Originally posted on Business Post 06 February 2022. There is no evidence to support the status quo, so why are politicians still waiting to make a decision? The clearest signal yet that Irish politics has moved on from the emergency phase of the pandemic came from the Oireachtas Committee on social protection last Wednesday. In its comments on recommended increases to the state retirement age by the recent Commission on Pensions, the committee essentially contradicted the findings of that very commission. The committee said that the qualifying age for the state pension should remain at 66, with additional flexibility for long serving employees. This jars because Ireland has become accustomed to following the recommendations of experts. Guidance from public health experts has largely shaped our response to the pandemic for the best part of two years. By and large, the technocracy of public health has dictated the political decisions made since the pandemic began, perhaps to an excessive degree according to some. Nevertheless, when compared to other countries, and this is in no way to diminish the terrible loss and sadness of the pandemic, Ireland has fared reasonably well. Success came from sticking to the advice from the scientists, and this may also help explain why the harsh restrictions and measures were more acceptable to the majority of the public. We have a tradition in this country that respects knowledge, and few enough Irish people suffer from a Michael Gove-style fatigue from having to listen to experts. Whatever else can be said about the pensions commission, it did not lack for expertise, having experienced business people, public servants and academics on board. It is almost unimaginable that a recommendation from the National Public Health Emergency Team (Nphet) to the Minister for Health could have been, at any stage over the past two years, referred back to an Oireachtas committee to be contradicted. So, what has happened here? Are medical doctors in some way more expert than economists and welfare analysts? Is the political system simply trying to reassert its sovereignty? Or is the pensions issue simply less critical or urgent than the pandemic crisis, leaving expert opinion on the issue fair game for challenge? Considerations of political primacy and the perceived severity of voter pushback may have informed the committee’s report. Nevertheless, shouldn’t our politicians be more amenable to guidance from expert groups established to provide advice to the state? Politicians must of course represent the views of their constituents, if only to preserve their seats. They may not always read these views accurately or be swayed either by a vocal minority of their own support or an opportunistic opposition challenge. The Oireachtas committee came up with 13 recommendations on the pensions issue. Not one offers any concrete solution to the fundamental problem of retirement age – namely that we cannot afford the status quo. Their recommendation instead is to wait for the advice of the current Commission on Taxation and Social Welfare to give the funding answer. The Commission on Taxation and Social Welfare is another expert group. Will its report fall foul of yet another Oireachtas committee, which will recommend waiting for . . . what? In a post-pandemic era, voters may well be less tolerant of poorly informed policies. It will be interesting to see what they think of Norma Foley the Education Minister’s determination to run this year’s Leaving Certificate in the traditional format. Political noise from the opposition was inevitable. This time, however, many voters may conclude that the decision based on expert advice to go with written exams was the correct one. In the outcome of the Portuguese general elections this week, it seems that voters recognised, and then rejected, the ill-advised manoeuvres of the smaller parties supporting the previous Portuguese coalition. Those parties had not supported the fiscally prudent budget being promoted by the larger Socialist Party within the coalition, and this triggered the election. Now prime minister Antonio Costa, leader of the Socialist Party, will have an overall majority. One interpretation of this outcome is that when push came to shove, the Portuguese electorate recognised what needed to be done to govern their country well. Over the course of the pandemic, both the 2020 caretaker government and the current coalition had the good sense not to treat the population as fools. People realised that restrictions were necessary, and then got on with it. Wobbles in adherence to the pandemic restrictions only happened when government advice was conflicting or unclear, as was the case with the approach to schools reopening towards the back end of last year. Our government needs to continue the good habits of implementing policy based on expert evidence. The report of the Oireachtas Committee on social welfare flies in the face of this. If the results of the Portuguese election are anything to go by, politicians will bear the cost of getting it wrong.   Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland

Originally posted on Business Post 09 January 2022. Emmanuel Macron aims to have the 15 per cent corporate tax proposals in force by this time next year, and that’s not the half of it. The publication in the days before Christmas of a proposed EU directive to give effect to a 15 per cent rate of corporation tax across the bloc had a particular Irish hue to it – Paschal Donohoe’s sticking point of a “minimum tax rate means 15 per cent and not ‘at least’ 15 per cent” is in the text. If this Irish imprint came at the expense of surrendering a totem of our economic policy, the 12.5 per cent corporation tax rate, it also came at the expense of an EU totem that all companies must be taxed the same way. It was Brussels’ adherence to that principle, and its consequences for the EU state aid rules, that gave rise to the €13 billion Apple tax case which is still grinding its way through the European legal process. In future bigger companies will pay at different rates to their smaller counterparts. It will be up to the French presidency of the EU Council to push this draft corporation tax directive through the European political system during the next six months of its tenure. The effectiveness of an EU Council presidency is a factor of the size of the country which holds it. Put simply, the bigger the country, the more civil servants it has to throw at its pet European projects and thus the greater the likelihood of success. As the second largest economy in the EU, France has plenty of resources to direct during its six-month tenure in the hot-seat. There is no lack of ambition in the 76-page programme for the French presidency of the EU. It is not surprising that the programme commits to taking forward work on the 15 per cent proposals and aims to have them brought into force by this time next year. The French have long been suspicious of any country which, like Ireland, used low tax rates as part of their foreign direct investment offering. Ironically, the last time France held the presidency in 2008, there was some back-pedalling on EU tax reform because Irish voters had just rejected the Lisbon treaty. What is surprising, though, is that the promotion of the 15 per cent regime across the EU seems not to be the priority of the French economic and financial affairs agenda. Instead, the key project is the promotion of a “carbon border adjustment mechanism”. A carbon border adjustment mechanism is of course a tax by another name. The idea is that by levying additional duties on carbon intensive products coming into the EU, EU-based businesses will be deterred from outsourcing emissions-heavy manufacturing beyond the EU borders to avoid emissions quotas. A carbon border adjustment mechanism is a solidly “green” idea, in so far as it would cost businesses rather than individuals and is likely to play well with voters – a prime concern in an election year in France. Perhaps, though, the key to understanding this French emphasis lies in where that new tax money might go. The institutions of the EU are part funded by what are known as “own resources”. Own resources come from the excise duties collected by all the member countries on dutiable goods coming into the EU. The EU also receives a share of Vat receipts. These sources make up only one-third of the EU budget, and the shortfall comes from direct contributions from the member countries. This shortfall is now becoming a major problem because the EU budget is mushrooming from providing grants and cheap debt to countries to tackle the pandemic and deliver on the green agenda. The problem with cheap money is that someone, somewhere must pay for it. Proceeds from the carbon border adjustment mechanism are to be treated as “own resources” and are to go directly towards the EU budget. The mechanism is estimated at bringing in some €10 billion a year, which is no small amount until compared with the EU’s €750 billion pandemic recovery fund. Nevertheless, the contribution reinforces the notion that the EU must get better at paying its own way. Own resources are the new EU totem. Though not explicitly mentioned in the French programme, there are EU plans to further expand these by staking a claim on part of the corporation tax paid by companies with a €20 billion turnover. The pandemic has brought bigger government both at national and EU level – 15 per cent and global corporation tax are last year’s debates, with just some Is and Ts to be dotted and crossed. Managing and funding a bigger EU machine seems to be the priority for this French presidency. Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland

Originally posted on Business Post 05 December 2021. We need more information on the opportunities and challenges that a 32-county regime would bring for businesses as well as individuals The Red C opinion poll in this newspaper last week highlighted the jarring reality that while many of us might aspire to the notion of a united Ireland, our views might change dramatically if it comes to paying for it. There is precedent for this reaction. The most prominent reunification in recent memory was that of East and West Germany. To fund that particular initiative, a solidarity surcharge was introduced which put a few additional percentage points on most existing taxes. The levy still exists today in many cases and suggests a solidarity surcharge may need to feature in debates over a united Ireland too. The travails of the Irish economy and the levels of indebtedness are well known, but the private sector is thriving. By contrast, the Northern Ireland economy is unbalanced. The proportion of public-sector to private-sector activity in Northern Ireland is considerably higher than usual – 27 per cent of workers in Northern Ireland are employed in the public sector. In the Republic, the Department of Public Expenditure and Reform reports 350,000 public sector jobs, suggesting that only 14 per cent of workers in the South are paid out of public funds. In terms of tax collected, Northern Ireland typically accounts for approximately 2 per cent of all British tax receipts, or just over £15 billion (€17.6 billion). The Revenue Commissioners in the South will collect something in the order of €90 billion in gross receipts this year. A block grant is paid from Westminster to bridge the gap between what taxpayers in Northern Ireland pay and the cost of providing all the jobs and public services in the region. This subvention runs at the rate of approximately £1 billion a month, a British funding hydrant that would surely dwindle, if not get turned off entirely, in the event of unification. The political players in Northern Ireland are wedded to their Westminster block grant, as is shown in their approach to how Northern Ireland companies are taxed. Stormont has had the power to set its own corporation tax rate since 2015, but adjusting the rate would come at the cost of reducing the block grant subvention from Westminster, so it hasn’t happened. We need some better perspective on the opportunities and the challenges that businesses, and not just individuals, would have within a putative 32-county regime. A united Ireland will surely mean some move towards harmonised income and corporation tax rates across the island, if only because Brussels would insist on it as a condition of re-admitting Northern Ireland to the EU. A harmonised corporation tax rate might be unlikely to rest at 12.5 per cent for most industry, but the all-island rate could be lower than the 19 per cent rate currently paid in Northern Ireland and which is due to increase for larger businesses to 25 per cent from 2023. Businesses would also need to factor in the costs of employment under a harmonised income tax and national insurance regime. According to recent OECD comparisons, the typical tax cost of employing a person on the average wage is remarkably similar North and South of the border. While the tax wedge – PAYE and National Insurance or PRSI combined – is around 31 per cent on average in both jurisdictions, this can change dramatically depending on family circumstances and different wage rates. Tax considerations aside, government and employers alike would have to wrestle with the significant differences in labour law which currently exist on the island. One of the biggest challenges for a truly all-island economy could come from losing Northern Ireland's privileged trade status under the Northern Ireland protocol. Despite the wrinkles in the protocol (and I do not discount the practical difficulties in its operation), the opportunity now available to Northern Ireland business to sell goods into both the EU and British markets without hindrance is a unique benefit. Neither the EU nor Britain would see any advantage in allowing one EU member country or region of the remaining 27 countries to have any form of privileged access to their respective markets. While undoubtedly there would be transitional arrangements and sunset clauses established were the political accommodation ever to come to pass, these could not be prolonged indefinitely. It is not only individuals that might be asked to pay more tax in a united Ireland; businesses in both the North and South would have to as well. Some form of solidarity surcharge would be an unavoidable consequence. Brexit has shown us what can happen when political decisions on sovereignty are taken without care for the legitimate concerns of industry. If the concerns of business are left out of the debate about a united Ireland, everyone will be worse off. Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland

Originally posted on Business Post 08 November 2021. Excessively taxing one particular cohort in society may be politically expedient, but it’s not a realistic long-term strategy. Mary Lou McDonald and Joe Biden make strange bedfellows, but they share similar aspirations. The US president’s investment plans aspire to provide enhanced social supports for his country. So too does the alternative budget of McDonald’s party. The Sinn Féin plan majors on affordable housing; so does Biden’s. Both feature enhanced childcare policies and proposals on climate change, and while these differ in detail the direction of travel is similar. In each case initiatives are to be paid for by increasing the burden of tax. Every fair-minded person wants improvements to the social fabric, be it in housing or environment or infrastructure. Yet both leaders seem to assume that few enough fair-minded people might be willing to pay for those improvements. For the Democrats, reforms are to be paid for by those earning more than $400,000 a year. The Sinn Féin threshold is considerably lower, with €100,000 of earnings apparently being the sweet spot over which citizens cease to be citizens and become mere taxpayers. Both parties are also comfortable with the notion that industry should contribute more to cover the funding gap for their spending aspirations. This progressive taxation policy approach is acceptable and works up to a point, but when it passes an excessive burden onto any one cohort, no matter who is in that cohort, government finances are left in a vulnerable position. That was the lesson in Ireland in 2008 with the property crash, when tax receipts had become too reliant on the cohorts making their living from the property sector. This is not a hazard peculiar to left-wing ideology, it is simply the way the world works. Even the most fashionable tax policy can go astray. In a week where the news in the developed world is dominated by COP26, only brave souls will argue against carbon taxation. Yet the lack of choice in our fuel and transport infrastructure renders carbon taxes useless at influencing behavioural change. It makes no sense to increase social welfare fuel allowances and increase the standard income tax bands and allowances so that people could afford to pay carbon tax, but that was the key feature in last month’s budget. Not only are carbon taxes not delivering change; they have a negative exchequer impact. There is an argument that the most successful tax policies are the ones which are the least specific to a particular cross-section of the population. A change up or down should apply to the general body of taxpayers. Not everyone pays income tax but everyone pays Vat on many foods and most services. A Vat increase may well be the most equitable way of raising additional revenue. It is certainly the least divisive. The Sinn Féin alternative budget makes no reference at all to Vat, which is the second largest source of money to the Irish exchequer. Instead, their alternative budget depends on more payments from fewer people, topped up with borrowing. That looks even more risky because it assumes their new policies will cause no disruption to the existing level and source of tax receipts. The only way the reforms that the US Democrats and Sinn Féin alike are proposing can be paid for, on a sustainable basis, is if the cost is shared. It may be politically expedient to promise largesse to be funded by a small group who mightn't vote for you anyway. Yet the big risk is that those promises can only be delivered for a short period of time before the small group either ups sticks or simply runs into financial difficulties. It’s hard to collect tax when the small group being relied upon to pay it is not earning much. It gets even harder when short-term tax receipts fail in the face of long-term spending programmes. The Irish tax system is not perfect, but it is relatively broad-based; higher earners pay proportionately more, and any allowances and reliefs are generally available to most taxpayers. The extent of the US political divisions along party lines limits such policy choice and nuance. That is not the case here yet. The Sinn Féin proposals risk a polarising effect on the policy debate because they narrow the tax base. Joe Biden and his Democrats may be in power but his party is not fully behind him, his economic and tax plans have made it through the House, but have yet to make it through the Senate. McDonald’s Sinn Féin party seems to be fully behind her, but were they to be in power, would their tax plans survive the rigour of the Irish parliamentary process? A narrative is emerging that, following its Ard Fheis, the party is in some way moving towards the centre ground. That might be so, but it still has some distance to go with its fiscal policies. Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland

Originally posted on Business Post 10 October 2021.   Our circumstances today share numerous parallels with 1991, when Albert Reynolds delivered the first ever televised budget speech Corporation tax receipts up by an unexpected 40 per cent, inflationary pressures driving a bigger social welfare package, a two-tier corporation tax system, and disputes over pension payments. No, not 2021, but 1991, when the late Albert Reynolds delivered his budget speech, televised for the first time. This Tuesday will be the same. There will be an economic update and forecast along the lines of “not too bad, but could be better”, a helpful reminder of the wonders achieved by the government in the previous 12 months, and some tinkering with tax bands and reliefs along with some social welfare enhancements and spending commitments. Is the budget day equilibrium established by Reynolds 30 years ago still appropriate for a nation which has more than twice as many people employed as in 1991, more than two million extra citizens, and eight times the tax receipts? When it comes to tax policy, neither the Irish economy nor the Irish voter is particularly amenable to any type of radical change. Big initiatives fail. The universal social charge, for example, is little more than a way of squeezing more income tax from a system constrained by having only two tax rates, 20 per cent and 40 per cent. The guiding principle behind local property tax, meanwhile, seems to be that it should not raise too much money. Water charges, a tax in every respect other than their name, failed to get off the ground at all, while we still tinker with stamp duty rates in the hope they might have some impact on the behaviour of our property market. This is a triumph of optimism over experience. Since the Reynolds era, however, our control over interest rates and exchange rates has been surrendered to the EU. Last week, we conceded partial control over a third lever of economic policy, the setting of tax rates. To its credit, the government seems to have ensured that this concession on corporation tax was not made lightly. It would have been simpler for Paschal Donohoe to go along with the 130 or so countries which had already signed up to the OECD twin track proposals to tax the very biggest companies where they make their sales, and to tax the top tier of industry at a rate of at least 15 per cent. The 12.5 per cent rate had acquired totemic status here as an element of economic policy, but Ireland is not alone in having to abandon its totems. The European Commission surely had to take a deep breath when it signalled it would permit our application for a lower rate for smaller companies under the new plan. A twin-track tax system runs counter to EU states aid principles – favouring companies falling within a particular category over others was the reason we had to abandon the old, reduced rates of corporation tax in the 1990s. The allegation that Ireland offered preferential treatments is the rationale behind Margarethe Vestager’s pursuit of the Apple “tax as state aid” case. The commission should now do the decent thing and drop the appeal. The acceptance of the headline points in the OECD plan is one matter; how they are to be implemented is quite another. The European Commission will transpose key elements of the agreed position at OECD level into a directive for adoption by the EU member countries. Other aspects will be achieved through international treaties. That is a lot of ground to cover. Ireland’s active participation in these negotiations will be crucial, but Ireland will not be the only country with concerns. Estonia, another EU member, only signed up this week too. None of the changes announced on Thursday will have an impact on exchequer receipts any time soon. By pushing the corporation tax crisis out of the way for now, Tuesday’s budget can be formulated along more traditional lines. Though the shadow of the pandemic still looms across society and the economy, don't expect too much radical thinking. Rather than addressing the fundamental question of whether people are paid enough in this country, expect to see some tinkering with the tax bands. Rather than seeing pension funding being put on a model which reflects the nation's demographics, expect to see further tinkering with retirement ages and the benefits package. Ireland doesn't do alarms or surprises on Budget Day. With the prospect of a two-tier tax system for companies, the Reynolds equilibrium is being fully restored. Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland

Originally posted on Business Post 20 June 2021. Given Ireland’s pandemic-related national debt, significant income tax cuts in the near future seem unlikely, but moving abroad to work remotely will not always result in savings either. As if it wasn't enough to have ongoing upheaval over corporation tax, events are now conspiring to push the income tax burden into the spotlight. Tánaiste Leo Varadkar has been warning that Ireland's personal tax rates are a major disincentive for attracting mobile workers. Highly paid workers, he believes, could avail of new remote working possibilities to move overseas. Any government minister should be wary of losing high-paid executives from this economy. Broadly speaking, Ireland operates the 80/20 rule when it comes to tax receipts from individuals – roughly 80 per cent of income tax is paid by the top 20 per cent of earners. In common with some other countries, Ireland has tax measures for foreign executives coming in on assignment. A special assignee relief programme, or SARP, allows people coming into this country to have part of their income ignored for tax purposes, provided certain terms and conditions are met. Numbers in the public domain suggest that just under 600 jobs were eligible for SARP in 2018. Given that there were some 2.7 million employees in the country before the pandemic hit in early 2020, SARP doesn’t appear to be making a huge difference either to overall employment, or to the overall tax take. Whatever about coming in, what about people who might leave the country because of the increased acceptability of remote working? Every other day, companies are announcing policies to permit their workers to work remotely from their homes for a proportion of the working week or working month. It's not clear, however, that this will translate to a mass exodus of largely white-collar, higher-paid workers from the jurisdiction. Except for company directors, who are always caught by the Irish tax system irrespective of where they live, taxing rights are usually determined by the employee’s place of residence rather than their place of employment. A worker in Mullingar who emigrates to Marseille, while still working remotely for their Westmeath employer, will be subject to French income tax and not Irish income tax on the earnings. The position of social welfare contributions (PRSI) and the corresponding entitlements is not as clear cut as that of income tax and may differ from country to country. The position also gets tricky if the work involves travel to meet clients, customers or suppliers. Tax-free reimbursement of travel expenses in Ireland is only permissible where the travel is from the normal place of work, which can become problematic for remote workers, even within the jurisdiction. Moving abroad will not always achieve tax savings. An OECD study of the income tax and social security paid by single workers on the average wage in 2020 shows that the tax take in Ireland is more or less in the middle ground by international standards. A person moving from Ireland to Germany or Belgium or Austria will have a lot less after-tax income to spend than if they had stayed put. The difference is mainly due to social security contributions. That person might fare better by moving to Australia or Britain or Canada, but only marginally so. Higher-paid workers may do better than their counterparts on average pay, but few territories offer workers a tax crock of gold. Any telecommuting move, of course, depends on a willing employer. A recently published study from the University of Chicago, analysing personnel and analytics data on professionals in the IT industry, found evidence that while the total hours worked by people working from home did increase, the average output did not significantly change. Not only that, time spent on coordination activities and meetings increased. In short, there seems to have been more management, but less productivity. It is unlikely that company employment and benefits policies will require significant adjustments if a person is to work three days from the house and two days from the office. However, if the person wants to move to another jurisdiction entirely, the chore of administering that employee’s insurance, terms and conditions becomes far more onerous and perhaps without much commercial benefit to show for it. There undoubtedly will be even more studies on the benefits or otherwise of telecommuting, but the University of Chicago findings will resonate with many people who have been involved in telecommuting since the start of the pandemic lockdowns. Part-time telecommuting opportunities may become a part of an employee benefit package, but it doesn't necessarily follow that those opportunities will routinely extend to permitting employees to work offshore. The pandemic has resulted in higher national debt and a bigger state apparatus to pay for. The pressure on taxes generally, and on social security contributions particularly, will increase if government finances are to recover. If corporation tax receipts are indeed under threat – though I suspect that the €2 billion plus estimates may be overstated – it will be difficult on purely budgetary grounds to make a strong case for income tax cuts as well. The threat of income tax loss from offshore working may also, I suspect, be overstated. While the grass may be greener, the tax benefits of offshore working are not black and white. Originally posted on Business Post 13 June 2021.   Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland

  Originally posted on Business Post 13 June 2021. Corporation tax might be dominating the headlines now, but environmental matters are of more long-term importance to international finance. Ideas for what constitutes sustainable behaviour change over time too. Over a decade ago, motor tax on diesel cars was reduced here to reflect lower greenhouse gas emissions From the headlines you could be forgiven for thinking that the G7 finance ministers discussed nothing but multinational corporation tax last week. Accounting standards rarely deserve such coverage, but the G7 statements about how businesses should account for their environmental behaviour will have repercussions long after the tumult over tax has subsided. The fundamental issue considered by the G7 finance ministers is that there is no universally accepted standard to measure claims by a business that it is conducting itself in a sustainable way. Misleading impressions are getting created. When it comes to food, for example, there is much talk about the environmental impact of shipping produce from far afield. Yet, as the chief executive of Bord Bia pointed out last week, transport accounts for only about 3 per cent of the carbon footprint of Irish produce. This figure is undoubtedly valid, but without agreed standards, her counterpart in another country may be doing the same calculation a different way and getting a different result. Ideas for what constitutes sustainable behaviour change over time too. Over a decade ago, motor tax on diesel cars was reduced here to reflect lower greenhouse gas emissions. Now there is a pushback from some quarters on the role of diesel cars on the grounds of high particulate emission. If all this confusion makes sustainable consumption choices difficult for the consumer, the problems are even greater for fund managers looking to make planet-friendly returns on behalf of the individuals, unit trusts and pension funds for whom they act. These investment choices are really what prompts the G7 concerns over the lack of generally recognised accounting standards. The idea of obliging companies to report on their sustainability agenda activity is not new. Since 2014, an EU directive on non-financial reporting has required large businesses to report not only on their financial results, but also on things like their approach to human rights, steps to take against corruption and their promotion of diversity in the workforce. It is estimated that perhaps 20,000 companies across Europe have been including this material in their published reports and accounts, some of whom volunteer to do so. The system is not without its drawbacks. It is only a legal requirement for the very largest businesses and it allows companies to choose whatever reporting standards they feel appropriate. This makes it difficult to form objective comparisons between companies. Nevertheless, the directive has promoted the key idea that sustainability reporting needs to be seen in two ways. First it has to show how sustainable conduct contributed to the value of the business – the euros on the balance sheet. Then it has to show what impact the company’s performance has on the broader environment. This idea is known as “double materiality” in the jargon. Persisting with the notion of double materiality will be crucial to any fair measurement of a business in terms of its environmental impact. There are already at least five voluntary consortiums involved in devising reporting standards and the EU now wants to establish yet another standard for itself. The G7, however, seem to be saying that the work should be given to the International Financial Reporting Standards (IFRS) Foundation, the organisation which sets the existing accounting standards to calculate profits, losses and balance sheet values. That approach seems logical, but it is also problematic. The IFRS Foundation will have to develop expertise in sustainability matters. It took well over a decade to devise the current financial reporting regime, but that kind of timeframe surely cannot be repeated if proper sustainability reporting is to be part of a meaningful response to the climate change crisis. These initiatives will affect more than just large multinationals. To be credible, larger entities will have to be able to show that their supply chain also operates with good sustainability credentials. That in turn means that smaller enterprises will have to develop similar credentials to secure their position in supply chains, even if they are exempt from formal reporting themselves. All this will come at a cost. Currently, the relatively modest requirements of the EU non-financial reporting directive drive average costs per company of some €150,000 a year. While such costs would be only a tiny fraction of the total operating costs of a large manufacturer or insurer, they are certain to become proportionately higher as the reporting requirement increases. In addition, there will be training costs for staff, and new systems to be implemented. It's one thing to meter the number of items processed on a production line, but quite another to meter, for instance, the energy consumption per item. The piece missing from the G7 approach is that it is all very well for them to mandate more regulatory change cross their own industries in their own territories, but climate change is a global problem. Regulatory compliance is not always a top priority in every country across the world. The current tax proposals have teeth because the US is threatening to discriminate against countries that don’t apply the proposed 15 per cent minimum rate. There will have to be similar sanctions for countries where their major industries do not have to account for what they are doing to the planet.   Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland

  Originally posted on Business Post 6 June 2021. Vat is to all intents and purposes invisible, although for many of us it eats into our disposable income to a much greater extent even than income tax.  On a day when they announced business supports to the value of hundreds of millions of euro, it must have been profoundly irritating for government ministers to see the relatively minor increases in local property tax grab the lion’s share of the headlines. The employer wage subsidy scheme alone has cost the state almost €4 billion to date, and is now being extended to the end of this year. In comparison, LPT has never raised more than around €500 million a year and, even with the projected changes, is unlikely to raise significantly more than that in the future. Yet it is the LPT change that gets the attention. Another tax hike announced last week isn’t getting nearly the same coverage. The Revenue Commissioners have announced that, with effect from July 1 next, they will apply the full rigours of the EU Vat regime to online purchases from non-EU countries. Unlike the revamp of LPT, the change has been met with a national shrug of the shoulders. Like customs duties, excise and carbon taxes, Vat is to all intents and purposes invisible, although for many of us it eats into our disposable income to a much greater extent even than income tax. It adds to the cost of our purchases as consumers, and there is no way to avoid or circumvent it. A Vat rate of 23 per cent applies to many of the goods which make life more enjoyable – cars, most clothes, cosmetics, electronic gadgets of all sorts and white goods. Any consumer buying these types of goods online from outside the EU is not charged Vat if the individual item costs less than €22. From July 1, that practice will cease including for some items which attract lower Vat rates. This may not seem like a big change in the overall scheme of things because the €22 threshold is fairly low. Nevertheless, removing the exemption reinforces the notion that you're always better off dealing with an EU business. Any possible tax saving by shopping online further afield is removed, but the bonus of better regulation and consumer protection when dealing with an EU based supplier remains. Aside from reducing paperwork, it makes little sense to have any form of preference for non-EU suppliers over domestic or EU suppliers, particularly as we exit from the pandemic. Irish business needs every competitive advantage it can secure. Will there be any pushback to this change? Given the increasingly febrile nature of the relationship between Britain and the rest of the EU, this move could well be seen as another gesture by the EU against a post-Brexit Britain by applying Vat charges to Irish consumers buying from British websites. Unfortunately, a fundamental dishonesty, similar to that seen in the 2016 Brexit campaign, is creeping back into the post-Brexit discourse. Edwin Poots, the new DUP leader, has already claimed that the EU is seeking to punish Britain in its application of the Northern Ireland protocol. That view is overly simplistic because it reflects only the commercial disruption created but not the commercial advantages conferred by the protocol. The EU’s ambassador to Britain last week retorted that Brexit, not the protocol, created the problem but that too is overly simplistic. Having managed to control the Brexit negotiation process for so long, the EU allowed itself to be bounced into enforcing impractical arrangements on Christmas Eve last year. The single market would not have been particularly compromised by allowing a further period of trial on new controls and procedures on imports and exports between Britain and the North beyond the Brexit guillotine date of January 1 last. The irony is that this Vat change doesn’t change the treatment of consumer purchases from the North because the North was part of, and remains part of, the EU Vat system for goods. Nor is Britain being singled out by the change, because it applies to purchases from any non-EU country. This is what you would expect, as the EU policy was devised when Britain was still at the table in Brussels. Both the Vat changes and the LPT changes announced last week underline that when it comes to taxes we generally respond primarily by reference to what we last experienced. Consumer reaction to a Vat change is usually a shrug of the shoulders, because the prices of consumer items go up and down all the time and consumers will be indifferent to the Brexit implications. Similarly, our reaction to the LPT change is being informed by the lower amount, or the zero amount, we paid last year. It doesn’t seem to matter that the LPT system as it currently operates works from an out-of-date property register, nor that some measures to raise taxes are inevitable because of the costs of extending the pandemic supports to citizens and businesses. We shouldn’t be surprised if the government is frustrated by the response to the Economic Recovery Plan. Taxation is always a stone in the political shoe. Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland

  Originally posted on Business Post 30 May 2021. There are important tax implications for employers as they prepare for the winding-down of the pandemic supports.   ‘The caveats associated with the withdrawal of government pandemic supports should not diminish the air of excitement about the prospect of the return to normal business.’ Almost every sector of the economy has benefited from a tax system which, more than a year ago, was thrown into reverse to distribute financial support during the pandemic closures. While there is much talk about the “new normal”, elements of the old normal are going to return. The Revenue Commissioners will soon cease adhering to the belief that it is better to give than to receive. There are of course many issues that businesses which are reopening have to deal with – stocking, premises, staffing, health and safety, debtors, creditors and banking arrangements. As well as these, there are consequences as the government pandemic supports come to an end. Pandemic supports have created three categories to think about. Employees who had to be laid off entirely were more than likely receiving Pandemic Unemployment Payments (PUP) of up to €350 a week. It is up to the employee to notify the Department of Social Protection that they have returned to the workforce. Employers need to be aware that the employee’s tax credits could have been restricted earlier in the year to account for income tax due on the PUP, and the employee might not get into their hand as much as they expected after PAYE. Employees who were on the Temporary Wage Subsidy Scheme (TWSS), which was the first wage subsidy from April of last year, may also have less after-tax income than they expect. This is because of the way the TWSS operated – not all the tax due was gathered through payroll. Workers have an opportunity to spread whatever back taxes from 2020 are due out over the next four years. There is also an option for an employer, should they wish, to settle their employees’ tax liability without further tax consequences either for themselves or the employee. This option runs out in September 2021. In the third category, employees who are on the Employment Wage Subsidy Scheme (EWSS) will not have a back tax issue. EWSS replaced the TWSS and has operated since last September. The scheme allows employers and new firms where turnover has fallen by 30 per cent to get a flat-rate subsidy per week based on the number of qualifying employees on the payroll, including seasonal staff and new employees. Eligibility for the EWSS may continue for the next few weeks even though a business is reopening, provided the reduced turnover criterion for the business remains valid. There are signals that, for some sectors at least, the EWSS could be extended beyond the June 30, 2021 deadline. If the experience in Britain, which is reopening a few weeks ahead of us, is anything to go by, many of the businesses commencing or extending trading again will experience a surge in demand, and a parallel need to enhance conditions or provide more flexible arrangements to attract or retain staff. The tax system remains notoriously inflexible when it comes to staff arrangements. It is almost impossible to broker arrangements whereby current or former employees can be treated as self-employed contractors for part or all of the time they work. It is possible to provide equipment to staff if they can work from home, but the reimbursement of working from home expenses without operating PAYE is limited to €3.20 per day. The consequences of getting employment status or expenses reimbursement wrong almost always land on the doorstep of the employer. One of the better pandemic relief measures for businesses was the strategy of allowing them not to pay over Vat, PAYE and direct taxes as they fell due, but defer them into a “debt warehouse”. Businesses which were affected by the first lockdown last year and which entered the debt warehousing scheme will find that interest will start to be charged on the unpaid tax at a rate of 3 per cent from September 1 next. There is room in the law as currently drafted to extend that September 2021 deadline to December 2022, which would be a great help. For now, if that tax is owing, businesses should budget for interest charges from September next. There is a particular wrinkle on tax debt warehousing for proprietary directors. Even though the PAYE on the income of proprietary directors may have been warehoused by the company, the director will not receive credit for warehoused PAYE on their own tax returns and will have to make a separate application for tax debt warehousing in their personal capacity. The Covid Restrictions Support Scheme (CRSS) was offered to businesses which had to prohibit or restrict customers from entering the business premises. CRSS is worthwhile, with a maximum weekly payment of up to €5,000. There is an arrangement called the restart week, which means that a business can claim double “restart week” payments for a period of two weeks on reopening. While CRSS does not need to be refunded directly, CRSS claims can add to tax liabilities in future years. There was also a waiver of commercial rates for businesses which were forced to close over the lockdown. That waiver expires at the end of June. The caveats associated with the withdrawal of government pandemic supports should not diminish the air of excitement about the prospect of the return to normal business. Last Friday’s announcements concerning the hospitality, travel and events sectors signal what is permissible, even though they are not a guarantee of what is possible. In the rush to get back to normal, it is worth remembering that the state is as anxious for businesses to reopen as the businesses themselves are. The pandemic supports can’t be paid for ever. Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland

  Originally posted on Business Post 23 May 2021. The Common Consolidated Corporate Tax Base is getting a new title— Befit. But a lack of real change suggests a naïveté and mission creep on the part of the European Commission There can only be two motives for tax. The first and most obvious is fiscal, the second is purely political The word “fair” was on almost every page of the short European Commission communication to its political masters last week. Modestly titled Business Taxation for the 21st Century, it sets out the Commission’s current policy on company tax issues. Unlike regulations or directives, which have legal and binding effect, a communication ranks fairly low in the hierarchy of EU pronouncements. But it is rash to overlook them, because they often serve as harbingers of future mischief coming down the tracks from Brussels. There can be really only two motives for having a tax policy. The first and most obvious is fiscal – the necessity to raise taxes to pay for government and its services. The other motive is purely political. Such tax policies are intended to drive behaviours, or at least to signal official concerns at emerging behaviours in an economy. Last week’s imposition of a 10 per cent stamp duty rate on houses purchased by investment funds is a good example. The new levy won't raise a lot of additional money for the exchequer. It is noticeable that the additional amount that might be collected has been largely absent in the debates. The EU itself will have a pressing need for additional taxes in the coming years as the costs of the pandemic response programmes, funded by Brussels, come home to roost. At the moment, EU costs are mainly met by direct national contributions along with elements of customs and Vat, but that is likely to change. While ideas on how to do this are touched upon in the document, EU funding is not its main focus. Rather, the emphasis is on ensuring that member countries play fair with their business taxes. The political motive for raising taxes is sometimes used to cloak a more unpalatable fiscal motive. This is true of recent US tax announcements for their multinationals. It's appealing to American voters to promise to raise taxes to ensure companies pay a fair share, but the real drivers are the multitrillion-dollar investment and recovery programmes planned by the Biden administration. It's hard to know if the Commission document is genuinely about using taxation as a lever for economic reform, or merely about taking in more money. The question might be easier to answer if there was any new thinking evident in the Commission’s proposals. In fact there is not. It notes that it is following the OECD agenda on corporate tax reform, but that has long been the case. The ideas for a revised approach to calculating corporate profitability across the 27 member countries are not original either. A project to do that called the Common Consolidated Corporate Tax Base has existed for more than 20 years. Now it will have a catchier title – Befit (Business in Europe: Framework for Income Taxation). A name-change doesn't necessarily make something work better, however. This name-change is illustrative of a curious air of naïveté about the whole process. The Commission’s thinking feels like a textbook economic exercise which doesn't recognise either commercial realities or the different needs of its member countries. It may well have a point when it says it wants to migrate the corporate tax system to favour equity funding rather than loan funding, but it is the market that has prioritised loan funding over equity funding, not the tax system. The emphasis on formulaic approaches to calculating the distribution of corporate profits across the single market is not realistic, given the disparity of economic requirements across the European Union. For instance, the economy of Malta is radically different to the economy of Germany. How can a single apportionment formula work across such differences and offer a fair result? As the Commission points out, such apportionment methods are used in the US to help determine taxability between states, but the US is a country. It is not an economic bloc. When it comes to taxation policy, the Commission appears to be looking in the wrong direction and succumbing to mission creep. It should be focusing on what it can control rather than what it clearly wants to control. Both customs policy and Vat policy are entirely within the control of the EU institutions. Europe's external trade policy is controlled by customs and Vat. Trade policy is at least as important as an internal policy on company taxation, yet external trade does not feature in a communication purportedly about business taxation for the 21st century. Maybe external trade does not fit in with the Commission's vision of what needs to be fair. The communication bemoans that only 7 per cent of taxes collected in the EU come through corporation tax. It’s a complaint that rings hollow for a country like ours, where the corporation tax contribution to the total tax take is closer to 20 per cent, with a tax regime that underpins our employment and industrial strategy. Maybe this too is unfair in the Commission’s eyes? Beware of anyone who promotes fair taxation. Ultimately, it might be you they are after.   Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland

  Originally posted on Business Post 16 May 2021. The wholesale purchase of estates is a serious problem, but there are many reasons for the high cost of homes, and the most important is lack of supply Beware of name-calling. Pension funds, clearly, are good; so-called cuckoo and vulture funds, clearly, are bad. However, pension funds, vulture funds and cuckoo funds are all versions of the same thing. Large investments call for the large-scale pooling of resources, or otherwise the investments could not happen. That can be done by the state, or by the private sector and one way for the private sector to do it is to form a company. The company raises money through issuing shares, corporation tax is paid on the profits and whatever is left gets taxed a second time when dividends are paid to the shareholders. Another way is to create an investment fund where the income from the investments gets taxed only once. That is when the returns are paid out to the unit holders of the fund. This is undoubtedly a big benefit to the unit holders. Yet if property investment funds did not have this kind of tax arrangement, it is likely there would be less capital in the Irish property market to build houses, just as if pension funds did not have such tax arrangements, putting aside money for retirement would be even more expensive than it is now. This is not to suggest that the wholesale purchase of housing estates, as highlighted by this newspaper, isn’t a serious social and political problem. An investment fund, by definition, will have far more purchasing power than any individual first-time buyer. The purchasing power of Irish Real Estate Funds (Irefs) and Real Estate Investment Trusts (Reits) was most evident in the commercial property sector up until relatively recently, but that has changed. Foreign investors in the Irish property market who use investment funds are more likely to pay tax in their home country rather than here, which is also a legitimate cause of unease. Nevertheless, the cost of housing is a result of many factors, the most important being supply. The behaviour of investment funds in the Irish residential property market is not purely because of tax incentives. It is because the Irish residential property market is currently a solid investment opportunity. Not only is it a good bet now, but it is also likely to remain a good bet over a five- to ten-year horizon because it will take time for supply to ramp up. If tax policy has not created the current problems, it is unlikely to fix them either. Successive Irish governments have aggressively used tax policies in attempts to manage the residential property market since the early 1980s. That we still have supply problems shows how futile these attempts have been. We started in the 1980s with capital reliefs for investment in residential property. The supply improved, but the quality arguably did not. The availability of cheaper money in the mid-1990s resulted in a rapid rise in property values, leading to the then notorious Bacon report which called for increases in stamp duty and reductions in tax reliefs. After all that, we still couldn’t avoid a property crash in 2008, but now changes to the property tax regime are on the government agenda yet again. Based on the experience of the last 40 years, tax measures on their own will be ineffective in resolving the current crisis. Over the decades, the costs of construction have gone up for a myriad reasons. Construction standards are far higher than they once were and having planning permission is no longer a reliable signal that construction can commence. Additional taxes, either on property purchases or on rental property returns, may well swell government coffers in the short term but they won’t do anything to bolster supply. It is worrying to hear opposition parties call for tax increases and restrictions on the activities of investment funds with apparently little thought for anything other than the political optics of the situation. A primary reason for the introduction of the Reit was to attract new sources of non-bank financing to the Irish property market. If that was the case at the time of its introduction, in 2013, it is even more the case now in the context of the withdrawal of Ulster Bank and KBC from the Irish market. Any tax policy changes should be aimed at promoting supply by reducing development costs rather than punishing investment, whether those investments are made by investment funds or, for that matter, anyone else. A tax payment holiday for developer PAYE and Vat costs could be offered until a housing development is fully completed and sold. There might be merit in allowing enhanced tax deductions against the cost of training workers in the construction industry or for providing safety equipment. An upfront tax deduction for the capital cost of the heavy plant and machinery required in the industry, as operated in the 1980s, could also be reintroduced. Such tax changes can only help, but not completely solve, the dilemma of providing affordable housing. The ultimate answer lies in either directly providing additional state funding for property development, or the state facilitating its supply; one such model is the government’s Home Building Finance lending facility. It does not lie in name-calling investors, nor in short-term tax hikes to quieten political opponents. Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland

  Originally posted on Business Post 2 May 2021. We can’t afford to be fatalistic as the OECD negotiations unfold. There are plenty of reasons to hope we won’t end up €2 billion out of pocket. Last week, writing in this newspaper, the Minister for Finance noted, perhaps with some fatalism, that changes in the international tax environment might mean that the Irish corporation tax take could drop by as much as €2 billion a year. At this early stage in negotiations, fatalism may be inappropriate. Other competing jurisdictions may have higher rates, but they also have generous tax breaks. A low-tax rate jurisdiction is not the same as a low-tax jurisdiction. This fact is often overlooked by our international competitors – which is understandable – and by some of our domestic pundits – which is unforgivable. Neither coterie tends to notice either that the prevailing rate of corporation tax on investment returns from financial assets and property is 25 per cent, and the rate on capital gains is 33 per cent. In 2019, the application of these higher rates accounted for some €2.5 billion of total corporation tax receipts. While these facts reinforce the economic validity of the Irish approach, they cut little ice in the political debates with our international competitors. The minister’s comments were of course prompted by the renewed impetus given to OECD-sponsored discussions on the future cross border tax regime by US president Joe Biden’s ‘Made in America’ tax plan. There were signals last week that the German, French and Canadian governments might not be hostile to the new US proposals, but that isn’t the only cloud on the horizon. The EU coronavirus recovery fund, valued at anything up to €800 billion, will have to be paid for in some shape or form. The European Commission has been toing and froing on some proposals for new taxes to be paid directly to the Brussels coffers. These are the extension of the carbon-trading scheme, a carbon border adjustment mechanism, and a digital tax. The common denominator is that if one or more of these were to gain any traction, they would land at the door of the corporate sector. Then there is the domestic problem of how to compensate for losing up to €2 billion in corporation tax receipts. The overall tax take in this country cannot be reduced, in the foreseeable future, mainly because of the additional pressures on our social welfare system, our health system and debt servicing costs. We cannot just keep borrowing. Put bluntly, if we collect less tax from companies, we have to collect more tax from individuals. The 20 per cent income tax rate would have to go to 23 per cent, or the USC rate for everyone would have to be pushed up to 9 per cent to find €2 billion. But maybe the problems can be avoided. The last time the deck of international tax rules was shuffled under an OECD project, Ireland was a winner. So far, the Irish position has been successfully defended against EU encroachment on tax sovereignty. A narrative was emerging that Ireland’s position on tax matters within the EU is more feeble with our traditional ally in such matters, Britain, having left the bloc. But what did Britain do as soon as it got out from under the apron strings of the EU, but raise its own corporate tax rate. Even without Britain, the Minister for Finance is not without his supporters and allies. Are we underestimating the importance of having the chair of the Eurogroup of Finance Ministers and the clout that can bring to international economic discussions? We may also be underestimating the possibility that an international pushback against the Biden proposals might develop despite the early signals. One potential alternative is to take the discussion of a special corporate regime for digital companies – the Googles, Amazons and Facebooks of the world – off the agenda and instead apply a special levy on the top 100 or so entities worldwide. If this was to happen, it might take some of the heat off the US multinationals as US-headquartered companies would almost uniquely have been the target of a digital tax regime calculated by reference to where products and services are sold. Still, the US is home to one third of the top 100 companies on the Fortune 500 list. So any such revised approach might also push the likes of Volkswagen of Germany and Total of France into a putative higher tax spotlight. This may not entirely suit the Germans or the French, not to mention the Chinese authorities whose companies make up one quarter of the top 100 companies on that list. Higher tax rates are a double-edged sword. Here in Europe we tend to think of the US as an investment supplier, but in fact the US is among the world’s biggest destinations for foreign direct investment. With its proposed higher rates, the US will be a much less inviting place for a foreign investor, unless a universally applied minimum effective tax rate across the world, which is another wing of the Biden proposals, takes hold. That is a very big ask for any country, even the US, to make. The US will surely not want to become less competitive as an investment destination. Similarly, for the sake of the 2.4 million people employed by companies in Ireland, we cannot become less competitive either. We cannot afford to lose any employment and we cannot forego tax revenue of the scale of €2 billion. Fatalism has no place as the corporation tax negotiations unfold. Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland