Originally posted on Business Post 24 January 2021. Ever since January 1, various business groupings and representative associations both here and abroad have been queueing up to make complaints to their respective governments over the handling of the Brexit deal. Unfortunately, some of them are barking up the wrong tree. Disruption and curtailment to business opportunity and profitability have been a daily part of many working lives since the de-facto British membership of the EU customs union and single market ended on December 31. The haulage associations were in early, followed in quick succession by retail, financial and fishing interests looking for concessions or adjustments to the Trade and Cooperation agreement between Britain and the EU. Most recently, the arts industries in Britain have been complaining about the constraints on their rights to perform beyond the English Channel. The Trade and Cooperation agreement deals only with goods, not services. British qualifications and standards, particularly the equivalence required by financial services, are not automatically recognised any more within the EU. The Brexit referendum result was partly viewed as an expression of a desire to curtail immigration, and you cannot have cross-border services without allowing people to move. If anything, the EU line on services is hardening as evidenced by the European Commission’s strategy for the European economic and financial system launched last week. The problems for cross-border trade in goods do not derive from what the Trade and Cooperation agreement contains but, rather, from what is missing from the agreement, such as the removal of customs paperwork. Customs compliance is proving to be more challenging than many businesses, even those who had geared up for it, had expected. Agri-food imports and exports are worst affected, because agricultural projects and foodstuffs require additional sanitary checks as well as customs inspection. The sanitary checking and customs checking systems are not integrated, thereby duplicating the virtual paperwork and increasing the scope for error. Things will be much worse in the coming months because trade volumes were artificially depressed by pre-December 31 stockpiling, and also because Britain is not implementing the full rigours of its customs regime until next June. These problems cannot be lobbied away. Contributing to the chaos of the customs declarations are the so-called rules of origin. The Trade and Cooperation agreement does not comprehensively deal with goods assembled in Britain with a certain level of foreign components, nor does it deal with situations where Britain is merely a distribution hub for goods. Such goods are not automatically exempt from customs duties. The rules of origin effectively rule out Britain as an efficient distribution hub for supplies originating from within the EU and destined for markets in other EU countries. Short of Britain rejoining the EU customs union, no amount of lobbying is going to sort out this problem either. From the Brussels point of view, why should a British distributor be allowed to take a margin on EU produce going to EU markets? This is especially bad news for Ireland, because we are the island beyond the island beyond the English Channel. Irish trade is as much a victim of geography as it is a victim of trade rules. The Vat position is somewhat better. Like customs, Vat gets charged at borders if one of the countries involved is not a member of the single market. Both the British and Irish authorities have finessed their Vat rules – at, incidentally, a considerable cashflow cost to the Irish exchequer – so that Vat obligations don’t disrupt cross-border trade between businesses. Cross border trade direct to the consumer is another matter entirely. Because different Vat collection rules apply, some smaller EU traders may find that British customers are not worth the bother. The EU’s stated intention during the Brexit negotiations was to secure the single market and hence the interests of EU traders relative to the position of British traders. In this it has succeeded, but the success is not clear-cut. It was a failure of negotiation to allow the deal to be concluded on Christmas Eve, one week before it was to take effect and thus adding to the Brexit damage. That failure also sidelined the European Parliament in the treaty approval process. This lack of regard for a European democratic institution may well come back to haunt Ursula von der Leyen’s European Commission. Yet there is little to be gained now by looking for changes to the law, or by seeking to apportion political blame, or by trying to have the treaty overturned. Brexit did not apply new trading rules with Britain. It simply removed the decades-long exemptions from normal trading rules between countries. We are all having to change the way we trade with Britain, whether by learning and applying the customs rules, or by developing new supply chains and trading routes to get around the rules in the first place. The customs authorities also have to up their game. While not insurmountable, these are not mere teething problems as Tánaiste Leo Varadkar has claimed. The sooner we all make these changes, the better. Trade with Britain is not going to get any easier. Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland

  Originally posted on Business Post 17 January 2021. Last Friday, the office of the Revenue Commissioners made 2020 statements of account for several hundred thousand taxpayers available via its website. For many workers, this was not good news. Between March 26 and August 31 of last year, 664,500 employees had their wages subsidised under the temporary wage subsidy scheme (TWSS). The PAYE system normally takes whatever taxes are due out of pay packets as wages are paid. However, because of the way the temporary wage subsidy scheme worked, the PAYE system did not capture all of the tax due on subsidised wages. Further, because the collection of tax due on employer benefits was suspended, employees with company cars or subsidised health insurance will also owe tax for 2020. Another cohort, people who were laid off because of the national pandemic response and received the Pandemic Unemployment Payment (PUP), will also face income tax bills. At the height of the lockdown last year, as many as 600,000 people received the PUP. It’s an often overlooked reality that social welfare payments, with very few exceptions, are generally taxable. The PUP, paid at rates higher than the usual unemployment benefit, has left many more individuals with taxes owing for 2020. In short, several hundred thousand workers now owe back tax from last year. This is a paradox because in another document published on the Revenue website earlier this month, the Revenue Commissioners noted income tax receipts of €22.7 billion for 2020. That compares to an income tax result of €22.9 billion published a year ago reflecting the outcome from 2019. How has it happened that in a pandemic year, with businesses closed for extended periods and unemployment numbers surging, national income tax receipts were virtually unaffected yet some people still owe money? This is partly explained by an income tax policy pursued by successive governments irrespective of political hue. While the commitment to the 12.5 per cent corporation tax rate has been consistent, an equally consistent though less obvious policy has been to push more of the income tax burden onto higher earners. In 2020, over 80 per cent of the country’s total income tax and USC was paid by higher income earners, those earning more than €50,000 per annum. Only one in four of the taxpaying population are in this cohort according to the Tax Strategy Group which compiles the options for government in the run up to annual budgets. Figures produced by the Department of Social Protection and the Revenue suggest that it was mostly workers from traditionally lower wage – and thus lower income tax paying – sectors who claimed the PUP or benefitted from the TWSS. Hospitality along with wholesale and retail accounted for the majority of claimants and beneficiaries. While there may be greater demands on expertise and productivity, it appears that higher paying employment does not automatically carry with it a higher degree of risk to job security. This accounts for the strong national income tax receipts. Those who lost their jobs or whose income was subsidised through the temporary wage subsidy scheme – and more recently the employment wage subsidy scheme where tax problems do not arise – were those who were paying relatively low amounts of tax at the standard rate of 20 per cent. In very many cases, it is this same cohort who are now facing tax bills. And this outcome has several implications. Firstly, the government will have to explain that this is tax which is correctly due. That’s a hard ask because the bills will come as a surprise to many. Were the Revenue and the Department of Social Protection sufficiently forthright to the general public about the tax consequences of the subsidies and payments as the schemes were launched? In the vast majority of cases, the tax bills will be relatively small, in the order of hundreds rather than thousands of euro. But few things sting like a tax demand. Secondly, most of the workers affected will not be used to dealing with the Revenue directly, as their affairs are handled by their employers via payroll. Most will, and should, opt for the back tax to be collected on the drip over four years through the PAYE system. This lingering tail of back tax over the next four years will either dilute the benefit of future tax cuts, however unlikely, or accentuate the impact of future tax increases. Thirdly, some cases can only be successfully resolved by the worker filing a return of income, and a universal obligation to file income tax returns is now a real prospect for the future. Up to now the legal obligation to file a return has been largely confined to the self-employed and businesses. Additional bureaucracy may be a lasting legacy of the pandemic. The only saving grace is that the position of everyone, not just the direct beneficiaries of TWSS and PUP, would have been much worse if the subsidies and payments were not introduced. TWSS and PUP supported business activity while bolstering consumer spend. The tax problems they are causing are a by-product of how rapidly they were introduced. That, however, may be cold comfort to those seeing their tax statements of account this week. Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland

  Originally posted on Business Post 10 January 2021. Whether despite of or because of the pandemic, 2020 has seen radical changes in the way we expect the business world to behave. There were negative interest rates, but there were also negative oil prices. Contrary to all expectations, Irish property prices did not collapse. And amid the chaos, one particular class of asset, bitcoin, is worth four and a half times more now than a year ago. As I write, one bitcoin is quoted at €33,640. That is, if bitcoin can be regarded as an asset at all. It is one of around 2,000 forms of crypto currency which exist in a computer file to which their owner has access. A record of their validity is distributed across multiple databases on different computer platforms on the web. This so-called blockchain approach ensures that a bitcoin cannot, for instance, be duplicated or used for multiple transactions with multiple vendors. It seems that 2020 was the year when some serious investors got over bitcoin’s twin barriers of intangibility and technological mystique. There are reports that several established funds have begun to regard trading in the cryptocurrency as a component of their investment strategy, just like trading traditional currencies such as the dollar, the euro or sterling. As happens so often in the markets, the decision to legitimise investment in bitcoin has been a self-fulfilling prophecy. Declare an asset to be of value, and it will become so. Bitcoin investments are taxed much like any foreign currency. When you use euro to buy foreign currency, say US dollars, you are acquiring an asset. You can gain or lose on that asset depending on the relative value of euro to dollars when you go to sell it. The same goes for bitcoin. Gains are taxable, losses are allowable to offset future gains. While 2020 was a good year for bitcoin investment, it’s not for the faint-hearted. The value of bitcoin has peaked before in 2017 only to fall back to a mere fraction of its peak a year later. Treating bitcoin as an investment is not what its inventors apparently intended back in 2009. The original white paper which proposed the system set out “a purely peer-to-peer version of electronic cash [that] would allow online payments to be sent directly from one party to another without going through a financial institution”. Bitcoin was supposed to take financial institutions out of the payment loop. Instead it is becoming an asset for financial institutions to trade, yet its point of interest for governments and regulators still derives from its original purpose of facilitating the transfer of value from purchasers to vendors. Where bitcoin really differs from other types of currency is that it dispenses with the need for an independent institution, like a bank or a credit card company, to verify its issue and use. That makes it tricky for the likes of the Revenue Commissioners or the Criminal Assets Bureau to trace, certainly far harder than tracing euro, sterling or dollars which tend to end up somewhere in some bank account to which the police or fiscal authorities can request access. Bitcoin, along with other cryptocurrencies, can be convenient tools for money laundering, blackmail, drug purchases, terrorist financing and bogus investment schemes. Law enforcement agencies may have to think about the ways of tracing bitcoin-derived activity, for example, by tighter regulation of businesses that convert bitcoin to and from the more traditional currencies. It would be incorrect, however, to regard the use of bitcoin and other forms of cryptocurrency as the sole preserve of criminal behaviour. Illegal activity tends not to advertise itself so it is difficult to accurately gauge the extent to which cryptocurrencies have a role. One recent estimate by a US cryptocurrency consultancy Chainalysis puts the share of cryptocurrency in illicit use at less than 2 per cent of the total in circulation. Even if that estimate is on the low side, it does suggest that much of cryptocurrency use is entirely legitimate. Where bitcoin is used for legitimate trading purposes, most of the normal tax rules apply. The Court of Justice of the European Union held some time ago that bitcoin constitutes a currency for Vat purposes. Companies making profits or incurring losses when trading with bitcoin are taxed in the normal way, except that despite the Court of Justice ruling, they cannot make up and submit accounts denominated in bitcoin to the Revenue. The submissions must be in euro or in another traditional currency. The online payments environment has become increasingly sophisticated in the 12 years since bitcoin was invented. Online payment processing and anti-fraud tools such as those offered by PayPal and Stripe are now in widespread use. The EU’s Second Payment Services Directive has resulted in much more mandatory authentication and verification of online payments via financial institutions. Bitcoin now has more competition as a payment method. The events of 2020 may also have changed how bitcoin is seen. It may become less a payment method than an investment. Such a shift in expectation has happened before with that most tangible of assets – gold. It just took a lot longer. Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland

  Originally posted on Business Post 20 December 2020. Twice in the past decade, Northern Ireland business has missed out on opportunities for preferential trading arrangements, The first missed opportunity had to do with a reduced rate of corporation tax. After years of political and technical manoeuvring, London consented to the application of a 12.5 per cent rate of corporation tax for companies based in the North, on condition that the Northern Ireland Executive could formulate a balanced budget. The three-year suspension of the executive over the renewable heat incentive scandal, which only ended at the start of this year, put paid to that prospect. Over that same period, international moves to curtail multinational tax planning resulted in a corporation tax and investment bonus for legitimate low-rate regimes. Ireland benefited. Northern Ireland could have, but did not. Then there was Theresa May‘s ill-fated Brexit withdrawal agreement, which contained the so-called backstop provision. The irony here was that the flimsier the ultimate trade deal between Britain and the EU, the greater the backstop advantages would have been for the North in terms of EU single market access. Under Boris Johnson’s leadership, the post-Brexit backstop was replaced by the Northern Ireland protocol. Was opposition to the original backstop arrangements such a good idea, at least from a business perspective? Johnson’s agreement could still offer advantages to businesses based in the North. One of the certainties now surrounding the whole Brexit process is that the protocol will in fact come into operation on January 1. In crude summary, the protocol positions Northern Ireland as a de facto member of both the UK and EU customs territories, and as a member of the EU Vat regime as it applies to goods. This sleight of legislative hand will result in there being no need for controls and checks along the land border on the island of Ireland. In so doing, it achieves its primary objective, thankfully. It also means that Northern businesses will have unique ease of access for goods to both the EU and UK markets. Given that Britain and the EU are going to be separate territories for all trade rules, there will have to be checks and controls on goods somewhere as they move from one territory to another. How these will operate next year became clearer in recent days. The UK tax authorities have published details of how customs requirements on goods travelling between non-EU member Britain and non-EU member Northern Ireland will operate in practice. The new system is based on the notion of some goods transiting between Great Britain and Northern Ireland being “at risk”. British goods or British foreign imports going into Northern Ireland are “at risk” if they end up being consumed somewhere in the EU without EU customs duties being paid. Northern Ireland importers will have to decide whether a product being imported is “at risk” in this sense or not. This judgment call will not be available to all. It can only be made by Northern Ireland businesses which have registered with the British tax authorities under a special scheme to be known as the UK Trader Scheme. That registration must be made before the end of this year, which is a tall order for any business operating in a Covid-blighted environment over the Christmas period. By delegating the primary policing of customs administration to local traders, introducing other rules such as an exemption for smaller industry from some customs requirements, and allowing initial periods of leniency for compliance with new procedures, both the British and the EU authorities are closing one eye to the normal conventions and rules which apply to customs enforcement. In the long term, this attitude can only be sustained if a no tariff trade deal is in place. If things go well on the negotiation front and principles can be surrendered without white flags becoming too obvious, the challenge next week will be the ratification of an agreement text by the British and European parliaments. On the EU front, any trade deal agreed by Michel Barnier, the EU’s chief negotiator, and David Frost, his British counterpart, must be agreed by the heads of state of the 27 member countries and then voted on by the European parliament. This process took place in microcosm last week with the ratification of emergency Brexit land and air transport measures to apply from January 1, but a Brexit trade deal is of a totally different order of magnitude. Elected politicians, with some justification, don’t like being taken for granted or bounced into tight timescales by officials. There are signals that MEPs may become mutinous, and they are already saying that they will not vote on a Brexit deal before the end of the year unless an agreement is struck by this evening. Next week, the preferential trading status for Northern Ireland which the protocol delivers will not be in the hands of politicians there, but in the gift of MPs in Westminster and MEPs in Brussels. After the missed opportunities of a low corporation tax rate and single market access under May’s backstop, it may be third time lucky for Northern Ireland business. Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland

  Originally posted on Business Post 14 December 2020.  As the Brexit clock ticks down, and bizarre discussions about sausages and the like fill the airwaves, you would be forgiven for thinking that Britain is still a nation of shopkeepers. It is not, nor has it been for some considerable time. According to a 2019 briefing provided by the House of Commons library, Britain has enjoyed a trade surplus in services every year since 1981. Over the same period, it ran a trade deficit in goods every year. The services sector covers a wide range of activities. There's the obvious stuff, like legal, accountancy and financial services, along with the important but perhaps less prominent service sectors such as higher education, construction, transport and tourism. The money earned from every tourist that visits Britain counts as an export of services. All these activities account for some 80 per cent of Britain’s economic output. Pre-pandemic, the EU was also Britain's largest export market for services. The main reason perhaps that services have not achieved such prominence in the Brexit debate is that the EU's approach to trade in services is not nearly as cohesive as its approach to trade in goods. The EU has a common policy of customs controls and inspections applying to goods coming in from outside its borders, no matter which member country is the destination. This is not true for services, where future restrictions on service provision will be much more based on the local law and practice of the destination country. The lack of a common approach across EU member countries does not mean that there won’t be barriers to trade in services as there will be for trade in goods. Many of the automatic entitlements critical to successful cross-border trade in services will be deleted or removed altogether for British businesses after the transition period ends. This dilution of entitlement is a certainty, irrespective of the status of current negotiations. Currently, any British service provider has an automatic right to establish an office in any EU country. That automatic right will be gone after January 1, 2021. Restrictions on freedom of movement of people will reduce the availability of qualified workers for the British services industry. It will be a particular challenge for that sector to hire lower-skilled and thus lower-waged employees, because restrictions on entry to work in Britain being applied to all EU nationals (except Irish nationals) are tied to a salary expectation of £25,600. More qualified British workers may find it difficult to establish their credentials in EU markets, because their rights to automatic mutual recognition of qualifications and accreditation will be eroded. When the EU protections and entitlements are removed, EU member countries can find any number of ways to make life difficult for British service exporters should they so wish. The no-deal transitional measures for transport and aviation published last week by the European Commission are relieving measures for a six-month period in 2021. The very need for them is a stark illustration of what could happen when recognition within the EU of licences, permits and authorisations of British carriers cease. They are intended, in the Commission’s words, to avoid “serious disruptions including in respect of public order”. All of this, of course, presumes that EU businesses won't want to avail of British established services next year and beyond. That is unlikely to be the case. Britain runs a trade surplus in services because British industry is good at services. Deal or no deal, that fact is not going to change. The problem in the longer run for British industry may not be about demand for services, but rather about its capacity to supply them. Businesses operating in countries such as the US and Canada, where the labour market is choked from visa restrictions on immigrants, must wonder at the British willingness to take itself out of a pool of skilled workers. Future skills shortages may not just be confined to the trade in services, but will spill over into trade in goods, because increasingly it is difficult to separate the two. Trade in modern commodities brings with it a tail of services to enhance the product, from guarantees and warranties, to R&D and design know-how, to logistics and fulfilment. Europe will be a poorer place because of restricted access to British services. Ireland is among both the top ten export markets and the top ten import markets for British trade in services. Unlike the imminent damage to the trade in goods due to customs and standards requirements, the impact of the fall-off in the trade in services is likely to be more drawn out. As the Brexit negotiation pantomime draws to a conclusion, the story up to now has been one of trade. But the legacy will be felt most within the services sector. Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland

  Originally posted on Business Post 6 December 2020.  The exchequer figures published last week confirmed that, as a nation, we are spending vast sums to deal with the consequences of the pandemic. We have spent €10.5 billion more than was planned for in 2020. The bulk of this overspend, by a considerable distance, was not in the health budget but in social protection, dealing with the fallout from work stoppages and redundancies. Not as much tax materialised as was expected either, but lurking in the background is tax of some €2 billion, deferred from this year and not showing in the exchequer returns but still due from Irish industry. Not only that, the income tax yield from the self-employed normally shows in November. That wasn’t the case this year, because the tax payment date for most self-employed people was in effect pushed out by a month. Money usually due to be paid in November is not due this year until later this week. During the Great Recession, tax receipts from the self-employed fell off a cliff by about two-thirds. Because the tax yield from the self-employed reflects the activity of the professional services sector along with many tradespeople and smaller indigenous businesses, it is a real bellwether of the state of the SME sector. We probably won’t know their tax figures, and thus by extension their profitability, until January next. That information will be a real indicator of the resilience of the Irish economy outside our very large multinational and public sectors. The postponement of tax collection across all businesses has been a characteristic of the government response to the pandemic. Since March, businesses have generally been permitted to defer tax payments initially without paying any interest, and later on (depending on the timing) at a preferential rate of 3 per cent until the Covid-19 tax debt is repaid in full. This opportunity for deferral of tax payments runs counter to the traditional wisdom that in business, whoever else you owe money to, you shouldn’t owe it to the Revenue Commissioners. For a start, interest on unpaid tax debt normally runs to as much as 10 per cent per annum. Unlike other interest payments, interest on revenue debt is itself not allowable for tax purposes, so for a self-employed person the de facto rate is closer to 15 per cent. The Revenue possesses a particularly sophisticated debt collection mechanism, supported by techniques such as notices of attachment which ensure that a taxpayer’s debtors pay the Revenue instead. Supporting business through the pandemic by deferring the collection of tax debt, a technique known as tax warehousing, makes sense on several levels. First of all, it allows the government to get money into struggling businesses quickly by the simple expedient of not taking it from them in the first place. Secondly, it has saved the Revenue a lot of effort which might otherwise be misplaced. Why chase struggling businesses for cash which they might not have, when it might be easier to recover more after the worst throes of the pandemic have abated? Last month Joe Howley, the Revenue’s Collector General, wrote to 100,000 businesses to remind them of the opportunities of tax debt warehousing. This was, no doubt, primarily motivated by a desire to support business through a lockdown. It may have been prompted by the findings of a recent survey conducted by the Department of Finance which suggested that only 60 per cent of SMEs were aware of tax debt warehousing. The mailshot also has a pragmatic edge. Warehousing offers the exchequer a better chance of tax collection in the medium term as prospects improve post-pandemic. Generally, businesses have been reluctant to get into debt during the pandemic, not wanting to substitute a liquidity crisis for a future debt crisis. Optimism for a better 2021 has to be tempered by Brexit uncertainty and the knowledge that, trade deal or not, trade with Britain will be hampered following the expiry of the transition period next month. This optimism should be tempered further by the knowledge that the estimated €2 billion or more of warehoused tax debt will ultimately have to be settled. There is no need for businesses availing of the tax warehousing facility to panic, but they do need to start thinking about how the debt will be repaid or refinanced. It is clear from the November exchequer returns that, insofar as possible, Irish business has been doing the right thing throughout the pandemic. Tax yields may be down, but it is evident that many businesses kept paying their way as best they could during 2020. There is now a reasonable expectation of some upturn during 2021 which, in turn, will lift the national finances. The business resilience shown during 2020 deserves some reward. It might start with the government helping to refinance, or even forgive, some of the €2 billion in warehoused tax debt. Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland

  Originally posted on Business Post 29 November 2020. Last week, Tánaiste Leo Varadkar called for what he termed a “grown-up conversation” on increasing employers’ and employees’ PRSI to fund a reformed social insurance system. Varadkar, who is also Minister for Enterprise, Trade and Employment, may be overly optimistic. It is unusual to hear anyone who has been in government for the last ten years call for a grown-up conversation when it comes to increasing taxes. It's not something we are good at in this country. Nevertheless, one of the lessons from the pandemic is that its impact has been vastly different on various cohorts of our society, whether it’s young people, pensioners or workers in different sectors. These lessons must inform how we manage our social welfare system in the future. One of the most striking aspects of Ireland’s economic fortunes over the past nine months is how robust tax receipts have been. At the end of last month, there was an exchequer deficit of €11.6 billion. This deficit was created primarily by increases in health and social welfare spending, not by a fall off in tax revenues. This is both a cause for optimism and a cause for worry. It is a cause for optimism that we have a robust private sector that can continue to trade profitably in goods and services regarded as essential at home and abroad. This was by no means certain back in March, when many Irish businesses completely overestimated the negative impact of the pandemic. It is, however, of little consolation to the very many businesses, primarily in the hospitality, personal services and travel industries, which have been affected and in some cases, damaged to the point of no return. Nor is it of assistance to the unemployed now relying on the pandemic unemployment payment, or to the underemployed whose jobs require support through the wage subsidy schemes. Currently, the majority of PUP recipients are workers in the accommodation, food, wholesale and retail sectors. Many of the jobs in these sectors are relatively low paid. What becomes of these workers post pandemic? Should the self-employed still be able to earn a modest income without jeopardising their PUP entitlements as is currently the case? What happens when it is no longer possible to fund the €100 million per week which the payment costs, yet the jobs that were there before March 2020 have not returned, perhaps gone for good? One approach to this question is contained in a report of the Arts and Culture Recovery Taskforce which was presented to government last month. The report, called Life Worth Living, recommended, among other supports, a universal basic income. Artists and other cultural workers could opt into an unconditional state payment at the level of the national minimum wage for three years, and the payments would not be means tested. Working out at €325 a week for perhaps 7,000 or so individuals, this does not seem like a huge ask on any government, particularly one that uses its arts sector as a cultural beacon to command the attention of the world. The broader question is why a universal basic income should be confined only to arts and culture workers. The very idea of a universal basic income, also sometimes termed a citizens' income, attracts all kinds of objections. It might direct scarce public money to people who don't need it. It might result in people not looking for paid work. It wouldn't solve all problems such as the housing crisis. All this before even working out how much it could actually cost. Up to now there has been little evidence to disprove or prove these assertions. Three years ago, the social welfare department of Finland paid 2,000 unemployed persons a basic income for a time regardless of any other income they may have had or whether they were actively looking for work. That study concluded that the scheme made small improvements in people's quality of life while not seeming to deter the recipients from looking for work. It may be dangerous to infer direct parallels with countries where there are cultural differences, and the Finnish survey sample was small. Yet, this year, we have paid a large cohort of Irish people what in effect was a universal basic income via the PUP. As well as providing much-needed support to individuals, it has surely helped support domestic economic demand. There are far fewer numbers of those availing of PUP during the second lockdown, which suggests that receiving it was not a major disincentive to seeking or resuming employment. The relatively large PUP payment rates meant that some lower wage sectors found it difficult to engage staff, yet the tapering of PUP rates seems to have, in part, addressed this challenge. We cannot sustain the levels of borrowing currently required to indefinitely fund what after all was an emergency measure. Yet, thanks to the prospect of effective vaccines, the end of this pandemic is in sight. There is now some evidence that a more generous or liberal welfare system post pandemic, perhaps involving a universal basic income for some sectors at least, should not be rejected out of hand. If we are to have a grown-up conversation about a reformed social insurance system as the Tánaiste has suggested, it has to be about how to create a new social welfare contract for a changed world post pandemic, and how to fund it. Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland

  Originally posted on Business Post 22 November 2020. The incessant “will they, won't they” speculation over a deal between the EU and the UK is distracting attention from the business disruption that we do know for sure will happen on January 1, 2021. Even though hopes of a free trade agreement, however limited, are fragile, such an agreement was only ever going to mitigate rather than eliminate the upheaval caused by Brexit. The principal focus of any free trade agreement is the movement of goods, but more than that is at stake. From January 1, there will be restrictions on the movement of people between the UK and the EU. This, thankfully, will be among the least of the problems encountered by people on this island due to the common travel agreement which pre-dates the accession of either country to the EU. The situation for goods movement is equally clear-cut, but a lot more dismal. Free trade agreements deal with customs duties and quotas on goods being imported and exported, but tariffs are not the only taxes levied on cross-border trade. Vat is a truly European tax established by an EU directive which all member countries must follow. Having a Vat system is a condition of membership of the EU. While individual countries are permitted derogations and some flexibility from Brussels‘ rules, such as reduced rates of Vat for the hospitality sector, by and large the rules are rigid. Vat treatment differs between goods traded within the EU and goods traded outside the EU. From January 1, the Vat system will make no distinction between goods imported from Britain and goods imported from Brazil. While this will affect all importers and exporters on this island, trade deal or no trade deal, the changes will be felt especially in the North. There should be no doubt in anyone's mind that doing business in and with the North will be a lot harder after January 1 than it is today. Under the Northern Ireland protocol, the region will operate the EU Vat system for goods but not for services, while still applying UK rates for both. This particular fudge has been necessary to ensure no hard border is needed on the island of Ireland to police goods moving North and South. As with all fudges, the arrangement solves one problem but creates others. In practice it will be impossible to police the tax charge on goods moving between Britain and the North if their ultimate destination is somewhere in the EU. Vat is charged on the value of goods together with any customs duty which has been paid on them. In short, without knowing what the customs duty should have been, the correct Vat cannot be charged. Without a free trade agreement which reduces tariffs between the EU and the UK to nil in most cases, the Northern Ireland protocol cannot work in practice. There will be additional problems for UK groups with branches in the North. Group companies can be treated as a single entity for Vat purposes but from January 1 next, Northern Ireland companies in a UK Vat group must be treated as separate entities with their own Vat bills and responsibilities where goods move into that company from Britain. Separately, smaller businesses in particular will feel the loss of a pragmatic margin arrangement for dealing with Vat on second-hand goods which will lapse in the North after January 1.This will present real difficulties for businesses such as car dealerships which routinely pay their Vat on the profit margin, rather than working through the Vat ins and outs and timings of when cars are bought and sold. We have become accustomed to Brexit threats being batted away or postponed by political wishful thinking. Vat problems will not evaporate in this fashion, because governments are so dependent on Vat revenues. Vat is the largest amount of tax paid in Northern Ireland, some £3.4 billion according to official estimates for last year. In comparison, £2.8 billion was collected in income tax. Last week there were straws in the wind suggesting that EU compensation schemes might be available for regions particularly badly affected by Brexit. While some Northern Ireland interests are already addressed via the protocol to the withdrawal agreement, it is far from clear that there will be any special arrangements forthcoming from Brussels for a former region which is no longer a member of the European Union. Time and again, a successful trade deal has been held out as a solution to the worst commercial challenges of Brexit. No trade deal can resolve the additional costs associated with dealing with businesses outside the EU Vat system. Like tariffs, Vat is a protectionist tax. Unlike tariffs, Vat will not be magicked away by any trade deal, even if there is one. Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland

Originally posted on Business Post 16 November 2020. Since November 3 we have been looking west towards the political drama in the US, but this week’s developments in Europe will have greater practical consequences for us. Pierre Larrouturou is a Frenchman who is reported to have gone on hunger strike just over a fortnight ago in an attempt to force the European Union to include taxes on financial transactions in its multiannual budget. Larrouturou is a long-standing member of the European Parliament and a member of its Budget committee which negotiates the multi-year framework for European Union budgets extending from 2020 to 2027. Taxes frequently attract extreme forms of protest and I hope M Larrouturou does not endanger himself but protests of this type are usually about the repeal of taxes, not their introduction. The European Council announced to great fanfare in May that it had approved a multiannual financial framework for the EU budgets for the next seven years and which would see us through the pandemic. Just as Covid-19 is increasing the size of government in this country, the EU response, involving grants and the issuing of debt to support member countries in tackling the pandemic, is driving up the EU spend. The EU Budget involves raising and spending €1.1 trillion over seven years along with a further €750 billion over four years. The €750 billion, known as the Next Generation EU instrument, will be funded by borrowings from capital markets. Not only did the multiannual financial framework have to reflect the colossal disruption of Covid-19, it had to reflect the colossal disruption of losing the fourth largest contributor, Britain, to the EU budget. As with all great lies, there was some truth in the sign on the Brexit campaign bus that promised British voters £350 million per week in savings for their national health service. In 2016 the weekly EU contribution to the EU was about £275 million. Such is the nature of the EU institutions that this multiannual financial framework still requires ratification by the European Parliament, a process which came to a head this week. The EU has three sources of funding. All excise duties collected by all member states, less a handling fee, are passed to the EU as a direct contribution. The EU also receives a share of VAT receipts, and the balance of its budget, well over two thirds, is funded by direct contributions from the member countries. As was highlighted this week by the Irishman on the European Court of Auditors, Tony Murphy, Ireland has been a net contributor to the European Union since 2016 and that is likely to continue. Just as significant is how Ireland goes about paying its share of the burden in the future. The European Commission was already floating out ideas for new forms of taxation to be levied and collected directly by Brussels to meet the demands of its bigger budget. The compromise worked out with the European Parliament this week involves a plan for new “own resources” — proposals on a carbon border adjustment mechanism and on a digital levy by June 2021, garnering additional money from the existing Emissions Trading System, and further proposals for a Financial Transaction Tax and a financial contribution linked to the corporate sector or a new common corporate tax base by June 2024. The carbon border adjustment mechanism involves penalising EU-based businesses which outsource emissions-heavy manufacturing beyond EU borders to avoid emissions quotas. The others involve taxing multinationals and banks. No voters are harmed directly in the making of these promises so, from a political point of view, what’s not to like? Businesses aren’t a bottomless pit of new sources of income for governments anywhere. When it comes to footing the EU bill it is better that Ireland's contribution to the EU coffers is made through direct payments by the State than by abandoning Irish taxpayers to the mercies of directly levied EU taxes. It is better that companies pay their taxes here and contribute to our exchequer receipts than have more taxes going directly to Brussels. Direct taxation remains a sovereign right of the EU member countries, yet the current budgetary compromise between the Commission and the Parliament directly challenges that right. The EU Budget still must be ratified by the full Parliament, and once again by the European Council of Ministers. Whatever that outcome, the work of the EU Parliament this week has put European taxes back on the Brussels agenda with perhaps more political backing than ever before. We have all been watching with considerable interest the political developments in the US, not least because they are interesting in their own right. Some of us are puzzled by the extreme political positions taken by some of our friends and, in many cases, relatives in the US. We may equally be puzzled by the extreme positions taken by our European friends on matters of taxation. However interesting the US developments are, in terms of the impact on the Irish economy and Irish prospects, they are not as important as the EU budgetary developments happening this week. If you are looking across the Atlantic to understand the future, you may be looking in the wrong direction. Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland

  Originally posted on Business Post 1 November 2020. Recent comments and actions Leo Varadkar, the Tánaiste, have drawn much public and political debate. Last week, there was the tension over his leaking of an agreement with a doctors’ representative group to a rival union. And before that, Varadkar drew controversy when he observed that, sometimes, those who advise are the least affected by their advice. That comment followed the initial refusal by the government to follow the advice of the National Public Health Emergency Team (Nphet) and put the country on level 5 Covid-19 restrictions. Varadkar’s observations about Nphet could usefully have opened up a broader debate about the extent to which policy and decision-making is influenced by the experiences of those taking the decisions. Whatever about health policy, pensions policy in this country has in the past been largely determined by politicians and public servants who, by virtue of the public-sector pension system, would largely be unscathed by their decisions. In the vast majority of cases, public servants do not face the difficulties of pension funding that are routinely faced by workers in the private sector, and so there are grounds for the private sector to be sceptical about the establishment last week of yet another pensions commission. The retirement age became a contentious general election issue earlier this year. The new commission on pensions honours a commitment made when the current coalition was formed. It is to examine whether or not the statutory pension age should be increased from its current threshold of 66 years to achieve annual social welfare savings in the order of €450 million. In 2015, the ratio of workers to retirees was approximately five to one. By 2035, it has been projected that this ratio will sink to three to one. Without policy change, there are insufficient funds to provide adequately for the eventual retirement of our ageing population. In this context, “adequately” does not automatically suggest people having sufficient money on retirement to live decently and with dignity – instead it is all too often taken to mean pensioners having enough to provide for healthcare and housing without obliging the state to make further provision instead. Attempts to treat symptoms rather than causes has characterised pensions policy over the past 20 years. The symptom of an ageing population led to the increase of the pension age, initially from 65 to 66 and now to the current impasse. The symptom of inadequate access to pension savings vehicles led to the introduction of personal retirement savings accounts (PRSAs) in 2002. Meanwhile, an initiative to cope with the symptom of poor pensions saving habits by creating schemes of automatic enrolment into pensions seems to have withered on the vine. Other symptoms of the pension conundrum, such as unattractive annuity rates – the amount of money that has to be invested on retirement to generate a guaranteed annual return – have not been addressed. In fact, between 2011 and 2015, the reward for a prudent pension savings habit in the private sector was a levy of up to 0.75 per cent of the capital saved. This levy has now been repealed. As against these destructive policies, the contributory old-age pension from the state over the same time has more than doubled, from typically €122 per week 20 years ago to €248 a week now. While still modest, that puts us broadly into line with many of our EU counterparts. Yet, in the private sector, only one in three workers supplements the state pension with personal pension contributions. If many of us have not made adequate provision of our own for retirement, should the state continue to foot the bill? This is a broader social question, and one that cannot be solved by any commission focusing solely on the retirement age. As the worker-to-retiree ratio continues to decline, savings achieved by increasing the pension age won’t be enough. The only way to ensure that fewer future workers won’t have to subsidise more future retirees is to collect more tax now to fund recurring pension requirements later. In the midst of a pandemic, raising additional taxes for any purpose, let alone future pensions funding, is not an attractive proposition. The precedent of the National Pension Reserve Fund, where a €20 billion government pension reserve was essentially dissolved against the national debt in 2014, is not reassuring either. If there is no political will to fix the now borderline-unconstitutional local property tax (LPT), what chance is there of introducing any new tax to raise the same amount as the LPT to solve the retirement age problem? The new pensions commission is therefore stuck between a rock and a hard place. It will have a tough time coming up with proposals which might ever be implemented. In particular, it will have to avoid the Varadkaresque criticism that those who advise may be the least affected by their advice. After all, most of us will hopefully live to be 66. Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland

  Originally posted on Business Post 1 November 2020. It's more than ten years since Joe Biden addressed the European Parliament, opening his remarks with his trademark quote from an Irish poet and then saying positive things about Europe. Then, the Obama-Biden administration was just over one year in office and Biden was already carrying out the role which seemed to typify his vice presidency – that of an international envoy. Whatever about his thinking on international relations, Biden’s views on economic policy never achieved much prominence abroad until his current presidential campaign was well underway. Because we depend so much on the US for trade and foreign investment, what happens to the US economy matters very much here. Ireland did well during the Trump presidency, as highlighted in successive IDA annual reports. US foreign direct investment projects involved 722 companies generating 144,000 jobs in 2016. By 2019 those numbers had increased to 847 and 174,500 respectively. Now, according to a report last week from UNCTAD, the United Nations agency which monitors these things, Covid-19 is demolishing foreign direct investment activity. Can Ireland retain the investment already won if there were US foreign tax policy changes under a Biden presidency? Irrespective of what you might think of Trump’s other policies, the US Tax Cuts and Jobs Act of 2017 was a signal achievement if only because it was the first major US tax reform package in 30 years. While it reduced the standard rate of tax for US corporations from 35 per cent to 21 per cent, it also reduced or removed many tax advantages for US multinationals investing abroad, including into this country. While these advantages were diluted, the Trump administration didn’t eliminate them entirely. There are sound policy reasons for this. It’s not a good idea for a US president to tax US companies investing abroad to the extent that they are no longer competitive, say, with their European competition in the foreign direct investment market. Furthermore, while the Tax Cuts and Jobs Act is a stand-alone entity, it comes with strings attached. Some of its relief provisions are time-limited and due to expire in the next two to three years, meaning that as things stand, US multinationals could find their tax bills going up again anyway. A major element of the Biden economic proposals involves raising taxes on companies by increasing the tax rate by 7 percentage points to 28 per cent. A higher rate requires new tax law but at least some of Biden’s policy aspirations to raise taxes on the multinational sector can be achieved simply by not renewing the existing time-limits within the Tax Cuts and Jobs Act. This is significant for two reasons. Firstly, some multinational businesses would already have factored these built-in tax hikes into their medium-term projections, which may make increased tax bills more manageable if not more palatable. Secondly, it is never easy for any US president to bring about major or complex tax changes. Both Biden and Trump would probably be delighted with the kind of tax law arrangements we have in this country. Here, only the Minister for Finance can introduce a Finance Bill which the upper house of the Oireachtas may neither amend nor block indefinitely. That ease of legislative accomplishment is unknown in the US. But if anyone can navigate the labyrinthine procedures of the US Congress, it is probably Biden. He was a long-term senator and knows the ropes for getting stuff through the House of Representatives and the Senate. There is also a possibility that the Democratic Party next week could gain control of both houses as well as securing the presidency. The US approach to OECD international tax regime coordination efforts is also unlikely to change much irrespective of who is in the Oval Office. Over the past decade there has been a consistency of approach by the Obama and Trump administrations to the international agenda. Both supported the OECD processes while jibbing at attempts to target US based digital economy multinationals. There has even been consistency in recent years in the personnel involved. In contrast to the revolving-door approach of the Trump administration to other appointments, both Steven Mnuchin, the Treasury Secretary, and Chip Harter, the International Tax Affairs Secretary, kept their positions throughout the current presidential term. There may, however, be more pressing matters on the agenda no matter which man gets elected. An additional US Coronavirus relief package is still to be finalised. If the Democrats are successful on November 3, other Democratic Party priorities such as healthcare and immigration may take centre stage for a new administration. The campaign up to now has been dominated by the pandemic, the US Supreme Court appointment, and the suitability of either candidate with reference to their personal conduct, the conduct of their families and their financial affairs. All this makes for fascinating viewing, yet, in the foreign tax policy area which could most affect Irish business interests, there is little enough to see. Some attendees missed Biden’s speech to the European Parliament earlier in May 2010 because of flight chaos from an exploding Icelandic volcano. After this week’s votes are counted, perhaps there will be plenty of opportunity to hear him quote Irish poets again. Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland

 Originally posted on Business Post, 2 August 2020.Increases in VAT usually pass the acid test of tax policy – the extraction of the most amount of money with the least amount of complaint.  Compared to an income tax increase, the general population rarely gripes about increases in VAT rates.  Hiking the standard rate of VAT of 21% to 23% in 2012 generated hardly any noise compared to the introduction of USC and the reduction of allowances and credits the previous year.  So will people really notice the VAT decrease of 23% to 21% in the July Jobs Stimulus? VAT is a truly European tax in that the rules are devised in Brussels and then implemented in EU member countries.  It is Brussels that decides that the maximum rate of VAT cannot exceed 25%. .  European rules tell us that a box of teabags is charged 0% VAT, but a cup of tea in a café is charged 13.5% VAT while a tin of iced tea in the supermarket is charged 23% VAT.  There’s little enough any Irish government can do to tinker with the VAT system, except make marginal rate adjustments. VAT is a major contributor to the Irish Exchequer.  In 2019, over €15 billion was collected in net VAT receipts which is more than one quarter of the total tax receipts for that year, yet it is a notoriously blunt instrument of public policy.  No VAT is charged on the clothes of the children whose parents are on social welfare, but no VAT is charged either on the clothes of the children of high earners.  Maybe that’s why governments avoid using it for public policy purposes unless you include the now defunct 9% rate of VAT for the hospitality sector.    So it was all the more surprising that the July stimulus knocked two percentage points off the main VAT rate.  The cost of this measure is €440 million, which is a little less than 10% of the total value of the package.  This estimate for the cost of this six month VAT reduction period is in line with Revenue estimates for good years.  In a moribund economy the Department of Finance seems to expect a spending spree.  Remember too that the 23% rate only applies to about half of the items or services we buy.  The rest are charged at lower rates or are exempt. Outside of the retail sphere, the education sector and the banking sector pay sizeable amounts because their activities are largely VAT exempt.  These sectors cannot recover the VAT they pay on purchases because they don’t charge VAT on their sales.  In the main VAT is therefore a consumption tax ultimately falling on the consumer.  So will the VAT reduction boost sales of clothing, alcohol, electrical and other household goods and luxury foodstuffs which fall into the 23% VAT category?  It might not, even if businesses pass on the VAT rate reduction to their customers.  Despite suggestions otherwise from some political quarters, Minister for Finance Paschal Donohoe was quite clear that the 2% reduction should be passed on to consumers.  That's not going to make a huge difference for many items because the value of a 2% VAT reduction approximates to about €1.60 for every €100 spent.  It only becomes a different story if you go out to buy a big-ticket item like a car, where the VAT saving could perhaps insure it for a year. There is no law obliging traders to reduce their prices because there has been a reduction in the VAT rate.  As long as they charge the correct amount of VAT at the correct time, they can take whatever margin they wish.  Past history however suggests that small VAT reductions like the current 2% reduction tend not to get passed on to consumers.  Part of the rationale when the 9% rate of VAT on hospitality was introduced was that a full 4.5% reduction to the normal 13.5% rate would be visible and palpable and therefore consumers would expect to see the difference.So even if it is passed on, a 2% VAT reduction may be inadequate to drive additional volumes of consumer spending.  In terms of business benefit it might have been better to apply the projected €440 million cost towards reducing the vast amounts of VAT debt currently being warehoused against the day when businesses can finally pay their tax liabilities.  Given that the EU state aid restraints are temporarily lifted, that €440 million could have been targeted, for example, specifically to forgive some of the historical VAT due from the SME sector.  The July Jobs stimulus was good.  Ministers and their officials alike did well to deliver what in effect is a full scale national budget in the space of few weeks.  The purpose and rationale of many of the measures like the extension of the wage subsidy, the extension of the pandemic unemployment payments, and the extinguishing of commercial rates is readily apparent.  The object of this VAT reduction is not as clear. I've never seen a tax reduction I didn't like.  However, many consumers may not notice this tax reduction and many businesses could benefit more from this element of the jobs stimulus if the cost of the VAT reduction was diverted to reducing their current and not their future tax debts.  Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland