Today’s Summer Economic Statement contains a commitment to reduce marginal income tax rates, although it’s likely that the reductions will be ringfenced to lower and middle income earners, with higher earning employees continuing to live with a marginal 52% rate. A high earning self-employed individual is likely to continue paying tax at the 55% rate post Budget 2017.
The deceases in income tax rates for lower and middle income earners is likely to be facilitated via a reduction in the USC.
Interestingly, there is also a general commitment to broaden the tax base, but no indication as to how more people might be bought within the tax net to achieve this broadening. In recent years, an increasing number of former taxpayers have actually been removed from the tax net.
Entrepreneurs will be rewarded from 1 January 2017 with a more favourable CGT rate of 10% which puts us on a par with the UK in this respect. There is also an expectation that the 10% rate will apply on gains of up to €10m (up from €1m).
Tax reductions in Budget 2017 will be funded by a freezing of tax credits and bands and a phasing out of tax credits altogether for higher earners, further increasing the progressivity of Ireland’s personal tax regime. Finally, a “sugar tax” will also be used to partly fund the above tax reductions.
In summary, the Statement flags tax measures that are in line with last year’s Budget, bringing further relief to lower and middle income earners but relatively less for higher income earners.
Entrepreneurs are also likely to be further incentivised, after years of suggested measures falling on deaf ears.
Peter Vale also commented on the EU anti-avoidance rules:
Finally, away from home but relevant for Ireland, the EU agreed a series of tax anti-avoidance measures on Tuesday evening. In order to get agreement from all States, these have been watered down from the original version. They contain various measures making it more difficult to erode a country’s tax base.
The main provisions of interest from an Irish perspective are a tightening of the rules regarding the transfer of assets such as intellectual property as well as a cap on the amount of tax deductible interest that a company can claim. However, there are various provisions that can effectively push out some of the agreed measures to 2024 in some instances.
Of key note is that the new EU rules will be binding on all Member States whereas the OCED’s BEPS proposals are not binding.
Coming down the track later this year will be a further attempt to push through the EU’s Common Consolidated Corporate Tax Base (CCCTB) rules. These rules would have a significant impact on a small economy such as Ireland as they would see a major reallocation of taxable profit and erode the benefit of our low 12.5% tax rate.
The CCCTB proposals remain unlikely to reach implementation stage, although that risk is probably increasing. The general view in Ireland is that many of the issues that CCCTB seeks to address are being dealt with through the BEPS process and at a minimum CCCTB should be set aside until the outcome of BEPS is clearer.