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TaxingTimes

Budget 2016 & Current Tax Developments

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TaxingTimes Budget 2016 1

Conor O’BrienPartner

Introduction

The Minister for Finance introduced the 2016 Budget (the Budget) on 13 October 2015. Further detailed measures will be included in the Finance Bill to be published on 22 October 2015.

Budget 2016 is the first time that we see most Irish taxpayers reaping significant fruits from economic recovery. Following such an extraordinarily difficult financial crisis this is very much to be welcomed and it is to be hoped that this will be the first of many Budgets where relief can be afforded to Irish taxpayers and where Ireland’s economic competitiveness can be enhanced.

Since the financial crisis commenced Irish policymakers have acted resolutely and ultimately very successfully to protect and enhance the competitiveness of Ireland’s attractive corporation taxation regime. Further enhancements are outlined today - most notably the announcement of a best in class, OECD compliant, 6.25% Knowledge Development Box regime - ensuring that Ireland remains the location of choice for international business.

It has been clear for some time that attention needs to be given to the competitiveness of Ireland’s personal tax regime and in particular to the relatively uncompetitive treatment of Irish based entrepreneurs. No doubt the very tight budgetary position limited room for action during the crisis. Budget 2016 takes advantage of the improved economy to provide some personal tax relief. Key measures include:

n A cut in rates of USC for low to middle incomes

n A reduction in the rate of capital gains tax from 33% to 20% on up to €1million of gains earned by qualifying entrepreneurs

n An increase of the main exempt CAT threshold from €225K to €280K

n A start to equalising the tax credit treatment of the self-employed with that of the employed

It is to be regretted that the Budget continues the policy adopted last year of denying tax reductions on incomes over €70K per annum. The top 1% of income taxpayers already pay more than the bottom 75% combined. They bear marginal income tax rates which are very high by international standards. There is a wealth of evidence that income tax rates at such levels may well discourage business to such an extent that the total yield to the Exchequer is less than it would be at lower marginal tax rates.

The CGT entrepreneur’s relief is to be welcomed as is the modest increase in the CAT thresholds. However, we believe more needs to be done to reform CGT and CAT and it is to be hoped that further relief can be included in future Budgets.

Ireland is projected to have 6.2% economic growth in 2015 - the highest in Europe for the second year running. With a 2015 Budget deficit of 2.1% of GDP and falling unemployment and national debt ratios the country’s economic prospects are very bright. Sound and sensible taxation policies will be required to secure these prospects.

Conor O’BrienHead of Tax and Legal Services

Personal Tax & Employee Issues 2

Business Tax 5

Entrepreneurship 9

Financial Services 10

VAT and other indirect taxes 12

BEPS in a nutshell 14

Tax Rates and Credits 2016 18

Personal Tax Scenarios 2016 19

2 TaxingTimes Budget 2016

Personal Tax & Employee Issues

Reductions in USC ratesThe USC changes have been targeted at those earning between €12,012 and €70,044, which the Government views as low to middle incomes.

The impact of the changes should result in a benefit equivalent to an additional week’s net pay for an individual earning €70,000.

The maximum rate of tax for all those earning under €70,044 has been reduced to 49.5%, the first time that this rate has been under 50% since the supplementary Budget of April 2009. This has been achieved by reducing (i) the two lower USC rates by 0.5% each and (ii) the 7% rate by 1.5%. Full details of the revised rates and bands are set out in the tax rates and credits section at the end of this publication.

The change in rates also means that the top rate of USC is limited to 3% for (i) those with medical cards and

(ii) those aged 70 years and over with income of €60,000 or lower.

The USC entry threshold is to be increased to €13,000, a move that will remove 42,500 additional workers from the scope of the charge. The USC was originally introduced in order to broaden the tax base, but successive Budgets have narrowed its application by eliminating a relatively modest charge on a large number of people – a person with income of €12,999 in 2015 has a USC liability of €215.

All of the above changes will come into effect from 1 January 2016.

The marginal tax rate for those earning above €70,044 has not been changed and continues to be 52% for employees and 55% for the self-employed. However, individuals earning above €70,044 also benefit from the USC reduction in respect of their income up to €70,044.

Home carer tax creditA ‘home carer tax credit’ of €810 is currently available to families where one spouse/partner is the main carer of a child or dependent relative as long as that person’s total income is less than €5,080, with tapering relief available for those with income of up to €6,700.

For 2016, the credit available is to be increased to €1,000 and the income threshold is to be increased to €7,200. It is assumed that tapering relief will continue to be available and that this will apply for income up to €9,200.

PRSITwo changes to PRSI were announced by the minister in his Budget speech.

The first is an increase in the threshold weekly earnings at which the 10.75% top rate of employer’s PRSI applies. From 1 January 2016, the 10.75% rate will only apply to those with weekly earnings in excess of €376 (previously €356) i.e. annualised income of €19,552.

In addition, partial relief of up to €12 per week from employee’s PRSI is to be introduced for those with weekly earnings between €352 and €424. No employee PRSI is due on weekly earnings of €352 or less.

Reduction of tax burden on the self-employedIn advance of the Budget, the Government had indicated a strong desire to bring the tax burden on self-employed individuals closer to the level applicable to employees. The current disparity between the taxation of these two groups is comprised of two parts, the first being the availability of a tax credit of €1,650 to employees only and the second being an additional USC surcharge of 3% that applies to

Robert Dowley Partner


self-employment income in excess of €100,000.

The minister made a small change in this Budget, by introducing an ‘earned income credit’ of €550 for the self-employed from 1 January 2016. This credit will be available to all those with trading or professional income who are ineligible for the employee tax credit on their earnings.

It would appear that the minister has chosen to address the difference in tax credits in priority to the USC differential in order to focus the tax reductions on small business owners, where the benefit of the credit should represent a higher proportion of their net income. However, the earned income credit is only one-third of the tax credit that has been allowed to employees for many years.

The ‘Tax and Entrepreneurship Review’ published with the Budget documents has sought to justify the continuation of this differential by suggesting that there are aspects of how the self-employed are taxed which can be beneficial to them, including timing benefits and the availability of deductions for expenses.

The validity of these justifications is certainly arguable, but regardless of the merits the ‘Tax and Entrepreneurship Review’ gives an insight into current Government thinking on this issue. Whether we will see a further narrowing of the gap is uncertain, but the minister has committed to introduce further change should the Government be elected for a further term in office.

Future reviewsDuring the speech, the minister referred to a number of reviews that will be carried out in 2016 to determine what, if any, taxation measures might be implemented in future Budgets in certain areas.

Treatment of trade union subscriptions and professional body fees

This area has been the subject of lengthy and protracted discussions with Revenue in recent times, particularly during PAYE audits.

Prior to 2011, an employer’s payment / reimbursement of an employee’s annual membership fees of a professional body did not give rise to a taxable benefit-in-kind (BIK) provided the employee’s membership of that body was relevant to the business of the employer, and membership was either (i) necessary for the performance of employment duties, or (ii) facilitated the acquisition of knowledge necessary or directly related to the performance

of those duties. This exemption was removed for 2011 onwards such that a BIK potentially arises unless it can be shown that the annual membership fees are an expense incurred ‘wholly, exclusively and necessarily’ in the employee’s performance of their duties. This change has resulted in Revenue contending that unless membership of the particular body is an express contractual obligation of the employee under their employment contract, a benefit in kind will arise.

It is hoped that any consultation on this issue will reinstate the prior treatment of these costs.

Taxation of trusts and income of trustees

It is unclear whether this review will be confined to Irish trusts or whether it will extend to foreign trusts. It is also unclear whether the review will extend to the taxation of trusts and trustees only, or whether the review will extend to the tax position of settlors and

Eric WallacePartner


beneficiaries, all of whom may have complex tax profiles. It would be hoped that the review will address the annual surcharge on undistributed trust income and the discretionary trust taxes.

Given the range of taxation issues associated with trusts and the number of parties involved, we await with interest the publication of the consultation document.

Review of the artists’ exemption

As part of the normal review of tax reliefs, the artists’ income tax exemption was reviewed. Four options were examined: (1) abolish the scheme; (2) introduce income averaging; (3) change the level of exempt income; or, (4) amend the definition of artistic work.

The conclusion of the review was that the artists’ exemption was a very valuable support for artists on lower incomes. Therefore, no change to the scheme was recommended. However, an in-depth analysis of introducing income averaging for artists will be carried out next year.

Local Property TaxEarlier this year, the Minister for Finance commissioned Dr. Don Thornhill to conduct a review of the operation of the Local Property Tax (LPT), and, in particular, the likely impact on LPT liabilities due to property price increases.

The introduction of LPT in 2013 required homeowners to file LPT returns and pay the tax in respect of around 1.9 million properties. The first valuation date was 1 May 2013. The valuations declared in 2013 form the basis for the LPT liabilities for 2013 (half year), 2014, 2015 and 2016. The next valuation date was due to be on 1 November 2016 and was to determine

the basis for the LPT liabilities for 2017, 2018 and 2019.

In his Budget Statement, the minister outlined the postponement of the next valuation date for LPT from 1 November 2016 to 1 November 2019 as recommended by Dr. Thornhill. This is a positive step for homeowners and will mean that there will be no increase in LPT in 2017 as a result of increased property values as the LPT liabilities will continue to be based on the 1 May 2013 valuations. Dr. Thornhill’s report estimates that more than half of properties would move up by at least one band based on current property prices. It should be noted that Dr. Thornhill stressed in his report that any deferral to the valuation date should be accompanied by legislative changes to reform the LPT system.

The minister has also accepted Dr. Thornhill’s recommendation to continue to exempt from LPT certain properties damaged by pyrite. Finally, the minister outlined that the thirteen recommendations made in Dr. Thornhill’s report will be considered in more detail in due course.

Home Renovation IncentiveBudget 2014 introduced the Home Renovation Incentive (HRI) Scheme for individuals who renovate or improve their principal private residence located in the State. The relief is provided by way of a 13.5% income tax credit on qualifying expenditure of between €4,406 and €30,000 (before VAT) paid to qualifying contractors, i.e. the relief is capped at €4,050. The credit is granted in the two years following the year in which the work is carried out. The HRI seeks to incentivise individuals to upgrade their homes using tax compliant contractors, and it has proven to be very successful. The scheme was extended last year

to include rental properties owned by landlords subject to income tax.

It was originally intended that the HRI would cease at the end of 2015. However, the minister confirmed that this relief is being extended until 31 December 2016. The estimated cost of this extension is €19 million.

Capital acquisitions tax The current Group A tax free threshold which applies to gifts and inheritances from parents to their children is being increased from €225,000 to €280,000. This applies in respect of gift and inheritances received on or after 14 October 2015.

Although this increase to the Group A tax free threshold of almost 25% is to be welcomed, it should be borne in mind that this threshold reduced from €542,544 since 2009 to the current level. In light of rising property prices throughout the country, particularly in Dublin, the capital acquisitions tax liability on inheriting a family home can still be burdensome in many cases. It is hoped that this threshold be kept under review as property prices continue to recover.

Brian ThorntonPartner


n As outlined above, the proposed KDB will be the first OECD-complaint box in the world and is in line with the recommendations of the BEPS project

n It was confirmed that Ireland will seek to introduce the updated OECD transfer pricing guidelines into Irish law once approved by the OECD in 2016

n It was confirmed that the Government will continue to engage constructively with international developments on other BEPS actions, including the agreement of a multilateral instrument (the mechanism by which double tax treaties will be amended), controlled foreign corporation rules, interest deductibility and hybrid mismatches

Business Tax

Jim CleryPartner

Orla GavinPartner

Foreign Direct InvestmentThe Budget and the ‘Update on Ireland’s International Tax Strategy 2015’ (Tax Strategy Update) released by the minister continue to build on Ireland’s corporation tax policies aimed at attracting and retaining foreign direct investment. The minister repeated the Government’s commitment to offering a best in class, transparent and competitive corporation tax regime.

The Tax Strategy Update reaffirms that the 12.5% corporation tax rate is the cornerstone of Ireland’s tax strategy and that it will be unaffected by the ongoing international tax developments under the OECD BEPS project.

The minister announced the introduction of the Knowledge Development Box (KDB), which will be legislated for in the forthcoming Finance Bill. The KDB is aimed at incentivising innovative activities and its introduction demonstrates Ireland’s commitment to offering companies a “best in class” corporation tax regime.

The minister confirmed that the KDB will be the first OECD-compliant preferential tax regime in the world with the regime following the “modified nexus” approach endorsed by the OECD. The “modified nexus” approach seeks to link the relief under the KDB to the proportion of qualifying R&D expenditure being carried on by the company in Ireland on that innovation. The corporation tax rate for income qualifying for relief under the KDB was confirmed as 6.25%.

Whilst the introduction of the KDB may be a positive addition to Ireland’s corporation tax offering, its impact is expected to be limited for multinational

groups who typically undertake research and development activities globally.

International Tax StrategyThe Tax Strategy Update provides an outline of the progress and developments since the publication of Ireland’s International Tax Strategy in Budget 2014 which was followed in Budget 2015 by a Road Map for Ireland’s Tax Competitiveness. The publication gives details of the developments under each of the international tax policy commitments made in the previous two Budgets.

The Tax Strategy Update also includes a statement on the status of Ireland’s compliance with the OECD BEPS project. The key points from this statement are as follows:

n As widely expected, the minister confirmed that the Finance Bill will contain legislation to introduce country-by-country reporting in accordance with the OECD standards


The Tax Strategy Update also outlines the Government’s position on the EU agenda on tax policy matters. The Government confirms its continued engagement and support for many EU initiatives on improving transparency and automatic sharing of information by tax authorities. However, the Government does not support any initiatives seeking to enforce harmonisation of tax rates or minimum tax thresholds among Member States.

The minister also announced the release of a Spillover Analysis assessing the impact of Ireland’s tax system on developing countries – only the second country to do so. Last year, the minister recommended to the OECD that, as part of the BEPS project, each member country undertake a similar spillover analysis to determine the impact of their respective tax systems on developing countries.

The minister confirmed Ireland’s intention to promote tax policies which support developing countries to raise tax revenues domestically and to foster good governance and equitable development of such economies.

The conclusion of the spillover analysis was broadly positive in its assessment of the impact of Ireland’s tax system on developing economies. The areas of concern related to certain provisions of old international tax treaties with Zambia and Pakistan. As these treaties were already being renegotiated, replacement treaties have been signed and are being ratified.

Employment and Investment Incentive (EII)Finance Act 2014 included amendments to the tax regime for income tax relief for investments made in certain qualifying companies. The introduction of these measures was subject to a Ministerial Order until EU clearance was obtained. As this has been obtained, the minister has appointed Budget Day as the effective date of the amendments for shares issued on or after that date.

The principal measures applicable as and from Budget Day are as follows:

n an increase in the amount of finance that can be raised by qualifying companies over a 12 month period from €2.5 million to €5 million and an increase in the amount of finance that can be raised over the lifetime of a company from €10 million to €15 million

n an increase in the minimum holding period for which investors are required to hold their shares to avoid a clawback of the relief from three years to four years

n an extension of the scope of the relief to include medium sized companies operating in non-assisted areas (such as Dublin and Cork city), certain internationally traded financial services and the operation of nursing homes

n companies involved in internationally traded financial services must obtain certification from Enterprise Ireland in order to qualify for the relief

n any claim for EII relief will not be allowed unless, at the time the claim is made, the company in which the investment is made qualifies for a tax clearance certificate

Ken HardyPartner

Conor O’SullivanPartner


In addition to the above measures, the scheme is being expanded so that investments used by companies operating nursing homes to enlarge their capacity will qualify for relief. The nursing home must meet a number of specific conditions. In particular, this expansion of the relief will not apply to an investment in a nursing home which is subject to certain option arrangements for its repurchase. The money raised for this purpose must also be spent within a certain timeframe by the company.

Finally, for shares issued on or after Budget Day, SME companies must meet certain requirements set out in EU Regulations concerning State Aid in order for an investor in such companies to qualify for relief.

Relief from corporation tax for certain start-up companiesThe three-year relief from corporation tax for certain trades, introduced in 2009, will be extended by three years. It will therefore benefit trades commenced before 31 December 2018.

The measure applies where a company’s annual corporation tax liability on qualifying income and gains in the first three years of trading does not exceed €40,000 (with marginal relief also available up to a corporation tax liability of €60,000). The relief is capped at the amount of employer’s PRSI paid in the period.

A review of the operation of the relief was announced in last year’s Budget speech, and the output of that review has now been published in the Department of Finance’s “Tax and Entrepreneurship Review”.

As part of the review, the Department of Finance invited views from the public and interested parties on the use and effectiveness of this relief. In the report, limitations on the benefits of relief, due to the link with employer’s PRSI contributed, were acknowledged. However this restriction has not been removed.

Increasing the supply of residential housing It is well understood that supply constraints in the residential housing market, particularly in the greater Dublin area, have resulted in increased house prices and rents. This has had a significant impact on the affordability and availability of housing. The minister confirmed the Government’s commitment to increase supply by 2020 in a sustainable manner by drawing on the resources available to NAMA and by investing in social housing.

In a study conducted by the ESRI in relation to the suitability of tax breaks to increase the supply of residential

units, key factors which led to the shortage of housing were identified. These were planning, infrastructure, finance for builders, regulations and the cost of building. Due to uncertainty in relation to the influence of the first three factors the ESRI study concluded that “caution should be exercised in the use of tax breaks in the residential property market”.

As an alternative to implementing tax breaks at this juncture, the Government have turned to NAMA to deliver a target of 20,000 residential units before the end of 2020. Collateral published with the Budget indicates that 90 per cent of units will be in the greater Dublin area, and about 75 per cent of units will be houses, mainly starter homes. NAMA is expected to deliver these units by working with developers.

In addition, a range of measures and expenditures are set out dealing with social housing and combatting homelessness.

Marie ArmstrongPartner


Farming and AgribusinessFarm Transfer Partnerships

In line with recent policies to promote the early inter-generational transfer of farms, the minister has announced a new income tax relief for farming partnerships of up to €5,000 per annum for five years. The relief is allocated between the partners in the farming partnership based on their profit sharing agreement. The partnership can extend up to 10 years, at the end of which the farm must be transferred to the younger farmer.

The relief was proposed by the IFA in their pre-budget submission in July 2015 and is designed to relieve the burden of insufficient income from the farm for two families relying on the same farm. Details of the scheme will be included in the Finance Bill and is subject to EU state aid approval.

Extension of existing Agri-tax reliefs to 2018

In continued recognition of the importance of the agriculture and food sectors to

the Irish economy, various tax reliefs for farmers were extended for a further three years to 2018.

The reliefs include general stock relief, stock relief for young trained farmers and stock relief for registered farm partnerships. Stock relief is available only to farming trades and is a relief given in respect of increases in the value of farm trading stock. It is calculated by reference to the increase in value of the stock between the beginning and end of an accounting period.

The minister also announced the extension of stamp duty relief for farm transfers to young trained farmers under the age of 35 for a further three years to 2018.

Profits from the occupation of woodlands

Profits or gains from the occupation of woodland in the State that is managed on a commercial basis with a view to profit are exempt from income tax and corporation tax (but not USC and PRSI).

The exemption for woodland profits was subject to the High Income Earner Restriction (HIER) which restricts tax reliefs so that the minimum tax rate for an individual is 30%. The Budget proposes a new measure to remove profits from the occupation of woodlands from the list of tax reliefs subject to the HIER.

Marine sector Last year the minister singled out the marine as a key area for further growth, with a target of doubling the value of Ireland’s blue economy by 2030. An independent review of marine taxation supports was published with the Budget. It will be examined by the relevant

departments, with a view to establishing the feasibility of their implementation in future Budgets.

The recommendations, set out below, provide for the extension of some reliefs and the introduction of others, together with overall recommendations to assist the marine sector. Many of these measures will require EU approval.

Ports

To incentivise investment in ports and port equipment, an improved capital allowances regime is proposed by extending the definition of qualifying dock undertakings and potentially allowing capital allowances over a seven year period. A wider definition of what constitutes “plant” in the context of ports is also proposed.

Shipping

To promote Ireland as an international shipping and ship finance centre, the proposals include the introduction of enhanced trust certificates as a form of asset backed security, a range of measures designed to ensure that Ireland’s tonnage tax regime retains its competitive status within the EU, and an extension of a VAT rebate scheme for commercial ships registered in the EU.

Fishing, aquaculture, seafood processing

A range of measures are proposed to deal with the investment, employment and succession issues in this industry. These include the extension of the Employment Investment Incentive, the Start Up Refunds for Entrepreneurs Scheme, the seafarers’ tax allowance and relief from capital acquisitions tax.

Liam Lynch Partner


Entrepreneurship

The minister singled out the significant contribution that Irish entrepreneurs and particularly Irish small and medium sized enterprises (SMEs) make to the Irish economy describing it as

“critical to our economic well-being”. In numbers 99.7% of all enterprises and 68% of all employment in Ireland are derived from this sector.

Earlier this year the Government launched a public consultation to assess the impact of existing tax measures available to entrepreneurs and to identify options to incentivise entrepreneurship. KPMG’s submission, as part of this consultation process, recommended a number of measures to further encourage entrepreneurship, such as remedying the disparity in taxation between the self-employed and employees, and replacing the existing limited CGT entrepreneurial relief with a more attractive and accessible alternative.

Following this consultation, the Department of Finance published a report ‘Tax and Entrepreneurship Review’ outlining a range of measures to encourage entrepreneurship. It is positive to see that the minister has taken on board a number of the suggestions arising from the public consultation, and has focussed on the following measures as being those identified with the greatest potential to encourage entrepreneurship and support entrepreneurs and SMEs. These Budget measures are part of the Government’s Entrepreneurship Action Plan and are outlined in further detail below and throughout this publication.

Entrepreneurs CGT reliefThe standard rate of capital gains tax (CGT) remains 33% but an enhanced entrepreneur’s CGT relief has been introduced which reduces the CGT rate applicable to disposals of the whole or part of a business to 20%. This relief will be available to entrepreneurs up to a lifetime limit of net chargeable gains of €1 million with effect from 1 January 2016. The relief will be available to the individual owners of a trade or business which they have owned for at least three years and will not be available to companies. Further details will be included in the forthcoming Finance Bill.

This new regime is a significant improvement on the current restricted CGT relief, whereby relief is only available to the entrepreneur on making a gain on a second successful business disposal once certain conditions are met. However, the new relief is still inferior to that currently available to entrepreneurs in the UK, where a 10% CGT rate applies to entrepreneurs on gains from disposals of a business up to a total life time limit of £10 million. In our view, the new relief, while an encouraging start, does not yet sufficiently recognise the extra risks that entrepreneurs take in setting up and investing in Irish business.

The futureThe range of measures introduced by the minister goes some way towards recognising the important contribution that Irish entrepreneurs make to the Irish economy and ensuring that we maintain a strong entrepreneurial culture into the future.

In this regard, it is particularly positive that the minister regards these measures as a first step in supporting this sector and that further measures will be introduced in future budgets as resources permit.

Enhanced entrepreneurs CGT relief

Corporation tax relief for start-ups extended

Motor tax reduction for commercial vehicles

Introduction of an earned income credit

Promoting electronic payments by reducing interchange fees and stamp duty charges

Introduction of a knowledge development box (KDB)

Agri-tax reliefs being extended and new relief for succession planning

Enhancing film tax relief by increasing the investment cap

Providing tax incentives for constructing aviation services facilities

Olivia Lynch Partner

Johnny Hanna Partner


Financial Services

Overall, the Budget has only a limited number of provisions directed at the financial services sector. That said, it is expected that the Finance Bill will include a number of technical provisions that will be of relevance to the sector.

Pension fund levy The pension fund levy which was introduced in 2011, largely to fund the reduced VAT rate on tourism activities, will not be extended past 2015. The levy, when it was initially introduced, was 0.6% on the market value of assets held in a pension scheme but had been reduced to 0.15% in 2015 and will be abolished at the end of this year. The abolition of the levy will be welcomed by pensioners and pension providers alike.

Bank levyThe bank levy on financial institutions, which was due to expire in 2016, has been extended to 2021. It is forecast to generate an additional €750 million of revenues over the period. The methodology used to calculate the levy, which is currently based on the DIRT payments made by the financial institutions in 2011, will be subject to review.

National Payments PlanThe National Payments Plan (NPP), which was launched in April 2013, aims at helping Ireland move away from cash and cheques towards electronic payments, such as debit cards and electronic banking. It is projected that such changes will create savings for the economy of around €1 billion annually. While the NPP has already delivered a number of initiatives, Ireland still remains a cash intensive economy.

Irish people withdraw the second highest amount from ATMs per capita in Europe while half of social welfare is still paid out over the counter in cash. The Budget sets out three measures to incentivise consumers and retailers to use more electronic forms of payment.

The first measure is designed to incentivise consumers to use debit cards instead of withdrawing cash from an ATM by changing the per-card stamp duty currently levied into a per-ATM withdrawal levy. The new charge will be a 12c ATM withdrawal fee with no charge for debit card transactions. The total charge will be capped at the historic charges per card of €2.50 per ATM card or debit card and €5 per combined ATM/debit card.

The second measure is designed to reduce fees that retailers face for accepting card payments. The so-called interchange fees are to be halved for retailers to 0.30% for domestic

credit card transactions and 0.10% for domestic debit card transactions. These changes come into effect on 9 December 2015.

The third measure is that the transaction limit on contactless payments cards will be raised from €15 to €30 on 31 October 2015.

State’s banking investments updateThe Department of Finance has also published an update on the State’s banking investments, providing an overview of the value of its shareholdings in AIB, Bank of Ireland and PTSB, which includes information on the drivers of value and key performance indicators over the past number of years. The minister underlined in his speech that these shares are now valuable assets belonging to the taxpayer and that the investments made in these institutions will be recouped. The value of these assets are not reflected in the debt

Kevin Cohen Partner

Brian Daly Partner


Gareth BryanPartner

Tom Woods Partner

to GDP forecast, which is otherwise projected to be below 80% of GDP by 2021. The minister noted that the disposal proceeds from these shareholdings will have a major impact on debt levels and therefore on the forecast.

The document also outlines a number of other significant banking milestones achieved to date including the resolution of the IBRC Promissory Notes, the liquidation of IBRC, the sale of Irish Life, the sale of Bank of Ireland CoCos and preference shares, NAMA senior bond redemptions and the restructuring plans for AIB, BOI and PTSB being approved by the European Commission.

Finally, the document sets out how the Government bank guarantee coverage has reduced over time. The initial coverage in September 2008 of €375 billion has now been almost eliminated. Through a combination of net deposit movements, return to capital markets and changes to the scheme itself, the coverage of the scheme had reduced to €10 billion at 31 December 2014. The total guarantee fees paid to the State by participating institutions are disclosed at a figure of €4.4 billion to date.

Aviation facilitiesIn the context of Ireland’s pre-eminent position in the global aviation finance sector and the importance of the aviation sector for the economy, the minister announced the commencement of the scheme of accelerated capital allowances for the construction of facilities used in the maintenance, repair, overhaul and dismantling of aircraft. Legislation introducing this scheme was included in Finance Act 2013 but was subject to

EU State Aid approval and a ministerial commencement order. In order to obtain State Aid approval, it has been necessary to modify the scheme of relief. The main provisions of the modified relief are as follows:

n In general, expenditure on such facilities will qualify for industrial building writing down allowances at the normal rate of 4% per annum over a 25 year write down period.

n However, a certain amount of expenditure (known as “specified capital expenditure”) will qualify for accelerated allowances over a shorter seven year period (15% writing down allowance per annum).

n A cap has been placed on the amount of specified capital expenditure that can qualify for accelerated capital allowances. Where the expenditure is incurred by a company, accelerated

capital allowances will be available on expenditure only up to an amount of €5 million. Where the expenditure is incurred by an individual, the relevant cap is €1.25 million.

n In order to qualify for the accelerated capital allowances regime, the expenditure in question must be incurred in the five year period following Budget Day. There is no such time limit on expenditure which will qualify for the standard writing down allowances.

n The accelerated allowances granted in respect of specified capital expenditure will fall within the scope of the High Income Earner Restriction.


VAT ratesThe minister confirmed that there is no change to the 9% VAT rate. The rate was originally introduced in 2011 for a three year period and extended indefinitely in Budget 2014 as part of the Government’s Jobs Initiative for Tourism. The minister however sounded a cautionary note that the case for the retention of the 9% VAT rate is diminishing due to room rate increases in the hotel sector in Dublin, but the case for the retention of this measure for the rest of the country remains. The 9% rate applies to a range of goods and services including restaurants and catering, hotel accommodation, newspapers, and admission to cinemas, theatres and museums.

The 23% and 13.5% rates of VAT and the flat-rate addition for non-VAT registered farmers remain unchanged.

VAT on charities working group reportA Department of Finance ‘VAT on Charities Working Group Report’ was published with other ancillary budgetary documentation. This report notes the estimated VAT burden for charities represents €77.4 million per annum or 4.5% of total expenditure. The report considers compensation schemes in operation in other EU member states that could be implemented in Ireland. It notes that EU VAT law permits a compensation scheme to be introduced as long as it is clearly separate from the normal VAT system. Issues for further consideration noted in the report include the potential scope of a refund scheme, methods of implementation and the administrative burden on the Revenue Commissioners. However, the minister did not refer to any

proposal to lessen the VAT burden for charities in his Budget speech.

Other recent VAT developments There have been other recent VAT developments which may be of interest to readers:

Share deal fees

In a welcome decision reached earlier in the year, the Court of Justice of the European Union (“CJEU”) has clarified the VAT recovery position for holding companies which incur VAT on share acquisition deal fees. It held that a holding company which involves itself in the active management of its subsidiaries is entitled to recover VAT incurred on share acquisition deal fees in line with its general VAT recovery position.

VAT and other indirect taxes

Terry O’NeillPartner


Portfolio investment management services

Revenue announced a change in practice in relation to the VAT treatment of portfolio investment management services with effect from 4 September 2015. Under previous Revenue practice it was possible in certain cases to treat a single fee for portfolio investment management services as partly VATable and partly VAT exempt. Following the change in practice, the standard rate VAT will apply to the entire fee.

Fees charged on a per transaction basis for the purchase and sale of securities carried out as part of an overall portfolio management service may in certain cases continue to be treated as VAT exempt.

The change does not impact the application of VAT exemption to portfolio investment management services provided to “qualifying funds” which includes most regulated funds, defined contribution pension schemes, certain life assurance funds, and Section 110 securitisation vehicles.

Can real estate management be VAT exempt?

A decision due in the coming months should clarify the scope of the VAT exemption in Ireland for the management of regulated funds holding real estate assets and whether VAT exemption should apply to property management services provided to such funds.

The opinion of the Advocate General released in May 2015 favoured a wide application of the VAT exemption.

Excise dutyTobacco products & other ‘old reliables’

The excise duty on a packet of 20 cigarettes is being increased by 50 cents (including VAT), with a pro-rata increase on other tobacco products. This has effect from midnight on 13 October 2015. The minister announced that this will raise €61.4 million in a full year.

No changes were made to excise duty rates on alcohol, petrol or diesel.

Excise duty cashflow relief for microbreweries

A special relief reducing the standard rate of Alcohol Products Tax by 50% on beers produced in microbreweries was introduced in last year’s budget. The minister announced the relief will now be available upfront as well as through a rebate, thereby creating a cash flow benefit for the industry.

Commercial motor tax

Commercial motor tax rates are to be reduced and simplified with the goal of removing distortions in the haulage industry between Ireland and the UK. The existing regime will be revised from twenty rates of motor tax to five, ranging from a minimum of €92 to a maximum of €900 per annum. By comparison, the current maximum motor tax rate is €5,195 per annum. These measures will be introduced with effect from 1 January 2016 and it is estimated will cost €43 million in a full year.

Niall CampbellPartner


In a

Nut

shel

l The

Oct

ober

201

5 B

EPS

Del

iver

able

sIn

trod

uctio

n

n O

n 5

Oct

ober

, the

OEC

D re

leas

ed th

e fin

al

deliv

erab

les

of it

s B

ase

Eros

ion

and

Profi

t Sh

iftin

g (B

EPS)

Act

ion

Plan

n T

his

repr

esen

ts o

ne o

f the

mos

t sig

nific

ant

chan

ges

to th

e in

tern

atio

nal c

orpo

rate

tax

land

scap

e in

man

y ye

ars

n F

or th

e m

ajor

ity o

f Act

ions

, the

se

docu

men

ts c

oncl

ude

the

disc

ussi

on a

nd

reco

mm

enda

tion

phas

e an

d m

ark

the

star

t of t

he im

plem

enta

tion

and

prac

tical

de

liver

y ph

ase.

The

nex

t pha

se w

ill in

clud

e a

man

date

for m

onito

ring

and

supp

ortin

g im

plem

enta

tion

n M

ultin

atio

nals

will

need

to re

thin

k ho

w

they

vie

w ta

xes

in a

pos

t-BEP

S w

orld

. G

over

nmen

ts in

tern

atio

nally

, inc

ludi

ng

Irela

nd, w

ill ha

ve to

thin

k ab

out h

ow th

ey

bala

nce

thei

r am

bitio

n to

att

ract

bus

ines

s ac

tivity

thro

ugh

offe

ring

an a

ttra

ctiv

e co

rpor

ate

tax

regi

me

agai

nst c

omm

itmen

ts

unde

r the

BEP

S Pl

an w

hich

aim

s to

kee

p a

mor

e le

vel g

loba

l pla

ying

fiel

d

n W

e be

lieve

Irel

and’

s ta

x re

gim

e is

wel

l al

igne

d w

ith B

EPS

mea

sure

s. Ir

elan

d is

like

ly to

impl

emen

t in

the

near

term

m

easu

res

whi

ch h

ave

broa

d co

nsen

sus

and

enha

nce

the

tran

spar

ency

of i

ts re

gim

e.

Irela

nd w

ill ad

opt a

‘wai

t and

see

’ app

roac

h be

fore

ado

ptin

g m

easu

res

that

pot

entia

lly

affe

ct th

e co

mpe

titiv

e po

sitio

n of

its

tax

regi

me.

n I

n th

is d

ocum

ent w

e su

mm

aris

e th

e ke

y pr

opos

als,

and

pro

vide

our

initi

al v

iew

on

how

the

reco

mm

enda

tions

may

tran

slat

e in

to im

plem

enta

tion

Actio

n 1:

Dig

ital E

cono

my

Oct

ober

201

5 D

eliv

erab

le?

Yes

Key

OEC

D p

ropo

sals

n F

or d

irect

tax

no s

peci

fic n

ew d

igita

l tax

es

or p

erm

anen

t est

ablis

hmen

t rul

es a

re

reco

mm

ende

d. T

he O

ECD

exp

ects

the

Dig

ital E

cono

my

to b

e ta

ckle

d by

oth

er

Act

ions

but

leav

es th

e do

or o

pen

to

coun

trie

s to

impl

emen

t dom

estic

rule

s if

they

con

side

r the

m in

adeq

uate

or c

reat

ing

a tim

e la

g. M

onito

ring

will

cont

inue

with

a

furt

her r

epor

t in

2020

n F

or in

dire

ct ta

xes,

a s

hift

to c

olle

ctin

g ta

x in

the

juris

dict

ion

of c

onsu

mpt

ion

is

reco

mm

ende

d. F

or B

2B th

is g

ener

ally

m

eans

a re

char

ge o

r sel

f ass

essm

ent.

B2C

re

mot

e su

pplie

rs o

f dig

ital s

ervi

ces

will

ne

ed to

regi

ster

and

acc

ount

for V

AT

in th

e co

untr

y of

resi

denc

e of

thei

r cus

tom

er

n A

new

Low

Val

ue Im

port

Rep

ort p

rovi

des

optio

ns fo

r tax

aut

horit

ies

to ta

x m

ore

low

va

lue

e-co

mm

erce

tran

sact

ions

by

shift

ing

VAT

oblig

atio

ns to

the

vend

or/in

term

edia

ry

KPM

G’s

vie

w

n T

axin

g B

2C s

uppl

ies

of b

oth

digi

tal s

ervi

ces

and

low

val

ue e

-com

mer

ce in

the

coun

try

of re

side

nce

of th

e co

nsum

er w

ill pl

ace

a gr

eate

r com

plia

nce

burd

en o

n ve

ndor

s in

th

e gl

obal

dig

ital e

cono

my

and

pote

ntia

lly

incr

ease

the

cost

to c

onsu

mer

s

n I

t is

disa

ppoi

ntin

g th

at th

e re

port

eff

ectiv

ely

enco

urag

es c

ount

ries

to ta

ckle

dig

ital B

EPS

ch

alle

nges

uni

late

rally

whi

ch c

ould

lead

to

glob

al u

ncer

tain

ty a

nd in

cons

iste

ncy

Actio

n 2:

Hyb

rid m

ism

atch

arra

ngem

ents

Oct

ober

201

5 D

eliv

erab

le?

Yes

Key

OEC

D p

ropo

sals

n R

ecom

men

datio

n fo

r the

intr

oduc

tion

of d

omes

tic h

ybrid

mis

mat

ch ru

les

to

neut

ralis

e th

e ef

fect

of h

ybrid

inst

rum

ents

an

d en

titie

s

n O

ther

reco

mm

ende

d do

mes

tic p

rovi

sion

s in

clud

e th

e de

nial

of a

div

iden

d ex

empt

ion

for t

ax d

educ

tible

pay

men

ts a

nd m

easu

res

to p

reve

nt h

ybrid

tran

sfer

s be

ing

used

to

dupl

icat

e w

ithho

ldin

g ta

x cr

edits

n P

ropo

sed

chan

ge to

the

OEC

D m

odel

tr

eaty

to e

nsur

e hy

brid

ent

ities

are

not

us

ed to

obt

ain

trea

ty b

enefi

ts u

ndul

y

KPM

G’s

vie

w

n T

he h

ybrid

mis

mat

ch ru

les

oper

ate

auto

mat

ical

ly a

nd c

onta

in a

prim

ary

resp

onse

and

a d

efen

sive

rule

to a

void

do

uble

taxa

tion

and

to e

nsur

e th

at th

e m

ism

atch

is e

limin

ated

eve

n w

here

not

all

juris

dict

ions

ado

pt th

e ru

les

n C

ompa

nies

with

exi

stin

g in

tra-

grou

p fin

anci

ng a

nd ro

yalty

arr

ange

men

ts

will

need

to a

sses

s th

e im

pact

if th

e re

com

men

ded

rule

s w

ere

to b

e in

trod

uced

by

a re

leva

nt ju

risdi

ctio

n

n I

rela

nd’s

regi

me

is la

rgel

y un

affe

cted

by

hybr

ids.

It is

like

ly to

act

to im

plem

ent a

nti-

hybr

id m

easu

res

agre

ed w

ithin

the

EU

n O

ther

cou

ntrie

s m

ay a

ct to

impl

emen

t O

ECD

mea

sure

s - t

he U

K ha

s al

read

y an

noun

ced

its in

tent

ion

to in

trod

uce

dom

estic

rule

s to

giv

e ef

fect

to th

e O

ECD

’s

reco

mm

enda

tions

on

hybr

ids

from

1

Janu

ary

2017

Actio

n 3:

CFC

Rul

es

Oct

ober

201

5 D

eliv

erab

le?

Yes

Key

OEC

D p

ropo

sals

n A

s w

ith th

e ea

rlier

dis

cuss

ion

draf

t, th

e fin

al re

com

men

datio

ns a

re in

the

form

of

“bu

ildin

g bl

ocks

” th

at a

re c

onsi

dere

d ne

cess

ary

for t

he d

esig

n of

eff

ectiv

e C

FC

rule

s. T

he s

ix b

uild

ing

bloc

ks in

clud

e th

e de

finiti

on o

f a C

FC a

nd o

f CFC

inco

me

an

d th

e at

trib

utio

n of

CFC

inco

me

n T

he re

com

men

datio

ns a

re n

ot m

inim

um

stan

dard

s, b

ut th

ey a

re d

esig

ned

to e

nsur

e th

at c

ount

ries

whi

ch c

hoos

e to

impl

emen

t th

em w

ill ha

ve C

FC ru

les

that

eff

ectiv

ely

prev

ent t

axpa

yers

from

shi

ftin

g in

com

e in

to

fore

ign

subs

idia

ries

KPM

G’s

vie

w

n T

he O

ECD

cle

arly

reco

gnis

es th

e ne

ed fo

r fle

xibi

lity

in th

is a

rea,

as

the

desi

gn o

f CFC

ru

les

in d

iffer

ent c

ount

ries

refle

cts

diff

erin

g po

licy

obje

ctiv

es, i

n pa

rtic

ular

dep

endi

ng

on w

heth

er th

ey h

ave

a w

orld

wid

e or

te

rrito

rial t

ax s

yste

m o

r whe

ther

they

are

EU

mem

bers

n T

he d

efini

tion

of C

FC in

com

e is

one

of

the

key

build

ing

bloc

ks, b

ut is

an

area

w

here

ther

e ar

e cl

early

diff

erin

g vi

ews.

A

non

-exh

aust

ive

list o

f app

roac

hes

(e.g

. su

bsta

nce

and

exce

ss p

rofit

s an

alys

is)

has

been

incl

uded

to a

ccom

mod

ate

diff

erin

g vi

ews

n I

rela

nd is

not

like

ly to

impl

emen

t a C

FC

regi

me

in th

e ne

ar te

rm. I

f it d

id, i

t is

expe

cted

to a

dher

e to

EU

sta

ndar

ds


In a

Nut

shel

l The

Oct

ober

201

5 B

EPS

Del

iver

able

sAc

tion

4: In

tere

st d

educ

tions

Oct

ober

201

5 D

eliv

erab

le?

Yes

Key

OEC

D p

ropo

sals

n C

ount

ries

may

ado

pt th

e m

easu

res

if th

ey

choo

se. R

ecom

men

datio

n of

Fix

ed R

atio

R

ule

(FR

R) o

f tax

relie

f for

net

inte

rest

of

10%

to 3

0% o

f EB

ITD

A, a

pplie

d to

net

(in

clud

ing

third

par

ty) i

nter

est a

t an

entit

y le

vel.

A G

roup

Rat

io R

ule

(GR

R) w

ould

en

able

gro

ups

that

are

mor

e hi

ghly

leve

rage

d w

ith th

ird p

arty

deb

t to

appl

y th

e w

orld

wid

e ra

tio ra

ther

than

the

coun

try’s

FR

R (p

ossi

ble

10%

upl

ift to

pre

vent

dou

ble

taxa

tion)

n A

ltern

ativ

es to

the

GR

R in

clud

e an

“eq

uity

es

cape

” ru

le o

r no

GR

R p

rovi

ded

the

FRR

is

appl

ied

to b

oth

mul

tinat

iona

l and

dom

estic

gr

oups

n S

ugge

sted

furt

her o

ptio

ns: a

de

min

imis

th

resh

old,

pub

lic b

enefi

t exe

mpt

ion,

car

ry

forw

ard

of d

isal

low

ed in

tere

st e

xpen

se

and/

or u

nuse

d in

tere

st c

apac

ity, a

nd o

ther

ta

rget

ed a

nti-a

void

ance

rule

s

KPM

G’s

vie

w

n M

ost c

ount

ries

that

are

min

ded

to a

dopt

ar

e ex

pect

ed to

sel

ect a

FR

R in

the

rang

e of

20

%-3

0% o

f EB

ITD

A. T

he G

RR

, if a

dopt

ed,

is lik

ely

to b

e of

mor

e be

nefit

to la

rgel

y do

mes

tic g

roup

s

n I

mpl

emen

tatio

n is

key

: som

e co

untr

ies

that

ha

ve re

stric

tions

on

inte

rest

ded

uctio

ns

may

be

relu

ctan

t or s

low

to c

hang

e th

ese

if th

ey b

elie

ve th

ey a

re a

lread

y ef

fect

ive

n B

anki

ng a

nd In

sura

nce

sect

ors

mus

t wai

t fo

r fur

ther

wor

k to

be

done

in 2

016

n I

rela

nd is

unl

ikel

y to

ado

pt in

the

near

term

. It

alre

ady

has

a ra

nge

of ta

rget

ed m

easu

res

to li

mit

inte

rest

ded

uctio

ns o

n de

bt

Actio

n 5:

Har

mfu

l tax

pra

ctic

es

Oct

ober

201

5 D

eliv

erab

le?

Yes

Key

OEC

D p

ropo

sals

n I

ntro

duct

ion

of th

e M

odifi

ed N

exus

ap

proa

ch to

link

ben

efits

und

er p

refe

rent

ial

IP “

Box

” re

gim

es to

a c

laim

ant’s

pr

opor

tiona

te c

ontr

ibut

ion

to R

&D

act

iviti

es

unde

rpin

ning

the

inco

me

n F

or e

xist

ing

IP B

ox re

gim

es, n

ew M

odifi

ed

Nex

us re

gim

es to

be

intro

duce

d fro

m J

uly

2016

with

use

of c

urre

nt re

gim

es p

erm

itted

un

til J

une

2021

und

er d

efine

d gr

andf

athe

ring

prov

isio

ns. A

ll IP

regi

mes

will

requ

ire c

hang

e to

Mod

ified

Nex

us A

ppro

ach

n N

on-IP

regi

mes

will

be re

view

ed to

ens

ure

in li

ne w

ith n

ew s

ubst

ance

requ

irem

ents

n I

ntro

duct

ion

of c

ompu

lsor

y sp

onta

neou

s ex

chan

ge o

f inf

orm

atio

n on

cer

tain

rulin

gs

from

Apr

il 201

6. A

pplie

s to

pas

t rul

ings

, and

ne

w e

ntra

nts

to IP

box

es p

ost F

ebru

ary

2015

KPM

G’s

vie

w

n I

rela

nd w

ill in

trod

uce

its K

now

ledg

e D

evel

opm

ent B

ox, t

he fi

rst n

ew M

odifi

ed

Nex

us A

ppro

ach

regi

me

in F

inan

ce A

ct

2015

. The

Nex

us p

rinci

ple

will

intr

oduc

e co

nsid

erab

le c

ompl

exity

. For

man

y ta

xpay

ers,

is li

kely

to re

stric

t ove

rall

bene

fits,

par

ticul

arly

if o

pera

ting

mul

tiple

R

&D

cen

tres

on

a gl

obal

bas

is

n O

ECD

mea

sure

s to

exc

hang

e ru

ling

info

rmat

ion

spon

tane

ousl

y in

rela

tion

to

mat

ters

incl

udin

g pr

efer

entia

l reg

imes

, un

ilate

ral t

rans

fer p

ricin

g an

d PE

s ec

ho E

U

mea

sure

s pr

opos

ed to

com

men

ce in

201

7 to

incl

ude

rulin

gs g

iven

sin

ce 2

012

Actio

n 6:

Tre

aty

abus

e

Oct

ober

201

5 D

eliv

erab

le?

Yes

Key

OEC

D p

ropo

sals

n A

s a

min

imum

sta

ndar

d, to

cou

nter

trea

ty

shop

ping

cou

ntrie

s w

ill in

clud

e on

e of

the

follo

win

g ty

pes

of ru

les:

(1) A

com

bine

d ap

proa

ch o

f bot

h a

Prin

cipa

l Pur

pose

s Te

st (“

PPT”

) an

d Li

mita

tion

on B

enefi

ts

(“LO

B”)

rule

in ta

x tr

eatie

s; (2

) A P

PT ru

le

alon

e in

tax

trea

ties;

or (

3) A

LO

B in

tax

trea

ties

supp

lem

ente

d by

dom

estic

ant

i-co

ndui

t fina

ncin

g le

gisl

atio

n

n S

ugge

sted

spe

cific

ant

i-abu

se ru

les

for:

tran

sact

ions

see

king

to p

reve

nt s

ourc

e ta

xatio

n of

imm

ovab

le p

rope

rty,

low

ta

xed

PEs,

hol

ding

per

iods

for s

hort

term

di

vide

nd tr

ansf

er tr

ansa

ctio

ns, d

ual r

esid

ent

com

pani

es

n S

till t

o be

fina

lised

in e

arly

201

6 is

the

reco

mm

ende

d w

ordi

ng fo

r the

LO

B c

laus

e (p

endi

ng th

e fin

alis

atio

n of

the

US

new

m

odel

tax

trea

ty) a

nd th

e tr

eaty

ent

itlem

ent

of n

on-C

IVs

KPM

G’s

vie

w

n T

he d

evel

opm

ent o

f the

pro

visi

ons

thro

ugh

wor

k on

a m

ultil

ater

al in

stru

men

t in

2016

m

erits

clo

se re

view

for I

rish

base

d bu

sine

ss

oper

atin

g in

tern

atio

nally

as

the

draf

t pr

ovis

ions

pre

sent

cha

lleng

es fo

r tax

paye

rs

oper

atin

g in

sm

all o

pen

econ

omie

s. Ir

elan

d is

aw

are

of th

e ne

ed fo

r its

tax

trea

ty

netw

ork

to c

ontin

ue to

wor

k ef

fect

ivel

y to

su

ppor

t int

erna

tiona

l tra

de

n W

hils

t the

re is

reco

gniti

on o

f the

im

port

ance

of n

on-C

IV fu

nds

and

thei

r tr

eaty

ent

itlem

ent,

the

cont

inui

ng la

ck o

f cl

arity

for s

uch

fund

s is

dis

appo

intin

g

Actio

n 7:

Defi

nitio

n of

PE

Oct

ober

201

5 D

eliv

erab

le?

Yes

Key

OEC

D p

ropo

sals

n R

evis

ed p

ropo

sals

to c

hang

e th

e PE

de

finiti

on, i

f ado

pted

by

coun

trie

s, w

ould

re

sult

in a

sig

nific

ant e

xten

sion

to th

e de

finiti

on o

f a P

E

n T

he c

ircum

stan

ces

in w

hich

a “

depe

nden

t ag

ent”

PE

can

be c

reat

ed w

ill be

si

gnifi

cant

ly w

iden

ed e

.g. i

t will

exte

nd to

si

tuat

ions

whe

re a

per

son

“hab

itual

ly p

lays

th

e pr

inci

pal r

ole

lead

ing

to th

e co

nclu

sion

of

con

trac

ts th

at a

re ro

utin

ely

conc

lude

d w

ithou

t mat

eria

l mod

ifica

tion

by th

e en

terp

rise”

n T

he li

st o

f exc

epte

d ac

tiviti

es w

ill be

sub

ject

to

an

over

ridin

g pr

econ

ditio

n th

at th

ey b

e “p

repa

rato

ry o

r aux

iliary

” in

nat

ure

n A

new

ant

i-fra

gmen

tatio

n ru

le w

ill be

in

trod

uced

, app

lyin

g w

here

com

plem

enta

ry

func

tions

that

are

par

t of a

coh

esiv

e bu

sine

ss o

pera

tion

are

carr

ied

on b

y th

e sa

me

or a

clo

sely

rela

ted

ente

rpris

e

KPM

G’s

vie

w

n T

he p

ropo

sed

chan

ges

to th

e de

finiti

on

of P

E ar

e fa

r rea

chin

g. D

evel

opm

ents

on

ado

ptio

n by

cou

ntrie

s w

ill ne

ed to

be

cons

ider

ed b

y ev

ery

mul

tinat

iona

l as

they

w

ill ge

nera

te s

igni

fican

t unc

erta

inty

for

busi

ness

n T

he s

cope

of s

ome

chan

ges

(in p

artic

ular

re

latin

g to

“de

pend

ent a

gent

s”) h

as b

een

slig

htly

nar

row

ed c

ompa

red

to e

arlie

r pr

opos

als.

The

fina

l pro

posa

ls re

mai

n in

here

ntly

less

pre

cise

than

the

curr

ent P

E

defin

ition


In a

Nut

shel

l The

Oct

ober

201

5 B

EPS

Del

iver

able

sAc

tions

8-1

0: IP

and

TP

outc

omes

Oct

ober

201

5 D

eliv

erab

le?

Yes

Key

OEC

D p

ropo

sals

n L

egal

ow

ners

hip

of a

n in

tang

ible

doe

s no

t of

itse

lf pr

ovid

e a

right

to a

ll (o

r eve

n an

y) o

f th

e re

turn

gen

erat

ed fr

om it

s ex

ploi

tatio

n.

Inst

ead

thos

e re

turn

s ac

crue

to th

e en

titie

s w

hich

car

ry o

ut D

EMPE

func

tions

- de

velo

pmen

t, en

hanc

emen

t, m

anag

emen

t, pr

otec

tion

and

expl

oita

tion

- in

rela

tion

to

that

inta

ngib

le

n T

he n

ew g

uide

lines

em

phas

ise

the

need

to

acc

urat

ely

delin

eate

a tr

ansa

ctio

n so

th

at th

e co

nduc

t of p

artie

s w

ill re

plac

e co

ntra

ctua

l arr

ange

men

ts w

here

they

ar

e in

com

plet

e or

out

of l

ine

with

the

cond

uct.

Tran

sact

ions

can

be

disr

egar

ded

for T

P pu

rpos

es w

here

they

lack

co

mm

erci

al ra

tiona

lity

n R

etur

n fo

r ris

k is

allo

cate

d to

the

part

y w

hich

con

trol

s it

and

has

the

finan

cial

ca

paci

ty to

ass

ume

it. A

n en

tity

only

pr

ovid

ing

capi

tal w

ill be

ent

itled

to n

o m

ore

than

a ri

sk fr

ee re

turn

n E

nhan

ced

rule

s on

how

to a

pply

the

CU

P (c

ompa

rabl

e un

cont

rolle

d pr

ice)

m

etho

dolo

gy to

com

mod

ity tr

ansa

ctio

ns

n A

saf

e ha

rbou

r for

low

val

ue a

ddin

g se

rvic

es

reco

mm

ende

d, w

ith a

ligh

t tou

ch b

enefi

ts

test

and

pre

scrib

ed n

et c

ost p

lus

mar

gins

of

betw

een

2% a

nd 5

%

n C

hang

es to

the

rule

s on

Cos

t Con

trib

utio

n A

rran

gem

ents

to a

lign

them

with

the

othe

r TP

out

com

es

Actio

ns 8

-10:

IP a

nd T

P ou

tcom

es (c

ont.)

KPM

G’s

vie

w

n O

ther

than

som

e cl

arifi

catio

n of

con

tinui

ng

to re

cogn

ise

cont

ract

ual t

erm

s w

here

they

al

ign

with

con

duct

and

the

sign

ifica

nce

of th

e fin

anci

al c

apac

ity to

ass

ume

risk,

th

ere

is li

ttle

cha

nge

from

the

prev

ious

di

scus

sion

dra

fts.

The

reco

mm

enda

tions

ar

e co

nsis

tent

with

the

over

all e

volu

tion

of

the

tax

trea

tmen

t of i

ntan

gibl

es, r

isks

and

ca

pita

l. Fo

r US

owne

d gr

oups

, US

reac

tion

to O

ECD

gui

danc

e on

inta

ngib

les

loca

ted

in a

juris

dict

ion

with

lim

ited

subs

tanc

e w

ill

be in

tere

stin

g as

it m

ay c

onfli

ct w

ith U

S

appr

oach

es

n T

hese

reco

mm

enda

tions

cem

ent t

he

impo

rtan

ce o

f und

erly

ing

subs

tanc

e an

d va

lue

crea

tion

over

lega

l ow

ners

hip/

fu

ndin

g. A

s gr

oups

con

side

r alig

ning

su

bsta

nce

and

loca

tion

choi

ces,

Irel

and

with

its

att

ract

ive

tax

regi

me

is p

oten

tially

wel

l pl

aced

to b

enefi

t

n W

hils

t the

re is

som

e cl

arifi

catio

n fo

r bu

sine

ss (e

.g. p

ropo

sed

safe

har

bour

s),

over

all w

e ex

pect

ther

e to

be

an in

crea

se in

di

sput

es w

hich

will

be ti

me

cons

umin

g an

d co

stly

n T

he fi

nal p

ictu

re fo

r gro

ups

with

hig

h va

lue

inta

ngib

les

oper

atin

g th

roug

h cl

osel

y in

tegr

ated

inte

rnat

iona

l sup

ply

will

not

emer

ge u

ntil

impl

emen

tatio

n gu

idan

ce is

fin

alis

ed o

n H

ard-

to-V

alue

-Inta

ngib

les

and

profi

t spl

it m

etho

ds

n A

lthou

gh a

dopt

ion

in fi

nal O

ECD

gui

delin

es

may

be

som

e tim

e aw

ay, t

axin

g au

thor

ities

ar

e al

read

y ba

sing

cha

lleng

es a

nd a

udit

revi

ews

on th

e em

ergi

ng g

uida

nce

Actio

n 11

: BEP

S da

ta

Oct

ober

201

5 D

eliv

erab

le?

Yes

Key

OEC

D p

ropo

sals

n T

he O

ECD

find

s si

x in

dica

tors

that

it h

as

stud

ied

poin

t to

BEP

S ac

tivity

whi

ch it

es

timat

es is

cos

ting

gove

rnm

ents

bet

wee

n U

SD 1

00 b

illion

and

USD

240

billi

on a

yea

r in

lost

tax

reve

nues

n T

he re

com

men

datio

ns c

over

dat

a to

be

colle

cted

by

gove

rnm

ents

and

m

etho

dolo

gies

to a

naly

se d

ata,

and

als

o th

e co

nsis

tent

pre

sent

atio

n of

dat

a

n I

mpr

oved

dat

a an

d an

alys

is to

ols

are

inte

nded

to le

ad to

bet

ter i

dent

ifica

tion

of

any

BEP

S ta

king

pla

ce a

nd th

e im

pact

of

the

actio

ns ta

ken

to a

ddre

ss B

EPS

KPM

G’s

vie

w

n T

he re

com

men

datio

ns s

et o

ut a

re in

line

w

ith o

ur e

xpec

tatio

ns

n I

t is

diffi

cult

to a

sses

s th

e su

cces

s of

the

prop

osed

tool

s in

mon

itorin

g B

EPS

until

A

ctio

ns a

re im

plem

ente

d m

ore

wid

ely

in a

va

riety

of j

uris

dict

ions

n B

usin

ess

need

s to

rem

ain

aler

t tha

t the

bu

rden

and

cos

t of a

dditi

onal

dat

a to

be

colle

cted

doe

s no

t fal

l on

busi

ness

Actio

n 12

: Man

dato

ry d

iscl

osur

e ru

les

Oct

ober

201

5 D

eliv

erab

le?

Yes

Key

OEC

D p

ropo

sals

n R

ecom

men

datio

ns d

o no

t rep

rese

nt

a m

inim

um s

tand

ard.

Cou

ntrie

s ca

n de

term

ine

whe

ther

or n

ot to

intr

oduc

e a

man

dato

ry d

iscl

osur

e re

gim

e

n T

he re

port

reco

mm

ends

a m

odul

ar

appr

oach

to d

iscl

osur

e ta

rget

ing

feat

ures

of

aggr

essi

ve tr

ansa

ctio

ns, s

peci

fic d

omes

tic

risk

area

s an

d cr

oss-

bord

er B

EPS

outc

omes

of

con

cern

n I

t ack

now

ledg

es a

ny im

plem

enta

tion

mus

t be

bal

ance

d w

ith c

ount

ry s

peci

fic n

eeds

and

ex

istin

g co

mpl

ianc

e an

d di

sclo

sure

initi

ativ

es

n T

he re

port

als

o in

clud

es in

form

atio

n on

how

m

anda

tory

dis

clos

ure

cont

ribut

es to

war

ds

enha

nced

tran

spar

ency

bet

wee

n ta

x ad

min

istr

atio

ns

KPM

G’s

vie

w

n T

he re

com

men

datio

ns a

re in

line

with

ou

r exp

ecta

tions

. The

key

for c

ount

ries

min

ded

to a

dopt

will

be in

car

eful

ly ta

rget

ed

impl

emen

tatio

n to

bal

ance

har

vest

ing

rele

vant

info

rmat

ion

with

avo

idin

g un

nece

ssar

y di

sclo

sure

s

n T

he re

com

men

datio

ns a

lign

clos

ely

with

Ire

land

’s m

anda

tory

dis

clos

ure

regi

me.

No

chan

ges

are

expe

cted

to Ir

elan

d’s

regi

me

in

the

near

term

n D

evel

opm

ents

in o

ther

cou

ntrie

s m

ay

emer

ge o

ver t

ime

or ta

x au

thor

ities

may

fin

d th

e fu

ture

impa

ct o

f act

ions

on

rulin

gs

and

othe

r inf

orm

atio

n ex

chan

ge in

itiat

ives

pr

ovid

e th

em w

ith ti

mel

y in

form

atio

n on

in

tern

atio

nal t

ax p

lann

ing

affe

ctin

g lo

cal

taxp

ayer

s


In a

Nut

shel

l The

Oct

ober

201

5 B

EPS

Del

iver

able

sAc

tion

13: T

P do

cum

enta

tion

and

CbyC

Oct

ober

201

5 D

eliv

erab

le?

No

Key

OEC

D p

ropo

sals

n T

he th

ree

pape

rs p

revi

ousl

y re

leas

ed h

ave

been

con

solid

ated

to c

reat

e th

e te

xt o

f new

C

hapt

er V

of t

he O

ECD

Gui

delin

es (i

.e. t

here

ar

e no

new

mat

eria

ls p

ublis

hed

asid

e fro

m

the

Exec

utiv

e Su

mm

ary)

n W

ork

cont

inue

s at

a lo

cal c

ount

ry le

vel o

n th

e do

mes

tic im

plem

enta

tion

of th

e O

ECD

re

com

men

datio

ns in

resp

ect o

f Mas

ter F

ile,

Loca

l File

and

Cou

ntry

by

Cou

ntry

Rep

ortin

g (C

byC

)

KPM

G’s

vie

w

n C

ount

ries

are

alre

ady

anno

unci

ng n

ew

legi

slat

ion

to im

plem

ent a

ll thr

ee e

lem

ents

of

Act

ion

13. I

rela

nd p

ropo

ses

to e

nact

Cby

C

alig

ned

with

OEC

D p

ropo

sals

for g

roup

s w

ith c

onso

lidat

ed tu

rnov

er >

€75

0 m

illion

in

Fina

nce

Act

201

5

n T

he b

asis

of p

repa

ratio

n an

d de

finiti

ons

need

to

be

test

ed a

nd re

fined

by

mul

tinat

iona

ls,

with

tran

sfer

pric

ing

docu

men

tatio

n be

ing

an

impo

rtant

tool

with

whi

ch th

ey c

an m

anag

e th

eir t

rans

fer p

ricin

g ris

k an

d pu

t the

ir C

byC

da

ta in

con

text

n G

roup

s ne

ed to

hav

e a

trans

fer p

ricin

g do

cum

enta

tion

stra

tegy

to c

oord

inat

e th

e co

nten

t and

pre

para

tion

and

mak

e su

re th

at

the

thre

e el

emen

ts c

onsi

sten

tly e

xpla

in th

e gr

oup’

s bu

sine

ss m

odel

n M

any

tax

auth

oriti

es a

re a

skin

g fo

r tra

nsfe

r pr

icin

g do

cum

enta

tion

to b

e su

bmitt

ed

alon

gsid

e ta

x re

turn

s

Actio

n 14

: Dis

pute

reso

lutio

n

Oct

ober

201

5 D

eliv

erab

le?

Yes

Key

OEC

D p

ropo

sals

n A

str

ong

polit

ical

com

mitm

ent t

o a

min

imum

sta

ndar

d of

trea

ty d

ispu

te

reso

lutio

n m

echa

nism

s an

d th

e cr

eatio

n of

an

effe

ctiv

e m

onito

ring

mec

hani

sm to

en

sure

pro

gres

s is

mad

e

n A

com

mitm

ent t

o ne

gotia

te b

indi

ng

man

dato

ry a

rbitr

atio

n am

ongs

t 20

coun

trie

s th

roug

h th

e m

ultil

ater

al in

stru

men

t und

er

Act

ion

15

KPM

G’s

vie

w

n T

he p

ropo

sals

are

wel

com

e an

d pr

esen

t an

opp

ortu

nity

for p

rogr

ess

to b

e m

ade.

H

owev

er, m

uch

depe

nds

on h

ow th

e re

com

men

datio

ns a

re im

plem

ente

d in

pr

actic

e to

del

iver

bot

h w

ides

prea

d ac

cess

to

Mut

ual A

gree

men

t Pro

cedu

res

(MA

P)

and

effe

ctiv

e di

sput

e re

solu

tion

n I

rela

nd is

am

ong

the

20 c

ount

ries

whi

ch

has

com

mitt

ed to

neg

otia

ting

a bi

ndin

g ar

bitr

atio

n m

echa

nism

. Par

ticip

atin

g co

untr

ies

incl

ude

the

US

and

criti

cally

w

here

the

grea

test

impr

ovem

ents

arg

uabl

y ne

ed to

be

mad

e (fo

r exa

mpl

e, In

dia,

Chi

na,

Bra

zil).

Con

tinui

ng p

oliti

cal c

omm

itmen

t to

findi

ng a

nd o

pera

ting

effe

ctiv

e an

d tim

ely

disp

ute

reso

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96

18 TaxingTimes Budget 2016 Tax Rates and Credits 2016

PRSI contribution, Universal Social Charge (changed)

% Income

Employer 10.75% No limit 8.50% If income is €376 p/w or less

Employee** (class A1)

PRSI 4% No limit*

Universal Social Charge 1% €0 to €12,012**

3% €12,013 to €18,668

5.5% €18,669 to €70,044***

8% > €70,044

Personal income tax rates (unchanged)At 20%, first At 40%

Single person €33,800 BalanceMarried couple (one income)* €42,800 BalanceMarried couple (two incomes)*&** €67,600 Balance

One parent/widowed parent* €37,800 Balance* Applies to civil partnership/surviving civil partner also ** €42,800 with an increase of €24,800 maximum

Personal tax credits (changed)Single person €1,650Married couple* €3,300Single person child carer credit €1,650Additional credit for certain widowed persons* €1,650Employee credit €1,650Earned income credit** €550Home carer credit €1,000Water charges credit*** €100Rent credit - single and under 55 years (reduced)**** €80* Applies to civil partnership/surviving civil partner also** Applies to self employed income and certain PAYE employments not subject to the PAYE credit*** Available at the standard rate up to a maximum of €500 per household per annum, prior year basis**** Rent credit will be phased out by 2017. €40 reduction in 2016 for a single person

From 1 May 2015, tax relief for medical insurance premiums will be capped at €1,000 (or relevant premium where lower) for adults (aged 21 or over even where the individual pays a child premium rate). Tax relief on child premiums capped at €500 per child.

Home Renovation Incentive SchemeIncome 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 December 2016 (extended by one year). The credit is calculated at a rate of 13.5% on all qualifying expenditure over €4,405 (ex VAT). The maximum credit is €4,050. With effect from 15 October 2014, this scheme is extended to landlords of rental properties who are liable to income tax.

Home loan interest relief granted at source on principal private residence*

First time buyers loan taken out from 2009 to 2012

Years 3-5

Married/widowed** Lower of €4,500 or 22.5% of interest paid

Years 6-7Married/widowed** Lower of €4,000 or 20% of interest paid

After year 7 (where applicable up to and including 2017)

Married/widowed** Lower of €900 or 15% of interest paid

Other mortgages, loans taken out from 2004 to 2012

Married/widowed** Lower of €900 or 15% of interest paid

First time buyers loan taken out from 2004 to 2008

Remainder of first 7 years of mortgage

Married/widowed** Lower of €6,000 or 30% of interest paid

After year 7 and up to and including 2017

Married/widowed** Lower of €1,800 or 30% of interest paid

Single persons

Thresholds set at 50% of those outlined above for married/widowed persons

* Loans taken out on or after 1 January 2013 do not qualify for Mortgage Interest Relief. The relief will be abolished completely from 2018 and subsequent tax years

** Applies to civil partnerships/surviving civil partner also

Local Property Tax (varying rates) - Valuation fixed for further three years*

Market Value less than €1,000,000**

Market Value greater than €1,000,000: - First €1,000,000 - Balance

0.18%

0.18%0.25%

* Valuation for LPT fixed for further three years to 2019** Market Value less than €100,000 - calculated on 0.18% of €50,000. Market Value €100,000 - €1,000,000 -

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) - 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 between 1 January 2013 and 31 December 2016 and second hand property purchased between 1 January 2013 and 31 December 2013

- 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 areas. These rates can be increased or decreased by up to 15%

Self-employed PRSI contribution, Universal Social Charge (changed)

% Income

PRSI 4% No limit*

Universal Social Charge 1% €0 to €12,012**

3% €12,013 to €18,668

5.5% €18,669 to €70,044***

8% €70,045 to €100,000

11% > €100,000

* Minimum annual PRSI contribution is €500 ** Individuals with total income up to €13,000 are not subject to the Universal Social Charge*** Reduced rate (3%) applies for persons over 70 and/or with a full medical card, where the individual’s income does not exceed €60,000

Tax relief for pensions

- Tax relief for pensions remains at the marginal income tax rate

- 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 TaxRate 33%

Entrepreneur relief (from 1 January 2016)* 20%

Annual exemption €1,270

* Relief capped at lifetime limit of €1m chargeable gains

Capital Acquisitions Tax (rate unchanged)

Rate 33%

Thresholds

Group A* €280,000

Group B €30,150

Group C €15,075* Applies to gifts and inheritances received on or after 14 October 2015

Corporation Tax ratesStandard rate 12.5%

Knowledge Development Box rate 6.25%

Residential land, not fully developed 25%

Non-trading income rate 25%

Value Added Tax (9% rate retained)Standard rate/lower rate/second lower rate 23%/13.5%/9%

Flat rate for unregistered farmers 5.2%

Cash receipts basis threshold €2m

Deposit Interest Retention Tax (rate unchanged)

DIRT 41%*&**

* 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 will be in place from 14 October 2014 to the end of 2017

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

Exemption for Enterprise Securities Market share transfers (date TBA)

* Employees earning €352 or less p/w are exempt from PRSI. In any week in which an employee is subject to full-rate PRSI, all earnings are subject to PRSI. Unearned income for employees in excess of €3,174 p.a. is subject to PRSI. New 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*** Reduced rate (3%) applies for persons over 70 and/or with a full medical card, where the individual’s income does not exceed €60,000

TaxingTimes Budget 2016 19TaxingTimes Budget 2015 19Personal Tax Scenarios 2016

NotesThe above scenarios have not taken Local Property Tax into account on the basis that the rate will depend on the specific location of the property.

* 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 2016.

2016 changes Euro

Change in Tax Bands Change to Tax CreditsChange to PRSIChange to Universal Social Charge Change to Marginal Income Tax RateChange to Child Benefit

0190

0602

0180

Net Saving €972

Married couple, one employed, earning €50,000, three children, property owner

e

2016 changes Euro

Change in Tax Bands Change to Tax CreditsChange to PRSIChange to Universal Social Charge Change to Marginal Income Tax Rate

000

1,2040

Net Saving €1,204

Married couple, both employed, one earning €150,000, one earning €30,000, property owner

e

2016 changes Euro


01,100

0 1,204

0

Net Saving €2,304

Married couple, both self employed, one earning €150,000, one earning €30,000, property owner

e

2016 changes Euro

Change in Tax Bands Change to Tax Credits*Change to PRSIChange to Universal Social ChargeChange to Marginal Income Tax Rate

0(80)

0 1,279

0

Net Saving €1,199

e

Unmarried couple, living together, renting, both employed, one earning €80,000, one earning €35,000

Married couple, both employed, one earning €250,000, one earning €90,000, one child, property owner

e

2016 changes Euro

Change in Tax Bands Change to Tax CreditsChange to PRSIChange to Universal Social ChargeChange to Marginal Income Tax RateChange to Child Benefit

000

1,8040

60

Net Saving €1,864

2016 changes Euro


000

5270

Net Saving €527

Single person employed, earning €45,000, property owner

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© 2015 KPMG, an Irish partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Ireland.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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