Speech
Speech by Minister Paschal Donohoe TD Irish Tax institute
Published on
Last updated on
Published on
Last updated on
I would like to thank Marie Bradley, President of the Irish Tax Institute, for inviting me here this evening to address you as the guest of honour.
It gives me great pleasure to once again speak at what is one of the highlights of the calendar for everyone working in the world of taxation.
The occasion to address over 1,000 guests from across, the public and private sector, with the best and brightest of the tax profession, as well as many other related fields, is one I enjoy and look forward to.
It provides an extremely useful opportunity to reflect on the journey we have taken together in recent years and also to chart what the future is likely to hold over the coming months and years.
The pace of change in the Irish tax code this last few years, as I am sure everyone in this room will appreciate, has been immense.
As a small open economy Ireland is particularly exposed to external international factors which are beyond my control as Minister for Finance, as has been highlighted by the various international developments of recent years which pose challenges to the Irish economy. What is in my control is how we react and adapt to face those challenges.
I recently visited both the east and west coast of America, engaging with stakeholders and assuring them that, while the world is changing, Ireland will remain committed to having a stable business environment which continues to be attractive for foreign domestic investment.
I reiterated my steadfast commitment to the 12.5% rate of corporation tax, which is the foundation upon which Ireland’s competitiveness is built.
Given the significant level of recent change and the changes yet to come, I felt it important to offer as much stability and certainty as possible to all of you here this evening.
It was with that in mind that I published Ireland’s Corporation Tax Roadmap last September.
This Roadmap outlines how far we have come together and the next steps that we will take together.
In order to maintain Ireland’s competitiveness it is vital that we are operating from a stable platform bound by the code of international best practice in tax law.
This sends a strong signal that Ireland is committed to delivering a stable and sustainable operating environment for business now and into the future.
On international taxation I have always maintained that global solutions are required for the global economy.
The OECD has proven to be the most effective forum in delivering change to the international taxation standards.
The OECD BEPS project was the most ambitious international tax project ever seen with the Recommendations still in the process of being transposed into legislation across the globe.
This process involves the transposition of the EU Anti-Tax Avoidance Directives and you are all aware that CFC rules and an amended exit tax were introduced in Finance Bill 2018.
This, together with our long-standing General Anti-Abuse Rule, means that we have already satisfied our obligations for 3 of the 5 ATAD articles.
CFC rules are a new feature for the Irish tax system and the legislation benefitted from a very positive engagement process between Revenue and Finance officials and a wide range of industry stakeholders.
My decision to introduce the exit tax early, at the trading rate of 12.5% was also influenced by stakeholder concerns about uncertainty and the need to provide a stable landscape for long-term investment in Ireland.
Another BEPS Recommendation was implemented last month when Ireland deposited the Multilateral Instrument with the OECD.
This will implement a series of tax treaty measures which update the international tax code and reduce the opportunity for tax avoidance by multinational companies.
As companies change how they operate in response to BEPS and no longer locate assets in countries where they have no substance, the tax profession and tax professionals have an important role in ensuring that the new structures used are legitimate, and ensure that tax is paid where value is created.
I have shown that I will take action to shut down loopholes which emerge, as I have demonstrated with the so called ‘Single Malt’ structure.
Such structures, while seemingly scarcely used, damage to Ireland’s reputation. We have a shared responsibility to address this but I have the responsibility to act when necessary. I will continue to do so.
Frequently Ireland does not get the recognition it deserves, we have been proactive in taking action domestically to review and update our regime to ensure that it is robust and defensible.
We have also been fully engaged with international tax reform and were among the first countries to both sign and deposit the multilateral instrument, we are one of only 24 countries fully compliant with the OECD Global Forum on tax transparency and exchange of information, we have delivered legislative reform negotiating and implementing the Anti-Tax Avoidance Directives and Directives on Administrative Cooperation.
It is important that international tax reform is seen to be successful in ensuring companies pay tax in countries where they generate value.
The appetite of OECD members is to ensure that an appropriate level of tax is paid by all companies.
This appetite will not be satisfied until a long-term, sustainable, and fair solution is implemented.
The next OECD project is addressing the Tax Challenges of the Digitalisation of the Economy, which is currently open for public consultation.
This seeks to develop the international tax framework to incorporate modern business structures and ensure that new forms of value creation are taxed properly.
I will engage in the OECD negotiations constructively seeking to build on the existing international corporation tax framework and continuing to ensure that significant tax is paid where real and substantive activity is located.
I will also seek to ensure that any changes do not disproportionately prejudice small open economies who seek to attract real substantive foreign direct investment.
Turning now to the domestic economy, Irelands Corporation Tax Roadmap outlines the next steps in updating our corporation tax code and the volume of work ahead of us all is considerable.
Work is ongoing on the submissions received to the interest and hybrids consultation and on Monday I launched a public consultation on updating Ireland’s transfer pricing rules, this remains open until the 2nd of April.
I invite you to continue to engage with these processes to inform the ongoing programme of legislative reform.
Amendments to be delivered in this year’s Finance Bill will ensure that Ireland’s transfer pricing rules are fully effective in ensuring that tax is paid where value is created and do not facilitate the transfer of profits to jurisdictions other than where value is created.
Further transparency is inevitable.
There is a particular focus on the tax profession and you will be aware that this year’s Finance Bill will also include the transposition of the DAC6 Directive on Mandatory Disclosure into Irish legislation.
The Dispute Resolution Mechanism Directive, which will provide an important framework for resolving tax disputes, will also be delivered by July this year through Regulations.
This ambitious programme of legislative updates will take place against the uncertainty brought about by Brexit.
In relation to Brexit, the Government remains firmly of the view that the only way to ensure an orderly withdrawal of the United Kingdom is to ratify the Withdrawal Agreement, as endorsed by the European Council and agreed with the British Government.
The European Council has made clear that it stands by the Withdrawal Agreement and that it is not for renegotiation.
Under a disorderly exit of the UK from the EU, analysis shows that the Irish economy could be 4¼ percent smaller than the current projections over the medium-term.
Employment would increase more slowly and the unemployment rate could rise by 2 percentage points.
The public finances would deteriorate, the modest surplus projected for 2020 would turn to deficit.
The appropriate fiscal strategy is to allow the public finances absorb the shock, the in-built automatic stabilisers will provide the first line of defence for our economy. Over the medium term increased capital expenditure together with the sound current economic platform would allow for continued economic growth following the initial shock of a disorderly exit.
As Minister for Finance, my objective is to protect the economic and financial interests of the State and to support the work of the Revenue Commissioners so as to minimise the Brexit disruption to trade, to the greatest extent possible.
My Department is working within the whole-of-Government approach and today published an Omnibus Brexit Bill containing specific tax legislation which will be used in the event of a no-deal Brexit.
Included in the Bill are specific provisions to protect the position of taxpayers and the State in the event of the UK leaving the European Union without a deal on 29th March.
One measure that will be of particular interest to business is the introduction of postponed accounting for VAT purposes in order to mitigate against a cash-flow burden that would arise for businesses trading with the UK.
Under postponed accounting, importers will not pay import VAT at the point of entry but will instead account for import VAT through their bi-monthly VAT return.
In other words, the VAT will be reclaimed at the same time that it is declared in the VAT return. This scheme is compliant with EU VAT law.
However, it is not possible to eliminate all risk in a no deal situation. Any Brexit will be negative, and a no deal most of all. Not all issues are within Ireland’s direct control. This is not to avoid responsibility, but to be frank and open. This is about damage limitation.
No future relationship between the EU and UK will be as good as the status quo.
Membership of the Single Market and Customs Union is a core element of our economic strategy – including in attracting business. That will not change.
The Government is committed to working with the European Commission, and with our EU partners, to ensure the closest possible relationship between the EU and UK, and to minimise any disruption for our businesses and citizens as much as possible.
In respect of Capital Gains Tax, I acknowledge there is support for change to the general rate of CGT which currently stands at 33%.
However, I am unconvinced by the impact a minor rate would bring about, and there is a significant annual cost to reducing the rate, which assuming no behaviour change is estimated to be €36m for each 1% decrease.
It is not obvious that there is a need to incentivise the sale of all assets in a period of full employment and increasing asset prices.
I am aware that there is significant interest in expanding the threshold for the Entrepreneur Relief scheme and the Institute’s President has referred to the UK’s Entrepreneur Relief which has a higher threshold of €10 million compared to Ireland’s current threshold of €1 million.
However, and as the President has also mentioned, while Ireland’s headline rate may seem high in comparison to other countries in the OECD, it is also necessary to consider the valuable reliefs from CGT such as Retirement Relief and Entrepreneur Relief which are not available in other jurisdictions.
I’m pleased to say that it is my intention to undertake a review of the CGT Entrepreneur Relief in the coming months with a view to assessing the relevance, cost, impact and efficiency of this relief.
Let me turn my attention to the important issue of climate change and in particular the role of carbon tax.
There have been calls to raise the rate of Carbon Tax to address climate change concerns and help meet our 2030 climate change targets.
In Budget 2019 I did not change the rate of Carbon Tax.
This was the right decision. Events elsewhere and the debate at home since this decision has shown this.
In coming to this decision, I had to consider all strands of opinion on the tax, including in relation to the price of fuel, the regional and cross border impacts as well as the additional economic challenges posed by the uncertainty surrounding Brexit.
My Department is currently examining options in relation to carbon tax policy as well as environmental taxes more generally. Through the Joint Research Programme between my Department and the ESRI we will build a better evidential base for assessing the environmental, economic and social impacts of putting in place a long term carbon tax trajectory.
I recognise that we can and must do better in this area and it is my intention to put in place a long-term trajectory for Carbon Tax increases out to 2030, in line with the recommendations of the Climate Change Advisory Council.
An effective, transparent and fair tax appeals process for taxpayers is an essential element of any tax system. To this end my officials and I have been working intensively with the Tax Appeals Commission to address the issues raised by taxpayers and industry stakeholders, as well as those discussed at the Committee of Public Accounts last June.
The Commission’s staff complement will double this year, in line with the recommendations of the independent review of the Commission conducted last year.
Today the Public Appointments Service have announced a competition for the recruitment of additional Temporary Appeal Commissioners, with a panel expected to be in place by the end of April this year.
The Cabinet have discussed and approved upcoming legislation to provide for the role of Chairperson of the Commission. It will also make a number of changes to clarify the existing tax appeals legislation.
While a backlog of appeal cases still exists, the Commission have taken measures to actively reduce the number of legacy appeals under its remit.
These, allied to the significant staffing increases, should enable the Commission to fulfil its mandate and provide an effective appeals process for taxpayers.
You will also be aware that, in Finance Act 2018, I made a change to the tax appeals regime by deleting Section 949AG.
I am aware that the actions of a minority of appellants and their advisers, who were abusing this section, caused undue delays to the appeals process.
It is my responsibility as Minister to ensure the tax appeals system is robust and fit for practice, and to make any necessary legislative changes to safeguard the integrity of the system.
To conclude, I would again reiterate that the International taxation landscape is changing and I will continue to seek to influence this reform with the principles of finding long term, sustainable, and above all, fair solutions.
I will also continue to ensure that our domestic tax code is robust enough to withstand the potential consequences of external challenges.
For my parting thought, through a period of significant change in tax and indeed the wider economy both domestic and international, Ireland has achieved much particularly from where we were at the start of the decade. There are many challenges ahead but I know that we can, and will, rise to them.
Thank you.
ENDS