In the first of a new opinion series bringing together the expertise, knowledge and experience of the Chamber’s membership, Committee Chairs and selected guest experts; Olivia Buckley, Communications Director at the Irish Tax Institute discusses tax policy post-Brexit.

As uncertainty continues around the type of Brexit that will emerge after the UK leaves the EU, Ireland has two priorities on hand. The first is to work with the EU 27 to influence the shape of the final Brexit deal so our best interests are fully protected. The work and commitment has been relentless in this regard.

The second is to minimise the shock of Brexit to the Irish economy by expanding and building other export markets for a diverse range of Irish products and services. Progress is already underway here. Last week’s agri-trade mission to China was a momentous step for the sector, especially considering its reliance on the UK. The re-opening of the China market for EU beef means that significant export opportunities lie ahead for Ireland. China is already Ireland’s second biggest market for dairy and pork.

But Irish companies’ ability to grow and capture markets across the EU and beyond will require serious investment and energy. Scaling-up, capital investment, talented employees, investment in R&D and innovation are all necessary if the world is truly to be our oyster. Tax policies and a supportive tax administration system have an influential role to play here.

There are hugely positive aspects to our tax policies. They are led by the 12.5% corporation tax rate and supported by other tax measures which have been built on and strengthened in recent years. But many need to be reviewed and recast as their availability or accessibility to Irish SMEs are not where they should be given what we are now asking of Irish businesses. We acknowledge progress, but policy makers and stakeholders must now work together to bring further improvements in a post-Brexit environment.

Firstly, seriously talented employees are key to the growth plan. The Irish Tax Institute welcomed the new share option regime called Key Employee Engagement Programme (KEEP) in Budget 2018. But the KEEP contains some limitations which could significantly impact the feasibility of the scheme and ultimately, its success in achieving the policy aim of helping SMEs to attract and retain talent. For example, issues surrounding the qualifying criteria for individuals; the design of the remuneration limits and the narrow definition of a qualifying holding company are creating difficulties for many SMEs to qualify for KEEP.  

The Employment and Investment Incentive (EII) is the main source of alternative finance for businesses wishing to expand. It is aimed mainly at supporting early-stage business and is a very important relief that can mitigate risk for investors in these businesses, including family, friends and angel investors. There is more that can be done for investors as the current take up is quite low. Among the Irish Tax Institute’s recommendations is extending the relief to include USC and PRSI and to raise the annual investment limit to €150,000.

We welcome the announcement that independent economic consultants have been engaged to review the operation of the EII and SURE and to establish whether the schemes are working efficiently and effectively or could be improved.  In recent years, some fundamental changes were introduced to the EII (and the SURE). Most notably, the reliefs are subject to certain rules under the EU state aid General Block Exemption Regulations (GBER) since 2015. This has limited access to EII funding for businesses seeking to raise a second tranche of EII funding or businesses who wish to raise EII after they have been in operation for seven years. The impact of the GBER is one of the matters that is being examined as part of the review.

Investment and scaling also relies on the attractiveness of other important tax measures. For example, Ireland’s special “entrepreneur relief” reduces the high CGT burden on business sales to a limited degree. However, it locks out third-party investors, including the important “angel investors”, who are willing to invest in ambitious young companies, without being involved in their day-to-day running. Business angel investment in Ireland is low compared to other countries such as the UK, Spain, France, Germany and Sweden and we need to improve the record in this regard if we are to provide alternative sources of funding to enable Irish companies to expand their geographic reach and fulfil their potential for growth.

Greater innovation and product development is essential if we are to diversify into new products and services.  Ireland has an attractive R&D tax credit regime, but administration barriers are weighing heavily on its success in terms of the low take-up among SMEs. Irish Tax Institute research shows that 75% of Irish companies are aware of the R&D tax credit and 20% have availed of it. However, of those that availed of it, 47% said that the process was difficult to prepare for and administer.

Of concern is the fact that the R&D tax credit regime restricts outsourcing and collaboration. We know that such collaboration is critically important to the export-focused modern manufacturing sector.

Given the open nature of our economy, it’s also important that tax measures not only deal with the export nature of Irish businesses but that they deal with the reality of our import situation. With the UK indicating that it may leave the European Single Market and Customs Union as part of the Brexit process, we believe the State should consider introducing an Irish VAT deferral licence regime for importers, like the regime that currently operates in the Netherlands. The ability to defer the time at which import VAT must be accounted for without affecting the transportation of the goods, would provide a clear cash flow benefit to importers in Ireland.

When it comes to the outcome of EU and world trade negotiations, all is not in our control. But Irish policies that can further support and encourage Irish family businesses and start-ups are worthy of our undivided attention.

 

Olivia Buckley, Communications Director, Irish Tax Institute. 

Olivia is responsible for public affairs, stakeholder engagement and media relations at the Irish Tax Institute. She has held senior communications roles in Irish corporates, politics, representative bodies and consultancy companies. She is a well-known contributor on tax and economic issues to radio and television programmes. Olivia was also the Director of We Belong, an influential campaign group during the Lisbon II EU Referendum.

 

The views and opinions expressed by authors are their own and do not reflect the official position of the Chamber but are simply an illustration of the various opinions reflective of the diverse Chamber membership. Should you wish to contribute to the Member and Expert Series, please contact neil.dee@britishirishchamber.com for further information.

 

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