Tax Strategy Group Papers – Budget 2022

On Thursday 16 September 2022 the Department of Finance published the Tax Strategy Group Papers for Budget 2022. In addition to the publication of a presentation paper by Brendan O’Connor, Economics Division at the Department of Finance, on Macroeconomic developments and outlook, the following 14 papers were published:

  1. Response to Covid-19
  2. Income Tax
  3. Review of Tax Arrangement for Remote Working
  4. Trans-Border Workers’ Relief
  5. Corporation Tax
  6. International and EU Tax Developments
  7. PRSI Rate Setting Options
  8. Social Protection Issues
  9. Climate Action and Tax
  10. Value Added Tax
  11. General Excise
  12. Brexit Readiness – Taxation and Customs
  13. Capital and Savings Taxes
  14. Stamp Duty   

The papers can be found here.

We have set out below some key highlights from the papers.

Corporation Tax

  • Start-up Company Relief is due to expire at the end of 2021. Consideration is currently being given to the potential extension of the relief, and potential changes as a result of challenges presented by Covid-19.
  • It is expected that a public consultation on a move to a territorial regime will commence in Q4 2021, however, this is contingent on there being greater clarity from the OECD process in the interim.
  • The legislation for interest limitation, and reverse anti-hybrid rules are on track for introduction in Finance Bill 2021.
  • The Tax Credit for the Digital Gaming Sector is due to be introduced in Finance Bill 2021. The paper sets out some of the potential key components of the tax credit that are currently under consideration.

International Tax

  • The paper contains an overview of the current status of the OECD Pillar 1 and Pillar 2 proposals. Ireland’s position is that small countries, including Ireland, need to be able to use tax policy as a legitimate lever to compensate for advantages of scale, location, resources, industrial heritage and the real, material and persistent advantage enjoyed by larger countries. Therefore, while it has expressed broad support for OECD proposals, it has a reservation about the proposal for a global minimum effective tax rate of “at least 15%”. Ireland’s competitive 12.5% corporation tax rate has been in place for over two decades, and it offers taxpayers and investors the certainty required to make long-term investment decisions. It is an important component in our economic policy and has contributed towards our success in attracting real investment and employment.
  • The paper also provides an overview of the current status of a number of EU tax developments which are currently ongoing. These include proposals to address misuse of shell companies, publication of effective tax rates paid by large companies, the potential introduction of Debt Equity Bias Reduction Allowance (“DEBRA”) and BEFIT (the replacement for the CCCTB).

Tax Appeals

  • Consideration is being given to introducing legislative changes in Finance Bill 2021. Such changes may include:
    • Changes to the case stated procedure; and
    • Allowing for the dismissal of an appeal where there is a failure to comply with a direction.  

Income Tax

  • The Programme for Government contained a commitment to index link Income Tax credits and banks. According to the paper, wage inflation is expected to be in the region of 1.5% to 3% for 2021. Therefore, it may be reasonable to expect to see an increase in the rate bands and credits in Finance Bill 2021, but possibly at a rate below wage inflation.  
  • The existing Help-to-Buy scheme is due to expire at the end of this year. The paper considers a number of options, and appears to lean towards a continuation of the scheme, but possibly with the introduction of a new end date and/or tapering of the relief.

Capital Gains Tax

  • There have been numerous calls for a reduction in the current rate of CGT of 33% in recent years. The paper contains a limited discussion on a potential reduction to CGT, but concludes that “there does not appear to be a compelling case for making a significant reduction in CGT rates at the current time”.
  • The paper also considers some potential changes to the Revised Entrepreneurs Relief, and EIIS.  

Capital Acquisitions Tax

  • The papers outline the exchequer impact of increasing and reducing the rate of Capital Acquisitions Tax (currently 33%), and the cost of increasing the current group thresholds. These changes are to be considered further with no indication as to what changes, if any, may be made.
  • Consideration is being given to an increase in the small gift exemption to €5,000 (currently €3,000) in order to encourage inter vivos transfers of wealth, particularly as a result of the significant increase in gross household savings due to Covid-19.

Stamp Duty

  • For residential property, options being considered include:
    • Reduction in the cut off point for the 2% rate to (for example) €750k
    • Applying te higher 2% rate of Stamp Duty to the full value of a property if that property exceeds a given figure
    • Introducing a surcharge for non-residents acquiring residential property
  • The paper contains a discussion on whether to changes the rate of Stamp Duty on REIT shares, but concludes against such a move.

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