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Financial Reporting

With increased pressure being placed on Irish plcs to improve their human capital reporting practices, Anthony Wall, Martin McCracken, Professor Ronan McIvor and Raymond Treacy look into why Irish companies’ reporting is coming up short compared to the UK.   For many years there have been attempts to place a value on an organisation’s employees, either for financial statements or for internal purposes. Despite a plethora of suggestions, no method has gained universal approval. More recently, though, the focus has switched from placing a value on an organisation’s workforce to understanding and leveraging human capital (HC) effectively. The term ‘human capital’ has been defined by Gary Becker, an American economist Nobel Prize winner, as the knowledge, information, ideas, skills, and health of individuals. In 2016, we developed a framework to ascertain the HC reporting practices of UK companies (see Table 1).  The KSA area includes items that employees need to participate effectively in the workplace, and, therefore, contains elements that an employee either brings with them when they start working for an organisation or that they can subsequently develop.  ‘HRD’ is concerned with how organisations develop and enhance the KSA of their employees.  ‘Employee welfare’ is the notion that the organisation will act as a good citizen, within its environment, and how well it treats its employees.  ‘Organisational justice and equity’ involves organisations treating employees in a fair and equitable way, and offering equal access to opportunities. This framework has been used to investigate the reporting practices of the 53 companies currently quoted on the Irish Stock Exchange (Euronext) by examining their latest annual reports. Any sentence within the annual reports containing the items listed in the HC framework was counted. Subsequently, the sentence count for each element was aggregated for all of the Euronext companies in order to analyse the current standard of HC reporting.  The overall sentence count for each of the four areas can be seen in Table 2 below.   The first thing to note is the relatively low sentence count for HC items. A study of the FTSE 100 companies in 2018 by the Chartered Institute of Personnel and Development (CIPD), ascertained that the total sentence count for UK plcs was 18,162, compared to the Irish 3,142. This works out at an average of 182 items per UK company to the 59 items for each Irish plc, a difference of 68%.  You can see that Irish plcs attach the most importance to HRD, followed by KSA, employee welfare and organisational justice and equity. Three Irish plcs did not report on any HC items, and 15 reported on ten or less. The highest overall sentence count for an Irish plc was 211.  KSA Of all the framework items listed, ‘leadership’ was the most reported item followed by ‘expertise’, with these two items accounting for 80% of all HC elements reported in this category. The remainder of the KSA items had relatively low levels of reporting, ‘flexibility’ in particular. Other related workforce flexibility concepts such as ‘entrepreneurship’ and ‘innovation’ also had low sentence counts. This is an important area in an era of flexible working arrangements. However, a study by the Economic and Social Research Institute  in 2018 found that Ireland lags behind the EU average when it comes to contingent employment (McGuinness et al, 2018). Therefore, it is perhaps not surprising that reporting levels are low.   HRD Table 4 shows that training was the highest reported HRD item, with ‘talent management’ and ‘succession planning’ in second and third place respectively. The high level of references to training is expected, as unemployment has decreased in Ireland to its lowest level in 10 years (Central Statistics Office, 2018). With more people re-entering the workforce, the demand for training programmes will be high. In terms of talent management, key skills gaps in certain areas of Irish business have emerged in recent years. Employee welfare ‘Health and safety’ made up over a third of the employee welfare items in annual reports. However, a reference to ‘ethics’ was fairly low. It was found that while Irish firms tended to report broadly on issues such as employee codes of conduct and whistleblowing policies, disclosures relating to specific ethical issues, such as corruption, bullying and harassment, were quite rare.  ‘CSR’ and ‘employee engagement’ both had reasonable levels of reporting but everything else in this category dipped into the one digits. However, one might have expected more references to employee wellbeing given the prominence of mental health awareness campaigns. Given the recent emphasis on diversity, the levels of reporting of this is not surprising (see Table 6). However, the relatively few referrals to ‘equality’ are unexpected. This low level of reporting may be down to firms’ tendency to report equality issues under the heading of ‘diversity’, as there is invariably some overlap between the two. Nevertheless, as Ireland now requires companies to report on any gender pay gaps, reporting in this area may improve.  ‘Employee rewards’ were also referred to quite frequently, while ‘human rights’ had fairly low levels of reporting even though EU legislation requires more reporting of such issues.     This study shed some light on the HC items that Irish firms value most, while also identifying areas where HC reporting can be improved. Compared to the UK, the disclosure of HC items by Irish plcs is quite low, and there was generally far less information included in the Irish companies’ annual reports. Irish firms could and should disclose more HC information. The lack of information provided suggests that the EU directive may not be enough on its own, and Ireland could benefit from amending its own 2014 Companies Act to encourage more comprehensive and in-depth HC reporting. Anthony Wall is a Senior Lecturer in accounting at Ulster University. Martin McCracken is a Research Director of business and management at Ulster University.  Professor Ronan McIvor is a Professor of operations management at Ulster University.  Raymond Treacy is a Research Consultant at Ulster University. The authors would like to thank the Chartered Accountants Ireland Educational Trust (CAIET) for funding this research.

Jun 03, 2019
Ethics and Governance

How can companies transform corporate social responsibility from a ‘nice to do’ activity into a strategic imperative? While corporate social responsibility (CSR) is a discretionary expenditure, leaders are increasingly tuned in to the corporate value of CSR. Indeed, in the current socio-economic environment, it can be argued that companies must be seen to be involved in CSR in some way. And there are many benefits for companies including improved company reputation, a more attractive employer brand and greater employee engagement. As a cost, companies should be able to evaluate the return on their CSR expenditure as they do for any other expenditure. However, many companies do not view CSR expenditure in this way. Instead, they see it as a moral obligation to give back to the community. Nonetheless, many companies are taking a more formal approach to their CSR expenditure. There is growing support for the idea that the measurement of CSR activity is important as it supports decision-making within the company, makes managers more accountable for CSR expenditure and generates support within the company by illustrating the company’s CSR achievements. Thus, companies can use measurement as a means of building a business case to justify their CSR expenditure, which in turn can help protect CSR projects into the future. How, then, can companies go about measuring their return from their CSR activities? One model or framework which encapsulates the process is the Impact Value Chain Model.  Inputs – Activities – Outputs – Outcomes Let us take as an example a company that wishes to employ staff members from minority groupings.  The objective is to reach a certain percentage by a specified date; the inputs are the resources devoted to this objective, in terms of money and employees’ time; the activities are the actions taken in terms of recruitment and retention practices; and the outputs are the number of individuals from minority backgrounds recruited and retained within a specified time period. The short-term outcome would be, for example, the achievement of the company’s goal of reaching the agreed target by the agreed date. Long-term outcomes, on the other hand, would include improved staff morale, a more appealing employer brand among minority groups and a boost for the company’s reputation. However, measuring outcomes can pose difficulties for organisations as there can be both intended and unintended outcomes. Furthermore, outcomes can be examined in the short-term or the long-term and there may be difficulties in linking long-term outcomes to company actions. For example, to what extent does a scheme to pay farmers a fair price in a specific area drive economic activity in that area compared to other initiatives that may have taken place at the same time? In summary, measuring the benefits arising from a company’s CSR activity can help the company assess whether it is achieving its CSR objectives; ensure that it does not waste resources; build support among employees; protect CSR programmes when resources are constrained; and ensure that a strategic approach is being taken. So, how can managers ensure that the right approach is being taken when evaluating CSR expenditure? Define your objectives Clearly define what you want your CSR activity to change. What will the activity achieve for the beneficiaries and for the company? The goals must be set out in quantitative terms as far as possible. For example, a company might want to be seen as an employer of choice. This goal can then be quantified by the number of applications received and whether retention levels have improved over the course of the CSR initiative. Identify the inputs You must be clear on the inputs required. And don’t confine it to financial resources alone – include staff volunteering hours and other resources, such as the company facilities used to provide the CSR initiative. Outline your activities It is also important to define the activities undertaken. Sometimes, more activities emerge from the inputs than was planned. As an example, let’s return to the recruitment initiative to increase the number of people from minority backgrounds. This initiative also adds to the company’s equality agenda and positively impacts the company’s reputation. Be clear on the outputs The outputs generally receive the most attention. If, for example, the aforementioned company is successful in the recruitment of individuals from minority backgrounds and they stay with the company for a specified period of time, or a fundraiser raised a certain amount of money for charity, the recorded metrics can provide a short-term measure of success and can be useful in boosting morale. Classify the outcomes It is important to outline the list of short-term and long-term outcomes accruing from the CSR initiative. These outcomes need to link back explicitly to the overall objectives of the initiative. Quantify the outcomes Difficulties in quantifying the outcomes can make managers shy away from this part of the process. The key question is: can we attribute the increase in the company’s reputation score to the company’s CSR activities? It is important to isolate the issue as much as possible. While the results will not be scientific and may be arrived at through an element of guesswork, it can help identify broad linkages. This exercise will assist in highlighting the value of the CSR initiative and, therefore, safeguard the future funding of the initiative. Ensure the participation of staff throughout the process The participation of staff in the above process is key, as it gives staff ownership of the chosen CSR initiative and thereby increases the likelihood of staff buying into the process. This in turn can lead to increased motivation and greater team cohesion within the organisation. Debrief The need to debrief in the aftermath of a CSR initiative is imperative. The idea is to step back and examine what was achieved, how it was achieved and what could be changed in the future to make the initiative more effective or increase the benefits to both the company and the relevant stakeholders. Conclusion In conclusion, the Impact Value Chain Model is a roadmap for how CSR can be evaluated. It provides a strategic lens through which management can assess the value of CSR initiatives and move CSR from a ‘nice to do’ activity to a strategic activity; one that can demonstrate its contribution in terms of the many benefits it brings and thereby ensure support and funding into the future. Dr Blath McGeough is a Lecturer in Management at the Technological University Dublin, Tallaght Campus. Dr Francis McGeough is a Lecturer in Accounting at the Technological University Dublin, Blanchardstown Campus.

Jun 03, 2019
Ethics and Governance

Chartered Accountants can bring a host of skills to their organisation’s CSR efforts. And as good business partners, they should. Chartered Accountants can use their unique skill set to help drive their organisation’s corporate social responsibility (CSR) agenda. Now, I know you are probably saying: “Does this guy not know how much work I have already?” Well, I can guess, but on the other hand, you know that you are already doing more than you have to; that you can do even more; and that you will get much satisfaction in making your organisation – and the world – a better place. How much you can help depends on your position in the finance hierarchy, but that’s the thing about being a good business partner: anyone can do it. I won’t go into the issues covered by CSR (for a comprehensive understanding, I recommend ISO 26000 Guidance on Social Responsibility). Instead, I will focus on the scenarios you are likely to encounter in business when dealing with your CSR department, which will typically comprise environment, safety, labour practices and business ethics. Earning legitimacy Your organisation’s CSR department may be chaotic. The subject is still relatively new, even though the Brundtland Commission’s report on sustainable development was published over 30 years ago. The department may struggle to establish legitimacy in the eyes of a management team that lies somewhere on the scale between sceptical and hostile. It may be trying to stay afloat despite being destabilised by the latest CSR issue, which it is likely ill-equipped to tackle. Such topics could include water extraction, tax payments, community involvement, plastic bottles, lobbying and so on. The department will probably feature environmentalists, human rights practitioners, labour rights specialists or business ethics aficionados – this will depend on what management sees as the “key CSR issue” – but will lack those with “pure” management or business skills. Because so many issues fall under the CSR umbrella, there will probably be insufficient coordination among these elements. In that context, Chartered Accountants may wish to consider the following: Get involved and make friends with CSR. They will be delighted that someone wants to help them; Comment on the suggested policies and procedures covering internal control, collection of information, budgets and so on. Chartered Accountants can write policies and procedures in their sleep, so consider how your organisation’s CSR policies can be made more robust; Challenge the CSR department on the appropriateness and objectivity of its chosen indicators. They shouldn’t merely be indicators that are easily achievable or collected out of habit; Critically review how the team sets CSR targets. Are they stretching yet achievable? Do they link to the business strategy? Has the organisation budgeted for the investments necessary to achieve the objectives?; Guide the CSR team on how to cost projects realistically. You will bring a dose of realism to the table and help your colleagues remove their rose-tinted glasses. You will do this not to scupper a project, but rather to ensure that, if approved, there is a fair chance of success; and Design appropriate graphs to help your colleagues visualise the organisation’s actual CSR performance. Encourage the team to move away from the useless-but-ubiquitous pie charts (at best, they add some colour to a report) and toward trend charts that show actual progress over time compared to the target. Working towards meaningful action Often, management’s commitment to CSR is shaky at best. The business is only “doing” CSR because an influential stakeholder has demanded it, which may result in lip service without any real commitment. Management will want to see “progress” – winning an award (any award) every year, reducing the number of non-compliances, or increasing the volume of CSR-related content in the annual report or on the organisation’s website – provided it doesn’t cost much or do anything to rock the corporate boat. If this paints a familiar picture, you may wish to consider the following: Challenge management by illustrating any lack of commitment and remind them of the risks associated with the weakest links in their approach. One example is the business that emphasises excellent progress in one area of CSR (gender diversity, for example) while remaining silent on another aspect it would prefer not to talk about (the absence of a whistle-blowing policy, for example); Push for a robust and objective CSR strategy that integrates into the overall business strategy. Ensure that it is real and motivates staff and other stakeholders, and is not just a convenient communications-friendly bolt-on; Develop and argue the business case for CSR with opponents who refuse to accept that there is one; Push for the inclusion of CSR targets in the strategy, budgeting and forecast cycles so that the business has a benchmark for actual performance; Challenge the mix of indicators used so that there is a reasonable balance between the following: Compliance (those for which there is no choice, such as the number of penalties for environmental transgressions); Capacity (measures indicating how the business is preparing for CSR, such as board attendance performance or implementing that whistle-blowing policy); and Commitment (realising a reduction over time in water use, CO2 emissions or the ratio of CEO remuneration to average employee pay). The reporting dilemma It is possible that reporting will also be chaotic, partly as a result of the department’s disorganisation but also because guidance rules on CSR are still imprecise – very much so compared to what you will be used to in accounting. You may, therefore, wish to consider the following: Help the department choose appropriate and objective norms and standards to use. There is a proliferation of these, usually set by profit-making organisations. The risk is that these standards may be too focused on one aspect of CSR or too heavy in specific sectors; Devise calculations in the absence of full information. For example, how much water is recycled? What CO2 emissions are attributed to employees’ travel to work or business travel?; Check that the indicators’ units of measure allow for consolidation at each level in the hierarchy. For example, there is little real benefit in collecting the number of female managers at each location or subsidiary if you don’t also know the total number of managers at each; Help the CSR department adopt reliable variance analyses incorporating volume, price, mix, efficiency and one-off elements. It is misleading to claim an improvement in an indicator by taking the change in the total value. You need to obtain an understanding of the drivers behind the change. It wouldn’t be acceptable for management to take credit for your business becoming greener if, in reality, legislation brought about the change; Push to get a standardised CSR reporting system, including what you would consider as standard input and validation checks (with blocking controls also). Data quality and data management will probably be dreadful: most data will be held in individuals’ Excel spreadsheets. Each element of CSR could well have different reporting routes and cycles that replicate information requirements, often with differing definitions. It would be best if you pushed for the adoption of one reporting system for all non-financial indicators; and Encourage the CSR department to collect information every month rather than in an annual free-for-all after year-end, so you can see trends emerging and do something promptly. Final thoughts Finally, there are some other ways in which Chartered Accountants can help CSR. You may wish to consider the following: Work to develop an annual report that gives a reasonable balance to each of the financial, CSR and other non-financial elements; Be a good citizen and push to ensure that the finance department applies relevant CSR policies; and Talk positively about CSR internally, as you will generally elicit a favourable reaction from staff who are willing to give their views or participate in initiatives. Peter Gillespie FCA is the founder of Meaningful Metrics. He worked in manufacturing and services in several countries for 30 years.

Jun 03, 2019
Ethics and Governance

Chartered Accountants Ireland is a proud supporter of the Trinity Centre for People with Intellectual Disabilities. In this article, we hear from those involved in the programme including Eavan Daly, who completed a very successful internship with the Institute last year. An introduction Shauna Greely, Chair of the Diversity and Inclusion Committee and a Past President of Chartered Accountants Ireland. Diversity has become an area of significant focus in the business world. Businesses recognise that having a diverse workforce with a greater variety of talents and experiences enables them to adapt to dynamic markets and be more innovative. A focus on diversity also allows under-represented groups to get their fair share of opportunity, and opportunity is a critical word in this regard. Chartered Accountants Ireland, through its Diversity and Inclusion Committee, ensures that the Institute focuses on the areas of diversity and inclusion that impact on and are important to its members. One diversity and inclusion initiative the Institute is involved with and which members may not be aware of relates to our involvement as one of the early business partners to a programme run by the Trinity Centre for People with Intellectual Disability (TCPID). Over the past 10 years, the Institute has invited several students with intellectual disabilities to gain work experience in Chartered Accountants Ireland. During my involvement with Chartered Accountants Ireland, I have been privileged to attend many events, meetings, courses and lectures where I have learned of the positive difference the Institute makes on accountancy, business and the wider community.  However, the event that stands out for me was my attendance at a presentation in the lecture hall of Chartered Accountants House given by a TCPID student. Eavan Daly has an intellectual disability and had completed many months of work experience with Chartered Accountants Ireland. Eavan gave a presentation on her experience and I was struck by that fact that, although this was her first job, Eavan was making a professional presentation in a lecture hall to a large group of colleagues. The experience led to many firsts for Eavan, and I was incredibly proud that Chartered Accountants Ireland made this possible. I saw first-hand the benefits that participation in this programme has brought to Chartered Accountants Ireland as an organisation and the positive impact it has had on staff. Equally important are the enormous benefits afforded to Eavan and her family. The experience gave Eavan the independence and confidence to go to work each day with a staff ID card, a desk to sit at, a computer to log-in to, and buddies to have coffee or lunch with – things many of us take for granted. There are many accountancy, financial services, legal and other business organisations already partnering with TCPID to offer internship and work experience. This programme provides such wide-ranging benefits that I would urge other organisations to consider getting involved. My work placement with Chartered Accountants Ireland By Eavan Daly Eavan Daly is my name, and I completed an 18-week work placement with Chartered Accountants Ireland in September 2017. I travelled alone by train from Drogheda to Dublin on Tuesdays and Wednesdays. I worked from 10am to 12.30pm on both days. I loved the whole experience of making new friends, learning new skills and facing new challenges. Most of all, I loved feeling included and being part of the workforce. In Chartered Accountants Ireland, I worked in reception as a member of the Conference and Facilities Team. It was my duty to meet and greet all visitors to the building. I showed them where to go or contacted the person they were looking for to let them know they were there. I received and signed for all deliveries and registered post. I emailed or rang the person whose delivery it was to let them know it had arrived. I visited the Publishing Department and sat in on a meeting, and I was invited to the President’s Dinner where I learned about networking. This was one of my highlights. At the end of my work experience,  I gave a presentation. My work colleagues, guests from the broader working community and my mentors from Trinity came to see me. Eavan has completed work placements in Chartered Accountants Ireland, Orix Aviation and Bank of Ireland. An employer’s perspective Bernard Delaney, Director of Human Resources at Chartered Accountants Ireland Chartered Accountants Ireland is proud to be an enabler of the TCPID programme – not just because of the benefits for the students and our staff, but because it is the right thing to do. Our proximity to Trinity College Dublin allows us to offer a safe environment where students have a familiarity with the locality while providing just enough challenge as they join a new workplace – a stressful event for most people. Our employees gain hugely by working alongside people with a different perspective and life experience. It informs and enriches our work experience by being inclusive rather than just diverse, and helps us challenge our ingrained views and work habits. We are a member organisation that values the contribution of every individual; this programme is a win-win for us, and we are privileged to be involved. A coordinator’s perspective Marie Devitt, Pathways Coordinator at the Trinity Centre for People with Intellectual Disabilities The Trinity Centre for People with Intellectual Disabilities is an established not-for-profit organisation, operating a pioneering education programme for students with intellectual disabilities. We are part of the School of Education at Trinity College Dublin. Our Level 5 Certificate in Arts, Science and Inclusive Applied Practice covers a wide range of modules over two years. Our goal is to equip students with the requisite education and training for future employment or further education, allowing them to lead more independent lives. We have established a robust network of business partners, including Chartered Accountants Ireland, who work with us to provide student work placements, mentoring, paid internships and, in some cases, permanent employment for our graduates. Our business partners have allowed us to offer insight into potential career paths for our students and graduates. In the past, these young people were marginalised with few opportunities for meaningful paid employment. With the help of our partners, this is now changing. Not only are we able to offer supported career pathways for our students as they move on from Trinity College Dublin, but thanks to the range of the business partners, we can now offer them real choice and allow them to look at specific industries that might suit their particular interests and skills. We developed the TCPID Graduate Internship Programme with the support of our partners. Since launching this programme on a pilot basis in January 2017, we have had over 23 paid graduate internships, five of which converted into permanent roles. In addition to these permanent roles, a number of our graduates have been in paid internships with our business partners for more than six months with their contracts renewed. Our ultimate goal is to find permanent roles for those who want them and transition pathways into further education for those who may wish to explore other options.  Our business partners are a core part of our programme and have supported us in many ways. We are looking to expand our network of partners to help increase the options available to our students and graduates. Together with our TCPID business partners, we can make a real difference and build true inclusion within the workplace and within society. A parent’s perspective Olwen Daly, Eavan’s mother Eavan’s family, friends and her local community are proud of her achievements and are grateful for, and appreciative of, those enlightened employers who choose to give her a chance. To those who have no experience of anyone with intellectual disability, we believe that to become fully literate, as Eavan has, and to travel alone from Co. Louth to Dublin is a magnificent achievement. It is the accumulation of thousands of tiny steps, often supported by extraordinary individuals and organisations. Marie Devitt along with the TCPID Graduate Placement Programme and supporting business partners fall firmly into this category. Eavan’s goal is a job, and we know she will get there. Please continue to support her and other students in their endeavours. For further information about how your company can become a part of the TCPID Business Partners Programme, contact Marie Devitt, TCPID Pathways Coordinator at devittma@tcd.ie or (01) 896 3885.

Jun 03, 2019
Tax

Although 2019 has been a busy year to date, you can expect more activity and a bumper Finance Act in the second half of the year.   There seems to be no let-up in developments across the global tax world, with the first half of the year likely to be trumped by an even busier second half. It is not possible to cover everything, but let’s look at some of the key developments so far and what is coming down the tracks. Interest deductibility Earlier in the year, the Department of Finance completed its consultation phase in respect of changes to interest deductibility (and hybrid) rules. Following ATAD1 (EU Directive), Ireland is obliged to amend regulations governing interest deductibility, with interest capped at 30% of EBITDA subject to certain conditions. It looks increasingly likely that the new legislation will be introduced well before the initially proposed date of 2024, with its inclusion in October’s Finance Bill now a possibility (and effective 1 January 2020). Transfer pricing A consultation process also took place earlier in the year in respect of transfer pricing (TP). We can expect significant changes in this year’s Finance Bill to our existing TP regime. It is almost guaranteed that TP will be extended to non-trading transactions such as the provision of interest-free loans, which are currently outside the ambit of the TP legislation. What is not so clear-cut is whether TP will also be extended to small- and medium-sized enterprises (SMEs), which would place an extra administrative burden on smaller companies with potentially little additional tax revenues raised. It is possible that a compromise solution will be reached, with the new rules extending to SMEs but with more relaxed documentation conditions, as is the case in some other countries. For companies already within TP, the introduction of 2017 OECD TP guidelines into Irish legislation will see more onerous documentation requirements, with both a master file and local file required at the head office and local country subsidiary level respectively. Transfer pricing audits are also likely to be a more prominent feature of our tax landscape in the future. Digital taxes The good news is that the European Union (EU) has, for the moment, dropped its Digital Services Tax proposals – although several member states have unilaterally introduced their own such taxes (for example, the UK, France and Austria). However, the digitalisation challenge has instead been picked up by the OCED which, in February, launched a public consultation on ‘Addressing the Tax Challenges of the Digitalisation of the Economy’. This consultation seeks to build on previous reports on the area and agree on a consensus-based, long-term solution between OECD members by the end of 2020. The OECD’s proposals potentially go much wider than just digital companies, with the concept of “marketing intangibles” bringing many more companies within scope. While there is as yet no clear consensus amongst OECD members as to the best way forward, many countries favour the concept of linking value creation to the customers’ location. If ultimately consensus is reached that sees a portion of profits allocated to where consumers sit, this will undoubtedly dilute the benefit of our 12.5% corporate tax rate. We can expect further developments in this vital space over the coming months as negotiations progress. More recent consultations  In recent weeks, the Department of Finance has launched separate consultation phases in respect of Entrepreneur Relief, EIIS, research and development (R&D) tax credits and the KEEP (share option) scheme. While there is a different rationale for each consultation, the fact that they are taking place indicates that we may see changes in the future. The legislative provisions governing EIIS and KEEP in particular have proved problematic for taxpayers attempting to access the reliefs. The Department is also looking  closely at Entrepreneur Relief. While further changes to this relief may be made, it is optimistic to believe that the €1 million lifetime limit will be increased to €10 million, certainly in the immediate future. The R&D tax credit was the subject  of a previous review, which showed that the credit was working as intended with the additional jobs created by the credit trumping the cost to the Exchequer of funding the credit. The Department is now seeking to reaffirm this finding and determine whether the relief remains fit for purpose. Unwinding of “Double Irish” structures Grandfathering provisions for so-called Double Irish structures will come to an end on 31 December 2020. As a result, intangible assets currently held in tax havens have in recent times been “on-shored”, in many cases to Ireland. We expect this to continue for the remainder of the year and next year, with many groups keen to execute the migration before the law changes in the countries where the intangible assets currently sit. Due to the mechanics of the tax relief for intangible assets, any such acquisitions should see additional tax revenues flow to the Exchequer. Indeed, with intangible assets increasingly aligned with substance, additional payroll taxes may also accrue in due course. The US tax reform package has, in many cases, made it more expensive for groups to house their intangible assets outside the US. Notwithstanding this, we expect to see further significant migrations of intellectual property to Ireland. Minimum tax rate in Europe? In recent European Parliament election debates, the notion of a minimum corporation tax rate (18%) across the EU was raised. The abolition of the right to veto any tax changes has also been mooted. While both of these ideas are likely to get more air time for the remainder of the year, for the moment, we would assess the likelihood of either happening as remote. So in summary, a lot has happened already this year, and we can expect at least as much activity in the second half with a bumper Finance Act likely to wrap up the year. Paschal Comerford FCA is a Tax Director at Grant Thornton. Peter Vale FCA is Tax Partner at Grant Thornton.

Jun 03, 2019
Tax

It seems to be the season of public consultations on tax matters in the Department of Finance, with four launched in the month of May alone. This brings the total to 14 in the past two and a half years. While some areas under the current review such as transfer pricing and the R&D credit haven’t been scrutinised by way of consultation in recent years, others have been examined and re-examined and then examined again. One such example is the Employment and Investment Incentive (EII) scheme, which was introduced in Ireland in 2011. The relief, which offers a tax break of up to 40% in investments in certain corporate trades was explored in 2014, 2015 and 2018 – and now again in 2019. Over the years, many professional bodies, including this Institute, have consistently made the same points in its responses, seeking solutions to problems in schemes such as the EII – many of which have yet to be solved. In considering the most recent wave of consultations, it is apparent that in order to secure proper engagement with the consultative process, respondents need tangible evidence that their comments and suggestions are being listened to and acted upon. Departments cannot continue to seek and re-seek answers to the same questions without acting on some of the solutions proposed by respondents. Acknowledging that there have been some minor amendments to the EII scheme as a result of the last three reviews, these changes haven’t addressed some of the main concerns with the scheme. These include the restrictions that block access to the relief for many potential investors and the penalties if self-certification when claiming the relief is incorrect. Tax consultations in Ireland might help identify problems with the various reliefs, but there is little tangible evidence of any of the problems being solved – or, in some cases, even addressed – in response. One improvement to the process could be the introduction of a code of consultation principles, similar to the one that operates in the UK, which provides undertakings on time limits, responses and actions. Otherwise, what’s the point of having a public consultation?   Cróna Clohisey ACA is Manager, Tax & Public Policy, at Chartered Accountants Ireland.

Jun 03, 2019