The Irish economy is now in better shape than at any time since the beginning of the financial crisis. The Minister’s key challenge was to ensure that the resources available to him were used to underpin confidence in a strong economy, continue to facilitate the creation of sustainable employment and encourage entrepreneurship.
The personal tax measures introduced include significant reductions in USC, the phasing in of a tax credit for the self-employed and a package of enhancements for entrepreneurs. The effective tax rate for the self-employed will also be brought closer to that of PAYE workers.
As expected, the most significant measures announced for businesses are the introduction of the Knowledge Development Box (KDB) and Country by Country Reporting (CbCR).
The OECD recently published its final BEPS papers. These embody a move towards better alignment of taxing rights with substance. For multinationals looking to align their IP with substance in a jurisdiction with a good tax regime and a successful track record, Ireland is a very attractive proposition. Our established regime of tax relief for expenditure on intangible assets and R&D activities, coupled with the new KDB, should provide long-term certainty on tax treatment to groups looking for an appropriate location for their IP-related activities.
However, a significant challenge will be to ensure that key management associated with such new activities is located in Ireland. Our high marginal rate of income means that Ireland will continue to struggle to compete with rival jurisdictions in attracting foreign talent to relocate here.
CbCR is also likely to present many challenges. Concerns have been raised regarding the significant administrative burden that this will place on multinationals and the confidentiality of sensitive information. Tax authorities will now have the information to analyse a wide variety of data across groups. There are fears that groups could be in a perpetual audit or enquiry cycle as tax authorities get to grips with this information.