09 Oct 2019 | 01.54 pm
Budget 2020: Corporation Tax & International Tax
New measures to combat tax avoidance
09 Oct 2019 | 01.54 pm
There is a risk in increasing public expenditure on the back of current levels of corporation tax receipts, say KPMG experts Orla Gavin (pictured), James Kelly and Carmel Logan
Amid the uncertainty of Brexit, the minister once again reiterated the firm commitment to maintain the 12.5% corporation tax rate. It has repeatedly been acknowledged that this is important in promoting certainty, stability and investment.
Irish corporation tax receipts to September 2019 of €5.8 billion represented a 13.2% year on year increase. While this is positive, the minister highlighted the risk associated with over-reliance on corporation tax, which has more than doubled since 2015 and is largely derived from a concentrated group of taxpayers and is vulnerable to broad global economic factors.
In that context, the minister has published a Fiscal Vulnerabilities Scoping Paper which sets out proposals to address the vulnerability of public finances to the level of corporation tax receipts. Overall, the analysis concludes there is a risk in permanently increasing public expenditure on the back of the current level of corporation tax receipts which may not be sustainable.
The paper goes on to propose solutions for reducing the exposure to volatility in corporation tax receipts, in particular ring-fencing of a certain “excess” portion of corporation tax receipts so that these are not used to finance permanent, structural increases in spending.
Such excess would be set aside in the Rainy Day Fund. It is suggested this approach could be complemented by base broadening/rate increases elsewhere, particularly in areas which would incentivise desirable social outcomes.
International Tax Developments
In the light of the ongoing global tax reform movements driven by the OECD and the EU, the minister confirmed the focus on ensuring a transparent, sustainable and legitimate tax regime, consistent with international best practices. He noted that Ireland would continue to work through the actions set out in Ireland’s Corporation Tax Roadmap (issued in September 2018 in response to the Anti-Tax Avoidance Directive and the Coffey Review of Ireland’s Corporation Tax Code).
The key Budget measures are:
• As part of the requirements under ATAD, the minister announced the introduction anti-hybrid measures. ATAD sets out a high level framework for counteracting hybrid mismatch outcomes which are required to be implemented into Irish law by 1 January 2020. The Department of Finance published in July 2019 a Feedback Statement which contains extracts from the proposed draft legislation. The final form of the measures will not be determined until the publication of the Finance Bill. However it is understood that Ireland’s policy intent is to adopt the ATAD framework measures but not to go beyond those measures. The new measures will seek to counteract tax mismatch outcomes arising from cross border arrangements which result in deduction without taxation or double deduction outcomes.
• Modernisation of Ireland’s transfer pricing rules, incorporating the 2017 OECD Transfer Pricing Guidelines.
• EU mandatory disclosure.
In line with the ATAD, Ireland amended its exit tax rules in 2018. The minister announced two technical amendments to the regime which took effect from Budget Day. The Irish exit tax applies by deeming there to be a disposal of assets for market value on the happening of certain events, where the assets are taken out of the Irish tax net without otherwise triggering a taxable event.
The main amendment has the impact of broadening the scope of the exit tax by removing the requirement in certain scenarios for the company transferring the asset or business to be resident in a member state, and is consistent with the requirements under ATAD.
A further amendment was made to clarify the timing of the taxable event, being the deemed disposal, in a case where the exit charge arises due to a company ceasing to be tax resident in Ireland. The clarification provides that the deemed disposal of assets by the company will take place immediately before the company ceases to be resident in Ireland.