister for Finance, Mr Michael Noonan, focused to maintain and strengthen Ireland’s financial services at a time of significant political and economic change, both nationally and internationally.
The budget highlights the Government’s commitment to rebuild and invest greatly in public services and reflects the significant recovery of Ireland’s economy.
INTERNATIONAL TAX POLICY
The introduction of base erosion and profit shifting (“BEPS”) and Irish Transfer Pricing developments
Ireland has been a leading participant in the OECD BEPS process. The Irish Government together with the Revenue are currently preparing for a more globalised environment. Following last year’s budget and the focus on BEPS in which Ireland has fully engaged with.
The Budget did not contain any specific measures relating to transfer pricing, although a document entitled, Update on Ireland’s International Tax Strategy, published after Minister Noonan’s speech contains some key points:
- Consideration will need to be given on the relevant changes to ensure Ireland’s transfer
pricing rules meet the standards set by the OECD. The review will make recommendations
to the Minister by mid-2017.
- Any amendments to Ireland’s domestic transfer pricing law are likely to be included in next
year’s Finance Bill and effective from 2018.
Advance Pricing Agreements (APA)
Ireland formally adopted a bilateral APA regime with effect from July 2016. With the increasing scrutiny and audit of transfer pricing activities by tax authorities worldwide, the formalisation of a bilateral APA programme is a welcome development for companies with operations in Ireland.
The Irish Revenue will be required to exchange Advance Pricing Agreements with other EU authorities where the APA has an impact on the tax base in that jurisdiction. This requirement to exchange agreements will take effect from 1 January 2017, notwithstanding the fact that the parent company might be outside the EU, such as in the U.S.
Country by Country Reporting (“CBCR”) Requirements
Current year impacts for a multinational group with an Irish-headquartered parent include a requirement to file the country by country reporting (“CBCR”) on or before the deadline of 31 December 2017, for accounting periods ending on 31 December 2016.
For non-Irish headquartered multinationals (MNCs), the CBCR may be filed with a tax authority in another jurisdiction. Both situations require a notification to Irish Revenue before the end of 2016 to inform Irish Revenue which entity in the multinational group will be filing the CBCR for 2016.
The Minister announced a comprehensive programme of targeted compliance interventions against those engaged in offshore tax evasion. This programme will be underpinned by applying advanced analytics techniques to the range of new data sources available through the international exchange of information initiatives and supported by new legislation designed to encourage early disclosures of liabilities in relation to offshore accounts or assets by:
i) Denying the opportunity to make a qualifying disclosure in this area after 1/5/2017 and
ii) Introducing a new strict liability offence for failure to return details of offshore accounts or other assets.
There remains a window of opportunity for those holding non disclosed offshore accounts or assets to regularise their tax affairs before 1 May 2017. After that, the rate of penalties will substantially increase as the tax payer will not be able to rely on the lower level of penalties that apply to voluntary disclosures.
The risk of publication on the tax defaulters list and of prosecution will significantly increase after 1 May 2017.
Corporation Tax (“CT”) rates
Ireland has once again committed to maintaining its 12.5% corporation tax rate on trading income. Minister Noonan’s strong stance of support of this will continue to secure Ireland’s future as a leading destination for foreign Direct Investment.
Relief for Start-up Companies
This measure provides relief from corporation tax on trading income (and certain capital gains) of new start-up companies in the first 3 years of trading. This relief was extended to 2018.
Knowledge Development Box (“KDB”)
Following the introduction of the Knowledge Development Box (KDB) in budget 2016, in which the corporation tax rate for income qualifying for relief under the KDB was confirmed as 6.25%. The KDB encourages companies to develop intellectual properties, patents and copyrighted software in Ireland.
New legislation will shortly be brought forward to provide an additional benefit, within the parameters of the OECD ‘modified nexus approach’ for small companies that wish to avail of the KDB.
Revised Capital Gains Tax
In order to facilitate Irish Private Businesses, CGT will be reduced from 20% to 10% on disposals of qualifying assets, comprising the whole or a discrete part of a trade or business, up to a limit of €1million in chargeable gains.
PERSONAL INCOME TAX
Tax rates and bands
There were no changes to the Income Tax rates or bands.
Universal Social Charge
The Government’s intention is to phase out the USC over time as resources permit. A number of significant changes have been made to the rates, bands and thresholds for USC. The rate of USC for medical card holders and individuals aged 70 years and over whose aggregate net income is less than €60,000 will pay a maximum rate of 3%.
- Incomes of €13,000 or less are exempt. Otherwise,
- €0 to €12,012 @ 0.5%
- €12,013 to €18,772 @ 2.5%
- €18,773 to €70,044 @ 5%
- €70,045 to €100,000 @ 8%
- PAYE income in excess of €100,000 @ 8%
- Self-employed income in excess of €100,000 @ 11%
There were no changes to Employee PRSI rates or bands.
National living wage – Minimum wage
With effect from 1 January 2017 the minimum wage is increasing from €9.15 per hour to €9.25 per hour.
There were no changes to Employer PRSI rates.
Deposit Interest Retention Tax
The minister plans to reduce Dirt by 2% each year for the next four years. This will reduce Dirt from 41% this year to 33% in 2020.
Capital Acquisition Tax
The gift and inheritance tax free thresholds have been increased. Group A (Parent to Child) has increased from €280K to €310K, Group B (direct linear blood relatives) from €30,150 to €32,500 and Group C (others) from €15,075 to €16,250. The increases take effect from midnight of Budget day.
There has been no change to the rate of CAT, which remains at 33%.
Except for a change in the VAT rate for farmers from 5.2% to 5.4% there are no changes to any other existing VAT rates.