Tax Supports for Pre-Budget 2020 Submission - Domestic Entrepreneurs - CPA Ireland
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Pre-Budget 2020 Submission
Tax Supports for
Domestic Entrepreneurs
47/49 Pearse Street, Dublin 2.Contents
1. About CCAB-I�����������������������������������������������������������������������������������������������������������������������������������3
2. Introduction����������������������������������������������������������������������������������������������������������������������������������������4
3. Brexit measures����������������������������������������������������������������������������������������������������������������������������������4
4. Taxation as part of the solution to the housing crisis�������������������������������������������������������������������������5
Rental market tax considerations����������������������������������������������������������������������������������������������������5
Tax measures to increase the stock of housing�������������������������������������������������������������������������������5
5. Environmental Taxation Measures�����������������������������������������������������������������������������������������������������7
Tax measures to reduce the environment damage of transportation�����������������������������������������������8
Tax measures to reduce the inefficiency of the built environment�������������������������������������������������8
Tax measures to encourage the development of energy technology�����������������������������������������������8
6. Tax supports for innovation����������������������������������������������������������������������������������������������������������������9
R&D tax credit reform targeted at SME sector������������������������������������������������������������������������������9
Reduce the KDB documentation burden����������������������������������������������������������������������������������������9
Technical improvements to the KDB��������������������������������������������������������������������������������������������10
Reform of Section 135 anti-avoidance rules���������������������������������������������������������������������������������10
7. Entrepreneurism in the SME sector�������������������������������������������������������������������������������������������������11
Entrepreneur relief reform������������������������������������������������������������������������������������������������������������11
Introduce CGT relief to encourage international scaling of Irish companies�������������������������������11
End the discriminatory taxation of the self-employed������������������������������������������������������������������12
8. Funding the SME sector�������������������������������������������������������������������������������������������������������������������12
Employment and Investment Incentive reform�����������������������������������������������������������������������������12
Tax relief for equity investment by company founders�����������������������������������������������������������������13
2 CCAB-I Pre-Budget Submission 20201. About CCAB-I
The Consultative Committee of Accountancy Bodies – Ireland is the representative committee for
the main accountancy bodies in Ireland. It comprises Chartered Accountants Ireland, the Association
of Chartered Certified Accountants, the Institute of Certified Public Accountants in Ireland, and the
Chartered Institute of Management Accountants.
Dr Brian Keegan, Director of Public Policy and Taxation (brian.keegan@charteredaccountants.
ie, 01-6377347) or Norah Collender (Norah Collender @charteredaccountants.ie, 01-6377206) at
Chartered Accountants Ireland may be contacted if any further details in relation to any points made in
this submission are required.
CCAB-I Pre-Budget Submission 2020 32. Introduction
The theme of this year’s Pre-Budget submission from the CCAB-I is on tax initiatives to support
domestic entrepreneurs. Ireland has the best in class tax regime in place for attracting foreign direct
investment however in contrast; the tax regime offered to domestic entrepreneurs is severely neglected
in terms of effective tax supports and is uncompetitive by international standards. The opportunity to
introduce measures to nurture our domestic entrepreneurial sector in Budget 2020 should not missed
given Ireland’s over reliance on tax revenue from a small number of mobile multinational corporates and
the spectre of a chaotic exit by the UK from the European Union.
In this submission, the CCAB-I presents a number of sensible tax initiatives along with a number of
amendments to established tax rules for the benefit of our domestic entrepreneurial sector so they can
grow, employ more workers and generate self-sustaining economic prosperity.
3. Brexit measures
Key points
• Substantial resources must be provided to Revenue to adequately deal with the
increased volume of customs compliance arising on foot of Brexit.
• Continue the nationwide customs seminars to help traders prepare for customs obligations.
• Extend support measures announced in 2018 for SMEs and the agri-food sector.
Regardless of the exact form of the future relationship between the EU and UK, Brexit will mean a very
different trading environment for Irish traders as many will face customs administration for the first time
when trading with the UK.
Revenue has stated1 that currently it’s IT system handles 1.4 million customs declarations per year and
this number is expected to increase to 20 million after Brexit. It is imperative that Revenue is adequately
resourced to support the new customs measures. It’s IT systems must be fully functional to cope with the
extra filing demands and to support traders using the customs electronic systems.
Feedback from the membership of the CCAB-I indicates that businesses view the administrative burden
of customs obligations as an even bigger challenge than the imposition of tariffs. Educational support is
therefore very important for traders dealing with customs administration for the first time. Revenue will
have to continue engaging with traders in terms of information seminars and online guidance and this
no doubt will place a resourcing strain on Revenue which should be budgeted for now in the lead up to
the UK’s exit from the EU.
We suggest that a nationwide educational campaign, similar to the recent PAYE Modernisation
campaign, be undertaken in the form of information communicated by radio, social media and by email
to explain customs requirements to traders. We acknowledge the valuable work already carried out by
Revenue in this area in terms of the nationwide customs seminars and we encourage the continuation of
this work as an important support for Irish traders.
A series of measures to help SMEs and the agri-food sector plan for Brexit were announced in 2018
which we would like to see extended. In particular, the Future Growth loan scheme for certain businesses
as announced in Budget 2019 should continue and additional resources should continue to be made
available to Local Enterprise Offices to support local businesses as well as continued investment in the
agri-food industry through funding from state bodies such as Bord Bia.
Opening Statement of Niall Cody, Revenue Chairman, to the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach,
1
24 January 2019
4 CCAB-I Pre-Budget Submission 20204. Taxation as part of the
solution to the housing crisis
Key points
• Amendments to the manner in which landlords are taxed could help stem the flow of
landlords leaving the rental property market.
• Introduce an industrial/commercial site conversion tax relief and re-introduce reliefs for
the removal and relocation of certain industrial facilities to free-up city centre sites for
residential development.
• Relax the 75% ratio of residential units to total surface area of the land to qualify for
the Stamp Duty Refund Scheme
Rental market tax considerations
Serious concerns are regularly relayed to our members by Irish businesses and international businesses
wishing to establish and/or scale up activities in Ireland in terms of the shortage of residential rental
accommodation. It is increasingly difficult for businesses to attract or retain employees given the high
salary rates necessary to pay Irish rents. Ireland also faces a spiralling homelessness crisis with the latest
figures showing a record high of 10,264 people as having no home as of February 20192. The supply
shortage in residential rental accommodation continues to be exacerbated by the fact that landlords are
selling up and leaving the residential rental market.3
The tax system could be effectively harnessed to encourage landlords to stay in the residential property
market and to encourage much needed new entrants to meet the supply shortage. The following tax
amendments should be considered:
• In the context of taxing rental profits earned by an active class of professional landlord, we suggest
that the broader based deduction for financing costs under Case I principles should apply. This
would mean a deduction for expenses that are revenue in nature and incurred wholly and exclu-
sively for the purposes of the rental business.
• Professional landlords should be given access to succession reliefs such as CGT retirement relief
available to other business owners in an effort to improve the long term investment proposition of
the residential rental business.
• We are aware of the various Government commissioned reports on the matter to the contrary but
we see no policy reason to prohibit LPT as a deductible expense for the purposes of establishing
net rental income for tax purposes.
• Rental losses should be allowed as an offset against a landlord’s other income for example PAYE
income or self-employment income.
• Tax relief on capital expenditure qualifying as fixtures and fittings should be allowed as an
offset against taxable rental income over 4 years compared to the current rules which spread the
tax write-off over 8 years for the purposes of encouraging better standards in rental properties.
2
www.focusireland.ie – Latest Figures on Homelessness in Ireland
3
The number of properties available to rent on 1 May 2019 was 2,700 - the lowest stock of rental properties advertised on Daft.ie in a series
which dates to 2006 according to Daft Rental Price Report 2019 for Quarter 1
CCAB-I Pre-Budget Submission 2020 5• The CGT rate on gains arising from the sale of rental properties rented for a fixed period of time
should be reduced from 33 percent to 20 percent to encourage the capital investment proposition
of rental properties.
Tax measures to increase the stock of housing
Along with rental market considerations, another dimension of the housing crisis is the shortage of
new residential developments. During the Celtic Tiger years many housing developments were built
in the wrong locations and during the recession years, little or no housing development was carried
out anywhere. The country has started building again, with 18,072 new builds completed last year4 but
new housing stock is 43 percent behind the target pledged by the Government under the Rebuilding
Ireland scheme.5 Layered on top of the target short-fall are the risks posed by Brexit with research by the
Construction Industry Federation (CIF) suggesting that construction will become even more expensive on
foot of Brexit.6 More residential development is urgently needed and it is most needed in urban locations
close to where people work.
The merits of using the tax system to incentivise a more rapid response to the housing crisis must be given
serious consideration by Government. In particular, the following tax initiatives should be explored.
An Industrial/commercial site conversion tax relief
Land traditionally used for industrial or commercial purposes is located in many city centre sites and
this land could now be more appropriately used for residential redevelopment. We recommend the intro-
duction of an industrial/commercial site conversion relief in the form of a reduced 20% CGT rate for a
targeted period of time on sales of industrial/commercial sites to be used for residential redevelopment.
This incentive is consistent, for example, with Dublin City’s Development Plan 2016 – 20227 strategy
which is actively investigating opportunities to convert industrial land in the city for housing develop-
ment. Many of the sites considered for rezoning in the Development Plan are held in private ownership
and Dublin Council notes that they hope a change in zoning of these sites will “encourage” owners to
either sell, or form land development partnerships. A targeted tax relief as outlined above could be the
incentive needed to encourage landowners sell the land for redevelopment as residential housing as part
of the rezoning strategy.
Reliefs for the Removal and Relocation of Certain Industrial Facilities
Consideration should also be given to reinstating reliefs in Part 11D of the Taxes Consolidation Acts
1997 for the Removal and Relocation of Certain Industrial Facilities. These reliefs took the form of
increased capital allowances and relocation allowances to facilitate the removal and relocation of poten-
tially dangerous activities in the interests of public safety.
There was very little capital available in Ireland for companies to fund the relocation of such activities
during the original timeframe in which the relief was available from 1 January 2009 to 31 December
2013 and uptake was not optimal. However a reintroduction of the reliefs for a set period from 1 January
2020 to 31 December 2027 should lead to an increase in the supply of suitable land in city centre loca-
tions for residential redevelopment while also better serving the purposes for which the provisions were
originally introduced.
Stamp Duty Refund Scheme (SDRS)
The CCAB-I propose an amendment to the conditions of the SDRS. With effect from 11 October 2017,
the rate of stamp duty on the acquisition of non-residential property increased from 2 percent to
6 percent. However, in recognition of the housing supply challenges in Ireland and to encourage
4
Housing Agency, Housing Supply Requirements in Ireland’s Urban Settlements 2016 – 2020
5
Rebuilding Ireland Action Plan for Housing and Homelessness
6
CIF and PWC Brexit Report February 2019
7
Dublin City Council Update on Review of Industrial Lands (Z6/Z7) in the City – Report No. 82/2019
6 CCAB-I Pre-Budget Submission 2020residential property development, a SDRS was introduced whereby a refund of the difference between
the previous non-residential rate of 2 percent and the current rate of 6 percent may be claimed in respect
of land developed for residential purposes.
One of the conditions of the relief is that the residential units account for at least 75 percent of the total
surface area of the land. This percentage requirement is not aligned with the current Government strat-
egy of encouraging mixed use developments to enable people to live closer to where they work8 with
many redevelopment areas across the country zoned for mixed use proposes according to various Local
Area Plans9.
The residential unit test under the SDRS should therefore be amended to allow for a stamp duty
refund where the residential development meets either the 75 percent test, or where lower, it meets
the proportion of residential units set out in the relevant Local Area Plan or city and county council
development plans.
5. Environmental
Taxation Measures
Key Points
• Use funds from increased carbon taxation to fund targeted reliefs to support changes in
business behaviour to help Ireland meet its greenhouse emissions target reductions.
• Extend the BIK exemption for electric cars and include plug-in hybrid vehicles as
qualifying for the exemption.
• Introduce a version of the Home Renovation Incentive to encourage homeowners and
landlords to retrofit their properties to achieve energy efficient rating targets.
• An enhanced form of the R&D tax credit could be used to fast track the development of
technology to make renewable forms of energy cheaper and more readily available to
businesses and households.
The recent report from the Oireachtas Committee on Climate Action recommends incrementally
increasing carbon taxation from €20 per tonne of CO2 to at least €80 per tonne of CO2 by 2030.
The report also recommends that the increased revenue generated from carbon taxation be ring-fenced
separately from general Exchequer funds.
As noted in the Oireachtas Committee’s report, Ireland’s response to climate change has been
insufficient with the reduction of greenhouse gas (GHG) emissions in Ireland falling substantially
short of international targets agreed to by Ireland. Emissions are expected to increase rather than
decrease in line with projected economic growth and there are significant challenges in terms of
decarbonising transport, agriculture, energy and housing with no clear national plan on how to over-
come these challenges.
While increases to carbon taxation is certainly a direct tool to influence behavioural change, the CCAB-I
suggest that a refinement of established tax reliefs could also be a very effective approach in terms of
influencing behavioural change for the good of the environment. A two-pronged approach of increased
carbon taxation and targeted tax reliefs will also serve the recommendation of the Oireachtas Commit-
8
Project Ireland 2040
9
Local Area Plan for the South Docks in Cork City and the Mixed Use plans for the Kings Island area of Limerick City
CCAB-I Pre-Budget Submission 2020 7tee on Climate Action that the taxpayer should see a direct link between taxation and a return on his or
her behavioural adjustment. The following is a sample of how established tax reliefs could be refined to
encourage environmentally friendly activities.
Tax measures to reduce the environment damage of transportation
There are approximately 6,500 electric vehicles currently on Irish roads and the pace of take-up is
accelerating with the Committee on Climate Action hearing evidence that the number of electric
vehicles doubled in 2018. The Committee recommends the continuation of incentives to encourage
early adopters of electric vehicles, including the Sustainable EnergyAuthority of Ireland (SEAI)
purchase grants, Vehicle Registration Tax (VRT) rebates and offering motor tax and road toll exemptions.
It is notable that the number of electric vehicles are reported to have doubled in 2018, which is the
same year that a benefit-in-kind exemption was introduced for electric company cars. The BIK exemp-
tion was extended in Finance Act 2018 from 12 months to three years. We suggest that this exemption
should be retained until such time as Ireland achieves its GHG emission reduction targets. The use of
environmentally friendly vehicles as part of the business car fleet could be further encouraged through
an extension of the BIK exemption to plug-in hybrid vehicles.
Tax measures to reduce the inefficiency of the built environment
The Oireachtas Committee on Climate Action highlights the urgent need to retrofit the majority of
Ireland’s housing stock in order to reduce emissions from heating. The use of a tailored scheme similar
to the Home Renovation Incentive (HRI) should be considered as a means of encouraging homeown-
ers and landlords to retrofit their properties to achieve energy efficient rating targets. While the HRI
ceased on 31 December 2018, it was highly effective in achieving its purpose of stimulating increased
activity in the construction sector, boosting employment and moving construction activity out of the
shadow economy. The CCAB-I suggests that an environmentally focused scheme could be modelled on
the HRI online application facility and could successfully drive energy efficient retrofit targets over a
set period of time.
Tax measures to encourage the development of energy technology
The Oireachtas Committee on Climate Action’s report notes that in order to reach a target of net zero
emissions by 2050, Ireland must fully decarbonise electricity generation. The report recognises that new
technologies will be required to develop solutions in energy production and storage and carbon seques-
tration. The CCAB-I suggests that an enhanced form of the R&D tax credit could be used to fast track
the development of technology to make renewable forms of energy cheaper and more readily available
to businesses and households alike. The R&D tax credit has an established administrative infrastructure
which could be refined to encourage renewable energy technological research and development neces-
sary to support Ireland’s net zero emissions targets.
8 CCAB-I Pre-Budget Submission 20206. Tax supports for innovation
Key Points
• Accelerate R&D tax credit refunds from 33 months to 12 months for start-up SME
companies.
• Simplify the KDB documentation burden for the SME sector.
• Adjust technical aspects of the KDB rule to ensure Ireland’s patent box offering is best
in class while still remaining compliant with the EU/OECD Modified Nexus approach.
• Anti-avoidance rules for Section 135 TCA 1997 must be amended to ensure that bona-fide
transactions are not impacted.
R&D tax credit reform targeted at SME sector
The CCAB-I notes the recent launch of a review of the R&D tax credit by the Department of Finance
and we will respond in due course to the consultation.
The R&D tax credit is a tried and tested tax policy success. Its continuance is fundamental to the growth
of indigenous and multinational investment in innovation in Ireland. Statistics on the cost of the R&D
tax credit as a tax expense to the Exchequer are from time to time the subject of media attention. How-
ever, it is important to note that the R&D tax credit is responsible for considerable tax revenue in terms
of PAYE raised from jobs created in the innovation sector.
A recent EY study10 identified over forty countries which offer R&D tax incentives demonstrating
international competition of foreign direct investment. The Irish regime, while applying best standards
internationally, must remain competitive when measured against the offerings in other countries.
The CCAB-I recommends accelerating R&D tax credit refunds from 33 months to 12 months for
start-up SME companies. This change would represent a cashflow cost rather than an additional cost to
the exchequer. However, it would improve the cashflow position of many SMEs who are cash strapped
and allow them accelerate their R&D cycle. The R&D tax credit infrastructure is already in place and is
proven in its effectiveness as a meaningful tax relief from the taxpayer’s perspective and it is also a well
regulated relief from Revenue’s perspective. Therefore supports for the SME sector via the R&D tax
credit is an appropriate fit for policy measures aimed at encouraging productivity and growth of Irish
firms and SMEs.
Reduce the KDB documentation burden
In last year’s Pre-Budget submission, the CCAB-I expressed optimism on the potential of the Knowl-
edge Development Box (KDB) to drive innovation for the benefit of the SME sector while recognising
the fact that the relief was still a relatively new tax incentive. However, a year on and difficulties due to
the complexity of the conditions underpinning the relief are coming more and more to the fore for our
members advising clients wishing to access the KDB.
In order to comply with OECD guidance, section 769L TCA 1997 sets out very specific and extensive
documentation requirements which must be complied with in order to claim the relief. The CCAB-I
suggest that more work by the Government is required to simplifying the documentation rules for SMEs
in particular and to align KDB rules more closely to the R&D tax credit for the purpose of encouraging
optimal uptake of the relief. Guidelines in relation to the level of required documentation, tracking and
should be supplemented by specific examples as more cases are reviewed by Revenue.
10
EY, Worldwide R&D Incentives Reference Guide, 2018
CCAB-I Pre-Budget Submission 2020 9Technical improvements to the KDB
Ireland’s KDB regime is compliant with the Modified Nexus approach which is the standard for
patent box regimes adopted by both the EU and the OECD Forum for Harmful Tax Practices (FHTP).
We recommend a number of technical changes to bring Ireland’s KDB in line with the revised Patent
Box in the UK and to ensure that the Irish regime remains best in class while still remaining compliant
with the EU/OECD Modified Nexus approach.
Impact of relief under the KDB on the R&D cash refund
In circumstance where the corporation tax liability of a company for the period is reduced by a claim to
relief under the KDB, the legislation provides that the reduction in corporation tax liability is ignored for
the purposes of computing a cash refund available under the R&D tax credit regime. As a result, a lesser
excess is potentially available by way of a R&D tax credit cash refund to the company. This restriction
is unfair given the fact that KDB and R&D tax credit support two very different stages of activity in
the business cycle. The target of the KDB is to provide taxpayer relief on qualifying income arising to
the company from completed R&D activity. In contrast, the R&D tax credit is designed to afford cash
tax savings to companies engaged in R&D activities. In our view, the objective and effectiveness of the
R&D tax credit in supporting continuing R&D activity in Ireland is undermined where the taxpayer
is penalised for successful exploitation of the output of past R&D activity and this restriction should
be removed.
Measure of KDB profit subject to the Modified Nexus formula
Companies, whether MNCs or early stage SMEs, often licence in the rights to assets under development
which, following additional R&D activity by the company, are then developed to become potentially
qualifying assets for the purposes of a claim to relief under the KDB regime.
We suggest that the measure of qualifying profits for KDB purposes should be adjusted, before appli-
cation of the Modified Nexus formula, for amounts of acquisition expenditure included in the Modified
Nexus formula that have already been deducted in computing the profits of the KDB trade. Not making
this adjustment has the effect of restricting the deduction for the expenditure (by both deducting it from
taxable KDB profits and including it in the denominator of the Modified Nexus formula).
R&D expenditure incurred by a branch
We suggest that KDB rules should allow a company to include R&D activity which is carried on by it
through a branch (whose profits are taxable in Ireland) by treating the R&D expenditure of the branch
as qualifying R&D expenditure of the company itself in the Modified Nexus formula. In the case of
branch expenditure, we are not suggesting that Ireland should broaden the scope of expenditure which
is potentially eligible for the R&D tax credit regime to include expenditure incurred on R&D conducted
by foreign branches. Instead, we suggest that, should the company meet the conditions to claim KDB
relief on the future exploitation of outcomes of its R&D activity, the R&D activity of the branch should
be taken into account for the purposes of claiming the KDB relief.
Reform of Section 135 anti-avoidance rules
Finance Act 2017 (FA 2017) introduced additional anti-avoidance measures to section 135 TCA 1997
which have adversely impacted on genuine standard commercial transactions and Management Buy
Outs (MBOs) for close companies in Ireland. The key issue is that the legislation as worded in section
135 TCA 1997 on foot of FA 2017 does not include a bona fide test and genuine MBOs are not excluded
from the punitive income tax treatment imposed by this measure. The contradictions on how the legis-
lation is intended to operate and the actual wording of the legislation has not been resolved by guidance
produced by Revenue.
10 CCAB-I Pre-Budget Submission 2020There is also uncertainty on the interaction of section 135 TCA 1997 and the tax treatment of disposals
of shares acquired under the Employment and Investment Incentive scheme (EIIS) which has negative
implications for the uptake of investments in start-up companies. The Key Employee Engagement
Programme (KEEP) is also be impacted by the extended anti-avoidance provisions of section 135 TCA
1997 which will erode the very tax incentives underpinning KEEP.
Guidance from Revenue in relation to section 135 TCA 1997 and guidance on how section 135 TCA
1997 interacts with other tax provisions cannot hope to capture the wide range of potentially affected
commercial transactions. The only remedy is to ensure that this provision is corrected in Finance Act
2019 with the addition of a bona fide test into the text of the Finance Act. It is our members’ expe-
rience that genuine standard business transactions are being impacted and this in turn is supressing
growth and development of Irish companies which are typically small family run operations.
7. Entrepreneurism
in the SME sector
Key points
• Increase the life-time cap for Entrepreneur relief from €1 million to €10 million.
• Remove technical impediments to Entrepreneur relief for businesses with group
structures.
• Introduce a CGT tapering relief to encourage Irish companies to scale internationally.
• Self-employed taxpayers should be to the same income tax and USC credits and rates as
PAYE taxpayers.
Entrepreneur relief reform
The CCAB-I notes the recent launch of a review of Entrepreneur relief by the Department of Finance
and responded to that consultation. The 10% CGT rate for entrepreneurs was introduced with the
objective of using tax policy to encourage entrepreneurship in Ireland as part of the Government’s
“Build Your Business Initiative”. Ireland excels in attracting market leading business from across
the globe to invest here; we are less successful in developing indigenous business which can become
global leaders. Particularly in the context of a changed competitive environment post Brexit, we sug-
gest that significant limitations to the relief should be addressed in Finance Act 2019 for the purpose
of achieving the stated government policy objectives.
Entrepreneur relief applies a reduced CGT rate of 10% on qualifying gains of up to €1million in a ven-
dor’s lifetime. The lifetime cap of qualifying gains of €1million should be increased to €10million for the
purposes of encouraging a strong competitive environment to attract and retain scaling SMEs.
Another obstacle to accessing this relief is the manner in which the technical definition of a qualifying
group of companies is framed which means that sales of shares in many standard commercial corporate
structures can be prohibited from benefiting from the reduced rate.
Introduce CGT relief to encourage international scaling of Irish companies
There is a huge emphasis on attracting FDI in the Irish tax system which is highly commendable and
important in terms of job creation and growth for the Irish economy. Perhaps equal thought could
CCAB-I Pre-Budget Submission 2020 11be given to using the tax system to support Irish corporate success in terms of international business
expansion. A CGT tapering relief should be considered on the sale of shares as an tax offering to encour-
age an Irish company founder and management team to grow and scale a company internationally with
the reward of a reduced CGT rate based on a function of the length of time spent working full time for
the company along the following lines:
• Worked from 0 - 5 years – 33% rate of CGT on a sale of shares
• Worked from 5 – 10 years – 16.5% rate of CGT on a sale of shares
• Worked from 10 years and over - 8.25% rate of CGT on a sale of shares
As a small open economy which is constantly reminded of our dependence on FDI, there is certainly
a valid national basis for the Government to use the tax system to encourage Irish business to grow
outwards and develop overseas operations and markets.
End the discriminatory taxation of the self-employed
The income tax treatment of self-employed individuals continues to be harsher than the income tax
treatment of employed individuals. The CCAB-I calls for Budget 2020 to once and for all end this
discrimination through the introduction of an earned income tax credit of equal value to the PAYE tax
credit and removal of the additional 3% UCS charge imposed on self-employed individuals.
8. Funding the SME sector
Key points
• The EII Scheme is curtailed by EU state aid requirements and self-certification has
introduced additional risk to what is already a high risk investment proposition.
• Changes could be made to the CGT treatment of EII investments which make the EII
investment more attractive with still complying with EU state aid requirements.
• A reduced rate of tax on dividends taken from SME companies after a set number of
years would encourage long term equity investment and would restore much needed tax
relief for company founders.
Employment and Investment Incentive (EII scheme) reform
The CCAB-I notes the recent launch of a review of EII scheme by the Department of Finance and
responded to that consultation. Finance Act 2018 (FA 2018) did respond to concerns raised by businesses
on the stifling impact of the EU General Block Exemption Regulation (GBER) for State Aid on the EII
scheme in recent years. However, there is still some way to go in the rehabilitation of this tax incentive
so that it can fulfil its purpose of encouraging investment in early stage and small business with limited
funding options.
Among the measures introduced by FA 2018 is self-certification for qualification for EII scheme
purposes on both the company and the investor. If a company makes an incorrect statement of qualifi-
cation, the company is liable to corporation tax on an amount 1.2 times the initial 30/40ths of the relief
given or such part of that amount that does not qualify for relief. A high degree of interest exposure
also arises in the case of a clawback of relief due to an incorrect certification along with penalties. The
investors must also certify that they have met the various investor conditions, and relief is clawed back
from the investor if he/she incorrectly self-certifies. Therefore a great deal of additional financial risk is
introduced as a result of self-certification for a sector which is already high risk as a start-up operation
12 CCAB-I Pre-Budget Submission 2020or small scale company. The risk of getting self-certification wrong is too high for many and based on
views expressed to our members, the EII scheme is not worth the long term uncertainty and exposure
to Revenue scrutiny and potential clawback of relief and consequential interest and penalties. In order
to address some of the risk associated with self-certification, additional detailed worked examples of
common mistakes of self-certification should be included in guidance from Revenue.
In an effort to counter the impact of the restrictions imposed by GBER and the added risk of
self-certification, the CGT treatment of gains and losses on EII investment should be reconsidered.
For example, a capital loss arising on the disposal of EII shares should be available for offset against
other gains arising to the investor in addition to the income tax relief he/she receives on making the
original investment. An EII investor should also be eligible for Entrepreneur relief with a 10% CGT rate
applying on the gain arising on the disposal of the shares. The availability of CGT loss relief and access
to Entrepreneur relief for EII investors are features of the UK’s EIIS regime which is understood to be
compliant with EU state aid requirements. As these features comply with EU state aid requirements,
Ireland should adopt similar measures to make EII investments more attractive.
Tax relief for equity investment by company founders
With the exception of micro companies qualifying under the start-up capital incentive, company found-
ers and connected parties are generally precluded from claiming tax relief under the EII scheme. This
restriction closes the door to tax relief for the traditional early stage investor and some alternative tax
measure should be considered to encourage investment for start-ups who by their very nature face
limited finance options.
The CCAB-I suggests that founders, and connected parties, of start-up SMEs could benefit from a
reduced rate of income tax on dividends paid by their companies once the company has been trading for
a set period of five years, for example. This incentive would encourage the founder and his/her friends
and family to invest equity on a new start-up, retain funds in the company for growth and development
during the start-up phase and provide a mechanism for a tax efficient reward in return for risk while still
retaining ownership of the company.
CCAB-I Pre-Budget Submission 2020 13ISSUE NO 10
DECEMBER 2018
tax.point
CCAB-I
MONTHLY TAX JOURNAL FOR CHARTERED ACCOUNTANTS AND CHARTERED TAX ACCOUNTANTS
TAX APPEALS IRELAND
Corporation
COMMISSION - REVIEW Tax Roadmap
The Consultative Committee of Accountancy Bodies – IrelandDECISIONS
OF RECENT is an umbrella
group of the accountancy profession in Ireland. By Eoin O’Shea UK
Making Tax Digital
BREAKING DOWN
It was established in 1988 to coordinate the representation functionsTHIS
of the INTERNATIONAL
YEAR’S DRAFT FINANCE
participant professional bodies in areas of common interest to the profession. Austrian Presidency
It has a number of committees which respond toBILL CLAUSESand regulatory
Government pushes Digital Tax
initiatives in their respective areas. By Neville Crowe
BREXIT
An embattled UK
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