It’s what we do that de­fines us a coun­try, de­spite clouds loom­ing on the tax hori­zon

Sunday Independent (Ireland) - - News - TOM MAGUIRE Tom Maguire is a tax part­ner in Deloitte

THE OECD re­cently pub­lished its eco­nomic fore­cast sum­mary for Ire­land, say­ing that eco­nomic ac­tiv­ity is pro­jected to re­main ro­bust but to ease grad­u­ally. It notes the Govern­ment should re­main com­mit­ted to im­prov­ing the fis­cal po­si­tion and be ready to ease the fis­cal stance to mit­i­gate the im­pact of po­ten­tial fu­ture events. It also said that changes in the in­ter­na­tional tax regime could af­fect FDI de­ci­sions by multi­na­tion­als, pos­ing “a sig­nif­i­cant risk for Ire­land”. The Taoiseach made a sim­i­lar point at the re­cent Fu­ture Jobs Sum­mit.

The OECD also ar­gues that prop­erty prices may in­crease more strongly than pro­jected, which would fur­ther boost con­struc­tion ac­tiv­ity in the near term but “may lay the foun­da­tion for an­other boom-and-bust cy­cle” if as­so­ci­ated with an­other surge in credit growth.

Fi­nance Min­is­ter Paschal Dono­hoe made sim­i­lar com­ments on the in­ter­na­tional tax front in a re­cent speech to Char­tered Ac­coun­tants Ire­land.

He ex­plained that “cor­po­ra­tion tax, and global tax re­form, re­mains very high on the in­ter­na­tional po­lit­i­cal agenda” and that “the in­ter­na­tional tax land­scape is con­tin­u­ing to change and the key ques­tion re­mains as to how this can be achieved in the safest way pos­si­ble”.

His view was that this was “best achieved by global con­sen­sus at the OECD”. He went on to say that “changes must be de­signed for the long term. For a sit­u­a­tion whereby the call for quick fixes in this area are met is a cause for con­cern”. You can see his point.

The in­ter­na­tional tax threat will al­ways be with us un­less we en­sure that we com­pete ap­pro­pri­ately. By “com­pete” you’ll know I re­ally mean “win” as com­pet­ing and los­ing costs us euro.

The OECD and the EU are suggest­ing changes to coun­tries’ tax laws which we will have to put through.

To be clear, we are. How­ever, it’s the “how” and not the “why” we do that that mat­ters. The devil will al­ways be in the de­tail and while we have to amend our law in line with these pro­pos­als we don’t have to give them the gold-star treat­ment. When I was in school, the pupils with the gold stars had it good in the class­room but not so great in the school­yard which was our real world back then.

Don’t get me wrong, we al­ways ad­here to the rule of law.

For ex­am­ple, this year’s Fi­nance Bill, which has now passed through Dail Eire­ann, brought about pro­vi­sions for Con­trolled For­eign Com­pa­nies (CFC) which ef­fec­tively al­lows us to tax other coun­tries’ money where Ts and Cs are met. We’ve had to do that be­cause the EU’s Anti-Tax Avoid­ance Di­rec­tive (ATAD) said so. How­ever, other coun­tries have such rules while of­fer­ing the quid pro quo of not tax­ing for­eign div­i­dends re­ceived by com­pa­nies in those coun­tries where other Ts and Cs are met.

We’ll tax such for­eign div­i­dends even with these new-fan­gled CFC rules. OK we’ll give a credit for for­eign tax on those div­i­dends but that’s a whole heap of com­plex­ity or hoops which tax­payer com­pa­nies will have to jump through here and in the end may still give rise to an Irish tax charge. Sim­plic­ity eats com­plex­ity for break­fast and can cost us euro.

To be fair there will be a pub­lic con­sul­ta­tion on this is­sue next year but in the mean­time, hoop-jump­ing is re­quired.

We have also brought about an ‘exit tax’ to so­lid­ify the 12.5pc rate ap­ply­ing on la­tent gains in­built in as­sets where, among other events, a com­pany moves its cen­tre of man­age­ment to a lo­ca­tion out­side Ire­land.

We al­ready had one of these but this new-fan­gled ver­sion was brought in a year ahead of sched­ule so no­body can say we’re not do­ing our bit for the In­ter­na­tional Tax en­vi­ron­ment.

Com­ing back to the OECD and their point on prop­erty prices, in my last col­umn I ar­gued how tax could help out.

The In­de­con re­port’s re­view of the Help to Buy scheme ex­plains that house price in­fla­tion for prop­er­ties qual­i­fy­ing for HTB are in­flu­enced by over­all build­cost in­fla­tion and other sup­ply/de­mand fac­tors.

One of our big­gest tax ex­pen­di­tures, the R&D credit, which will be sub­ject to re­view next year, boosted that sec­tor sig­nif­i­cantly. I sug­gested do­ing some­thing sim­i­lar for build­ing and site costs to re­duce house­build­ing prices — with the quid pro quo be­ing that get­ting this credit would be sub­ject to sav­ings be­ing passed to the first-time buyer as in­sur­ance against price in­fla­tion.

It’s al­most as if the OECD was hint­ing to­ward read­ing this col­umn.

On a sim­i­lar note, it’s re­ally good to know the Taoiseach reads this col­umn.

It’s re­ported that at a re­cent Fu­ture Jobs Sum­mit he said that the Govern­ment will, over the next cou­ple of years, have to ex­am­ine taxes like Cap­i­tal Gains Tax (CGT) as its rate was per­haps now re­duc­ing the fre­quency of turnover in as­sets and was hav­ing a neg­a­tive ef­fect.

I’ve been say­ing that in this col­umn for some time now.

For ex­am­ple, I’ve pre­vi­ously writ­ten here about the Tax Strat­egy Group’s (TSG) Bud­get 2019 pa­pers.

The TSG is a govern­ment think tank chaired by the De­part­ment of Fi­nance with its mem­ber­ship com­pris­ing se­nior per­sons from a num­ber of Civil Ser­vice of­fices. The TSG said as part of its Bud­get 2019 cap­i­tal taxes doc­u­ment that ab­sent “be­havioural change” a 1pc re­duc­tion in the CGT rate would lessen the tax yield by about €34m an­nu­ally. How­ever, be­hav­iours will of course change when tax goes down.

High CGT rates can lead to peo­ple hold­ing as­sets too long which can sti­fle eco­nomic growth by block­ing the ben­e­fi­cial shift­ing of re­sources from lower to higher-value uses.

It would seem the Taoiseach noted that point. This can hurt small startup com­pa­nies be­cause in­vestors may have a re­duced in­cen­tive to sell in­vest­ments in favour of newer com­pa­nies’ of­fer­ings. Chris­tian Bale in the lead role in Bat­man Be­gins (2005) said: “It’s not who I am un­der­neath but what I do that de­fines me.”

One only has to look at where we are post-fi­nan­cial cri­sis. We did and so we are de­fined. We got this.

Taoiseach Leo Varad­kar at the Aviva Sta­dium re­cently for the Fu­ture Jobs sum­mit

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