Budget 2017 and Current Tax Developments

TaxingTimes Budget 2017 & Current Tax Developments

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For further information on Budget 2017 log on to: kpmg.ie/budget2017 TaxingTimes Budget 2017 1 Introduction

Conor O’Brien Partner The Minister for Finance introduced the 2017 Budget (the Budget) on 11 October 2016. Further detailed measures will be included in the Finance Bill to be published on 20 October 2016.

Budget 2017 is the second budget in a row where Key measures included: Personal Tax the Government’s choices have been about • A 0.5% cut in the rate of USC for low to middle & Employee Issues 2 how to distribute benefits rather than how to incomes distribute austerity. The movement away from • A reduction in the rate of capital gains tax from years of austerity will be very much welcomed by 20% to 10% on up to €1 million of gains earned Financial Services 5 a population that endured severe hardship with by entrepreneurs remarkable discipline. This discipline combined • Introduction of a first time house buyer’s tax with the skill of policymakers in retaining a very credit with a value of up to €20,000 competitive business taxation regime has been Business Tax 6 • An increase in the main exempt CAT threshold crucial in restoring Ireland as one of the fastest from €280K to €310K with proportionate growing economies in the developed world – this increases in the other thresholds is best reflected by the growth in employment Property & Construction 8 • A further closing of the gap between the tax numbers in recent years. credit available to the employed and the self- Wary of repeating the mistakes of the past, the employed Agribusiness 10 minister has continued the cautious and steady • A phased reduction of the rate of DIRT by 8% approach of previous budgets. This includes over four years managing down the national debt and creating • A phased restoration of full interest relief for Ireland’s Tax Strategy 11 a “rainy day” fund for the future. Storing up grain landlords over a five year period during years of plenty has been wise policy since • A commitment to introduce a share incentive the days of Pharaoh - the minister’s proposals in scheme for SMEs by 2018 VAT and other this regard will be welcomed by prudence fans • A €2,000 increase in the “rent a room” relief indirect taxes 12 everywhere. • Extension of the Special Assignee Relief Programme (SARP), Foreign Earnings Deduction In his Budget speech the minister reiterated (FED) and “Start your own business” reliefs Ireland’s enduring and extraordinarily firm Getting Ireland commitment to the 12.5% rate of corporation tax. The continued policy of denying any tax relief on Brexit ready 14 This combined with the recent decision to appeal incomes over €70,000 is to be regretted. Ireland the EU Commission’s ruling on Apple demonstrate already has the most progressive income tax the Irish State’s unrivalled commitment and system in the EU and the second most progressive What is ‘substance’ reliability as a partner for international business. This in the OECD - recent budgets, including this one, for transfer pricing remarkable reliability has been demonstrated by will have skewed this even further. The top 1% of successive governments of every stripe and now income earners in Ireland already pay more than purposes? 16 stretches back for six decades. the bottom 75% combined and suffer marginal tax rates that are very high compared to competitor The minister indicated that he was alive to both the countries. There is a great deal of economic research Tax Rates dangers and the opportunities arising from Brexit that supports the proposition that those earning & Credits 2017 18 and this was influential in his decision to retain the over €70,000 are being “milked” to a degree that is 9% rate of VAT for tourism. This will be welcomed counterproductive i.e. the exchequer might actually by the tourism sector much of which remains collect more revenue if it were to reduce the income Personal Tax marginally profitable. tax rates applying to this group and thereby attract Scenarios 2017 19 OECD research shows that, after corporation more senior executives, entrepreneurs and related tax, personal taxes have the greatest impact on business activity to Ireland. a country’s competitiveness. The importance of While the cut in the rate of Capital Gains Tax for personal taxes will grow in the future due to the entrepreneurs is to be welcomed the failure to impact of changes in international taxation law raise the threshold to a level comparable to that arising from the OECD’s Base Erosion and Profit available in the UK (or to that in the program Shifting (BEPS) project, etc. It is well established for government) is disappointing. The minister by the laws of economics, and by common sense, indicated that the level of the threshold will be that small, peripheral economies with relatively little reviewed in future budgets. mineral resources need to take particular care of their competitive position in order to compensate for the It is to be hoped that future budgets will combine external diseconomies that they suffer. In our view, it further tax relief for low to middle earners with has been clear for some time that attention needs to personal taxation measures which maximise be given to Ireland’s personal taxation regime and in inward investment and domestic entrepreneurship particular to the treatment of internationally mobile together with the associated growth and jobs to the executives and domestic entrepreneurs. A degree benefit of all our people. of personal tax relief was included in the budget, building on that provided last year.

Conor O’Brien Head of Tax and Legal Services 2 TaxingTimes Budget 2017

Personal Tax & Employee Issues

Robert Dowley Partner

Universal social charge €60,000 per annum, a maximum USC Earned income credit rate of 2.5% will be payable where that The majority of personal tax reductions In last year’s Budget, the minister individual is a full medical card holder or in the Budget related to Universal introduced an earned income tax is aged 70 or over. Social Charge (USC). The Minister credit of €550 per annum for the self- for Finance reiterated that these The minister also announced a very employed. This was intended to partly reductions signal the Government’s slight widening of the band of income reduce the tax differential in how the intent to phase out USC over time as at which the reduced 2.5% USC rate self-employed and employees are resources permit, which is consistent applies from €18,668 to €18,772. This taxed. with the Programme for Partnership is intended to ensure that a full-time In line with his commitment last year Government. worker on the national minimum wage to introduce further reform if returned will not be liable for USC at a rate In line with Budget 2016, the minister to Government, the minister has higher than 2.5%. has focused on rate reductions rather announced an increase in the earned than threshold increases although the The maximum benefit to an individual income tax credit to €950 per annum. rate reductions announced in Budget from the above measures is €353 per It is expected that this increased tax 2017 are less than those announced in annum i.e. €7 per week. It is expected credit will take effect for the 2017 tax Budget 2016. Each of the three lowest that these measures will take effect year. USC rates has been reduced by 0.5%. from 1 January 2017. While this will be welcomed, a This continues the reduction in overall Full details of the revised rates and significant differential still remains in marginal tax rates, which commenced bands are included in the Tax Rates and the form of: last year, with the marginal rate for Credits 2017 table at the end of this those earning up to €70,044 reducing (i) A difference of €700 between the publication. from 49.5% to 49%. For individuals PAYE employee tax credit and the whose income does not exceed earned income tax credit, and (ii) The self-employed earning over €100,000 being liable to USC at a rate of 11% whereas the maximum rate of USC payable on employment income is 8%.

Special Assignee Relief Programme (SARP) The minister announced that the existing Special Assignee Relief Programme (SARP) is to be extended for a further three years from the end of 2017 until the end of 2020. This relief was introduced in Finance Act 2012 as part of the Government’s strategy to attract inward investment to Ireland. The aim of the programme is to encourage the relocation of key talent from within multi-national groups to Ireland. TaxingTimes Budget 2017 3

Eric Wallace Partner

The relief requires that a number of to grow their activities in international proposed that they would be able to conditions are satisfied, including the markets. claim various reliefs and tax credits requirement that the employee must such as relief for medical expenses have worked outside of Ireland for the Consultation on PAYE before the end of the relevant tax year. same multi-national group for at least modernisation Currently these can only be claimed six months immediately before their In his Budget speech, the minister after the end of the year. However, this arrival in Ireland. Where the necessary announced the launch of a would require employees to be in a conditions are met, the relief provides consultation process by the Revenue position to avail of electronic reporting/ for a 30% reduction in an employee’s Commissioners on the modernisation updating of data. It remains to be seen taxable remuneration in excess of of the PAYE system. This is the first whether this will be achievable for all €75,000. No changes were announced major overhaul of the system since its employees in practice. to the conditions to avail of the relief. introduction in 1960. A potential consequence of introducing Foreign Earnings Deduction It appears that the proposed a real-time payroll information modernisation is focussed on using system that is not mentioned in The existing Foreign Earnings technology to report PAYE details to the the consultation document is that Deduction (FED) relief is being Revenue Commissioners in real-time, the system could be used to more extended until the end of 2020, with similar to the real-time information accurately means-test an individual some improvements to the relief. system introduced in the UK in recent claiming social welfare benefits. The The relief was originally introduced years. use of the system in this manner may in Finance Act 2012 with the aim of have data privacy implications that The indicative commencement date assisting companies to expand into would need to be considered. for the new system is 1 January 2019 emerging markets. The original relief and the closing date for submissions provided for an income tax deduction from interested parties in response to up to a maximum of €35,000 for the consultation paper is 12 December employees that spent a sufficient 2016. number of days working in Brazil, Russia, India, China or South Africa. The consultation document sets out the potential benefits of upgrading the The Government improved upon the PAYE system, such as improvements in relief since its introduction with the accuracy, ease of understanding, and list of qualifying countries gradually transparency of the PAYE system. increasing to a total of 28 countries prior to Budget 2017. In his Budget It is also envisaged that the current speech, the minister added Colombia PAYE reporting requirements would and Pakistan to the list of qualifying be integrated fully into employers’ countries. In addition, the minimum regular payroll processes. This should number of days working abroad in eliminate the need to complete year- order to qualify for the relief has been end documents such as P35s and reduced from 40 to 30 days per annum. P60s. Importantly, the consultation However, the income tax deduction document notes that there is currently remains capped at €35,000 per annum. no proposal to change the due date for the remittance of the relevant payroll These amendments form part of the taxes by employers. measures intended to encourage Irish businesses to seek out opportunities From an employee perspective, it is 4 TaxingTimes Budget 2017

Gareth Bryan Partner

It is expected that the process of already qualifying for mortgage interest The full tax credit is available where designing the new system will involve relief up to December 2017. Any the carer’s income is €7,200 or less. A considerable communication between extension would be a welcome relief reduced tax credit will apply for incomes the various stakeholders. Apart from the particularly for individuals who took out up to €9,400 (previously €9,200). time involved in obtaining agreement loans between 2004 and 2008 where It is expected that the above will take on the design of any new system, relief was available at a rate of 30%. effect for the 2017 tax year, and it is practical issues (both on initial setup and The delay in announcing the details hoped that further increases in the recurring) that will need to be resolved until Budget 2018 will cause operational tax credit will be delivered in future include how to deal with: challenges for lenders who operate the Budgets. (i) The time required for payroll relief at source as they will presumably software providers to fully be required to implement any such CAT thresholds understand the requirements of any changes by 1 January 2018. The delay The minister’s Budget announcements new system and write appropriate will also create uncertainty in evaluating included an increase in the tax-free updates to their software repayment solutions for mortgage thresholds that apply for capital (ii) Any update by employers of customers in difficulty. acquisitions tax (CAT) purposes. personnel records that are currently CAT applies at a rate of 33% where incomplete Home carer credit the aggregate value of gifts and/or (iii) Potential time lags in obtaining PPS The home carer credit is intended to inheritances received since 5 December numbers for secondees assist families who care for a child or 1991 exceeds the relevant tax-free (iv) The timely availability of information dependent relative in the home. This is threshold. to correctly assess share-based achieved by giving the carer’s spouse/ In making the announcement, the remuneration, particularly for civil partner an additional tax credit minister referenced increasing asset employees who have worked in against the tax payable on their income. multiple jurisdictions prices and higher tax liabilities on passing In last year’s Budget, the minister family homes as being the driver for this As mentioned above, a similar real- announced an increase in the credit increase. The Class A tax-free threshold time payroll information system has from €810 to €1,000. The Budget 2017 that applies to gifts/inheritances by a been introduced in the UK recently. measures include a further increase in parent to a child is to be increased from It is hoped that we can leverage the the tax credit to €1,100 per annum. €280,000 to €310,000. The minister also experience in the UK to overcome any announced 8% increases to the Class B potential teething difficulties, and that and Class C tax-free thresholds. While this the system would be introduced on a is still significantly lower than the tax-free phased basis similar to the approach thresholds that applied in 2009, it is a move taken to mandatory Revenue Online towards restoring the historic position. Service (ROS) filing and iXBRL accounts filing requirements. Neither the Budget speech nor the accompanying documents confirm the Mortgage interest relief commencement date for these changes. The minister announced his intention Full details of the revised tax-free to extend mortgage interest relief thresholds are available in the Tax Rates beyond December 2017 out to 2020, and Credits 2017 table at the end of this the details of which he said will be publication. set out in Budget 2018. It is possible this extension will only apply to those TaxingTimes Budget 2017 5

Financial Services

Brian Daly Brian Brennan Partner Partner

Section 110 Securitisation companies) will not be restricted. As a only apply to DIRT. Payments from Regime result of these changes, securitisation life assurance policies and investment companies which purchased loans funds will remain taxed at the 41% Ireland’s securitisation regime has secured on Irish property at a discount rate. been the subject of much discussion in could now be subject to Irish corporation recent months. In his Budget speech, The rate of DIRT in 2020 will equate tax at the rate of 25% on a significant the minister reiterated the benefit with the current rate of capital gains part of the gains realised on those of Ireland’s securitisation regime tax (CGT). Assuming the CGT rate investments. has been to our financial services remains the same, this should level industry. However, he suggested Stamp duty on share the playing field between deposit that the provisions are being used in transactions investments and direct investment ways which were not intended when in capital growth assets. However, if the relevant section was introduced, In response to Brexit, the Department the rate differential were to remain on particularly in relation to funds and of Finance announced that there will life policies and investment funds this property. The minister announced that be a review of the charge to stamp would create an unfair disadvantage. legislation to address these concerns duty on sales and transfers of stocks, Investors’ preferences for longer (a draft of which was published shares, and marketable securities of Irish term deposit products could be a on 6 September 2016) would be incorporated companies. Under current consequence of these measures but included in the Finance Bill, following legislation, the transfer of such property would be dependent on their view of a consultation period, but no further is subject to Irish stamp duty at a rate of future interest rates. detail was provided. 1%. Bank levy In broad terms, it is proposed that new The review, which is to be carried out rules will apply to the extent that a in 2017, is welcome, as Ireland’s rate of Finance Act 2015 extended the qualifying securitisation company owns stamp duty on such transfers is higher bank levy to 2021. In Budget 2016, financial assets (including loans) which than many other jurisdictions, including it was announced that a new basis derive their value or the greater part of the UK which has general rate of 0.5%. for calculating the levy would be their value (directly or indirectly) from The review will take account of the introduced and it was expected that Irish land and buildings. These financial sustainability of the tax yield, the UK’s this new basis would be announced in assets are to be treated as part of a future relationship with the EU and Budget 2017. However, it would now separate business, to be known as a competitiveness issues. The elimination seem likely that details will not be “specified property business” carried of stamp duty on transfers of such assets announced until the publication of the on by the company. The general would enhance Ireland’s attractiveness as Finance Bill. securitisation rules will continue a location for Foreign Direct Investment. to apply to this specified property business; however, interest deductions Savings products in respect of profit-participating loans The rate of deposit interest retention tax will be restricted to the amount of (DIRT) will be reduced by 2% each year interest that would have been payable for the next four years from a current rate on that loan had it been a non-profit- of 41% to 33% in 2020. participating loan entered into by way Historically, the rate of DIRT has moved of a bargain made at arm’s length. in lockstep with the exit tax applicable to Interest paid to certain categories life assurance policies and investment in of recipient (such as Irish pension fund products. However, the reduction funds, Irish companies, and certain EU in rate announced by the minister will 6 TaxingTimes Budget 2017

Business Tax

Anna Scally Partner

Start Your Own Business to disposals of the whole or part of a which the relief can apply. The minister qualifying trade or business owned by has signalled his intention to review The minister announced the extension a qualifying individual for at least three the €1 million lifetime limit in future of the Start Your Own Business scheme years before disposal. Budgets. for a further two years to 31 December 2018. An individual will be considered a While the reduction in the rate qualifying individual for the purposes is a welcome improvement, it is The scheme, which was introduced of the relief if they have worked disappointing that the lifetime limit in Finance (No.2) Act 2013, provides as a director or employee of the has not been increased, particularly to qualifying individuals relief from company for three of the five years ensure the relief is competitive with income tax up to a maximum of prior to disposal. Qualifying assets that currently available in the UK, where €40,000 per annum for a period of for the purposes of the relief include the total lifetime limit is £10 million. two years. To qualify for the relief, shares in or assets of any company the individual must have been other than those involved in certain Corporation Tax start-up unemployed for twelve months or excluded activities, such as dealing in relief more and in receipt of at least one shares, securities, commodities, land of certain social welfare payments This relief reduces corporation tax or property. In addition, a disposal of prior to establishing the business. The payable on the profits of a new trade shares will only qualify to the extent relief applies to individuals setting up and gains on disposal of any assets the individual holds 5% or more of the newly established, unincorporated used for the purposes of the new trade ordinary share capital. businesses. in the first three years of trading. It was The applicable rate of capital gains tax extended by three years in Finance Entrepreneurs CGT Relief is being reduced from 20% to 10%. Act 2015 to trades which commence on or before 31 December 2018. The A reduced rate of capital gains tax of All other aspects of the relief remain reduction in corporation tax is linked 20% was introduced in Finance Act unchanged including the lifetime limit to the amount of employer PRSI 2015 with effect from 1 January 2016 of €1 million in chargeable gains to TaxingTimes Budget 2017 7

Andrew Gallagher Partner

paid in respect of each employee, Tackling tax evasion offshore assets; and subject to a maximum of €5,000 per • The denial of the opportunity, from The minister used his Budget speech to employee, and is only available where 1 May 2017, to make a “qualifying announce a comprehensive programme the company’s annual corporation tax disclosure” in the area of offshore of targeted compliance interventions liability on qualifying income and gains accounts and assets, therefore against offshore tax evasion. He does not exceed €40,000 (marginal denying access to the reduced prefaced his announcement with a relief is available where the corporation penalties that can otherwise arise reference to the release of the Panama tax liability is between €40,000 and from such qualifying disclosures. The Papers which were well publicised €60,000. timing suggests a final opportunity earlier this year and attracted much for those illegally using offshore While no further changes or extensions public disapprobation and denunciation. accounts or structures to regularise to the relief have been announced, The minister announced the following their affairs before summer of next the Government has confirmed its initiatives in this area: year. commitment to the relief in its Update on Ireland’s International Tax Strategy • The application of advanced analytics These measures will be legislated for in 2016 paper stating that it plays an techniques, applied to various the Finance Bill. important role in assisting small data sources including data newly In addition, the minister announced the businesses in starting, growing and available through FATCA, EU and allocation of an additional €5 million creating jobs. OECD exchange of information to the Revenue Commissioners for programmes; investment in systems and equipment, Share based incentive • The introduction of a new strict and the recruitment of 50 additional scheme for SMEs liability offence for failure to return staff. Following a significant number of details of offshore accounts or other submissions in response to the public consultation and review of share- based remuneration carried out by the Department of Finance, the minister has signalled his intention to introduce a new share-based incentive scheme specifically aimed at Small and Medium Enterprises (SMEs) in Budget 2018. The new scheme will be subject to EU State-aid approval and engagement with the Commission will take place in advance of the next Budget to ensure compliance with State-aid rules. While it would have been preferable for details to have been announced in the Budget, any improvements to the taxation of share-based remuneration will, nevertheless, be welcome. 8 TaxingTimes Budget 2015

Property & Construction

Jim Clery Partner

Increasing the supply of The key elements of the scheme are: mortgage drawdowns from 19 July 2016 until the end of 2019. residential housing • The property must be a new build or • Applicants will be able to apply for As mooted in the Action Plan for Housing self-build, and must be purchased as a the rebate via an online Revenue and Homelessness announced in July principal private residence. website from January 2017. 2016, the minister has now formally • In order to qualify, applicants must • The Governor of the Central Bank introduced a Help-to-Buy Scheme take out a mortgage of a least 80% has agreed that any rebate received designed to assist first-time buyers of the purchase price. According under the scheme will be reckoned struggling to fund the deposit required to the Budget publications issued in full in the calculation of the deposit to be eligible for a mortgage under the by the Department of Finance, required to be eligible for a mortgage Central Bank’s macro-prudential rules. individuals who are in a position to under the Central Bank rules. avail of a mortgage at a lower loan to The objective of the new scheme is to • Relief is not available for buy to let value ratio than 80%, already have create additional demand for houses, properties or second-hand homes. sufficient resources to meet the given market trends suggest that with • A joint purchase between a first time deposit requirements of the Central increased demand, increased supply will buyer and a non-first time buyer will Bank rules and are less in need of follow. We think this is correct and that not be eligible for the scheme. assistance from the Exchequer. the measure will increase supply. • When the home costs between The practical application of the scheme The scheme will take the form of a €400,000 and €600,000, the needs to be clarified as it is not clear rebate of income tax paid over the maximum rebate of €20,000 will how individuals will fund the shortfall previous four tax years which will act as continue to be available. in the deposit pending the rebate from a contribution to the deposit needed to • No rebate will be available for new the Revenue Commissioners. fund the purchase of a new home. The purchases or self-builds costing over maximum rebate available will be 5% of €600,000. Rental Income – landlord the purchase price of the new home up • Rebates will be available for eligible interest deductions on to a maximum of €20,000. purchases and self-builds/first residential properties Following the relaxation of interest deduction restrictions in Finance Act 2015 for certain properties let to either individuals in receipt of rent supplement/housing assistance payment or to local authorities, the minister has announced that he will restore full interest deductibility for landlords of other residential properties on a phased basis starting in 2017. From 2017 the deduction available for interest on borrowings used by a landlord to fund the purchase, improvement or repair of a residential property will increase from 75% to 80%. The amount which will be deductible will increase by instalments of 5% per year thereafter until the 100% deduction TaxingTimes Budget 2015 9

Olivia Lynch Partner

is restored. It will be 2021 before a landlords in the relief will hopefully refurbishments for individuals who deduction for 100% of interest expense change this. However, the fact that the renovate or improve their homes will be available. relief remains subject to the higher and for rental properties owned by earners’ restriction is unhelpful. The landlords. Living City Initiative capping of relief at €200,000 per The Living City Initiative is aimed at the project (irrespective of the number of Rent-a-Room Scheme regeneration of retail and commercial investors) for commercial premises in The threshold for exempt income under districts and at encouraging families order to comply with EU state aid rules the Rent-a-Room Scheme is being to live in historic buildings in the is also an issue in practice. increased to €14,000 per annum from centres of Dublin, Cork, Limerick, the current amount of €12,000. Waterford, Galway and Kilkenny. The Home Renovation Incentive scheme originally only provided relief (HRI) Changes to Section 110 and for an owner-occupier of a residential The Home Renovation Incentive funds legislation premises. The minister announced Scheme seeks to incentivise individuals The minister indicated that following the extension of the relief to include to upgrade their homes using tax the publication of draft amendments landlords and the removal of the compliant contractors. The relief was to Section 110 legislation, further limit on the floor size of a qualifying due to expire on 31 December 2016. amendments are necessary to address property. The relief is intended to Acknowledging that the Help-to-Buy other issues arising in relation to promote regeneration works on Scheme is targeted at new homes, the Funds and property. These changes are residential buildings built prior to minister has extended the HRI which discussed further in the Business Tax 1915 but because of the significant is available for upgrades to second section of Taxing Times. costs associated with refurbishing hand homes by two years to 2018. old buildings, the take up to date has This is welcome given the popularity been low. The inclusion of residential of the scheme in allowing relief for 10 TaxingTimes Budget 2017

Agri Business

Michael Farrell Partner

Farming and Fishing Accelerated capital the management of their cash flow and reduce the cost of their short term The minister acknowledged in his Budget allowances for energy borrowings. The interest rate on loans speech that the farming and agri-food efficient equipment from this fund (which will utilise EU sectors have been going through a tough In line with a recommendation of exceptional adjustment aid) will be below time recently due to lower world prices, the 2014 agri-tax review (undertaken 3% per annum. weather, Brexit and the subsequent jointly by the Departments of Finance weakening of sterling. To assist these and Agriculture) the existing scheme sectors, the minister announced the of accelerated capital allowances for Other measures for following package of measures. investment in energy efficient equipment the fishing sector is being extended to sole-traders and In line with a recommendation of the Income averaging ‘step out’ non-corporates. This scheme was 2015 marine tax review (published as part of Budget 2016), a new income tax credit The net accounting profit is the normal previously available only to companies of €1,270 is being introduced for fishers basis for calculating taxable profits of and is aimed at assisting businesses in who have fished for wild fish or wild any business including farming. Income the farming and marine sectors to invest shellfish for at least 80 days in a tax year. averaging is an alternative method of in energy efficient equipment. The minister noted that this is aimed at calculating taxable profits of a farming Under this scheme, the full cost of assisting the viability of the fishing sector business. This works by averaging acquiring qualifying energy-efficient and at attracting and retaining staff. This taxable profits over a five year period equipment can be written off for tax credit will shelter income of up to €6,350 on a rolling basis with the objective of purposes in the year of purchase. Such per annum. counteracting volatility in taxable income. claims can be made only in respect Where the profit level is increasing, of equipment that is included on ‘the Decommissioning income averaging reduces the tax liability. specified list’ which is maintained by The of fishing vessels However, where profits reduce, the tax Sustainable Energy Authority of Ireland. liability for a year may be higher than the The minister has committed to providing actual liability for that year alone. Flat-rate VAT addition an attractive income tax package in respect of the decommissioning of The minister is introducing cashflow As noted in the VAT and Other Indirect fishing vessels. The expected cost of relieving measures to allow a farmer who Taxes section of Taxing Times, the these measures is €2 million but no other is facing an exceptionally poor year to flat-rate VAT addition that is available to details on this package were announced ‘step out’ of income averaging for that unregistered farmers will increase from in the Budget. year. That farmer will then pay tax due 5.2% to 5.4% with effect from 1 January on the actual profits of that year with any 2017. The flat-rate addition compensates deferred liability becoming payable over unregistered farmers for VAT on their subsequent years. This option will be farming costs. available for the 2016 tax year. Raised bogs Farm restructuring relief Payments to relevant owners and rights Capital gains tax relief for farm holders under the new raised bog restructuring applies where the proceeds restoration incentive scheme will be of the sale of farm land are reinvested exempt from capital gains tax. within 24 months of the sale in other farm land and a number of conditions are Loan fund met. This relief has been extended to 31 A new €150 million flexible loan fund December 2019. All other conditions of is being developed in conjunction with this relief remain unchanged. the Strategic Banking Corporation of Ireland to enable farmers to borrow at a low cost so that they can improve TaxingTimes Budget 2017 11

Ireland’s Tax Strategy

Colm Rogers Partner

Review of the corporation International Tax Strategy consideration of any further actions which Ireland may need to take to tax code The minister published Ireland’s ensure that it is fully compliant with the The Minister for Finance has International Tax Strategy in conjunction OECD BEPS recommendations. announced the appointment of an with his Budget 2014 announcement. independent economic expert, Mr. An initial update on the strategy The Government has committed Seamus Coffey, to undertake a review was published with the Budget 2015 to implementing the third and of the corporation tax code. The announcement and a further update fourth iterations of the Directive on review will assess whether the Irish was published today. Administrative Cooperation (DAC), corporation tax code continues to meet known as DAC3 and DAC4, by the end The 2016 Tax Strategy Update confirms international standards, whilst also of 2016. DAC3 deals with the automatic the Government’s commitment to delivering tax certainty for business and exchange of tax rulings among Member minimising the impact of Brexit on maintaining competitiveness. States and DAC4 deals with the Ireland. In that context, it highlighted automatic exchange of country-by- The review will focus on the following a number of the taxation measures country reports among tax authorities. matters: announced in Budget 2017 which are focused on small and medium The 2016 Tax Strategy Update • achieving the highest international enterprises, Irish exporters, addresses the government’s position standards in tax transparency, entrepreneurship and the agri-food in relation to the EU agenda on tax including the automatic exchange of sector. It also signalled that the policy matters and confirms that information on tax rulings with other Minister for Jobs, Enterprise and Ireland will continue to engage in relevant jurisdictions, having regard Innovation will shortly introduce relation to EU tax proposals. It confirms to benefits which may accrue to legislation to provide an additional that Ireland will implement the developing countries from enhancing benefit, within the parameters of the measures included in the EU Anti-Tax global tax transparency; OECD “modified nexus” approach, Avoidance Directive within the agreed • ensuring that the corporation tax for small companies who wish to deadlines. While Ireland will engage code does not provide preferential avail of the Knowledge Development fully in the discussions which will treatment to any taxpayer; Box (KDB), which was introduced in be relaunched later this year by the • further implementing Ireland’s Finance Act 2015. The Government European Commission in relation to commitments under the also reaffirmed its commitment to the the Common Consolidated Corporate Organisation for Economic Co- 12.5% rate of corporation tax. Tax Base (CCCTB) Directive, it will operation and Development’s assess whether any outcomes from Base Erosion and Profit Shifting The Tax Strategy Update also reaffirms the process are in the best interests (BEPS) project to tackle harmful Ireland’s commitment to maintaining of Ireland. The Government indicated tax competition and aggressive tax an open, transparent, stable and that it does not support initiatives that planning; competitive corporate tax regime. seek to enforce harmonisation of tax • delivering tax certainty for business In particular, the paper provides a rates, minimum levels of taxation or the and maintaining the competitiveness status update in relation to Ireland’s inappropriate encroachment of state of Ireland’s corporation tax offering; and compliance with the OECD BEPS aid rules into the core Member State • maintaining the 12.5% rate of project and reaffirms that Ireland will competence of taxation. corporation tax. continue to take any actions needed to implement the BEPS reports. Country- Recommendations arising from the by-country reporting was implemented review will be made to the minister by in Finance Act 2015 and Ireland signed the end of June 2017. The Department a Multilateral Competent Authority of Finance may, as required, facilitate Agreement in January 2016 to share a public consultation with citizens, civil these reports with other tax authorities. society and stakeholders on any or all In addition, the independent review of the matters under review. of Ireland’s corporation tax code, announced in Budget 2017, will include 12 TaxingTimes Budget 2017

VAT and other indirect taxes

Niall Campbell Partner

VAT There are no changes to the scope of These include: the goods and services falling within VAT Rates • An extension to the time period the 0% rate, 13.5% reduced rate of the existing relief from Vehicle The minister confirmed the or 23% standard rate of VAT. There Registration Tax (VRT) on hybrid continuation of the 9% reduced rate had been pre-Budget speculation of vehicles and electric vehicles up of VAT which was first introduced in potential changes to the VAT rates in to 31 December 2018 and 2021 2011 to promote the Irish tourism other sectors, most notably a potential respectively sector and was extended indefinitely reduction in VAT on the supply of newly in 2014. The rate applies to a range of built residential accommodation, but • A new measure (aimed at reducing goods and services principally in the these have not come to pass. the dependence of larger vehicles on tourism and hospitality sector, including diesel) to tax natural gas used as a Flat Rate Addition for farmers restaurant and catering services, hotel vehicle fuel at the EU minimum rate accommodation, newspapers and The flat rate addition payable to of 8%, for a period of eight years admissions to cinemas, museums and farmers who are not VAT registered other attractions. The minister noted will increase from 5.2% to 5.4% with • A new relief from carbon tax for that although the current economic effect from 1 January 2017. The flat rate solid fuels that include a biomass rationale for retaining the rate may scheme compensates unregistered element not be as strong as when it was first farmers for irrecoverable VAT on their • A full relief from carbon tax on fuel introduced, its retention will act as purchases. inputs to create high efficiency a buffer for the sector against the Property Holding Funds electricity in combined heat and weakness in sterling and increased power plants. costs of holidaying in Ireland for British The minister’s speech referred to his tourists. previously announced intention to amend the corporation tax regime ‘The Old Reliables’ and Micro- applying to ‘Section 110 companies’ breweries and other funds engaged in activities relating to Irish property. While any The excise duty on a packet of 20 such corporation tax amendments cigarettes will increase by 50 cent should not directly impact on the (including VAT) with a pro-rata increase VAT exemption for the management on other tobacco products with effect of qualifying funds including Section from midnight of 11 October 2016 (i.e. 110 companies, the VAT implications from Budget night). This measure is should be considered in respect estimated to generate an additional €65 of any reorganisation or alternative million in revenue during 2017. structuring of current or future property There are no changes to excise duty transactions. on alcohol products (except for the microbreweries relief referred to Excise Duties below), petrol or diesel. Combatting Climate Change The current 50% relief to the standard A number of the minister’s proposals in rate of Alcohol Products Tax on beers the area of excise duties are intended made in microbreweries which produce to incentivise lower carbon alternatives not more than 30,000 hectolitres per to traditional fuels. annum is being extended. The relief will apply to microbreweries which produce not more than 40,000 hectolitres annually. TaxingTimes Budget 2017 13

Terry O’Neill Partner

Sugar Tax Perhaps reflecting the Danish low sugar soft drinks (e.g. diet drinks) experience, and given the integrated and all dairy-based sugar-sweetened The minister announced plans to production and supply chains between drinks. The proposals also apply only to introduce a tax on sugar-sweetened Ireland and the UK, our measures pre-packaged drinks. drinks (a ‘sugar tax’) in 2018, following and timing are to be aligned with the a public consultation in the coming An equivalent UK consultation regarding proposed UK sugar tax regime, with a months. drinks with added sugar (but excluding suggested implementation date of April pure fruit juices and milk-based drinks) The proposal follows a global trend 2018. Significant details remain to be has been ongoing since August and towards taxing drinks with a high determined, including the rate and basis closes on 13 October 2016. The UK rate sugar content as a means of tackling of computation and administration. of sugar tax is proposed to be £0.18 per obesity, diabetes and other health The minister launched a public litre where the sugar content is above 5 risks. Sugar tax regimes are already consultation on the practical grams/100ml and £0.24 per litre where in place in a number of jurisdictions, implementation of the tax, based on the added sugar content is above 8 including France, Hungary, Norway, Department of Health proposals, which grams/100ml. We can expect Ireland to Finland, certain US states and Mexico. will remain open until 3 January 2017. closely follow the outcome of the UK Interestingly, Denmark had a sugar tax The proposals are to apply the sugar tax consultation, and to take account of the regime for many years but repealed it to water-based and juice-based drinks implementation difficulties experienced in 2014 due to leakages in exchequer which have an added sugar content of 5 elsewhere, including potential EU legal revenue arising from illegal and cross- grams/100ml and above. This threshold challenges. border sales. is intended to exclude the following from the scope of tax: pure fruit juices, 14 TaxingTimes Budget 2017

Getting Ireland Brexit ready

Brian Daly Partner

Following the Government’s • Small and medium enterprises sectors identified by the Government first assessment in the Summer (SMEs) as being highly exposed to and reliant Economic Statement of the short- • Irish exporters on trade with the UK include: term macroeconomic implications of • Entrepreneurship • Food and beverage Brexit, the Department of Finance • The agri-food sector • Electrical equipment issued a paper with the Budget titled The commitment to establish a “rainy • Materials manufacturing “Getting Ireland Brexit Ready”. The day fund” and a new lower debt to • Traditional manufacturing paper provides a sectoral analysis of GDP target (a ratio of 45% to be the impact of Brexit and an overview All of these share a number of common achieved by the mid-2020s) are also of the policy responses that have features: influenced by concerns around the been included in the Budget to enable impact of Brexit. • Relatively high levels of exports to exposed sectors to remain competitive the UK and protect the public finances from Customs duties • High levels of imported intermediate Brexit-related shocks. The final shape of Brexit will determine goods coming from the UK which The paper acknowledges that with whether there are customs duties to are used in the production process around 16% of all exports going to be paid on imports, whether there (with the exception of the food and the UK and a similar share of imports are restrictions on certain goods and beverage sector) depending on the UK, the Brexit services, and whether the customs • Relatively high volume/low decision is expected to have a material procedures are relatively simple or value products, which would negative impact on the Irish economy, more complex. In order to prepare be significantly affected by the and has been a factor in lowering our for such changes, the Revenue introduction of Trade Tariffs economic growth forecasts for next Commissioners are reviewing the • Significant employers outside the year. That said, the severity of the customs procedures in order to scope Dublin region, with the border region impact is acknowledged to be difficult out the potential problems and identify the most exposed relative to others to gauge at this stage as the terms possible means of minimising the • High local economy multiplier under which the UK will leave the EU cost for business and maximising the ranging from 1.2 (electrical are not yet clear. facilitation of trade. For the moment it equipment) to 1.5 (food and beverage) Given the significance of the issue for is not possible to resolve the issues but • Significant number of SMEs with a Ireland, a new Government cabinet merely to seek to scope them and be high share of indigenous ownership committee has been established, and adequately resourced to respond to the a new Second Secretary General has problems that may emerge over the been appointed in the Department next few years. of the Taoiseach to look after the integration of international, EU and Sectoral exposures Northern Ireland functions there. In light of Ireland’s close trade and financial links with the UK, the paper Recognising the uncertain states that the pass-through of any environment, the Government has losses from the UK economy to Ireland also announced a number of taxation (or indeed from any third country measures in Budget 2017 to get Ireland trading partners that are themselves “Brexit ready”. These changes (which impacted by Brexit) are likely to be are discussed in detail elsewhere in material but can be mitigated by Taxing Times) are in the areas of: carefully targeted measures. The TaxingTimes Budget 2017 15

Kevin Cohen Partner

FDI Sectors The Government’s paper acknowledges that Pharmaceutical Manufacturing, and Financial and ICT services sectors, which tend to have high foreign ownership, also have significant export relationships with the UK. The paper indicates that the following are key policy measures to assist the FDI sector to continue to attract jobs to Ireland: • The ongoing commitment to the 12.5% corporation tax rate • The R&D Tax Credit regime • The Knowledge Development Box Tourism & Hospitality • An increase to the Earned regime Income Tax Credit for self- Whilst the Services Sectors in general • The extension of the SARP regime employed taxpayers to encourage would not be affected by trade tariffs entrepreneurship Whilst acknowledging that the decision to the same extent as manufacturers, • The introduction of an income to invest into Ireland will be driven by certain services sectors such as averaging “step-out” in the a number of factors, not just taxation, Tourism and Hospitality are significantly agriculture sector to help with the paper acknowledges that the exposed to the Euro-Sterling exchange expected volatility in demand for Government will need to respond to any rate and this sector is also seen as agri-food products following severe changes made by the UK to strengthen a Brexit-exposed sector within the price fluctuations, their overall tax offering, so that Ireland economy. • The retention of the 9% VAT rate can continue to be relatively attractive to help the tourism and hospitality compared to the UK from an overall Sectoral Tax Policy taxation point of view. Reponses sector to maintain competitiveness in light of recent currency The Department of Finance’s paper The specific tax policy responses movements provides some interesting insights on identified by the Government and • A €150m loan fund for farmers to the sectoral impact that Brexit may have included in the Budget to assist improve cash flow management on the Irish economy and it is helpful to the exposed sectors in remaining and reduce costs of short term have an overview of the policy responses competitive and to trade in diversified borrowings in Budget 2017. Undoubtedly further markets are: • A proposed review in 2017 of the responses will be needed when more • Reduced capital gains tax to help application of the 1% stamp duty details emerge on the terms on which entrepreneurs to Irish stocks and marketable Brexit will take place. It will also be very • An extension and amendment of securities helpful to have similar policy responses the Foreign Earnings Deduction to Each of the above Budget measures emerge from other parts of Government help Irish exporters to diversify their are outlined in further detail in this and the Financial Regulator in order to export and import markets publication. ensure that appropriate actions are taken • An extension of the Special to minimise the adverse impact of Brexit Assignee Relief Programme to assist whilst also taking advantage of whatever businesses to relocate key staff to opportunities may emerge. Ireland 16 TaxingTimes Budget 2017

What is ‘substance’ for transfer pricing purposes? Conor O’Sullivan Partner

The key driver of a multinational retention of residual profits has gone to how economic substance should be group’s effective tax rate is usually largely unchallenged. analysed in this regard. the jurisdictions in which its profits are However, as part of the recent Base The OECD now emphasises recognised and taxed. The Organisation Erosion and Profit Shifting (BEPS) that profits should follow risk. for Economic Co-operation and project, the OECD has revised Consequently, the location where the Development (OECD) has published its transfer pricing guidelines in a key risks for a business are controlled transfer-pricing guidelines on the number of areas. This includes the will have significant impact on where allocation of business profits between introduction of increased reporting and the associated profits should be different jurisdictions. The OECD documentation requirements such recognised. approach is followed in most (but not as the country-by-country reporting all) countries. The guidelines focus on In the first instance, assumption and initiatives (which are designed to ensuring functions, risks, and assets bearing of risk is captured by the bring greater transparency to a are rewarded on an arm’s length basis. contract relating supply of goods or multinational’s activities thereby services concerned. This should then The fact that most countries follow allowing tax authorities to improve be evidenced by the actual conduct of a common set of principles reduces their audit focus). These reporting the parties. The control of the relevant the risk of economic double taxation. requirements will apply to most groups risk involves: However, the nature of transfer pricing for their 2016 financial year. Many is such that differences often arise groups are assessing how their affairs • The capability to make decisions to in practice. Double taxation treaties will be reported and are considering accept, decline, or lay off a risk- between countries generally require whether changes to how they are bearing opportunity, together with different jurisdictions to co-operate to organised should be made. actual performance of that decision avoid double taxation. Nonetheless, making function; and In addition, the OECD has stated that it is a common occurrence for tax • The capability to make decisions on greater emphasis should be placed authorities to challenge the allocation whether and how to respond to the on demonstrating the economic basis of profits between jurisdictions – risks associated with the opportunity, for retaining residual profits with a particularly for groups with complex together with actual performance of particular focus on economic substance global supply chains. This can lead to that decision making function. across a group’s entire value chain. significant unexpected tax liabilities and This chimes with much of what has It is important to note that it is not can directly impact shareholder value. been recently said about the need for necessary for a company to perform For this reason, the governance of the recognition of profits to be aligned transfer-pricing risk is critical and often with economic substance. This is not a matter for consideration at board a new principle. “Ireland Inc” has long level. understood this and for many years Substance and has offered a low, stable corporate transparency tax regime to companies that locate economic substance here. Traditionally, the emphasis in transfer pricing has been on transaction-focused Follow the risk identification and pricing of intra-group The primary transfer-pricing objective transactions. There has tended to be from the BEPS project is to ensure that less focus on the substance of the transfer-pricing outcomes are in line various group companies making the with value creation or ‘substance’. The supplies. This has meant that the OECD have given a clear road map as TaxingTimes Budget 2017 17

the day-to-day mitigation of its risks It naturally follows that the more Steps involved in the new itself as this activity may be outsourced discretion the outsourced service risk analysis framework to another party. However, it does not provider has, the higher their arm’s necessarily follow that control of those length fee will be. Therefore, where as outlined in the updated risks has been transferred to that other DEMPE functions, and in particular OECD Guidelines party. If the company outsourcing the important functions that make a the risk-mitigation activities has (and significant contribution to the value of Identify the Economically

retains) the capability to determine the the IP, are not carried out by the party STEP 1 Significant Risks of the business objectives of the outsourced activities, contractually assuming risk (i.e. the to control the appointment of the agent IP owner), this will reduce the profits providing the risk-mitigation functions, of the IP owner and may increase the to assess whether the objectives are difficulty in evidencing the control of being adequately met and to decide risk by the owner. Determine how the economically significant

whether to adapt or terminate the STEP 2 risks are contractually assumed However, so long as the IP owner contract with that provider, these meets the control requirement (as activities would support the position evidenced by its actual conduct) and that the company has retained control has the financial capability to bear the of the risks. risk, the allocation of risk to the owner Critically, however, decision makers is not necessarily affected. This may be Perform detailed functional analysis of should possess competence and the case even where another party also economically significant risks to determine STEP 3 which entity controls the risk and has the experience in the area of the particular exercises control over some of the risks financial capacity to bear the risk risk for which the decision is being through, for instance, DEMPE functions. made, and possess an understanding of the impact of the decision on the A rigorous approach business. In short, they need to be Successfully managing the above credible. issues requires taxpayers to take a Consider whether the contractual rigorous approach to transfer pricing assumption of risk identified in Step 2 Intellectual property through a thorough analysis of the total STEP 4 is consistent with the entities’ conduct identified in Step 3 Insofar as Intellectual Property (IP) value chain. Depending on facts and is concerned, it is worth noting that circumstances, formal board meetings it is not necessary that the entity alone may not be sufficient to fulfil the assuming and controlling the risk control requirements for transactional related to a piece of IP also carries risks. Instead, the manner in which Where the contractual assumption of risk is out the development, enhancement, the multinational group evaluates not consistent with the entities’ conduct, re- maintenance, protection and risk-bearing opportunities in practice, STEP 5 allocate the risk to the party that assumes it exploitation (DEMPE functions) in the processes it puts in place, and the based on conduct in Step 3 respect of that IP. The outsourcing of personnel it deploys to participate in DEMPE functions is a common practice such processes are likely to be relevant. and where it occurs, it is still possible The key message is that there is a clear for the IP owner to retain the risk way to identify and respond to transfer Perform TP analysis based on the delineated associated with that IP provided that

pricing risk for those groups who STEP 6 transactions after re-allocating risk. control over the outsourced activities is proactively address the issue having exercised by the owner. regard to the principles provided. 18 TaxingTimes Budget 2017 Tax Rates and Credits 2017

Personal income tax rates (unchanged) PRSI contribution, Universal Social Charge (changed) At 20%, first At 40% % Income Single person €33,800 Balance Employer 10.75% No limit Married couple/civil partnership (one income) €42,800 Balance 8.50% If income is €376 p/w or less Married couple/civil partnership (two incomes)* €67,600 Balance Employee** (class A1) One parent/widowed parent/surviving civil partner €37,800 Balance PRSI 4% No limit* * €42,800 with an increase of €24,800 maximum Universal Social Charge 0.5% (reduced) €0 to €12,012** 2.5% (reduced) €12,013 to €18,772*** Personal tax credits (changed) 5.0% (reduced) €18,773 to €70,044**** Single person €1,650 8% > €70,044 Married couple/civil partnership €3,300 * Employees earning €352 or less p/w are exempt from PRSI. In any week in which an employee is subject to full-rate Single person child carer credit €1,650 PRSI, all earnings are subject to PRSI. Unearned income for employees in excess of €3,174 p.a. is subject to PRSI. Additional credit for certain widowed persons/surviving civil partner €1,650 Sliding scale PRSI credit of max. €12 per week where weekly income between €352 and €424 ** Individuals with total income up to €13,000 are not subject to the Universal Social Charge Employee credit €1,650 *** Increase in upper limit of the 2.5% band from €18,668 to €18,772 Earned income credit (increased)* €950 **** Reduced rate (2.5%) applies for persons over 70 and/or with a full medical card, where the individual’s income does not exceed €60,000 Home carer credit (increased) €1,100 Self-employed PRSI contribution, Universal Social Charge (changed) Rent credit - single and under 55 years (reduced)** €40 * Applies to self employed income and certain PAYE employments not subject to the PAYE credit % Income ** Rent credit will no longer apply from 2018 onwards PRSI 4% No limit* Universal Social Charge 0.5% (reduced) €0 to €12,012** Help to Buy Scheme Income tax rebate, capped at €20,000, for first time buyers of a principal private 2.5% (reduced) €12,013 to €18,772*** residence. The relief is 5% of the house value (capped at €400,000). Maximum 5.0% (reduced) €18,773 to €70,044**** relief (i.e. €20,000) available for homes valued between €400,000 and €600,000. 8% €70,045 to €100,000 There is no relief for houses valued greater than €600,000. Claimants must take out a mortgage of at least 80% of the purchase price. The scheme only applies to new 11% > €100,000 builds and self builds and not to second hand properties. The relief is a rebate of * Minimum annual PRSI contribution is €500 income tax paid over the previous four years. The scheme takes effect from 19 July ** Individuals with total income up to €13,000 are not subject to the Universal Social Charge 2016 until 31 December 2019. *** Increase in the upper limit of the 2.5% band from €18,668 to €18,772 **** Reduced rate (2.5%) applies for persons over 70 and/or with a full medical card, where the individual’s income does not exceed €60,000 Home Renovation Incentive Scheme Tax relief for pensions (unchanged) Income tax credit split over two years for homeowners who carry out renovation/ improvement works on their principal private residence from 25 October 2013 to 31 - Tax relief for pensions remains at the marginal income tax rate December 2018 (extended by two years). The credit is calculated at a rate of 13.5% on - The Defined Benefit pension valuation factor is an age related factor that will vary with the all qualifying expenditure over €4,405 (ex VAT). The maximum credit is €4,050. individual’s age at the point at which the pension rights are drawn down - Except where a Personal Fund Threshold applies, the Standard Fund Threshold is €2m Home loan interest relief granted at source on principal private residence* Capital gains tax (changed) (changed) Rate 33% First time buyers loan taken out from 2009 to 2012 Entrepreneur relief (reduced rate)* 10% Years 3-5 Annual exemption €1,270 Married/widowed** Lower of €4,500 or 22.5% of interest paid * Relief remains capped at lifetime limit of €1m chargeable gains Years 6-7 Capital Acquisitions Tax (rate unchanged) Married/widowed** Lower of €4,000 or 20% of interest paid Rate 33% After year 7 (where applicable up to and including 2017)* Thresholds (increased) Married/widowed** Lower of €900 or 15% of interest paid Group A* €310,000 Other mortgages, loans taken out from 2004 to 2012 Group B* €32,500 ** Married/widowed Lower of €900 or 15% of interest paid Group C* €16,250 First time buyers loan taken out from 2004 to 2008 * Effective date to be announced Remainder of first 7 years of mortgage Corporation Tax rates (unchanged) Married/widowed** Lower of €6,000 or 30% of interest paid Standard rate 12.5% After year 7 and up to and including 2017* Knowledge Development Box rate 6.25% Married/widowed** Lower of €1,800 or 30% of interest paid Residential land, not fully developed 25% Single persons Non-trading income rate 25% Thresholds set at 50% of those outlined above for married/widowed persons Value Added Tax (9% rate retained) Standard rate/lower rate/second lower rate 23%/13.5%/9% * Loans taken out on or after 1 January 2013 do not qualify for Mortgage Interest Relief. The relief was to be abolished from the end of 2017 and subsequent tax years. To be extended to 2020 in Budget 2018 Flat rate for unregistered farmers 5.4% ** Applies to civil partnerships/surviving civil partner also Cash receipts basis threshold €2m Local Property Tax (varying rates) (unchanged) Deposit Interest Retention Tax (changed) Market Value less than €1,000,000* 0.18% Market Value greater than €1,000,000: DIRT (rate reduced) 39%*&**&*** - First €1,000,000 0.18% * Unclear if 41% rate will remain for exit taxes on financial products - Balance 0.25% ** Refund of DIRT incurred in previous four years on savings (up to 20% of the purchase price) used by first time buyers to purchase a dwelling. This scheme is in place to the end of 2017 * Market Value less than €100,000 - calculated on 0.18% of €50,000. Market Value €100,000 - €1,000,000 *** The rate of DIRT will be decreased by 2% each year for the next 4 years until it reaches 33% in 2020 assessed at mid-point of €50,000 band (i.e. property valued between €150,001 and €200,000, assessed on 0.18% of €175,000). Stamp Duty - commercial and other property (unchanged) - Applies to residential (not commercial) properties. Exemptions for houses in certain unfinished estates and newly constructed but unsold property. Exemption until 31 December 2016 for new and unused houses purchased 2% on commercial (non residential) properties and other forms of property, not between 1 January 2013 and 31 December 2016 and second hand property purchased between 1 January 2013 otherwise exempt from duty. and 31 December 2013 Stamp Duty - residential property (unchanged) - Certain payment deferral options may be available for low income households - From 2015 onwards, local authorities can vary the basic LPT rates on residential properties in their administrative 1% on properties valued up to €1,000,000 areas. These rates can be increased or decreased by up to 15% 2% on balance of consideration in excess of €1,000,000 Personal Tax Scenarios 2017 TaxingTimes Budget 2017 19

Single person employed, earning €45,000, property owner Married couple, one employed, earning €50,000, three children, property owner 2017 changes Euro 2017 changes Euro Change in Tax Bands 0 Change in Tax Bands 0 Change to Tax Credits 0 Change to Tax Credits 100 Change to PRSI 0 Change to PRSI 0 Change to Universal Social Charge 228 Change to Universal Social Charge 253 Change to Marginal Income Tax Rate 0 Change to Marginal Income Tax Rate 0

Net Saving €228 Net Saving €353 Self-employed PRSI contribution, Universal Social Charge (changed) % Income PRSI 4% No limit* Universal Social Charge 0.5% (reduced) €0 to €12,012** 2.5% (reduced) €12,013 to €18,772*** 5.0% (reduced) €18,773 to €70,044**** Married couple, both employed, one earning €150,000, one earning Married couple, both self employed, one earning €150,000, 8% €70,045 to €100,000 €30,000, property owner one earning €30,000, property owner 11% > €100,000 2017 changes Euro 2017 changes Euro * Minimum annual PRSI contribution is €500 ** Individuals with total income up to €13,000 are not subject to the Universal Social Charge Change in Tax Bands 0 Change in Tax Bands 0 *** Increase in the upper limit of the 2.5% band from €18,668 to €18,772 Change to Tax Credits Change to Tax Credits **** Reduced rate (2.5%) applies for persons over 70 and/or with a full medical card, where the individual’s income does not 0 800 exceed €60,000 Change to PRSI 0 Change to PRSI 0 Tax relief for pensions (unchanged) Change to Universal Social Charge 505 Change to Universal Social Charge 505 - Tax relief for pensions remains at the marginal income tax rate Change to Marginal Income Tax Rate 0 Change to Marginal Income Tax Rate 0 - The Defined Benefit pension valuation factor is an age related factor that will vary with the individual’s age at the point at which the pension rights are drawn down - Except where a Personal Fund Threshold applies, the Standard Fund Threshold is €2m Capital gains tax (changed) Net Saving €505 Net Saving €1,305 Rate 33% Entrepreneur relief (reduced rate)* 10% Annual exemption €1,270 * Relief remains capped at lifetime limit of €1m chargeable gains Capital Acquisitions Tax (rate unchanged) Rate 33% Unmarried couple, living together, renting, both employed, Married couple, both employed, one earning €250,000, one earning one earning €80,000, one earning €35,000 €90,000, one child, property owner Thresholds (increased) Euro Euro Group A* €310,000 2017 changes 2017 changes Group B* €32,500 Change in Tax Bands 0 Change in Tax Bands 0 Group C* €16,250 Change to Tax Credits* (80) Change to Tax Credits 0 * Effective date to be announced Change to PRSI 0 Change to PRSI 0 Corporation Tax rates (unchanged) Change to Universal Social Charge 530 Change to Universal Social Charge 706 Standard rate 12.5% Change to Marginal Income Tax Rate 0 Change to Marginal Income Tax Rate 0 Knowledge Development Box rate 6.25% Residential land, not fully developed 25% Non-trading income rate 25% Value Added Tax (9% rate retained) Net Saving €450 Net Saving €706 Standard rate/lower rate/second lower rate 23%/13.5%/9% Flat rate for unregistered farmers 5.4% Cash receipts basis threshold €2m Notes Deposit Interest Retention Tax (changed) * Finance Act 2011 introduced a reduction in the rent credit on a sliding scale over seven years. The impact of this will be a reduction of €80 for 2017 (€40 per person). DIRT (rate reduced) 39%*&**&*** * Also applicable to exit taxes on financial products ** Refund of DIRT incurred in previous four years on savings (up to 20% of the purchase price) used by first time buyers to purchase a dwelling. This scheme is in place to the end of 2017 *** The rate of DIRT will be decreased by 2% each year for the next 4 years until it reaches 33% in 2020 Stamp Duty - commercial and other property (unchanged) 2% on commercial (non residential) properties and other forms of property, not otherwise exempt from duty. Stamp Duty - residential property (unchanged) 1% on properties valued up to €1,000,000 2% on balance of consideration in excess of €1,000,000 Now or never Irish CEO Outlook 2016

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