Finance minister Michael Noonan announced in October’s Budget the phasing-out of the ‘double Irish’ tax avoidance scheme. Companies already using the scheme have six years to change their tax arrangements. The ‘double Irish’ enables international corporate profits to be channelled through two Irish companies: one tax resident in Ireland and a second that is tax resident elsewhere.
A proposed new ‘Knowledge Box’ tax system – which is under consideration – would balance the loss of the ‘double Irish’ by encouraging greater R&D-related investment from multi-national corporations. Approval is required from the EU before implementation. The ‘Knowledge Box’ is expected to tax intellectual property-related profits at 6.25% – even lower than the UK’s Patent Box, which taxes profits arising from patents at 10%.
In addition, the Special Assignee Relief Programme – which provides tax exemptions for FDI employers needing to bring in employees from other countries – has been renewed and expanded.
After years of austerity, middle income earners will benefit from reductions in the income tax burden. The top rate of income tax is cut from 41% to 40%. In addition, the top rate threshold is rising from €32,800 to €33,800. For married couples, the top rate threshold increases from €41,800 to €42,800. But those earning more than €70,000 will make higher contributions through the universal social charge, which rises from 7% to 8% of earnings. For self-employed workers earning more than €100,000, a new USC rate of 11% is being introduced.
Modest levels of economic stimulus were announced. A €2.2bn capital investment programme in social housing is intended to build 10,000 additional homes – alleviating the national housing shortage and boosting the construction industry. In addition, some thousand vacant properties will be refurbished. It is hoped that 4,500 construction jobs will be created by the measures. Extra funding to schools of €80m should lead to another 1,700 jobs in education.
Consumer taxes were mostly left unchanged, but excise duties on tobacco were increased by 40%. The lower, 9%, VAT rate on tourism activities was retained.
The Budget was generally well received by business. A survey conducted by PwC found support from 73% of businesses, who believe it strengthens the prospects for the economy. Some 85% predicted it would increase foreign direct investment. And 40% said it has made them more likely to take on new staff.
Feargal O’Rourke, PwC Ireland’s head of tax, responded: “The survey highlights that Budget 2015 sends clear messages of confidence and growth with a path for certainty ahead. The personal tax measures announced as part of the three-year plan should give a modest boost to the local economy. The corporate tax measures should ensure that the international companies based in Ireland will continue to do business from Ireland and that they will be joined by many new international companies.”
Deloitte’s head of tax and legal services, Pádraig Cronin, agreed. “The corporation tax changes have been done in a way that offers a clear roadmap for attracting international investment”, he said. “The retention of the 12.5% rate, measures to enhance Ireland’s intellectual property regime, enhancement of the R&D regime, the enhancement of the Special Assignee Relief Programme and other measures announced will underpin the Government’s commitment to making Ireland a destination for the best and most successful companies in the world.
“The widely anticipated abolition of the ‘double Irish’ structure has therefore been counter-balanced by other measures which offer investors a competitive alternative to that arrangement. It has the appropriate balance between giving certainty to multi-nationals and ensuring we continue to have a ‘Best in Class’ FDI offering as we evolve our system in a changing world.”