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Use Tax Policy To Stimulate Economy, Irish Accountants Say

by Jason Gorringe,, London

26 September 2012

Tax policy must be used to stimulate and sustain activity in the Irish economy, the Consultative Committee of Accountancy Bodies Ireland (CCAB-I) has said, calling for reforms to a number of business tax reliefs.

The recommendations are made in CCAB-I's pre-Budget Submission to Finance Minister Michael Noonan. Many of the suggestions focus on the current operation of tax reliefs. For instance, the tax benefit of 30% provided under the Employment & Investment Incentive Scheme (EIIS) is deemed as an inadequate reward for investors making high risk decisions because a number of other restrictions introduced in 2007 limit the use of certain tax reliefs and exemptions by high-income individuals. CCAB-I wants to see this tax break removed from the list of restricted reliefs. The submission also argues for an extension to the Three-Year Start-Up corporation tax relief to companies in the first three years of the profit making cycle after loss relief has been exhausted.

Recent changes to the research and development (R&D) relief regime should be built upon, CCAB-I argues. The option for employers to transfer an element of R&D relief to employees should be made applicable to lower paid employees and companies in the loss making phase of business development. This, CCAB-I says will ensure that the relief will have real benefit for domestic businesses. Further, a special income tax rate of 12.5% should be introduced on bonuses paid to employees and inventors directly involved in the innovation process. CCAB-I argues also that the 2003 base year system should be replaced with a full volume-based system which would ensure the fair treatment of companies who have shown long-term commitment to R&D investment.

In addition, CCAB-I has called for the Seed Capital Relief scheme to be amended. It provides for a refund of tax already paid by an individual when setting up a new qualifying business. CCAB-I suggests that the scheme should be altered to allow for a mix of loan and equity investment. This can be structured to ensure that the relief is not abused, while still allowing the entrepreneur to make a commercially viable investment, CCAB-I says.

Finally, changes to the taxation of foreign companies are suggested. The submission concludes that existing and new foreign-owned companies establishing a presence in Ireland should be excluded from close company legislation. This, CCAB-I explains, would greatly enhance Ireland’s attractiveness for inward investment and remove the confusion currently faced by many International Financial Services Centre (IFSC) companies. The existing Foreign Earnings Deduction should therefore be extended to include countries such as the US, Saudi Arabia, Switzerland, Singapore, Japan and Australia. Also, CCAB-I sees the Special Assignee Relief Programme (SARP) regime in Ireland as uncompetitive in comparison with other jurisdictions. Amendments are needed to ensure that this relief is optimized in Ireland’s favour, CCAB-I believes.

Noonan will deliver his Budget in December.

TAGS: individuals | Finance | tax | investment | economics | business | Ireland | tax incentives | fiscal policy | foreign direct investment (FDI) | employees | equity investment | corporation tax | multinationals | tax breaks | research and development

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