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Budget 2020 predictions

Sep 15, 2019

It’s that time of year again. On 8 October, Paschal Donohoe will deliver (a likely no-deal) Budget 2020. John Fitzgibbon has made a few budget predictions ahead of the big day.

Budget 2020 will likely bring about several changes which will have a significant impact on Irish companies and individuals. Here are a few we’re likely to see on 8 October.

Anti-hybrid legislation

Undoubtedly, the most complex of these changes will be the introduction of anti-hybrid legislation as required by the EU’s Anti-Tax Avoidance Directive (ATAD). These rules look to eliminate hybrid mismatches arising from the differing characterisation of certain instruments or entities for tax purposes. Hybrid mismatches can lead to a “double deduction” outcome whereby a deduction is obtained in more than one jurisdiction for the same expense, or a “deduction without inclusion” outcome whereby a deduction is obtained by the payer in one jurisdiction without the corresponding income being taxed in another jurisdiction. The new anti-hybrid rules will effectively operate by denying the deduction in one jurisdiction or through the application of a tax charge where such mismatches arise.

Changes to transfer pricing rules

From a corporation tax perspective, there will be the introduction of new transfer pricing rules which will align our current rules with the latest 2017 OECD Transfer Pricing Guidelines, as well as broaden the scope of transfer pricing in Ireland. The Department of Finance recently released a feedback statement which provided some insight into the proposed changes. This will, among other changes, broaden the scope of transfer pricing rules to small- and medium-sized enterprises (SMEs,) as well as to some non-trading transactions.

KEEP, CGT Entrepreneur Relief and EII

This year also saw public consultations on a number of Irish tax regimes such as the Key Employee Engagement Programme (KEEP) regime, the CGT Entrepreneur Relief and the Employment and Investment Incentive (EII) scheme, which could indicate that the Budget will introduce changes to these initiatives.

KEEP was initially introduced as part of Budget 2018. It offers SMEs a means of competing with larger enterprises when it comes to attracting and retaining key employees. While it seems unlikely that the regime would extend beyond the SME sector, we would expect to see some changes to encourage a higher level of uptake in the participation of the scheme.

CGT Entrepreneur Relief encourages entrepreneurs to set up businesses in Ireland by offering a reduced rate of CGT on the disposal of their shares, subject to a few qualifying conditions. The current lifetime limit on which CGT Entrepreneur Relief can be claimed is €1 million. In contrast, under the corresponding UK regime, the lifetime limit available to shareholders is £10 million. This represents a significant advantage to entrepreneurs who establish their business in the UK and, as such, changes could be introduced as part of the Budget to bring this more in line with the UK regime, thereby increasing the attractiveness of Ireland as a competitive location of choice for entrepreneurs..    

The EII scheme offers investors tax relief of up to 40% for investments made in particular corporate trades, with 30% of the relief available upfront and the remaining 10% available after three years, assuming qualifying conditions are met. Significant changes were made to the scheme in Budget 2019 and, therefore, it seems likely that any further changes would be minimal.

Capital acquisition tax

It's possible we could also see an increase to the Group A lifetime threshold for capital acquisition tax, as the Government aims to restore the €500,000 lifetime threshold.

John Fitzgibbon is a Tax Manager in Deloitte.

Chartered Accountants Ireland is again offering a Budget Summary service to members, with print and digital options available. Click here to order.