Article: Tax Strategy Group Papers – Budget 2021

16 September 2020

On Monday 14 September 2020 the Department of Finance published the Tax Strategy Group Papers for Budget 2021. In addition to the publication of a presentation paper by Chief Economist, John McCarthy, on the Emerging Economic and Fiscal Situation, the following 11 papers were published:

  1. Response to Covid-19
  2. Income Tax
  3. Corporation Tax
  4. PRSI for Self-Employed Workers
  5. Social Protection Issues
  6. Climate Action & Tax
  7. Value Added Tax
  8. General Excise
  9. Brexit Preparedness – Taxation and Customs
  10. Capital and Savings Taxes
  11. Stamp Duty   

This paper can be found here

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

International Tax

  • The suggested timeline for the transposition of the interest limitation rules is the publication of a detailed feedback statement by the end of 2020, with consultation in the first half of 2021. The final legislation would be contained in Finance Bill 2021, effective from 1 January 2022.
  • Stakeholder consultation on anti-hybrid rules to commence in early 2021.
  • With regard to digital taxes, the papers note that discussions are ongoing on both Pillar 1 and Pillar 2. Updated reports are to be published in October, and these reports will be considered “blueprints” rather than final reports on the Pillars.
  • Discussion are on-going regarding CCCTB and CCTB however implementation will require unanimity.

Tax Appeals

  • Consideration is being given to introducing legislative changes in Finance Bill 2020. Such changes may include:
    • Addressing the right of appeal against a surcharge; and
    • Dealing with the circumstance in which an Appeal Commissioner ceased to hold office.  

Income Tax

  • The paper notes that the reduced rate of USC for medical card holders is due to expire at the end of 2020. However, the paper states that due to Covid-19 “it may be considered an inappropriate time to allow this relief to expire”. Therefore, it may be reasonable to expect to see an extension of the reduced rate for a period of time in Budget 2021.
  • With regard to potential reform of pension tax relief, policy decisions are to be put forward for decision in future budgets.

PRSI for Self-Employed Workers

  • While the Programme for Government considers an increase in all classes of PRSI over time in order to replenish the Social Insurance Fund, the paper proposes that consideration is given to bringing the S Class PRSI rate in line with the standard rate of employer PRSI (currently 11.05%). It is proposed that this would be done incrementally over 4 budgets, as follows:
    • Budget 2021 – increase from 4% to 5.75%
    • Budget 2022 – increase from 5.75% to 7.5%
    • Budget 2023 – increase from 7.5% to 9.25%
    • Budget 2024 – increase from 9.25% to 11.05%
  • As a compensatory measure, the remaining social welfare benefits not currently available to self-employed workers (i.e. Illness Benefit, Health and Safety Benefit, Occupational Injuries Benefits and Carers Benefits) may be incrementally extended to them. 

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 detailed discussion on a number of potential changes to CGT. The paper would appear to be favourable to the introduction of a temporary reduction in the headline rate of CGT. The temporary nature of the reduction would allow for consideration of the reform of the regime to follow. The subsequent reform may involve either a lower headline rate, or a lower general rate with higher rates applying on the disposal of certain assets.
  • The paper also considers some potential compensatory measures, including potential changes to the current carried interest regime and/or changes to the Revised Entrepreneurs Relief.  

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.
  • The papers also notes the exchequer yield from a potential reduction in Agriculture and Business Property Reliefs, but notes the potential negative impact on the development and growth of family businesses from any such change.
  • Consideration is also being given to an increase or reduction in the small gift exemption (currently €3,000).
  • It is worth noting that these were all considered in last year’s paper also.

Stamp Duty

  • The paper contains a discussion on the potential option of an increase in the 2% residential property rate (i.e. for properties greater than €1m). While the paper would appear to conclude against such a move, it remains possible that there may be changes in this area in Budget 2021.
  • Concerns have been raised by some developers on the efficiency criteria for the Stamp Duty Refund Scheme, particularly with regard to timelines and density requirements. The paper notes that in light of the concerns raised, as well as the impact of Covid-19, the Department of Finance is currently reviewing the relief and may make recommendations to the Minister in advance of Budget 2021. Therefore, there may be changes to the regime in the Budget.  
  • The Department of Finance will closely monitor the impact of last year’s increase in the rate of Stamp Duty on non-residential property in tandem with the impact of Covid-19. This would suggest no change in the rate in the current Budget but potential changes in the future.