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US Chamber - R&D tax credit measures welcome
Root and branch review required to make Ireland more attractive to foreign direct investment
The American Chamber of Commerce in Ireland has welcomed improvements to the existing R&D tax credit system announced by the Minister for Finance.
“Committing to hold the base at 2003 levels for ten years is a significant concession,” said Pat Wall, Chairman of Tax Policy for the American Chamber of Commerce. “The measures will encourage companies to increase R&D expenditure on an incremental basis to 2013.”
“However, the incremental approach to R&D tax credits is a passive initiative which is not having the desired impact of directly promoting R&D investment in Ireland. The benefit of such incentives will remain intangible until at least 2013 when a retrospective evaluation can be made.”
“A volume based approach would be more beneficial where tax relief is provided directly on the total annual R&D spend undertaken within a specific reference period by industry in Ireland. This would stimulate greater research investment by Irish based multinationals.”
“However, of greater value to our economy would be a series of measures designed to directly enhance Ireland’s attractiveness to Foreign Direct Investment (FDI). The Minister needs to implement a root and branch review of the financial incentives which can be brought to bear in this regard.”
“Measures we called for to improve Ireland’s competitive position included an improved system of taxation on the royalties achieved from intellectual property developed in Ireland.”
“We also advocate tax concessions on the repatriation of dividends and other incentives including the provision of foreign tax credits and relief on patent dividends.”
“If taken as a package, these measures would provide a strong incentive for multinationals to locate research investments in Ireland. They would also benefit Irish based multinational operations seeking to rise up the corporate value chain and to improve productivity.”
“By its nature, research requires a very significant spend. With the ongoing pressure to move development activities to low cost regions, the multinational sector requires long term, meaningful incentives to introduce new research investment into Ireland.”
“It is to be hoped that the Finance Bill will address these issues collectively in the interests of Ireland’s continuing international competitiveness.”
NOTE
Currently, if a company increases its expenditure on R&D it obtains tax credits for 20% of the incremental part of that expenditure from year to year and from a 2003 base. There has been a three year window as each year progressed so, for example, when 2007 was reached, 2004 would become the next base year, and so on. The Minister said that the base will still be maintained at 2003 levels until 2013, and on the incremental basis. Deloitte Ireland - Remittance changes to attract wealthy High Net Worth Overseas Individuals Arising from EU requirements, the Minister has introduced rules that will make it very attractive for individuals currently resident in the UK to relocate here. This represents a significant marketing opportunity for Ireland Inc to position itself as a hub for High Network Individuals who make significant income and gains from investments and trading activities sourced in the UK. Such individuals could act as a catalyst to attract further business to this country. Quoted: Padraig Cronin, Head of Tax, Deloitte Ireland More needed to be done in today’s Budget for Financial Services Industry Tax clarity needed in light of recent challenges I n line with previous years, there have not been any changes announced in the Minister’s Budget speech which will have a significant impact on the Irish Financial Services industry. More needs to be done in order to encourage the industry in a changing economy.Conor Hynes, Tax Partner, Financial Services, Deloitte commented: "As a result of recent challenges facing the financial services industry, it is becoming increasingly important that the sector have clarity and certainty in relation to tax matters. It is also necessary for the government to recognise the challenges facing the industry and work with the industry to ensure that the industry continues to grow and contribute in a substantial way to the Irish economy." None of the recent submissions made by the financial services industry to the authorities have been adopted by the Minister today. These included:
Conor Hynes concluded: "Overall, this year’s Budget has not done enough for the financial services industry. We believe that more needs to be done by Minister Cowan in order to facilitate the ongoing growth of this industry and to encourage its continued growth in the current challenging economic environment. We hope to see some of the desired measures introduced in the Finance Act." Full commentary and analysis of Budget 2008 can be found at www.deloittebudget.ie ITI welcomes Budget ’08 The Irish Taxation Institute (ITI) has welcomed Budget ’08, with ITI Chief Executive, Mark Redmond describing the extension of the R&D credit to the end of the life of the NDP as “smart and strategic”. Redmond said the range of tax measures contained in the Budget demonstrates that tax is now “the tool of choice” for achieving competitiveness, tackling climate change and driving innovation. Redmond said: “On R&D, housing, mortgages, enterprise, agriculture, infrastructure, energy and the environment, taxation is the tool of choice to promote sustainable growth.” Redmond said the ITI welcomes changes on R&D. The extension of the R&D initiative to 2013 coincides with the lifespan of the NDP. Redmond said this measure was “smart and strategic and affords innovators the opportunity to add to the competitive contribution which the NDP will make to our economy.” Redmond said Budget ’08 underpinned the important role of small business in the Irish economy and built on measures introduced last year. He said: “Broadening of the BES qualifying criteria, increasing the registration thresholds on VAT for SMEs, widening the corporation tax threshold for small companies and expanding thresholds on preliminary tax arrangements for start-up companies will help business do business.” Good news on Stamp Duty from the Minister welcomed by Bank of Ireland
Bank of Ireland has "strongly welcomed" yesterday's move on stamp duty by the Minister for Finance. The Bank is of the view that this change will be a strong support to prospective buyers of new and second hand houses. Corporate Tax Incentives - David Smyth, Tax Partner “Corporate tax incentives are no longer enough to encourage inward investment. A detailed review of our medium to long term strategy to maintain and attract employment is urgently needed. For corporates the budget was largely a non-event. There is little of substance when many of Ireland’s low cost competitors are becoming increasingly innovative from at tax perspective. This is undermining our ability to compete for international projects. Ireland needs an upgrade to its package of attractions as a place to do business for multinationals. This Minister continues to tinker around the edges which will not work. There are no indications from him of an upgrade of our holding company regime to a comparable status with our European competitors. Simple measures such as a full participation exemption for foreign dividends and elimination of withholding taxes on outward interest and dividend payments would have minimal impact on tax revenues but would signal Ireland’s continued appetite to be a player in the global market place." David Smyth Stamp Duty "It looks like the days of compulsory electronic filing of income and corporation tax returns is getting closer if the government's obvious preference for electronic payment methods is anything to go by. This year's budget encourages electronic means of payment by doubling the tax on cheques (from 15 cent to 30 cent), halving the tax on ATM & Debit cards (from €10 to €5) and reducing the tax on credit cards from €40 to €30." Fred Kerr Stamp Duty and Property "While the changes in Stamp Duty for residential properties are welcome, they have not, in my opinion, gone far enough. The rate of Stamp Duty is too high even with these changes. The Minister has still not addressed the issue of families trading up from their apartments to houses or retired couples wanting to trade down. I cannot see how these changes will have any major impact on the housing market which appears to be on a downwards trend. More radical and forward thinking changes are required rather than tinkering with an antiquated tax." Fred Kerr Stamp Duty Changes will Have Little Impact on Turbulent Market and favour the well off "In a market where property prices have fallen 5% in the 12 months to October per national statistics, and in some cases by as much as 25% per anecdotal evidence, the minor reduction in Stamp Duty is unlikely to provide a stimulus to the housing market. This is particularly so on the lower price end of the market where the reductions are quite minimal While the simplification of the system is to be welcomed, and the new systems is more equitable, the actual reductions are quite minimal For example, on a house costing €350k, the reduction in Stamp duty is €5250. The savings are more dramatic on dearer houses. For example on a house costing €1.5m the saving is €28,750 On a positive note, the certainty is to be welcome and speculation about Stamp Duty changes is now firmly at an end." Fred Kerr VRT VRT Changes could be Counter Productive and Could Encourage Purchase and Import of Large Cars "The VRT changes will cause massive distortion in the new car market in the first 6 months of the year. For example, the VRT increase on a large 3 litre SUV with a retail price of €80k will be in the region €5,000. There is a strong incentive for Motor Dealers to promote the sale of large cars in the first half 2008 In contrast, some 2 litre diesels have exceptionally low emissions, A 2 litre diesel with a retail price of €50,000 could benefit from a VRT reduction of about €7000 on 1 July. Clearly any intending purchaser with an eye on a small car or on a very efficient diesel, will defer a purchase decision until July, or possibly will wait until 2009 to save one years depreciation." Imports "Interestingly, the new VRT system will apply to imports of second hand cars first registered in Ireland after 1 July 2008." Classic Cars "No VRT applies to the import of classic cars (cars over 30 years old and presumably with exceptionally high CO2 emissions). It is not clear if such cars will continue to be exempt under the new system." Other quotes on VRT "The radical change in VRT is also being applied to car capital allowances and leasing charges, however the Minister has not taken the opportunity to adjust the BIK on company cars to encourage provision of cars with lower CO2 emissions. BIK on cars was adjusted in this way in the UK some years ago. Minister Brian Cowen's most significant contribution to environmental issues in this Budget was his overhaul of the VRT system. While this Budget might have been "greener" than any of his four previous Budgets, it did little to actively promote a sustainable energy future for Ireland". John Heffernan VRT and VAT ‘This is likely to result is strong demand for diesel cars. Currently diesel car sales in Ireland account for approximately 25% of the total market whereas the EU average is 75%' ' The aim of the VRT proposals is to help the Government achieve its target under the Kyoto agreement to limit greenhouse emissions while at the same time ensuring that the impact is tax neutral' Jarlath O’Keefe Other Green Issues "The likely purchase of carbon credits at significant cost to the exchequer to meet our Kyoto obligations is a failure of vision in dealing with this issue. Tax incentives in areas of renewable wind, tidal and solar energy would encourage and attract investment in these areas and in the medium to long term reduce the financial cost to the nation. If we are concerned with renewable and green friendly industries the BES cap for investment in these areas need to be removed. Yet another missed opportunity in this conservative budget." Frank O’Neill "As Ireland is no longer a low-cost location, the Minister needed to take a fresh look at how we can attract and retain R&D intensive activity in Ireland. The limited extension of R&D tax credits in this Budget is truly disappointing. The current regime does very little in attracting R&D investment into Ireland and the proposed changes will only have limited affect. We need to look at what our European neighbours have done in this area through allowing tax deductions for purchased goodwill and intellectual property." Joe Bollard Employment Taxes "Nothing in this budget of any merit in this area. The remittance basis in respect of employment income withdrawn a couple of years ago lost a great incentive to attract talented experienced people to Ireland to work and communicate their expertise to Irish workers in high value industries. We have consistently lobbied and provided effective solutions to the Minister and his department which would address their concerns in this area while reopening Ireland’s attractiveness for foreign workers. The Taoiseach and the government in other contexts speak of “moving us up the value chain” in the area of employment obviously has not been listening." PJ Henehan VAT and Property ‘The earlier than expected introduction date (I July 2008) of the complex changes to VAT and property legislation will come as a surprise to both tax practitioners and the industry' Breen Cassidy CPA criticises “paltry” increase in VAT threshold for small business The Institute of Certified Public Accountants (CPA) has criticised the low increase in the VAT threshold for small business in the budget and CPA President Brendan Allen said that the small increase was a missed opportunity to reduce the burden of regulation on small business. “The Government could have been stronger in its defence of indigenous small business when framing its budget and the increase in the VAT threshold, particularly for services, is paltry”, said CPA President Brendan Allen. “We welcome measures such as the increase in the taxation liability threshold for smaller businesses and start-ups, but we believe that Mr Cowen could have gone much further in easing the regulatory burden on small businesses.” “Support to indigenous industry leads to growth, job creation and opening up international markets for Irish goods and services. The low increase in the VAT threshold, particularly services, was a missed opportunity to reduce the burden of regulation on small business and is a worrying sign that the current taxation regime is less than supportive to indigenous business." The CPA has however welcomed the Government's announcement of stamp duty reforms as a bold but positive move to reenergize the economy. “The service sector is now growing at its slowest pace in more than four years, and has obviously been impacted by the slide in building activity, said Allen. This much anticipated reduction in stamp duty will play a vital role in restoring overall economic confidence IBEC reaction to Budget 2008
IBEC keenly awaits the establishment of a Commission on Taxation to conduct a fundamental review of the Irish tax system. Irish Home Builders The Irish Home Builder’s Association (IHBA) has welcomed the Minster of Finance’s decision to reform stamp duty.
According to Hubert Fitzpatrick, IHBA Director, stated:
“Reform of stamp duty should, given the very good value currently in the market, help improve confidence and contribute to increased transactions. The housing market had stalled and in such a market few people were willing to pay the penal rate of stamp duty when moving home. The case for stamp duty reform was strong and along with other developments we should see greater movement on the housing market in 2008”.
“The stamp duty measures introduced today will mean a saving of €10,750 on a house priced at €400,000.
“The decision to increase mortgage interest relief is also welcome. For some first time buyers today’s announcement will mean an additional €800.00 year in mortgage interest relief”.
In addition, IHBA welcomed the announcement of measures to assist households with retrofitting of insulation to existing housing stock and the commitment to provide additional social housing.
Construction Industry Welcomes Stamp Duty Change and Commitment to Infrastructure Spending The Construction Industry Federation has welcomed the Minister for Finance’s decision to reform stamp duty on residential transactions and the Government’s commitment to spending on infrastructure. Tom Parlon, CIF Director General stated: “This is a positive move by the Minister and one that, in conjunction with other developments and the good value now in the market, should help to re-activate transactions and also help keep investment in Ireland. The measure should also ensure additional revenues for the State next year from the property and construction sector”. There was a very strong logic for stamp duty reform. CIF articulated this earlier in the year and most economists have agreed that this was the right time to reform stamp duty. The housing market has stagnated over the past year and in this market people were unwilling to pay the existing penal rates of stamp duty for moving home. There is however very good value to be got by purchasers and in conjunction with today\s announcement should help improve confidence”. “The reduction in rates of stamp duty set out today means a saving of €10,750 on a typical house valued at €400,000. “The decision to increase mortgage interest relief is also welcome. For some first time buyers today’s announcement will mean an additional €800.00 year in mortgage interest relief”. “CIF is disappointed that the Minister chose not to extend the reform of stamp duty to commercial transactions. Last year, Irish people invested over €12 billion in commercial property but just €1.5 billion of that was invested domestically. The 9% top rate of stamp duty was a major factor in this, particularly given that transaction costs are significantly lower elsewhere”. On infrastructure spending, the CIF Director General said: "There is always a concern in more straitened fiscal circumstances that capital spending will be the first to be hit. Today’s Budget however appears to confirm Government’s commitment to infrastructure spending. All commentators accept the need to forge ahead with the prioritised delivery of the National Development Plan and other planned infrastructure developments if we’re going to grow the productive capacity of the Irish economy”. In addition, CIF welcomed the announcement of measures to assist households with retrofitting of insulation to existing housing stock and the commitment to provide additional social housing during the year. ICAI – Minister avoids temptation to stifle economy The Institute of Chartered Accountants in Ireland (ICAI) said that the Minister for Finance’s Budget avoided the big mistake that could be made at this point in our economic development – retrenchment. The decision to allow the GGD (General Government Defecit) to increase to 0.9% to allow investment in the National Development Plan (NDP) to be sustained and increased is consistent with the key need of the business community as identified by the ICAI/IIB Bank Chartered Accountants Business Sentiment Survey over the last year and should promote business confidence. Underlying the policies announced today is recognition that tax policy drives behaviour. This approach, which in the past has driven urban renewal and rented property incentives, is now being directed to empower people to take environmental decisions. The adjustments to the Stamp Duty regime constitute meaningful and imaginative reform. The elimination of the old step system of Stamp Duties was well overdue, irrespective of the current shape of the housing market. Of equal significance is the increase in Mortgage Interest relief, which addresses the cost of finance. “In our view, the cost of finance is as significant a factor as the capital cost of housing. Overall, the changes will provide meaningful and welcome relief to homeowners. The measure which allows homeowners to convert their properties to rented residential use after two years, instead of five, will mainly assist the rented residential property market.” said ICAI Director of Taxation Brian Keegan. “The improvements to the R&D regime are of particular importance” said Keegan. Modern high value manufacturing cannot survive without R&D facilities. When companies are encouraged to locate their R&D facilities here, the chances of our retaining their manufacturing facilities are greatly improved. Coupled with the expenditure commitments towards the NDP, this should help keep Ireland towards the top of the list as the best location for multinationals wishing to establish a foothold in Europe. Indexing the income tax bands and credits should assist employers in managing wage inflation; outside of that, income tax policy seems to be aimed at maintaining the status quo. Leaving the PRSI regime for employees largely unchanged was on balance a positive move. “The reform of PRSI is not simply a matter of adjusting thresholds and rates – any reform would result in the effective introduction of an additional tax on employee income”. Lastly, ICAI has warmly welcomed the tax improvements geared towards the disabled and those who care for them. “In successive Budgets, Minister Cowen has shown himself alert to the burdens of this sector of our society. By increasing the Home Carers Allowance and the Incapacitated Child Allowance again, he is making a real difference,” Keegan concluded. ICT Ireland
ICT Ireland, the group that represents Ireland’s high tech sector, today raised concerns about the lack of extra investment in the teaching and support of science and mathematics at junior and senior cycle. Engineers Ireland welcomes Cowen’s commitment to full and timely delivery of NDP’s infrastructure programme.
The strong commitment of the Tánaiste and Finance Minister in today’s Budget to maintain the ambitious targets of the new 2007-2013 National Development Plan, and to allocate €2.7 billion next year to major infrastructure projects, including the vital inter-urban routes, was warmly welcomed today by the Director General of Engineers Ireland, John Power. Power said that it was “particularly heartening that with all the talk of the economic downturn, Brian Cowen has repeated his commitment to the full delivery of the 2007-2013 NDP as his and the Government’s top priority”. Power said that “only last week the National Competitiveness Council report showed that Ireland’s economic competitiveness had weakened in recent years. In that context the modernising of our infrastructure is absolutely critical. In a recent submission to the Department of Transport, Engineers Ireland highlighted the increased congestion costs faced by industry here, in terms of issues like rising delivery costs and disrupted work and staff schedules”. And he urged the Minister and the Government to be even more ambitious in speeding up the key infrastructural projects in the NDP. “With the slow down in the housing sector, boosting expenditure to the maximum on vital infrastructure will not only improve Ireland’s competitiveness, but it will also boost employment and tax revenues for the Government”. Engineers Ireland also welcomed the increased capital investment to almost €300 million in 2008 at Centres for Engineering, Science and Technology, and Minister Cowen’s promise that R&D, innovation management, and collaborative effort between industry and the third-level sector will attract "significant support" from the Government. A recent report published jointly by Engineers Ireland and the Irish Academy of Engineering called “Engineering A Knowledge Island”, identified the need for a major increase in the number of Engineering and IT graduates if Ireland was to become a leading global economy. © Copyright 2007 by Finfacts.com |
