A budget developed in the shadow of Brexit
The risk of a 'No Deal' Brexit ran throughout a Budget that focussed heavily on the preparation and funding requirements needed in order to deal with such a scenario.
The Minister acknowledged that a No Deal Brexit will mean a slower pace of growth in Ireland and proceeded to announce a €1.2bn package to respond to Brexit. The initial €200m will be allocated across a number of departments and agencies to increase the level of staffing and invest in infrastructure at ports and airports. The remaining package will be made available in the event of a No Deal to support key effected sectors of agriculture, enterprise and tourism and to assist the most affected citizens and regions.
Corporation tax
“Ireland has a competitive corporation tax rate. It has served us well and it will not be changing.”
The reaffirmation to the 12.5% corporation tax rate has become a corner stone to the annual budget speech and the above quote from this year proved no difference. However, there is also an annual reassurance that Ireland will continue to ensure a tax regime which is transparent, sustainable and legitimate.
This was reaffirmed in the announcement of two measures within the speech which show a continued commitment to the EU Anti-tax Avoidance Directive.
- The introduction of Anti-Hybrid measures will be introduced in Finance Bill 2019. This will seek to capture situations where a deduction is available in one jurisdiction for interest expenditure which will not be subject to tax in the recipient jurisdiction.
- Updating of Ireland’s transfer pricing provisions to ensure they are in line with the 2017 OECD guidelines.
It was anticipated that further reform would be announced in the area of transfer pricing and this was subsequently included in supporting documentation released after the budget speech. Ireland’s transfer pricing rules currently only extend to 'trading' transactions but from 1 January 2020 they will extend to cross-border non-trading transactions. This will have an impact on Irish groups providing interest free loans to foreign group companies. The revised legislation will also apply the arm’s length principle to capital transactions which exceed €25m. The impact of this measure will be to apply valuations in line with OECD guidance transfer of assets.
It is proposed that Ireland’s transfer pricing rules, which currently provides an exemption for SMEs, will be extended to includes all entities. However, this measure is subject to Ministerial Order and will not apply from 1 January 2020 unlike the measures referred to above.
The EU mandatory disclosure regime and interest limitation rules were expected to be introduced in the Budget speech however, no reference were made to these topics. However, it appears certain that the mandatory disclosure measures will be addressed within the Finance Bill. Ireland already has mandatory disclosure legislation which is expected to be modified to be brought in line with the EU requirements.
Changes are to be introduced on the property gains within Irish fund vehicles. These items are currently being debated and may see a withholding tax applied on proceeds of property disposals being distributed to non-resident shareholders of such funds and also a limitation on interest deductions for some property owning Irish funds.
Ireland’s domestic rate of dividend withholding tax will be increased from 20% to 25% from 1 January 2020. However, given the significant domestic exemptions for shareholders in EU and double tax treaty jurisdictions, this should in practice only be a timing effect for Irish resident shareholders on the tax paid on dividend income.
The Finance Bill is due to be released on 17 October which will see more clarification around many of the international aspects of Budget 2020 mentioned above.
Also available here is Baker Tilly's complete Budget 2020 analysis.
