Irish Budget 2016 - The Future Path Of Irish Tax

Author:Mr Andrew Quinn, William Fogarty, David Burke, Lynn Cramer, Fearghal McVey and Maebh Earlie
Profession:Maples and Calder
 
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The Irish Minister for Finance delivered his Budget 2016 (the "Budget") speech this week.

As the fastest growing economy in Europe, the Minister, as expected, delivered a package of measures designed to improve the tax position for individuals based in Ireland. These measures were welcome, but modest, and businesses with staff in Ireland will hope this trend continues.

Significantly, the Budget announced the introduction of a 'knowledge development box' or KDB, with a reduced rate of tax of 6.25% for qualifying income. It is described as the first OECD compliant KDB in the world and, together with the 12.5% standard rate, research and development ("R&D") tax credit and depreciation allowances for intangibles, provides a hugely competitive offering to international business who are 'on-shoring' their IP in light of international tax developments.

It was also announced that NAMA is aiming to deliver 20,000 residential units before the end of 2020 by working with developers. This will require funding in the order of €4.5bn. Clearly, this will create major opportunities for domestic and international property firms, banks and financiers.

The Minister also updated Ireland's International Tax Strategy with the publication of a report detailing Ireland's 'best in class' approach to the OECD Base Erosion and Profit Shifting (''BEPS'') project and the new EU Commission Action Plan on Corporate Taxation. The report highlights that the Irish corporation tax system is transparent and statute based, and as such, provides certainty to business. It reaffirms that the OECD BEPS reports do not affect Ireland's 12.5% corporation tax rate and outlines measures that Ireland has taken in light of these developments. In particular, Ireland will legislate in the Finance Bill 2016 (to be published on 21 October 2015) for 'country by country' reporting in accordance with the OECD standard.

We believe that our clients, who include multinationals, banks and international investment firms who invest in and through Ireland, will welcome the fact that Ireland is taking the initiative and positioning its tax and economic policies to compete in this new international tax environment.

DETAILED COMMENTARY

Taxation of Individuals

There were some welcome reductions in the taxation rates of individuals.

Income tax There was a reduction in the three lower rates of the Universal Social Charge ("USC") in addition to an increase in the USC thresholds. The third rate of USC, which will apply to income from18,669 to70,044, is reduced from 7% to 5.5%. The change will, for the first time in a number of years, reduce the marginal tax rate to below 50% for middle income earners. Higher earners (above70,044) will benefit from the rate reduction on that portion of their income within the relevant band. There are no changes to the rates at the upper levels...

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