Are we there yet? Budget 2015 www.pwc.ie/budget

Transcription

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www.pwc.ie/budget
Are we there yet?
Budget 2015
A closer look at how the
budget will impact you
and your business
*
Table of Contents
Page
Overview
3
Economic update
5
Foreign Direct Investment (FDI)
7
Personal tax
9
Pensions
11
Property
13
Plcs
15
Private business
18
Financial services
19
VAT/Excise Duty
22
Research and development (R&D)
24
Agri sector
26
Budget Analysis 2015
PwC
Page 2 of 27
Overview
Feargal O’Rourke
PwC
Page 3 of 27
Overview
Some observers view this year as being one of the most difficult Budgets of the
cycle since the Global Financial Crisis erupted. When you have nothing to give
out, the argument goes, you can say no to everyone. Minister Noonan faced a
"problem" that had not been faced in seven prior Budgets - he had a small bit of
wiggle room and lots of stakeholders were putting forward their cases.
On the personal tax side he had to weigh up the economic consequences of tax
cuts, the psychological impact of offering some benefit to hard pressed
taxpayers and the political calculus of an election that is starting to appear on
the horizon. On the corporate tax side he had to try and repair some of the
international reputational damage done in recent times, calm the nerves of
existing multinationals and have a few "polished up" new incentives for
indigenous and the FDI sector. Remarkably, in the times we're in, he seems to
have addressed most of his major objectives.
The changes announced to the corporate residence rules demonstrate Ireland’s
commitment to ensuring that its taxation system is globally accepted as an
open, transparent, rules based system which is fair and, most importantly,
competitive. Ireland has suffered a lot of unfair criticism internationally around
the ‘Double-Irish’ structure. The decisive action taken in introducing domestic
legislation to close this off should boost our reputation internationally.
The proposed grandfathering period of six years will provide affected
multinational groups with time and flexibility to restructure their global
arrangements in a considered manner, particularly important given the current
uncertainties on how BEPS will impact the tax law of other countries in which
they operate.
PwC
The proposed ‘Knowledge Development Box’ and other improvements
announced to our R&D and IP offering should further encourage the location
of intellectual property in Ireland. The Minister’s stated intention to make
this offering ‘best in class and at a low competitive and sustainable tax rate’
will be crucial for Ireland in an environment where many countries have
attractive ‘Innovation Box’ offerings. These measures should reaffirm
Ireland’s competitiveness and that we continue to be “open for business”.
Since 2009, taxpayers have experienced significant cuts to their disposable
income with the introduction of the income levy, then replaced by the
universal social charge (USC), and the more recent introduction of local
property tax and water charges.
The adjustments to USC and tax bands and the decrease in the top rate of tax
announced as part of a three year strategy provide welcome relief for
taxpayers with, at last, an easing of their personal tax burden. The moves
signalled to reduce local property tax rates from 2015 and to provide tax
credits for water charges provide further good news.
Opinion polls have shown that, while there is broad agreement that the
economy is in recovery, individuals have not expressed the same sentiment
personally. The personal tax measures announced as part of a three year
strategy should give confidence to individuals that this is a real change in
direction for them and provide a welcome measured stimulus to spending.
Page 4 of 27
Economic update
Austin Hughes
PwC
Page 5 of 27
Economic update
On any reasonable view the most noteworthy aspect of Budget 2015 is what it
says about how far the Irish economy has come in recent years. A major
improvement in economic conditions together with the very painful
adjustments undertaken in recent years mean that the target of reaching a
deficit of under 3% of GDP has been reached without any additional austerity
measures-indeed with some modest ‘giveaways’ being announced today. A year
ago, it was felt that an adjustment of at least €2 billion would be needed and of
course you only have to go back a couple of years to a time when many felt the
Irish Government would not avoid a sovereign default. Viewed from this
perspective Budget 2015 is a major achievement.
Budget 2015 had to strike a balance between encouraging a still uneven
recovery and continuing to reduce Government borrowing. Getting this mix
exactly right isn’t easy and economists will probably differ in their opinion as to
how Budget 2015 fared in this regard. I think some support to spending power
was understandable as are initiatives in areas such as social housing and
teacher numbers. However, I think fewer initiatives and a slightly smaller
deficit, say just below 2.5% of GDP, might have been a slightly better
combination.
Initially, it was envisaged that Budget 2015 would comprise cuts in public
spending of around €1.3 billion and revenue increases of about €700 million.
According to Minister Howlin, public spending in 2015 will be about €2
billion higher than envisaged a year ago while Minister Noonan indicated the
tax measures he announced today would cost a net €418 million next year.
So, Budget 2015 marks a fairly radical departure from what was originally
envisaged.
A year ago, the Dept of Finance predicted that the Irish economy would grow
by 2.0% in 2014 and by 2.3 % in 2015. It now sees growth of 4.7% this year
and 3.9% in 2015. So, growth is roughly twice as fast over this year and next
as originally expected. In these circumstances, it is slightly disappointing that
the Government deficit for 2015 at 2.7% of GDP is just a shade below the
original target of 2.9%.
The Dept of Finance now envisages the increase in consumer spending
accelerating to 2.7% in 2015 from 1.7% in 2014 before slipping back to an
increase of 1.4% in 2016. Could this be telling us more about the upcoming
election than the contours of growth over the next couple of years? My sense
is that the Irish economy is on a reasonably solid path even if global
uncertainties still abound. There may be some official inclination to play
down the longer term outlook and the Budget leeway that might allow.
Budget 2015 marks a dramatic change in the fortunes of the Irish economy.
It does many things very well but there is a sense that it could have struck a
slightly different balance that might have made things even better.
PwC
Page 6 of 27
Liam Diamond
PwC
Page 7 of 27
Significant corporate tax reform
Certainty for FDI investors welcome
The key Budget 2015 announcements of relevance for the FDI sector are as
follows:
As a leading FDI destination, Ireland finds itself increasingly drawn into the
global international tax policy debate. In this context, Budget 2015 contains
a number of significant tax proposals.
 Another strong and unambiguous commitment to our 12.5% standard
corporation tax rate.
 Following on from limited changes last year, broader corporate tax
residence reform to ensure that all Irish incorporated companies will be
Irish tax resident (subject to “tie-breaker” provisions in double tax
agreements if applicable). These new provisions will apply from 1 January
2015 for new companies and from 1 January 2021 for existing companies.
 Enhancements to our existing IP tax regime including improving the
capital allowances regime for expenditure on IP and the proposed
introduction of a “Knowledge Development Box” regime with a “best in
class”, low, competitive, sustainable tax rate for IP income. The latter will be
effective from 1 January 2016, subject to EU approval.
 A number of positive income tax measures aimed at reducing the tax
burden on employment, including: a reduction in the higher income tax rate
from 41% to 40%; a widening of the income tax bands; and USC (Universal
Social Charge) regime changes.
In an effort to further enhance the transparency of our tax regime, Ireland
will change its corporate tax residence rules to phase out the so-called
“double Irish” structure. Such changes should not, however, require
immediate action by existing investors due to 6 year “grandfathering”
provisions.
IP tax regime enhancements are also proposed, most notably the
introduction of a “Knowledge Development Box” regime from 1 January
2016, which will be preceded by a public consultation process. Our FDI
competitors (e.g. the UK, Netherlands, Luxembourg etc.) already have this,
and soon Switzerland will too, so it is important that we remain competitive.
In addition, the capital allowances regime for expenditure on IP has been
improved with the removal of the 80% cap on combined allowances and
related interest, and the definition of qualifying IP amended to explicitly
include customer lists.
And, importantly, Finance Minister Noonan has again clearly stated Ireland’s
commitment to the 12.5% tax rate.
 Enhancements to our SARP (Secondee Assignment Relief
Programme) regime to improve Ireland’s competitiveness in attracting
senior foreign executives to relocate to Ireland (salary threshold removed,
residence requirements amended).
With better than expected growth and reduced borrowing costs, the Minister
has also started to ease the income tax burden on employment. Importantly
for the FDI sector, the Minister has also announced improvements to our
“SARP” tax regime for inbound assignees.
 Changes to our 25% (refundable) R&D tax credit regime to remove the
“base year” limitation on qualifying spend. This will be welcomed by longer
established FDI investors.
FDI has remained one of the consistent bright lights in our economy. This
package of tax measures should provide certainty on our tax regime to
existing and new FDI investors alike and ensure that Ireland remains
competitive as a location in which to align IP, profits, and substance.
PwC
Page 8 of 27
Personal tax
Pat Mahon
PwC
Page 9 of 27
Personal tax
Lower and middle income earners benefit
Mixed news for business
The top rate of income tax has been reduced to 40% (a reduction of 1%). While
the standard rate of tax remains at 20%, the threshold at which middle income
earners will start paying the higher rate of tax has increased to €33,800 (up
€1,000) for single people and €42,800 (up €1,000) for married couples with
one earner. The threshold at which earners will start paying USC is also being
increased to €12,012 (up from €10,036 in 2014). Changes to the USC bands and
rates have also been announced as follows:
After 7 years of austerity budgets, lower and middle income earners will see
an increase in take home pay as a result of measures introduced at the
beginning of a three year plan to ease the tax and USC burden on them.
However, for those earning over €70,000, the marginal rate of taxation will
remain at 52% (including USC and PRSI). This will send a negative message
to international investors who see headline tax rates in Ireland as
discouraging business units from relocating here, and goes against the
Taoiseach’s own stated aim of reducing the 52% headline rate.
Band
€0 - €12,012
€12,013 - €17,576
€17,577 - €70,044
€70,044 to €100,000
PAYE income in excess of €100,000
Self-employed income in excess of €100,000
2015 Rate
1.5%
3.5%
7%
8%
8%
11%
Tax relief for water charges has also been announced in the form of a tax credit
at the standard rate of tax (subject to a maximum credit of €100). Relief from
DIRT will also be introduced for first time buyers saving for a deposit.
Incentives for mobile employees
The Foreign Earnings Deduction (FED) is being extended until the end of 2017
and the list of qualifying countries is being extended to include Chile, Mexico
and certain countries in the Middle East and Asia. Also, the number of days
required abroad to qualify for the relief is being reduced to 40 days (down from
60) and each trip must now last 3 days minimum (down from 4). Travelling
time may now also be included in the count.
For the self-employed earning over €100k, the increase in the top rate of USC
to 11% will be a disappointment, considering that the Minister had promised
previously to align the higher rate of USC with the rate applicable to PAYE
taxpayers.
No changes were announced to the PRSI rates, which remain at 4% for both
employees and the self-employed. The employers PRSI rate remains at
10.75% (8.5% for employee’s earnings up to €356 per week).
Changes to the FED regime to include additional key hubs, together with the
reduction in number of qualifying days, will be welcomed by companies
looking to expand overseas.
In addition, the changes to the Special Assignment Relief Programme
(SARP), and the removal of some of the barriers for qualification for relief,
should assist in attracting specialised and senior talent from abroad and may
compensate somewhat for a high headline rate.
The Special Assignee Relief Programme (SARP) has also been extended to 2017,
and the conditions to qualify for relief are being revised to include the removal
of the upper €500,000 threshold and positive and welcome changes to the
residency requirements.
PwC
Page 10 of 27
Pensions
Munro O'Dwyer
PwC
Page 11 of 27
Pensions
Elimination of Levy – as planned
In a Budget speech that contained very little reference to the pension taxation
regime, Minister Noonan confirmed that he is ending the 0.6% Pension Levy at
the end of 2014, and that the additional 0.15% Pension Levy introduced for
2014 and 2015 will end as planned next year.
There was concern beforehand that the Minister would be tempted to extend
the Levy beyond the end of 2015, but instead he clearly signalled the end of a
tax measure that has raised over €2 billion for the Exchequer since it was
introduced in 2011.
The lack of wider change is positive, offering as it does a level of stability for
those considering saving for the long term into a pension arrangement. While
the reference in the Budget speech was made in the context of the income tax
system, hopefully the sentiment around "confidence about the future" can now
be extended to the pension taxation regime.
The key advantage of pension savings remains the ability to defer income until
retirement, and the facility to shelter all investment gains earned on that
deferred income from any taxation. With a 41% DIRT rate applying to interest
income, and a similar 41% exit tax applying on life assurance policies and
investment funds the relative attractiveness of the pension savings regime is
significant, given that a nil tax rate applies on investment gains in the ‘post
Levy’ pension world.
If the silver lining is to have a cloud, for individuals with larger pension funds
an increase in the Standard Fund Threshold would have been welcome even
if it would have been unexpected. The lack of an announcement in the Budget
clearly suggests that individuals should be planning for an extended period
where the Standard Fund Threshold remains fixed at €2 million and any
Personal Fund Thresholds remain set in nominal terms. With a backdrop of
strong investment market performance (a typical pension managed fund has
increased by 50% over the past 3 years), increasing numbers of pension
savers may be paying penal taxes on drawing pension benefits where due
care is not paid to their pension savings strategy.
With stability potentially achieved and the economic mood changing for the
positive, some tidying up of the pension taxation regime may be in order. To
highlight some of the anomalies that might helpfully be addressed in the
future:

Employer contributions into an occupational pension scheme are more
tax efficient than employer contributions into a PRSA, and the amount
of employer contributions into a PRSA that can benefit from tax relief
are capped.

For indivdiuals aged 65 or under, Approved Retirement Fund
distributions attract PRSI, whereas pension income does not.

Pension income and ARF distributions are both liable to USC; however,
no USC relief is given on contributions made (so effectively USC is levied
twice).
The Minister’s closing remarks referred to a people who “can plan for the
future” – from a pensions perspective, we’re happy to take him at his word.
PwC
Page 12 of 27
Property
Tim O'Rahilly
PwC
Page 13 of 27
Property
The Government announced a new Construction 2020 strategy for Ireland in
May of this year. The main objectives of the Construction 2020 strategy were to
create a strong and sustainable construction sector in Ireland, while also
creating jobs in the sector.
In addition, a lack in the supply of social and affordable housing in the country
is widely regarded as an issue which needs urgent attention.
Budget 2015 has sought to address the above issues by introducing a number of
new measures:
1.
The “windfall gains tax” charge of 80% in respect of disposals of
development land (where both a rezoning and a disposal took place on or
after 30 October 2009) has been abolished. From 1 January 2015, such
profits will be taxed at the standard rate of CGT (currently 33%).
2. The availability of the Home Renovation Incentive (“HRI”) has been
extended to landlords who are subject to income tax until the end of 2015.
3. A commitment to construct over 10,000 new social housing units by the
end of 2018.
4. A public consultantion process will take place in the coming months to see
whether further measures need to be introduced to encourage the owners of
undeveloped sites to ensure that their sites are developed.
5. The Minister confirmed that the “living in the city” initiative is due to be
rolled out in early 2015 following the receipt of final proposals for each city.
6. An increase in the threshold for exempt income under the rent-a-room
scheme to €12,000.
7.
A three year extension in consanguinity relief from stamp duty in respect of
non-residential property.
8. A number of CGT, CAT and stamp duty reliefs for farmers.
In addition, the 7 year relief from CGT in respect of land and building
purchases between 7 December 2011 and 31 December 2014 has not been
extended.
PwC
Budget 2015 attempts to address the key objectives outlined in Construction
2020. The abolition of the “windfall gains tax” and the extension of the HRI
should assist in increasing construction activity in the country, which in turn
should lead to an increase in jobs. Further positive meaures could also be
introduced after the public consultation process in respect of undeveloped
land.
The commitment to construct a minimum of 10,000 new social housing units
by the end of 2018 is an important step in solving Ireland’s social housing
problems.
While the measures introduced are quite comprehensive and should assist in
solving the main objectives as detailed in Construction 2020, further
measures will need to be taken in future years. Such measures might include:
 Reduction in the VAT rate applicable to construction activities from 13.5%
to 9%, which should promote increased construction activity and assist in
the creation of jobs.
 Abolishment of the 25% restriction on interest deductibility in respect of
loans taken out by individuals to purchase, improve or repair their rental
properties. Anecdotal evidence suggests that this restriction is
contributing to the ever increasing costs of rents, as landlords struggle to
meet their tax bills. In addition, this restriction is particulary penal for
landlords with no economic rental profits, but who still suffer tax in
respect of their rental activities.
 An indication from the Minister that current rates of CGT, which are high
by international standards, are unlikely to remain as high in the future.
Only time will tell whether the Government has done enough in Budget 2015
to achieve the objectives set out in their Construction 2020 strategy, but the
steps taken are a positive indication that they are on the right track.
Page 14 of 27
Plcs
Paraic Burke
PwC
Page 15 of 27
Plcs
Among the measures announced by the Minister in his ‘Roadmap for Tax
Competitiveness’ are 10 key actions, the following of which should be of
particular interest to Irish plcs:
 The Government’s continued commitment to maintaining Ireland’s 12.5%
corporation tax rate. The Minister referred to this as ‘settled policy’.
 The abolition of the base year for R&D from 1 January 2015 and the
publication of guidelines to enhance clarity on the administration of the
regime.
 Enhancements to our current IP regime to include the removal of the 80%
cap on the aggregate amount of allowances and interest which may be
claimed. In addition, customer lists have been included within the definition
of qualifying assets.
 The introduction of a ‘Knowledge Development Box’ - an income based tax
regime for intangible assets. This will be the subject of public consultation
and will be introduced in 2015.
 Extension and enhancement of both the Foreign Earnings Deduction (FED)
and Special Assignee Relief Programme (SARP).
 An extension of the scheme for accelerated capital allowances for energy
efficient equipment to the end of 2017.
 A commitment to strengthen the capabilities of Ireland’s transfer pricing
Competent Authority, recognising that international transfer pricing
disputes are likely to increase in number.
For corporate taxpayers, much of the recent focus has been on the BEPS
agenda and its impact on Ireland’s ability to win FDI. This was immediately
apparent from the Minister’s introduction to the ‘Roadmap for Ireland’s Tax
Competitiveness’. Nevertheless, and notwithstanding its FDI focus, Irish plcs
and headquartered groups stand to benefit.
A positive development in boosting Ireland’s competitiveness is the
announcement of changes to our IP and R&D regimes. The public
consultation on the introduction of a Knowledge Development Box presents a
valuable opportunity for Irish business to contribute to Ireland’s long term
strategy and value proposition.
On the broader BEPS front, Irish plcs are likely to welcome the fact that the
Government did not take unilateral legislative action at this point.
2015 and beyond may see more action in relation to the BEPS project. One
area of particular interest will be the debate regarding the requirement for an
Irish CFC regime to be introduced. In the past, this has been linked with the
introduction of a full dividend participation exemption.
The extension and enhancement of the FED should be welcomed by Irish
exporting plcs and Irish headquartered groups. In addition, the commitment
to the introduction of an integrated export finance strategy in 2015 may be of
interest.
One disappointing omission from Budget 2015 was any mention of the recent
change to the taxation of travel and subsistence expenses for non-executive
directors. Next week’s Finance Bill may address this.
 A commitment to expand Ireland’s tax treaty network.
PwC
Page 16 of 27
Private business
Colm O'Callaghan
PwC
Page 17 of 27
Private business
Budget 2015 outlined a number of initiatives to facilitate Irish private
businesses, as follows:
 As part of a package of export initiatives, Minister Noonan announced a
three year extension to the Foreign Earnings Deduction (FED) to 2017 and
extended the relief to additional countries, including Mexico, Chile and
certain countries in the Middle East and Asia. The conditions were also
revised to make it less onerous for employees to qualify for the relief.
 Budget 2015 reemphasised the importance of, and difficulties associated
with, private businesses raising finance by announcing an increase in the
annual and overall limits for the Employment and Investment Incentive to
€5m and €15m respectively. In addition, the Minister announced that the
Strategic Banking Corporation of Ireland will increase the availability of
loans with longer terms and more flexible conditions.
 Improvements and amendments to the Intellectual Property (‘IP’) regime
will remove some of the restrictions which were previously included, thus
making it easier to obtain relief for the acquisition and development of IP.
 The base year for the Research and Development (R&D) Tax Credit has been
abolished, which will allow companies to calculate and claim their R&D tax
credits without restriction by reference to their R&D expenditure in 2003
(where previously applicable).
 The Budget also signalled an extension to the 3 year start up relief for new
companies for one additional year to the end of 2015.
Irish private businesses have now moved into post-austerity mode and are
planning for growth again, with a focus on innovation and exporting. It is
testament to this focus on innovation and exporting that Irish private
businesses have helped drive the increase in employment and the growth that
we are now seeing in the wider economy. Accordingly, the measures
announced today on supporting innovation, through changes to the R&D and
IP regimes, together with the extension of the FED relief should continue to
foster the strong growth being seen across the private business community.
Budget 2015 did include some initiatives aimed at improving private business
finance, most notably amendments to the EII scheme and the announcement
that the Strategic Banking Corporation will be formally launched next month.
However, a significant opportunity was missed to introduce a relief to
promote loan capital investments in private businesses by individuals, such
as including a USC exemption or a reduced rate of income tax on interest
income earned.
The retention of the 9% VAT rate in the tourism sector will no doubt be seen
as a huge boost for the competitiveness of many private businesses in this
sector.
In addition, the reduction in the effective tax rate for medium and low
income earners should also significantly boost consumer sentiment, fuelling
domestic demand for products and services. However, despite this welcome
move, calls from the private business community to reduce the cost of
employer taxes, through either a reduction in the employer‘s PRSI burden or
some form of employer tax rebate, have once again been ignored.
The 80% windfall property tax introduced in 2009 is to be abolished with effect
from 1 January.
PwC
Page 18 of 27
Financial services
John O'Leary
PwC
Page 19 of 27
Financial services
Measures relevant for financial services
Support for financial services strategy
The Budget contains very few measures which are specifically aimed at the
financial services sector. Having said that, the Minister made specific reference
to the new Strategy for Financial Services in Ireland, which is currently being
developed. The new strategy will be launched next year and will set down an
action plan to develop opportunities to grow the sector and increase the
numbers employed.
It was very encouraging to hear the Minister’s commitment to the IFSC and
his support for the new strategy for Financial Services which is currently
being developed. Given increased competition from other financial centres,
it is crucial that this strategy, which will be launched next year, delivers an
action plan for the next phase of growth of the IFSC and that this plan is
implemented promptly.
General measures signalled in the Budget which are potentially significant for
the international financial services sector include:
The Knowledge Development Box potentially provides a very attractive
regime for financial services groups to develop and manage their intangible
assets from Ireland. The extension of the existing capital allowances regime
for intangible assets to include customer lists significantly extends the scope
of this regime, and makes it accessible to financial services groups. Many
financial services groups carry out R&D activities in Ireland and claim R&D
tax credits, and the removal of the base year restriction may benefit some
companies.
 A new “Knowledge Development Box” and improvements to the existing
R&D regime.
 Improvements to the existing income tax regime for international assignees
coming to Ireland (Special Assignee Relief Programme) and the Foreign
Earnings Deduction regime for Irish employees who spend significant time
travelling abroad.
 Commitment of additional Revenue resources to be dedicated to expansion
of the tax treaty network.
 Commitment to early adoption of Automatic Exchange of Tax Information
initiatives.
On the domestic side, the Budget introduces a refund of DIRT on savings to
support first time buyers saving for their first home. The refund will cover
savings up to a maximum of 20% of the purchase price.
PwC
On the personal tax side, improvements to the Special Assignee Relief
Regime have been long called for by the international financial services
sector, and it will be important that there is a comprehensive overhaul of the
regime in the Finance Bill as the current regime is not fit for purpose.
In summary, while the Budget is light on specific measures for the financial
services sector, it contains a number of general measures which could be of
significant benefit to the sector. These measures, and the commitment to the
new IFSC strategy to be launched next year, mean that the Budget should be
positively received.
Page 20 of 27
VAT/Excise Duty
Caroline McDonnell
PwC
Page 21 of 27
VAT
Excise Duty
Retention of the reduced rate of 9%
Tobacco
products - with effect from midnight tonight, 14 October 2014:
.
 The excise duty on the price of a packet of 20 cigarettes will increase by 40
cents (VAT inclusive)
In 2011, a reduced rate of VAT of 9% was introduced for certain supplies,
mainly within the tourism and hospitality sector. The Minister today reiterated
the importance of the sector and its ability to deliver jobs. In addition, the
Minister acknowledged that the reduction has been a success, as an extra
23,000 have been employed in the sector since mid-2011. As a result, and as
expected, the reduced rate will continue to apply.
This will be welcome news to the sector and will ensure that Ireland remains as
competitive as possible while retaining existing employment and creating new
opportunities. The Minister noted that prices in the sector were rising and
reiterated that he would expect the relief to be passed through to the consumer.
Despite calls for the reduced rate to be extended to the construction sector, that
did not happen today.
There was no change to the standard rate (23%) or the reduced rate
(13.5%).
Increase in farmer’s flat-rate addition
 A corresponding pro-rata increase will apply to the other categories of tobacco
products (i.e. cigars and other smoking tobacco)
 For a 25g pack of roll-your-own tobacco, the duty increase will be 20 cents
(VAT inclusive)
Excise duty relief for microbreweries: The excise duty relief of 50% on the
standard Alcohol Products Tax for beers produced in microbreweries which
produce not more than 20,000 hectolitres per annum has been extended to apply
to microbreweries which produce not more than 30,000 hectolitres per annum.
Betting duty: The previously announced measures in respect of extending
betting duty to remote bookmakers and betting exchanges will be brought into
force in 2015 following the passing of the Betting (Amendment) Bill 2013, and will
result in an estimated €25m return to the Exchequer.
The rate will increase from 5% to 5.2% from 1 January 2015. The scheme
compensates unregistered farmers for VAT incurred on certain expenditure. It
is reviewed annually to ensure that it achieves the appropriate compensation.
Other excises
Subject to a commencement order, a 30 day deferral period is to be introduced for
payment of excise duty on mineral oil. This is a significant development and one
which had been lobbied for by the industry for some time.
2015 place of supply changes
For Natural Gas and BioGas used as a propellant, the excise rate will be set at the
current EU minimum rate, and this rate will be held for a period of eight years.
From 1 January next, EU changes concerning the place of supply of
telecommunications, broadcasting and electronically supplied services will be
liable to VAT in the Member State of the consumer (not the supplier).
As a result of transitional measures, over the next few years, the Department of
Finance has estimated that Ireland will gain additional VAT revenues of €100m
in 2015, rising to €150m in 2019.
PwC
There will be an extension of the VRT reliefs available for the purchase of hybrid
electric, plug-in hybrid electric and plug-in electric vehicles and electric
motorcycles to 31 December 2016.
There will be no increase in excise duty on alcohol, petrol or diesel, or to motor tax
or VRT.
Page 22 of 27
Stephen Merriman
PwC
Page 23 of 27
The R&D tax credit regime has become very important to Ireland’s FDI offering
and was endorsed very clearly in a review undertaken by the Department of
Finance in 2013. A major conclusion from that consultation process and review
was the public commitment provided by the Minister to phase out the base year
“when resources allow”. We strongly welcome today’s announcement that the
base year is in fact being completely eliminated from 1 January 2015 – a faster
process than many would have considered possible this time last year.
The R&D regime has constantly been enhanced since its introduction in 2004
and the announcements in Budget 2015 are once again very positive. The
Minister has sent out a clear statement that Ireland is committed to an
innovation tax policy. The key initiatives announced are the following;

The base year has been abolished for the purposes of calculating the R&D
tax credit from 1 January 2015.

A Consultation Process has been initiated to consider the creation of a
'Knowledge Development Box' regime.
The decision to completely abolish the base year follows subtle strides made in
the last three Budgets towards the implementation of a volume based regime.
Currently, only the first €300,000 of qualifying R&D expenditure benefits from
the R&D tax credit on a volume basis, so the enhancement is clearly very
significant.
While the R&D regime has largely been a success since its introduction, the
incremental nature of the scheme has long been identified as a limiting
factor. The imposition of a base year has precluded some companies from
availing of the credit. This has made it extremely difficult for those
companies to compete internationally for R&D projects, as well as their being
disadvantaged competitively versus new entrants to Ireland. In effect, the
base year acted as a disincentive to companies who had a long-standing
relationship with Ireland.
The abolishing of the base year is therefore a huge boost to the Irish
operations of MNCs that invested in Ireland prior to 2004. We believe that a
full volume-based scheme will help enable those long-standing companies reestablish and refresh their value proposition as a cost-effective R&D
investment opportunity. This will help preserve existing jobs and also allow
existing Irish operations compete for new R&D activities.
The R&D credit is only one tool in an overall suite of tax instruments that
encourages the location of R&D activities in a country. As such, we also
welcome the Minister’s announcement that he is to initiate a Consultation
Process to consider the potential merits of introducing a 'Knowledge
Development Box' regime in Ireland. This initiative would enable companies
to exploit the output of their R&D activities and, together with the abolition
of the base year, will help position Ireland as a prime location for innovation
activities.
We believe that these announcements send a very important message to the
R&D community regarding the Government's intention of further developing
an R&D/IP ecosystem. Attention now turns to the new Revenue R&D tax
credit guidelines due for release later this month – in the hope that the
content will provide the certainty that is required when considering the
location of mobile R&D investments.
PwC
Page 24 of 27
Agri sector
Ronan Furlong
PwC
Page 25 of 27
Agri sector
A range of measures are recommended, focused on rebalancing the market in
favour of long-term land leasing:

Income thresholds for relief from leasing income have been increased by
50% e.g. for leases greater than 10 years the exemption increases from
€20,000 to €30,000.

New income tax threshold of €40,000 for leases greater than 15 years.

Incorporated farm companies allowed as an eligible lessee and lower age
threshold of 40 years removed in order to be a qualifying lessor.

The abolition of stamp duty on agricultural leases between 5 and 35 years
to active farmers.
To support the transfer of farms to the next generation the following measures
were introduced:

CGT Retirement Relief – Land which has been leased for up to 25 years will
now qualify for relief (previously 15 years).

CGT Retirement relief for disposals outside the family – Land let on a
conacre basis will now qualify provided land is disposed of by 31 December
2016

The definition of farmer for CAT Agricultural relief narrowed such that only
“active” farmers qualify or someone who leases the agricultural assets on a
long term basis to an active farmer.

Stamp Duty consanginuity relief extended to 31 December 2017.
An incentive to transfer to the next
generation of farmers?
A significant element of the Agri-taxation measures in the budget was to
create incentives to encourage long term leasing of land and land transfers to
enable farmers, who plan to increase their milk production access to
additional land. The measures introduced in today’s budget should go a long
way to achieving these objectives, by making it attractive for landowners to
lease their land and/or pass it on to the next generation.
An interesting consequence of the changes is that the combined impact of the
increase in the long leasing tax exemption limits and the CAT Agricultural
relief could mean for example that someone who receives a gift/inheritance
of farm assets could benefit from 90% Agricultural relief and up to €40,000
of annual exempt rental income.
The change in income averaging which allows farmers to average their
taxable income over a five year period should deal partly with the IFA
concerns regarding volatility of farm income. By increasing the period to 5
years, the impact of weather and/or price fluctuations may be lessened.
There were very little changes apart from land mobility to assist the dairy
sector expansion. Stock relief remained unchanged and there were no
additional tax relief for the significant investments that farmers are likely to
make in dairy equipment and buildings.
To address price volatility:

Income Averaging of profits extended from 3 to 5 years and to farmers who
receive income from on-farm diversification.
PwC
Page 26 of 27
www.pwc.ie/budget
This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
© 2014 PricewaterhouseCoopers. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for
further details. PwC helps organisations and individuals create the value they’re looking for. We’re a network of firms in 157 countries with more than 184,000 people who are committed to delivering quality in
assurance, tax and advisory services. Tell us what matters to you and find out more by visiting us at www.pwc.ie 05268

Are we there yet? Budget 2015 www.pwc.ie/budget

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