The budget statement for 2018 delivered by Ireland’s Minister for Finance, Mr. Paschal Donohoe is the third post-austerity budget in a row. The Irish economy is now enjoying robust economic growth with almost full employment.
We have summarised below the main points of interest which will be of relevance to our clients. This release is not intended to be a full review of the Statement and you should refer to the supporting and related documents for an in-depth review.
INTERNATIONAL TAX POLICY
Base erosion and profit shifting (“BEPS”)
Ireland is committed to the OECD Base Erosion and Profit Shifting (BEPS) global tax reform process and has already taken several steps towards implementing the BEPS recommendations.
Ireland was also among the first countries to sign the OECD BEPS multilateral instrument (MLI) in June. This MLI will provide the mechanism for tax treaties to be automatically updated to reflect several important BEPS recommendations without the need for countries to engage in separate bilateral negotiations. Ireland will seek to ratify the MLI, with the first steps in this process being taken in next week’s Finance Bill.
Work at the OECD continues on how tax systems should reflect the increasing digitalisation of the economy. Ireland is actively participating in this work through the Task Force on the Digital Economy. An OECD report on this matter is due to be published in the early part of 2018.
Ireland has actively engaged in the EU initiatives to ensure the consistent and strong implementation of OECD BEPS recommendations across the EU. Work is already underway to fully transpose the fifth iteration of the Directive on Administrative Cooperation (DAC5) into Irish law.
DAC5 will ensure that tax authorities are given access to relevant information prepared by financial institutions as part of their anti-money laundering requirements. Ireland is also engaging in discussions on DAC6 which would impose a requirement on tax advisers and companies to disclose tax planning arrangements that meet certain hallmarks that are indicative of aggressive tax planning.
Ireland is one of the three EU Member States that already has mandatory disclosure rules in place. The tax strategy update confirms that Ireland will implement the Directive on Dispute Resolution Mechanisms by June 2019.
CORPORATION TAX CODE
On 12 September 2017 the Department of Finance released the Review of Ireland’s Corporation Tax Code, in which the Minister for Finance announced a public consultation on the implementation of a number of the Report’s recommendations.
Irish Transfer Pricing and other recommendations
The Report recommends that the transfer pricing rules should be updated to apply the 2017 OECD Transfer Pricing Guidelines (the legislation currently applies the 2010 guidelines). It also recommends that several other changes should be considered, including:
- Extending the scope of Ireland’s transfer pricing rules to non-trading transactions, both domestic and cross-border.
- Extending transfer pricing rules to capital transactions if doing so would improve existing provisions which already apply market value rules to disposals of assets within scope of tax on capital gains or incurring expenditure on assets eligible for capital allowances (including allowances for intangible assets).
- Extending transfer pricing rules to some or all Small and Medium sized enterprises (SMEs), which are currently not subject to transfer pricing (possibly with reduced documentation requirements).
- Ending the exclusion from transfer pricing of arrangements in place prior to 1 July 2010 under existing grandfathering provisions.
Amongst the other recommendations in the Report are proposals to consider introducing both a foreign branch exemption and foreign dividend exemption regimes (in relation to connected company dividends) in tandem with the introduction with a Controlled Foreign Company (CFC) regime.
An alternative proposal suggested in the Report is to consider simplifying Ireland’s existing approach to affording double tax credit relief for foreign taxes borne on foreign income and branch profits. The requirement to introduce a CFC regime arises from Ireland’s obligation to adopt measures agreed at EU level under an EU Anti-Tax Avoidance Directive (ATAD).
Under the EU ATAD, Ireland is required to introduce CFC rules by 1 January 2019 and to revise its exit tax regime by 1 January 2020. The design and approach to implementation of these measures is included in the public consultation which was announced on Budget Day.
The consultation period in relation to the Review of Ireland’s Corporation Tax Code will run from 10 October 2017 to 30 January 2018.
Corporation Tax (“CT”) rates
Ireland continues to be committed to maintaining its 12.5% corporation tax rate on trading income. Minister Donohoe’s strong stance of support of this has said that the rate is a core part of the country’s offering to secure Ireland’s future as a leading destination for foreign Direct Investment.
Key Employee Engagement Programme (KEEP)
The Minister has announced a new Key Employee Engagement Programme (KEEP) to support small and medium sized businesses in their efforts to attract and retain key employees in a competitive international labour market, by providing for an advantageous tax treatment on share options.
The Minister said that KEEP will allow SMEs to provide key employees with a financial incentive linked to the success of the company. Further information will be provided when the finance bill is published next week
Knowledge Development Box (“KDB”)
The corporation tax rate for income qualifying for relief under the KDB will remain unchanged at 6.25%. The KDB encourages companies to develop intellectual properties, patents and copyrighted software in Ireland.
Taxation of Intangible Assets
The minister announced that the 80% cap will be reintroduced for expenditure incurred on intangible assets with effective date 11 October 2017. The full amount of qualifying expenditure will continue to be deductible. The cap merely limits the deductible amount in a given tax year, with any unused excess carried forward for use in later years.
Capital Gains Tax
There were no changes to Capital Gains Tax.
In order to facilitate Irish Private Businesses, CGT rate will remain at 10% on disposals of qualifying assets, comprising the whole or a discrete part of a trade or business, up to a limit of €1 million in chargeable gains.
PERSONAL INCOME TAX
Tax rates and bands
The standard rate income tax band will be increased in 2018
|Band 2017||Band 2018|
|Single/Widowed without depending children||€33,800||€34,550|
|One Parent Family||€37,800||€38,550|
|Married/Civil Partners, one earner||€42,800||€43,550|
|Married/Civil Partners, two earners||€42,800+ increase max €24,800*||€43,550+increase max €24,800*|
* The increase is the lower of €24,800 and the amount of income of the spouse/civil partner with the lower income. The increase is not transferable between spouses/civil partners.
Universal Social Charge
The lower USC bands and tax rates will be reduced in 2018 as follows:
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 2%.
- Incomes of €13,000 or less are exempt. Otherwise,
- €0 to €12,012 @ 0.5%
- €12,013 to €19,372 @ 2%
- €19,373 to €70,044 @ 4.75%
- €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 2018 the minimum wage is increasing from €9.25 per hour to €9.55 per hour.
From 2018 onwards, the minister announced the following increases in Employer PRSI rates:
- 75% to 10.85% from 2018
- 85% to 10.95% from 2019
- 95% to 11.05% from 2020
Deposit Interest Retention Tax
The minister plans to reduce Dirt by 2% each year for the next four years. This will reduce Dirt from 37% this year to 33% in 2020.
Capital Acquisition Tax
There has been no change to the rate of CAT, which remains at 33%.
The minister has confirmed the continuation of the 9% reduced VAT rate which applies to a range of goods and services principally in the tourism and hospitality sector. The rate was originally introduced in 2011 for a three year period and was extended indefinitely in Budget 2014 as part of the Government’s Jobs Initiative for Tourism.
The 23% and 13.5% VAT rates remain unchanged.