Those expecting fireworks in any aspect of Budget 2019 would have been disappointed. And the budget for business is no different.
If you were looking for a surprise, the introduction of a 12.5 per cent exit tax had been only partially flagged. This is a bit wonkish, and aimed at multinationals rather than SMEs; but it’s worth looking at.
A bit of history: as international tax reforms have begun to bite, companies have begun moving their intellectual property to jurisdictions with more ‘substance’ - basically, where they have more people employed and pay some tax on the revenues that arise from IP, so they can avoid being called tax dodgers. Because we have a good-sized MNC population, many of whom are big employers, and because we have a low rate of corporate tax, we have been a natural winner from this process.
The problem from the multinationals’ point of view is that Ireland has traditionally levied a big capital gains tax hit on those who decide to move assets like IP back out of the country again. We’ve offset this by building in loopholes which make this easily avoidable, but under anti-tax-avoidance measures, these loopholes were going to be closed.
Therefore, the multinationals had asked for a new exit tax to clear things up. This means that if they do decide to move their IP again, they won’t be able to get it out of Ireland using the old loopholes, but neither will they be hit with 33 per cent CGT. The new 12.5 per cent exit tax is all they’ll pay.
What is a surprise is that it will be brought in from midnight on Tuesday. It was expected that it would be signalled, as we reported last weekend, but probably not brought in until 2020 or so, when we have to close our loopholes anyway.
My best guess on why they’ve decided to do this is to prevent ‘leakage’, as companies use the existing loopholes to slip their IP out, rather than face the potential 12.5 per cent hit later. It’s a concession to MNCs who wanted the clarity of the exit tax, but the Department clearly want to show they won’t be taken for fools either, hence the rapid-fire introduction.
A raft of other anti-avoidance measures will come in in the finance bill.
There are a couple of interesting Brexit related goodies for businesses. It will be interesting to see more detail on the human capital initiative announced by Paschal Donohoe. This is a big ticket item (he’s promising a budget of €300 million, to be funded by an increase in the employer training levy), alongside €110 million for Brexit measures across different departments. €500 million for a Disruptive Technologies Innovation Fund is eye-catching, but it is spread out over a long time, to 2027.
Without a huge amount of new cash to throw around once housing, health and infrastructure were allotted for, it’s unsurprising that there’s no big ticket item for businesses. Rather, employers will be forced to make do with some fine-tuning. The Key Employee Engagement Programme(KEEP), a share option incentive scheme, was introduced to much fanfare in the last budget. But take-up has been disappointing, as acknowledged by Donohoe in his speech. He’s making changes to the scheme, increasing the ceiling on the annual market, and other adjustments. The bill for this will come to around €10 million.
Likewise, the Employment Investment and Incentive Scheme (EIIS), has been shaken up. The much-vilified successor to the BES scheme has been a target of fund promoters and businesses in the last year, while Revenue has been flat out trying to keep up with the workload of going through different schemes. Donohoe has now promised a package of measures in the finance bill to improve EIIS. Much like with KEEP, it’s not massive news, but employers will be relatively pleased to see these schemes being well-tended to, even if it’s cold comfort given the absence of any major policy changes in this budget.
The three-year tax relief for entrepreneurs, which was due to expire, has been extended out for another three years. This allows profitable companies shield themselves from some taxes. The cost for extending this is around €5.7 million, which is obviously miniscule.
Other bits and pieces
Section 481 has been extended, which will please the film industry. Interestingly, there are extra sweeties in there in the shape of a “5 per cent, tapered regional uplift”, which needs sign-off from Brussels, but should help studios outside the Pale.
Peer-to-peer lenders have been asking for increased regulation, and Donohoe has signalled that he will undertake research on this. This is timely, given the take-off in the sector, and the relative lack of regulation on a growing segment of lending.
In terms of what wasn’t there, a heavily-rumoured stamp duty increase for residential investment properties hasn’t appeared. With more than half a billion set to go into the acquisition of residential properties by institutional landlords this year, the thinking had been to hit them with a commercial stamp rate, as these were clearly commercial deals. However, the industry mounted a rearguard, and it appears their warnings about the impact on housing provision found an audience on Merrion Street.
Whether these were well-founded, given the wall of money trying to get into Irish residential investment and the capacity to absorb taxation changes in transactions, remains to be seen.