The Sunday Business Post, 22 September 2019, A veritable totem of the British dislike for the EU, it is relatively easy to get the attention of the European Courts in Luxembourg.    But the Court building itself is not an easy place to get into.  There are separate entrances for journalists, staff members, lawyers and, at the extreme end of the building amid the roadworks, there is a small structure designed to welcome visitors to the courtrooms.  Beyond that, on the day I attended the Apple State Aid case, a stand had been set up within the concourse to promote environmentally friendly travel.  With absolutely no hint of irony, the gift for everyone who expressed interest in the stand was an apple.   By contrast there was no shortage of irony within the court chamber itself.  The EU Commission’s case is that tax arrangements for Apple companies operating in Ireland through branches constituted State Aid, because not enough tax was charged.  This, they argue, has the same effect as if the Irish Government had selectively provided a grant to the company.   Under European jurisprudence, not only can the parties directly concerned plead their case, but others may also be permitted to join the proceedings and make their points formally to the five judge court.  On the side of the EU Commission, the Polish weighed in to point out how unfair competition via the tax system not only distorted the market but diluted the tax take in other EU member states.  Also on the side of the EU Commission, the European Free Trade Association (representing Iceland, Liechtenstein, Norway, and Switzerland) offered strong criticism of what they claimed was a la carte taxation by Ireland.    For Ireland, Luxembourg presented itself as an ally.  That country’s barrister pointed out to the court that the Commission was not challenging Ireland's tax laws but rather their method of application.  This is a perspective perhaps informed by Luxembourg’s own recent travails under State Aid and tax.  While the scale of the Commission’s challenge to Ireland, €13 billion plus interest, is unique, the type of challenge itself is not.   These interventions seemed almost like afterthoughts, made as they were following the presentation of the main contentions of the parties directly involved – the Commission, Ireland and the company itself.  At the risk of grossly oversimplifying the arguments which were made, the Irish position seems to be that the Commission doesn't understand tax law particularly as it applies to cross border trading arrangements.  The Commission's position seems to be that it can't understand how the Irish Revenue could apply the law as they did.  Apple's position seems to be that the Commission does not really understand their business model.    It is from these pleadings supported by voluminous amounts of material that the court must finalise their deliberations.  I gather that the judges have particular expertise in competition law rather than tax law.  They will need all their experience, not just because of the vast sums of money at issue in the case but also because many of the strands of the reasoning from all the parties, as teased out in the spoken depositions and their own questioning, ring true.    A fundamental aspect of the Irish argument that Revenue can neither raise nor forgive taxes, unless as provided under Irish law, is absolutely correct.  The strength of that argument is somewhat undermined by a scarcity of documents from the early 1990s when consideration was first being given to the proper amounts chargeable to Irish tax from the profits of branches of Apple companies.  The Court also heard from the Apple side that tax on the profits which gave rise to the €13 billion in tax allegedly uncollected by Ireland is now being collected by the US in stage payments in accordance with the rules of the US Tax Cuts and Jobs Act of 2017.  Nobody went so far as to suggest that as everything is being taxed correctly, there is really nothing to see here and we should all move on.    The outcome of the case is uncertain, and may even be subject to appeal, but nevertheless the process itself has unearthed some hard facts about the international environment in which we operate.  One is that the Commission will continue its crusade against what it sees as the use of tax policy as a proxy for State Aid.  The “tax lady” (as US President Trump dubbed her) Margrethe Vestager, will likely continue her role as Competition Commissioner in the new EU commission taking office in November.    The world has indeed moved on since the Commission’s issues with Irish tax and State Aid came to the fore some four years ago.  The case predates the US Tax Cuts and Jobs Act, Brexit, the successes of the OECD projects to curb multinational tax planning and the EU’s own Anti-Tax Avoidance Directive.    The impact of these changes are real, and one outcome has been a boost to the amount of Corporation Tax this country collects.  That might not have happened unless it was clear, particularly to outside investors, that if this country formulated a tax policy, it would stick with it and with the civil servants who implement it.  That is the other hard fact this case has unearthed.  It’s an approach which could well find Ireland in the courts again in the future.   Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland

The Sunday Business Post, 15 September 2019, What a wonderful time for any government to be framing a Budget! All the Finance Minister has to do next month is surf the zeitgeist created by the bow wave of Brexit.  After Minister Donohoe’s announcement earlier this week that the Irish Budget statement on October 8 will be framed in the context of a no deal Brexit, no one will expect very much, so few will be disappointed.  The national narrative has played down any sense that Brexit is a good thing for any of us, a perspective which is largely correct.  This is not just the result of political reportage.  Even advertising is reinforcing the tone – for some reason I find the warnings about the future shortcomings of a UK driving licence in this country particularly depressing.  We are stepping back to an age where having the wrong paperwork routinely undoes the endeavour of the unwitting, and when duty-free was a thing.  The way we talk about things now matters even more.  There is a significant difference between talking about an Irish backstop and a British backstop.  The phrase “Irish Backstop” is fundamentally inaccurate, as the backstop is a British requirement.  Yet the phrase “British backstop” hardly ever features and the emerging term “Northern Ireland backstop” is a lot more accurate in what it describes.  This type of verbal gymnastics is hardly surprising in a week that saw the Taoiseach deliver a reminder about appropriate behaviour to his British counterpart using a motif – the story of Hercules and Athena - from Greek mythology. Another kink in the language which featured again this week is the notion of a “tax expenditure”.  Just as “Irish backstop” mistakenly connotes some notion of a grudging concession to Ireland which we don’t deserve, “tax expenditure” is redolent of some kind of grudging and undeserved concession to taxpayers.  Last Sunday, Michael Brennan of this paper highlighted the cost to the Exchequer of not taxing the child allowance.  In 2017, the last year for which figures are available, the Revenue estimated this tax expenditure amounted to some €550 million.  Yet how is it a “tax expenditure” if the State forbears to tax a benefit to its children?  Isn’t this something the country should be doing anyway? There are of course worthy and precise economic descriptions of what constitutes a tax expenditure, but that doesn’t entitle it to an entry in the lexicon of legitimate public comment.  For most people the phrase itself is at best misleading, at worst oxymoronic.  Further, its meaning can be entirely subjective.  Most people paying LPT, for instance, would agree that the exemption for new houses constructed since 2013 is indeed a “tax expenditure”.  I suspect however that this would be disputed by anyone living in that category of new house.  Similarly, is it a “tax expenditure” not to apply higher rates of income tax to the better off, or not to apply universal social charge to people on lower incomes?  That very much depends on your political point of view.  If all the myriad ways of extracting tax from an unwitting populace that could be applied were captured on the Revenue list of tax exemptions, it would extend considerably further than the 140 or so items it does currently include. Given that we face a no deal Brexit Budget, Revenue are unlikely to be troubled too much having to recalculate upwards the cost of these 140 tax expenditures in 2020, or for that matter having to add more items to the tax expenditure list.  Anything that is done for people in the Budget on October 8 is more likely to feature on the spending side, supporting (we are told) sectors and regions most exposed to Brexit-related disruption.  Don’t be surprised however if there is also something to favour the elderly in our population who are understandably less tolerant of delays and deferrals.  The Finance Minister can make a Budget statement replete with quiet disappointments on October 8 secure in the knowledge that the political response and adverse commentary will be muted.  It seems that the Fianna Fáil confidence and supply arrangement will not be shaken on October 8.  He could well be forgiven if he doesn’t top up the war chest known as the Rainy Day fund.  It must be galling anyway for any Finance Minister to have to create reserves for future political rivals to spend.  Post Budget, Minister Donohoe may even be praised for his prudence; that elusive virtue most often practised by those who have no option to do otherwise.  The Minister could signal that further support will be forthcoming from the EU.  The new Commission might be willing for once to turn a blind eye to those troublesome state aid rules which have so plagued the Irish political and tax narrative in recent years.  There is no technical reason why any form of state aid to a particular sector in an EU Member Country can be blocked in a time of crisis.  The State Aid rules say that aid to promote the execution of an important project of common European interest or to remedy a serious disturbance in the economy of a Member State can be disregarded as State Aid.  Brexit probably qualifies as both.  Pulling the Budget figures together is never easy, yet I can't remember a time when it would be easier for any Finance Minister to push a disappointing Budget through the Dáil.  All the Minister has to do is surf the Brexit wave.  What indeed could go wrong? Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland

Sunday Business Post, 8 September 2019 While the politicians bluster and threaten, no one should be in any doubt that Whitehall is ramping up for no deal since the change in the Tory party leadership.  The Scottish Parliament is also making its own preparations.  Its document published on Monday last called Preparing for a no deal Brexit serves more to underline the impotence of the regional assemblies than to inform or reassure the public.  At least the Scots have a working parliament, unlike their Northern Irish Counterparts.   But really, why are warnings about food shortages featuring in any government statement from a Western economy in the 21st century?  Some months back, I signed up to an automated system of Brexit update emails from the British government.  These explain British preparations for a no deal Brexit on 31 October.  The other week, there were 46 such notices.  They continue to issue every few hours.  One of these emails in particular caught my eye.  The UK revenue authority HMRC is issuing the so-called EORI numbers – the registration required to import and export goods between EU and non-EU countries - automatically to the traders they think might need them.  The automatic issuing of such registrations requires a fairly heroic interpretation of the way the EU customs union rules work.  EORI numbers have value because they support import and export controls by bona fide businesses.  They are usually only issued on application from legitimate economic operators.  The British are doling these registrations out to businesses which account for VAT, on the reasonable assumption that many businesses which need them post Brexit haven’t yet bothered to apply.  Even if EU bureaucrats were to get grumpy about this kind of automatic registration, what would that matter to the UK after it has left the EU?  It would matter very little, except that the strategy appears to have backfired for the most mundane of reasons.  It’s now being reported that many of the British traders getting these registrations are more confused than enlightened by them.  In fact the UK’s Federation of Small Businesses has called on HMRC to clarify this particular Brexit guidance, because of concerns that the existing advice is misleading.  Against such a backdrop it is beyond me that any politician of any hue can claim that British business is ready for the consequences of a no-deal Brexit with just 50 days to go. From listening to MPs as advocates from all sides of the Brexit debate, it seems that they share a common ground in their capacity to ignore, or (more charitably) be unaware of the impact of Brexit on British industry. This duplicity is essential if they are to retain their seats; it’s a universal imperative for all elected representatives. It can only be for this reason that otherwise commercially aware MPs are only calculating the impact of their vote in parliament in the context of their own re-election prospects.  It is why Boris Johnson’s threat to de-select rebel Tory MPs carries such weight, because it would cost many of them their seats in the House of Commons.  It is why the Labour leadership could not be 100% confident of total compliance with the party whip on a vote to hold an early general election.  The voters in Labour held “vote-leave” constituencies might see an early general election as a repudiation of their votes in the Brexit referendum and seek revenge on their local MP. But would outcomes be different if this crippling anxiety to retain a seat in Parliament could be put on hold?  In the US for example, there is the concept of a lame duck Congress.  This is a period of a few weeks where Congress meets after elections have been held, but before the newly elected representatives take their seats and the losers stand down.  Contrary to what its name suggests, a lame duck Congress can sometimes provide the opportunity for bi-partisan cooperation which otherwise might not have been possible.  Such an opportunity in Westminster, when parliamentarians could act outside the constraint of immediate electoral considerations, might now be useful. Suspensions from the normal rules are being created in the UK, but to unusual effect.  Proroguing parliament extinguished any lingering prospect of bi-partisan cooperation between government and opposition, while uniting the opposition approach in a manner rarely seen at national level since the Lib-Lab pact of 1977.  The British civil service machinery usually goes into a form of lockdown in the weeks before an election or referendum known as “purdah”.   In essence purdah means that nothing official should come from civil servants and government departments which might prejudice the outcome of any election.  We are being told too that the purdah custom will be a victim of the turmoil and that civil service preparations will continue as normal through the chaos. Official preparations for the worst will therefore continue, with all their attendant costs.  For both Irish and UK businesses, the political machinations are a sideshow and should not be allowed deflect attention from their own preparations for the trading regime with the UK post Brexit.  Until such time as it is undeniably clear to all parties that leaving with a deal does not cost votes, there will be no help for business from the British political system.   Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland

Sunday Business Post, Sunday 1 September 2019 There are worrying signs that corporate America may have lost its mind. Last week some 180 of the captains of American industry in the American Business Roundtable, banded together to re-describe the relationships and accountabilities that executives have when running a company.  Up to now the Roundtable’s principles of corporate governance were based on the premise that corporations exist principally to serve their shareholders.  Now the purpose of a corporation should include delivering customer value, employee investment, fair dealings with suppliers and community support as well as creating long term value for shareholders. Business governance used to be so straightforward.  People came together in firms because it was more cost-effective to work in collaboration than work on their own.  Limited liability companies were formed so that firms could seek investment and generate resources above their own capacity while limiting the risk to the investors.  The framework of management accountabilities was derived from the simple notion that the prime duty of the management of a company was to mind its shareholders.  Even though academics for the past hundred years have been using all kinds of theories to describe how firms and companies should operate, businesses remained blindly innocent of the theories and just got on doing what they do best – generating shareholder value. Now all this is to be changed.  The approach being mooted by the American Business Roundtable proposes that management accountabilities extend to stakeholders.  In this brave new (the term they use is “modernised”) world, stakeholders include employees, customers, suppliers and also presumably relatives, neighbours and friends. Corporate social responsibility has been something of a buzzword in recent years.   What is now being proposed could be described as corporate social responsibility on steroids, and this new emphasis on the responsibilities towards stakeholders may trigger a need for new controls on corporate decision makers.  Up to now, the received thinking was that their prime responsibility was to create shareholder value.  The American Business Roundtable legitimises taking decisions on behalf of companies which are not necessarily in the interests of shareholders but rather reflect the personal views and preferences of the executives running the business. This can be problematic because too often corporate social responsibility can be used as cover for little more than funding the chief executive's pet project.  Maybe it just becomes a marketing strategy - buy stuff from us, because we’re good people.  This latter approach at least is in the shareholders’ interest. Not for the first time, the value of having a solid tax regime is way ahead of this new found “importance of stakeholders” posse.  Proof of tax compliance has been an obligation for a long time when the public sector is hiring private sector services or purchasing goods.  More recently it is becoming a de facto requirement for larger entities in the private sector.  Many businesses look to ensure that their suppliers and contractors are themselves tax compliant, and structure their commercial arrangements with them to ensure that the compliance continues.  Sundering the link between the duties of the management of the business and shareholders’ interests creates a tax conundrum.  If a stakeholder is receiving a benefit, financial or otherwise, from a company, that benefit might well be taxable.  The tax position of some situations is clear.  Stakeholders clearly include employees.  When an employee receives an additional benefit, such a benefit is immediately taxable.  Not only that, the cost of providing the benefit to an employee is usually deductible when calculating the company's own taxable profits.  But what happens if the benefit is to another type of stakeholder where the relationship is not as clear cut?  What happens when monies are paid into local charities, or contributed to a pool among businesses in the area towards an environmental initiative?  In such situations, the tax relationships and consequences are not clear cut.  The taxman doesn’t care whether a tax liability is generated by advanced corporate social responsibility or not.  The tax liability must still be paid.  It is notable that the American Business Roundtable omitted from their list of stakeholders a key stakeholder in every business in Western society - the local tax authority.  Maybe corporate America has not indeed lost its mind.  It's not that there isn't merit to this “mind the stakeholder” idea, but rather the Roundtable statement is articulating what already happens frequently within companies.  It is important that companies operate in a manner which reflect the needs of the environment and the concerns of society in which they operate.  Employees work better when their employers help them in their work and careers with appropriate training and benefits.  It is also good business practice to look after suppliers properly.  It is easier for environmentally friendly industry to raise and retain funding and increasingly, evidence of such environmentally sound strategies are sought by investors. Commercially, it’s often nice to be nice.  Do we need a high-powered Statement on the Purpose of a Corporation to tell us that?   Dr Brian Keegan is Director, Public Policy, at Chartered Accountants Ireland

Sunday Business Post, Sunday 25 August 2019 This week daft.ie issued its Quarterly Rental Price report highlighting yet again the shortage of rented residential accommodation stock on the Irish market.   In the context of the yields being quoted in the same report, that's an extraordinary finding.  You can apparently get a yield of up to 12.5% on a one-bedroom apartment in Dublin 17.  So in this age of negative interest rates and faltering stocks, why aren't people flooding into the residential market in search of a better return on their cash?  Why should it be the case that, if as the Irish Property Owners Association claims, landlords are leaving the market rather than entering?  A gross yield in the order of 12.5% per annum (that’s up to one eighth of the capital invested) is colossally attractive as an investment proposition.  However there is a world of difference between gross yields and net yields.  A world of difference in this case means that the net yield is possibly less than half the gross yield for a landlord paying tax at Irish marginal rates (including PRSI and USC) of 52%.   It is indeed true, as the Daft report clearly illustrates, that it can be cheaper to be paying off a mortgage than to be paying rent, and this holds good for many different types of property in many areas of the country.  This though is solely from the tenant’s perspective.  From the landlord's perspective, the cost of servicing the debt on a mortgaged property is paid out of after-tax rental income.  The Irish tax system conspires to ensure that the after-tax amount for a private investor in rented residential accommodation is as little as it possibly can be.  It's ironic that this is particularly true in a low interest environment.  Interest charges on property are one of the biggest tax breaks for landlords, to the extent that these were restricted in times gone by.  Now with interest rates so low, far more rental income falls within the charge to tax each year.  The interest paid used to largely extinguish the tax charge and thus the cash flow burden of renting out a property.  You always had to pay the bank and the Revenue, but rarely both in the early years of a mortgage.  Just like any other business, when renting property cash is king.  Too much of a negative cash flow will swamp any capital yield, no matter how attractive the yield might be.  Nor is it possible to offset the capital cost of a property against the rental income arising from it.  This wasn’t always the case.  Offsetting the capital costs against rental income to wipe out the tax bill was the essence of the so-called “section 23” properties which first surfaced in the 1980s.  That incentive made property investment from private individuals very lucrative, while at the same time dramatically increasing the supply.  But the country overdid it a bit and left the relief in place for too long.  This contributed to the property crash in 2008.  In fact we may now have gone to the other extreme when it comes to the rigours of the regime for taxing rents from residential property.  There are several restrictions on the tax deductibility of costs associated with property for rental.  There is only an annual deduction for one eighth of the cost when it comes to items like replacing appliances.  A new dishwasher in a rental property costing €400 provides an annual tax saving of less than €30 for the landlord.  All these restrictions apply because generally speaking, income from rented residential property is ring fenced from other income and allowances, and is subject to a special set of rules all of its own.  Residential property is not the only type of property that has its own set of rules, but they are tough in comparison with those which apply to other types of property.   Take, for example, the way farm buildings are treated for tax.  A farmer gets a tax write-off of 15% of the capital cost of a milking parlour or a hayshed, as well as full tax relief for interest paid on any borrowings to build it.  Even if a farm building is inherited, a lower rate of inheritance tax is charged, provided that the farming business continues on.   It is bizarre that it is more tax efficient in this country to provide housing for an animal than it is to provide housing for a child.  The Irish rented residential market, provided you have the capital in the first place, can be a solid investment proposal.   Otherwise, despite its high yields, it can be a money pit when a rental property is heavily indebted.  Tax is not the only reason for the shortage of supply of accommodation, but it is undoubtedly a factor.  Dr Brian Keegan is Director, Public Affairs at Chartered Accountants Ireland          

Sunday Business Post, Sunday, 18 August 2019 This week, the focus on Irish education is for all the right reasons.  A cohort of some 60,000 of our (mostly) young people will learn the outcome of their final secondary level exams.  Academic achievement is not the only element of the secondary school experience, and formal third level education is not suitable for everyone.  Yet many students will hope that their leaving cert results will get them the course they want, and where they want it, while many of their parents and guardians will hope that they can afford to fund it. Despite this, the early election promise from Minister for Education Joe McHugh this week that college fees would be frozen for five years (always providing he and his party colleagues would be re-elected to government) seems not to have landed well in all quarters.  The Irish Universities Association said higher education needs to “hear what Fine Gael will do to solve the long-accepted funding crisis”.  Whatever your view on whether or not such a crisis exists, there are tax breaks when it comes to funding education.  For most families, the most useful is a tax refund, theoretically up to €1,400 per course, but the way this relief operates is more complicated than it needs to be.   First of all, it is necessary to ensure that the course in question is eligible for the tax relief. The relief is only granted for eligible courses from eligible institutions.  Courses in colleges which are publicly funded are generally eligible; private colleges not so much.  A long established course from a long established third level institute should be eligible for tax relief but more recent offerings might not be.  This process needs to be made much simpler.  For courses which do qualify, a claim of 20% of the fee up to a maximum amount of €7,000 per course can be made.  But not all payments to colleges qualify for the 20% tax rebate. For instance, exam fees and registration and capitation fees don’t qualify.  Even if the payment does qualify, the tax relief often isn’t much help when parents have just one child in college.  That’s because in many cases the college fee being paid is about the same as the so-called “disregard amount”.  If you don’t pay more than the disregard amount each year, there will be no relief given. Where two or more people going to college are being supported, the relief becomes useful because the disregard amount is subtracted only once from the total college fees paid in the year.  Nor must the person being supported through college be a child, or even a relative.  On the downside, other expensive aspects of college - accommodation, subsistence, transport and academic materials - are not eligible for any tax relief.  It’s hard not to conclude that this tax relief was dreamt up by someone with a large family living on a bus route to a university. For businesses the cost of purchasing education for employees is often tax deductible in full. Any employer running up costs providing training for their employees should get a deduction from their own taxable income for the cost of the course, provided the training is in some way relevant to the work the employee is doing.  This is as it should be, as an element of the employer’s PRSI collected goes into a national training fund levy operated by the Department of Education and Skills.  This contribution has been progressively increased by 0.1 percentage points in recent years, and will likely increase again in 2020.  In effect, employers are being asked to make more of a direct contribution towards the development of the national skills set in the workforce.  At the National Economic Dialogue some months ago, the Minister for Finance pointed towards the increase in the PRSI element as part of a commitment to better funding the Higher Education sector.  It should at least facilitate the freezing of fees that his ministerial colleague in education is so keen on. You’d think that third level education would be above something as crassly political and economic as Brexit, but the sector will be severely affected.  It is commonplace for Irish students to go to college in the UK and vice versa, and this includes students from Northern Ireland coming down the M1 to study in Dublin.  The standard practice across the EU is that nationals from another EU member country aren’t charged higher college fees than the locals.  Similarly, the tax reliefs available for sending students to institutions in other EU member countries generally apply as they would if the student was attending an Irish college or university.  Post Brexit, the position for British students studying here, or Irish students studying in Northern Ireland or elsewhere remains unclear.  There had been indications that the status quo would be maintained for a period of some years at least, but the uncertainty over the manner of the British departure from the EU seems to have cast a large shadow of doubt over this. For this week at least though, let’s acknowledge the achievements of all the leaving cert students.    Dr Brian Keegan is Director, Public Affairs at Chartered Accountants Ireland          

Sunday Business Post, 11 August 2019 The single biggest contribution of Boris Johnson's premiership to date has been to hammer home the realisation that the British departure from the European Union has real consequences for everyone.  It's ironic that all of those who are in favour of the British backstop (notably the Irish government) and all those who want to see it removed (notably the British government) are in complete agreement on one aspect.  The backstop only exists because of a shared doubt that an agreement can be reached by the end of December 2020 to manage trade on the island of Ireland without a hard border.  Given that, in the heat of the blame game, there are four other certainties which are evaporating from the public debate.  We know they will happen for sure on a hard Brexit because they are independent of the bluster of the politicians. Brexit under the May government had become something of a phoney war.  There was plenty of speculation about the consequences of a break with the EU.  But not enough politicians recognised the full extent of the impact on ordinary people of Brexit – that there would be a widespread loss of job security and an inevitable loss of jobs.  That products would disappear from shelves.  That people, including UK citizens, would be unable to enter the UK as easily as before.  That there would be shifts in pricing and currency valuations because Brexit had not been priced in sufficiently by the markets.  Nobody is buying the “it’ll be alright on the night” story any more, not least the British Chancellor of the Exchequer who is throwing an additional £2bn or so at the problems.  Tax is the glue that holds the commercial arrangements at the heart of the European Union together.  We share a common VAT system (even if we don't share common VAT rates) because of a consensus that consumers of goods and services within the EU should contribute to their nation's coffers.  We share a common customs system to ensure preferential trading arrangements between all the countries in the European Union club, and also to apply penalties on goods from countries which do not belong to the club.  Less talked about is that the British will want to impose their own customs controls between the UK and the EU.  This is because one of the much promoted advantages of Brexit for the UK is the capacity to strike new trade deals independently from the EU.  The existence of secure trade borders is fundamental to the success of any trade deal between individual countries.  This week US secretary of state Mike Pompeo promised a US/UK free trade agreement as soon as possible after Brexit.  But the British will not be able to strike new trade deals with any country worth having a deal with, unless they can demonstrate that their own trade borders are secure and that tariff free goods won’t leak into or out of third countries.  No one should believe that, post Brexit, customs controls will be mandated solely by Brussels.  The British need them as well. So here is the first certainty.  Customs controls post Brexit are absolutely inevitable.  Where those controls are to be carried out is still a matter of conjecture, but they must take place somewhere. The second certainty of Brexit is that some sectors will be worse affected than others.  Customs tariffs hurt.  If you don't believe that, just ask President Trump, whose policy towards China (and earlier towards Canada and Mexico) is predicated on the imposition of tariffs on goods to secure economic superiority.  Obviously goods which attract the highest customs tariffs when exported outside of the European Union will be worst hit so sectors involved in food production are going to suffer most.  Judging by this week’s protests outside the marts, Irish beef farmers have already grasped this fact and they are right to be concerned. The third certainty is that the more regulated the industry, the better its chances post Brexit.  The EU treaties are all about permissions – permissions to sell goods and services anywhere within the EU provided they are appropriately regulated and licensed.  Irish businesses in highly regulated sectors such as financial services and pharmaceuticals will be in a better position post Brexit than their British competitors.  The last certainty to mention is that post Brexit, workers will pay more income tax.  When there are job losses, there are significant consequences for the Irish economy.  Income tax is the single most important element of the overall Irish tax take.  Every time an Irish worker loses his or her job, the cost to the Irish Exchequer, between tax foregone and additional welfare benefits to be paid, is in the order of €20,000 or more.  Our Central Bank is now predicting in excess of 100,000 job losses post Brexit.  Job losses on that scale are a social tragedy.  They will also cost the Exchequer €2 billion.  That shortfall will have to be made up somewhere. So forget about the blame game if only for a moment.  There will be customs controls on the island of Ireland because both the UK and the EU need them.  Though some sectors will benefit, there will be job losses.  Those who keep their jobs will pay more income tax.  Those are your certainties.  Now, go ahead and blame who you like. Dr Brian Keegan is Director, Public Affairs at Chartered Accountants Ireland

Sunday Business Post, 4 August 2019 Governments were bothered about plastics pollution long before David Attenborough started to talk about it.  In an attempt to stem their use, Ireland has had a plastic bags tax since 2002.  This has been very successful.  Official figures suggest a decrease in plastic bag usage from an estimated 328 bags per capita to an estimated 14 bags per capita, over a twelve year period.  In the course of that reduction, some quite bizarre behaviours have emerged.  I know of one lady who gets her daughter, who lives in Johannesburg, to send her South African jute bags so that she can proclaim her individuality in the supermarket while protecting the environment.  But the Irish plastic bags tax has a number of characteristics which are critical to the success of any tax which is designed to change behaviours.  The first of these characteristics is that the plastic bags tax is avoidable.  You can avoid paying the tax simply by bringing your own bag, or by being willing to stuff your pockets.  Avoidance is simple and it is encouraged.  Secondly, the tax charge is very visible.  Plastic bags which attract the tax are available as a purchase option at the till, and their price is clearly displayed.  It is added as a separate item to the shopping total and is shown as a separate item on receipts.  The third characteristic is perhaps the most surprising one.  The quantum of the tax need not be very high.  At 22c per bag the total cost of the plastic bags tax in any given supermarket shop (ere you to buy all the bags needed to pack the items) might be no more than 1% of the grocery spend.  Just because the tax is inconsequential to the taxpayer does not mean that it is insignificant.  When the plastic bags tax was first introduced, it was estimated that if it did not change consumer behaviour, it would take in approximately the same amount as Inheritance tax.  It never did bring in that much, nor anything like it.  The total yield currently is around €7 million per annum.   In fact, the true mark of a successful behavioural tax like the plastic bags tax is that it collects very little.  Taxes intended to bring about behavioural pattern change are not succeeding if they collect too much.  For that reason the UK authorities can claim early success for their sugar tax introduced last year.  It has raised less than half the forecast amount so far.  It is possible that the impact of sugar taxes is more attributable to changes in manufacturing and distribution, at least in these early stages, rather than to individual decisions regarding consumption.   Sugar taxes have not been universally successful.  The initial impact of the introduction of sugar tax in Mexico some years ago was very encouraging, but Mexicans seem to have reverted back to their old ways.  When sugar tax was introduced in South Africa last year it was met with howls of disapproval which completely eclipsed protests against the general increase in VAT rates which took place at the same time, even though the impact in purely financial terms of the sugar tax was far less.  This may suggest there is another characteristic of taxes which are intended to change behaviour.  They must resonate culturally with people if they are to continue to succeed.    What does this tell us about levying taxes on other pollutants?  Carbon taxes are a cause celebre at the moment, but they lack the key attribute of visibility which seems to be crucial to their success.  Furthermore, proposals to broaden carbon taxes may well become the casualties of a lack of cultural acceptance.   The backlash over the loss of jobs in recent weeks from the closure of electricity generating stations reliant on fossil fuels is a case in point.  It seems to me that the backlash was particularly acute because of the environmental causes attributed to the closures.  The workers were justifiably outraged, as it is unjust to impose immediate job cuts on environmental grounds alone without proposing alternative viable job options.  Lanesborough is being closed because of problems with its discharges into the river Shannon; Shannonbridge because it is not being permitted to burn peat indefinitely.  I’m all in favour of protecting the planet for our children and grandchildren, but their parents and grandparents must eat too.  If increases in carbon taxes are to go ahead in the next Budget (and all the signs are that they will) there will have to be a comprehensive information campaign about their virtues if they are not to follow the French precedent.  In that country the gilets jaunes put paid to Macron’s hikes to fuel taxes, admittedly after violent and sometimes tragic protests.  Behavioural taxes have a lot going for them.  They are visible and are not only readily avoidable but it is also socially acceptable to avoid them.  In fact these taxes are only successful if they take in very little money.  But they must resonate culturally with the taxpayer.  Beware of any new carbon taxes which don’t.   Dr Brian Keegan is Director of Public Affairs at Chartered Accountants Ireland

Sunday Business Post, 28 July 2019  It is a peculiarity of the European system that once a project is started within the Commission, it never seems to go away.  Once a file has been opened, it will still be batted around in the European Commission, various councils of ministers and the European Parliament long after everyone has lost interest.  One of the few occasions when a European project gets dropped is when a new Commission takes over.  The incoming Commission President sets out his or her stall and matters are taken from there. Following some frenetic political horse trading, the new commission president elect is Ursula von der Leyen who was formerly a minister within Angela Merkel's government.  She has published her agenda and political guidelines for the next European Commission which will run for a five-year term from November 2019 to 2024.  Within that agenda Brexit features just twice.  Once, in the well-publicised observation that if more time is required to conclude the Withdrawal Agreement with the UK, the new Commission President will support a further extension “if good reasons are provided”.  The second reference barely qualifies as a Brexit reference at all.  It cites the Brexit negotiation process as a good example of how to ensure that the European Parliament is appraised of all discussions conducted by the various commissioners on behalf of the EU.  The message could not be clearer.  It is time to move on and the Brexit process now merely has precedent value.  As far as the new Commission is concerned, the Brexit file is closed (at least for the present).  It was quite extraordinary how a dilemma which soaked up so much time and energies of the political establishments across Europe for the last three years could be quite so summarily dispatched. One file however which the new commission president does not propose to close is the one concerning the Common Consolidated Corporate Tax Base.  This project is now so old it could be given the keys to the house.  It was all about establishing a common set of rules for companies across Europe to calculate their taxable profits (which is a good idea) and then to divvy out the actual tax yield between the countries where the multinational group operated (which is a bad idea).  It’s a bad idea not least because multinationals don't operate as tidily compartmentalised entities operating solely within the confines of Europe.  I suspect that its inclusion in the incoming Commission’s political guidelines has caused some surprise because the sense around the European diplomatic corps was that the Common Consolidated Corporate Tax Base idea was dead.  It was being eclipsed by the OECD work on cross-border taxation, and particularly by the current work on the taxation of companies operating in the digital economy.  Its inclusion is all the more surprising because one of the countries which might lose most from a fully functioning EU company tax regime is Germany, which of course is where the new Commission President hails from.  Possibly its inclusion reflects the objectivity which is so essential for the Commission President's job? However it isn’t the only taxation priority for the new Commission, which apparently will major on the concept of fair taxation.  Fair taxation must be one of the most nebulous concepts in the entire lexicon of political economic management.  It means different things to different people and to different businesses and in different circumstances at different times.  In my experience the only characteristic of fair taxation which people agree on is that it involves the tax being paid by someone else, and preferably not by a voter.  In this too the new Commission President is being consistent, because her aspiration for the tax system solely concerns the taxation of companies.  She makes no reference whatsoever to the taxation of individuals, those same individuals who overwhelmingly pay the bulk of tax right across the European Union.  Does Von der Leyen consider that the income tax or VAT or inheritance tax systems are already uniformly fair?  For anyone already concerned at the continuing encroachment of European rules on taxation (which remains a national competence), there is much on the Commission’s political agenda to make them uneasy.  Von der Leyen proposes to make more use of the clauses in the EU Treaties that allow proposals on taxation to be adopted by co-decision and decided by qualified majority voting (rather than unanimity). Taking the agenda at face value, the approach of the new European commission to taxation will be virtually identical to that of the Juncker commission, only more so.  Because of the particular political circumstances involving Von der Leyen’s appointment, her agenda had to be many things to many people.  The political imperatives stifled the opportunity for imaginative approaches.  Even as things stood, she only managed to secure her position by the narrowest of margins in the European Parliament.  A bit more imagination might have been interesting, but thanks to Boris and Donald, times are surely already interesting enough.  If we are always better off dealing with the devil we know, this tax agenda is a devil the Irish are already well familiar with. Dr Brian Keegan is Director of Public Affairs with Chartered Accountants Ireland

The British and French governments are not known for always seeing eye to eye on matters of policy.  Yet developments last week suggest that they chime on one issue at least – how to extract more money out of these troublesome online businesses.  Technological advances are rightly hailed but, from the perspective of governments, such advances can also dilute tax revenues.  Tax rules devised when businesses made money primarily from digging stuff out of the ground and making things with it no longer work in a digital age. The first concerted attempt at international level to regularise the cross-border taxation of companies (developed by the OECD and known as BEPS) scored considerable success in eliminating the use of corporate tax havens.  It reduced the incidence of cross-border transactions designed first and foremost to reduce tax bills, and also ensured that a revenue authority in one country had a reasonably good idea of what their counterparts in other territories were having to tackle.  It failed however to come up with new methods of taxing the profitability of digital companies.  Even though work by the OECD (known as BEPS 2) is ongoing in devising new rules which most if not all modern economies might buy into, the process is taking just too long for some countries.  Hence the introduction by both the French and the British of new rules for taxing digital businesses – a Digital Services Tax in France passed by the French Senate earlier this month, and draft legislation for a Digital Services Tax for the UK which issued last week.  The new Franco-English style of taxing digital companies has similarities.  The first of these is that the emphasis is on where the customer is located, rather than where the company is located.  Secondly, rather than attempt to tax profitability, the tax is levied on sales.  In both of these respects, the French and British attempts are more like additional customs duties (which are levied on the gross value of the product) than like traditional corporation tax.  Another common feature is that these new digital taxes are elitist.  Both the French and the British offerings will apply only to the very largest of businesses with very specific types of business activity, mainly in connection with online advertising.  As a consequence, these taxes will only apply to a small and select group of companies.  It just so happens that most of these companies are American.  The French move has already irritated the Americans so much that the US Trade Representative is launching an investigation into whether or not such a tax constitutes an unfair trade practice. There is no such thing as an international tax.  However, there is such a thing as an international tax credit.  The treaties which exist between countries to foster international trade by eliminating double taxation recognise that the tax paid in one country can in some circumstances be credited against the tax due in another country.  The British digital services tax legislation specifically rules out this possibility.  The tax will be a UK charge exclusively, and unavailable for offset against any other claims to tax at home or abroad.  From a domestic political perspective therefore, it is hard to quibble with the thinking behind introducing such levies.  It involves taxing (mainly foreign) companies which don’t vote, partly at the expense of the exchequers of other countries.  That point is underlined by some reports which have suggested that only one French company, Criteo, will fall liable to the new French tax.    I do not expect to see widespread public sympathy for the multinational giants – the likes of Google, Amazon, Facebook and Apple – who are likely to be the most affected by these charges.  Then again, the additional tax yields will not be colossal.  The UK Treasury, for example, suggests that the UK digital services tax will yield in the order of £1.5bn over a four-year period.  That is not a small number but in the overall scheme of things the UK collects £650bn a year in tax anyway.  The new British and French rules though are bound to cause dismay among the other G20 member countries.  They are, by and large, supporting the OECD's attempts to come up with a common solution to taxing the digital economy, rather than allow a wide variety of national levies to emerge.  Remember that the corporation tax system for multinationals fell into disrepute in the first place largely because of a lack of international coordination over many decades.  Will all this make any difference to non G20 members like Ireland?  The Irish Revenue Commissioners calculated that digital taxes, as originally envisaged by the EU commission, could cost us up to €160 million a year.  At this stage that calculation is probably off the point.  The real impact of the taxation of digital companies is not their immediate impact on Exchequer returns, but rather the effect these new levies will have on where companies might decide to locate.  I'm not sure that this can be predicted with any certainty.  Where it may make a difference is in the pockets of consumers where tariffs on sales of any type often land.  A study carried out by Deloitte on the impact of the French digital tax suggests that 55% of the total tax burden will be borne by consumers, 40% by businesses that use digital platforms, and only 5% of the burden will be carried by the large internet companies targeted. That's the problem with tax that finance ministers sometimes choose to ignore.  Whatever type of levy gets charged on a company, it is difficult to predict where the burden will ultimately land.  At least we may now have the examples set by the common approach of the French and British to learn from. Dr Brian Keegan is Director of Public Affairs at Chartered Accountants Ireland

Sunday Business Post, 14 July 2019 Over half a million of us send income tax returns each year into the Revenue.  That's almost one quarter of all individual taxpayers, which is very high considering that most of us pay all of our income tax through the PAYE system.  Furthermore, of the half a million of us who do file the lengthy and complicated income tax Form 11 as it is known, well over 200,000 report self-employment income of €10,000 or less.  It is clear that earnings that are not taxed via PAYE should be declared by the earner in some way.  But the Form 11 process seems to involve a lot of effort to capture relatively small amounts.  Is an official anxiety to capture statistics becoming too prevalent? There are technical reasons why many people get caught in the Form 11 tax return net, mainly down to Revenue’s inherent suspicion of anything to do with companies.  Proprietary directors, that is, company directors with a shareholding, are obliged by default to file tax returns, even though they may have no additional liabilities.  Last year Revenue ran a survey looking specifically at those tax returns where the declared income was less than €10,000 over anything earned through PAYE.  That might include perhaps some part-time self-employment income or some rental income. It's clear from the results of the Revenue survey that a significant proportion of taxpayers might not have to have a legal obligation to send in a tax return at all, yet still they do. The Revenue survey was conducted at the back end of 2018 and was limited in scope to a sample of 6,000 taxpayers; a sample probably large enough to provide credible findings from creditable response rates without troubling too many taxpayers.  I’ve seen comparable taxpayer analysis carried out by other tax authorities and I think Revenue are better at it than most.  Studies of this type clearly have merit if the findings lead to some improvement in tax administration.  For instance the number of people filing income tax returns who do not actually have to do so should give Revenue some pause for thought, and should prompt better ways of taking people out of filing obligations, to the benefit of the taxpayer and the tax inspector alike.  There are other ways in which Revenue can use the information they have on hand to improve public administration, and there is a long standing association dating back some 70 years between Revenue and the Central Statistics Office.  But while such an approach might seem sensible, it often isn't a great idea.  The job of Revenue is to collect taxes, not statistics.  There must be a temptation to ask questions because you're interested in the answers, but the demands of information by Revenue from taxpayers should be prompted solely by the nature of the tax being collected.  Otherwise officials could become indifferent to the impact of additional compliance burdens on citizens. This year, employers became obliged to run new payroll systems to keep on the right side of Revenue's PAYE modernisation project.  PAYE modernisation provides real-time information on the comings and goings of employees and their wages they receive from their employer.  That's a valuable source of public policy information, particularly when the nation's finances are so reliant on the contributions of the PAYE sector.  However that kind of information comes at a real cost.  I would be concerned at any assumption that the cost impact of PAYE modernisation was minuscule because it was software-based, and employers already used payroll software.  This is nonsense.  At the very least, many employers had to upgrade and update their systems with no business benefit to themselves.  Some small employers had to start using payroll software for the first time.  Furthermore, when the PAYE legislation was being amended to provide for the new method of accounting for tax, there were cynical changes to the sanctions placed on employers were anything to go wrong, including the charging of grossed-up tax in more situations. If data from the tax system is to be used to inform public policy, there has to be payback for taxpayers.  If more data is being provided by Revenue to the CSO, there has to be a demonstrable reduction in the survey obligations levied on business by the CSO.  Helping reduce compliance costs has to be a priority, and there is not much evidence this is the case.   For instance the PAYE modernisation project promised greater flexibility for employees in managing their own tax affairs, but this flexibility did not emerge until five months after the new system commenced.  The real benefits of last year’s survey of income tax return filers will only be realised if it results in an initiative to remove filing obligations on people where they are not necessary.  Otherwise the results of survey will fall into the “nice to know” category, and the tax system will continue to grind along its merry way, increasingly asking questions.  Questions whose answers either no-one needs, or which merely feed into statistics.  Whichever the case. those answers do nothing to improve the fairness or accuracy of the tax take. Dr Brian Keegan is Director of Public Affairs at Chartered Accountants Ireland

Sunday Business Post, 7 July 2019 In Hong Kong there is a saying that if the ground is level, the land is new.  For many years the islanders have been recovering territory from the sea, so much so that the practice is now frowned upon for fear the port might be closed over too much. Hong Kong island itself is precipitously steep and, perhaps surprisingly, largely covered by forests.  Yet at the highest peak looking across to the bay, the tops of the skyscrapers below practically block the horizon and obscure the mighty port network which has contributed so much to Hong Kong's prosperity.  It is almost impossible to spend a day in Hong Kong without using a lift or an on-street escalator.  Last week's civil disturbances, though by no means unusual, are all the more striking taking place as they do in such a well ordered and managed, perhaps even regimented, environment.  Tear gas and riot police are utterly incongruous in such a place. But as one local told me the other day, the invisible hand of China has become more visible in recent years.  Since the withdrawal of the British in 1997, the unique Hong Kong identity has become increasingly fragile.  Even the tax return forms are now issued in Chinese rather than in English.  The new extradition legislation permitting more ready delivery of accused persons to mainland China, which has become the focus of the protests, is the last straw for many of Hong Kong’s younger citizens.  There is a long tradition of official obfuscation when it comes to the running of the territory.  One of the authors of Hong Kong's economic success was Sir John Cowperthwaite who was its Financial Secretary in the 1960s while it was still under British rule.  His policies were responsible, at least in part, for Irish people of a certain age (your correspondent included) thinking that everything plastic was made in Hong Kong.  Cowperthwaite insisted that economic data relating to Hong Kong should not be published, for fear that well-meaning but interfering businesses and officials alike would create havoc with interventionist initiatives.  The market, and common sense, would ultimately sort everything out.  His successors in governing the territory obviously think differently. When it comes to tax, and ultimately so much of government does, the Hong Kong authorities see the tax system as a lever to migrate an economy, whose fundamentals are currently reliant on import/export models, to a 21st century knowledge environment.  Lavish direct funding by government on business incubators, on the acquisition of know-how, and on university start-ups is being matched by luxuriant research and development tax credits.   There are no EU-style anti-State Aid rules in Hong Kong.  There, the tax authorities appear to see their role as being an out-office for industrial development.  It’s a stark contrast to the approach of European tax authorities who are more likely to nod politely and describe their role as policy takers rather than policy makers.  This Hong Kong approach has contributed to significant economic success.  More difficult to assess is the longer term economic impact of the handling of the relationship between China and Hong Kong, and the violence which has ensued as a consequence.  Will the tensions that the “one country two systems” approach in China have engendered result in longer term economic disruption?  There is no useful precedent on this side of the world to suggest the outcome.  Look at the relative economic successes of the UK in the past two years.  Was it despite or because of the political stagnation over Brexit, which resulted in little or no active management of the UK economy?  Look at the situation in Ireland where the combination of a minority government and a cabinet of ministers apparently disinterested in business matters still achieves embarrassingly large GDP growth.  Northern Ireland muddles through without Stormont and thus without political direction on its economy.  However, it’s not all about economic success.  There is another aspect to engagement by the private sector in economic decisions, and that is the democratic process.  In a democracy, civil society should have a say in government decisions, without having to resort to violent protest.  One senior business representative in Hong Kong told me that he could not understand why the protestors needed to be so aggressive.  At the same time he appreciated that the protestors could see neither hope nor a future under the present government. It may well be that the economic lesson from Hong Kong is that, like doctors, governments should above all else do no harm.  As Cowperthwaite did intentionally, and governments on these islands have done in recent times, sometimes it is best to leave well enough alone. Dr Brian Keegan is Director of Public Affairs at Chartered Accountants Ireland