Focus on indigenous sector in Budget – Technology Ireland
Thursday, 4 October 2018Technology Ireland, the Ibec group that represents the technology sector, today stated that Budget 2019 must support the indigenous technology industry, provide certainty for tech FDI companies, and improve Ireland’s overall competitive landscape and quality of life issues.
Technology Ireland Director, Una Fitzpatrick, said: “Budget 2019 must provide supports for indigenous technology companies as well as ensuring certainty to the many multinational tech companies based here if we are to retain and enhance our position as a worldwide leader in the knowledge economy.
“The Irish technology sector weathered the global economic downturn far better than other sectors, with many large-scale job creation projects and R&D investments announced over the past number of years. However, the decreasing numbers of students in technology related courses and as well as a general erosion of our competitive position, are of grave concern to the industry.”
Technology Ireland – Budget 2019 Submission
To secure and extend Ireland’s position as a worldwide leader in the knowledge economy, Technology Ireland recommends that government:
1. Improve investment supports for indigenous firms:
Ireland has low start-up rates compared to most of our European neighbours – the second lowest in the EU15 and one-quarter that of the UK. We must do more to help people starting out on the journey of building a business. The tax system has a key role to mitigate part of the risk borne by entrepreneurs. This would make it more attractive for owners of capital to invest as well as grow new export markets and for small Irish business to become companies of choice for talented people.
o Send a signal of intent to serial entrepreneurs by radically improving the CGT entrepreneurs’ relief by introducing a 12.5% rate with no lifetime cap on gains. Cost €60 million
o Introduce a simplified pro-forma R&D tax credit scheme for SMEs which allows smaller firms to overcome funding constraints on their innovative activity. Cost €10 million
o Renew confidence in the EII scheme by improving processing times, matching the UK’s €2 million annual limit on investment (currently €150,000 in Ireland) and ending the uncertainty caused by the current system of split relief (based on employment levels or R&D expenditure) with full relief given in the investment year. Cost €5 million
o Match the Swedish enterprise management incentive scheme for smaller firms. The Swedish Government received European Commission clearance to abolish tax on stock options at companies that are younger than 10 years, have fewer than 50 employees, and revenue and a balance sheet of below €8 million. No immediate cost in 2019 but rising toward €5 million in future years
o Remove, the limit on grants to any individual in any year to “50 per cent of the annual emoluments”, increase the €3 million cap on options in use under the KEEP scheme. No cost in 2019
o Ensure better guidance for firms on share buybacks or redemptions, the definition of holding companies and excluded activities (i.e. Fintech) under KEEP. Make sure the scheme aligns favourably with the UKs EMI scheme. No cost in 2019
o Reduce the level of stamp duty on equity to UK levels (0.5%) over a period of three years in order to increase liquidity, make raising capital easier for Irish firms and reduce the cost of raising capital significantly. Cost €40 million in net terms.
2. Provide certainty to the FDI model:
We must prepare for challenges to our FDI model at a time when there is a great amount of uncertainty in the global tax and trading environment. The key to emerging from this time of technological and political change will be to ensure consistency and certainty in the regime.
o Provide certainty to the regime by re-committing to an FDI driven growth model, the 12.5% corporate tax rate and the importance of the R&D tax credit. No cost
o Make sure digital tax proposals continue to be progressed through the multilateral OECD framework and a firm stance is taken against the unilateral EU proposals. No cost
o The 5% limit on qualifying outsourced expenditure to Third Level Institutions, under the R&D tax credit, and the restrictions on outsourcing to related parties should be removed. This would be consistent with the treatment under the Knowledge Development Box and in line with other jurisdictions. Cost €60 million
o Ireland has the second lowest density of industrial robots in the EU151, despite them being strongly linked with increased productivity. In order to encourage investment in high-value manufacturing accelerated capital allowances for a number of areas of advanced manufacturing (including computerised/computer aided machinery and robotic machines) should be introduced. France, for example, operated a similar scheme for robotics and 3-D printing (for SMEs) allowing for provision over a two-year basis. Cost €35 million, reclaimed over the next 7 years
o The industrial buildings allowance should be extended to include the construction of data centres to encourage the sector to continue its growth despite recent setbacks. Cost €120 million
o Transposition of the Anti-Tax Avoidance Directive should be completed in the upcoming Finance Bill, but the state should extend the introduction date of the new exit tax regime until January 2020. No cost
o In advance of a new exit tax regime, the new ATAD compliant exit tax should be introduced at a rate of 12.5% in line with the current corporation tax rate. Cost before uncertain but potentially revenue raising
o Extend Ireland’s participation exemption to dividend income upon the introduction of CFC rules. No net cost
3. Improve quality of life and competitiveness:
International evidence has shown that tax systems with a broad base and low marginal tax rates provide the best outcomes for employers, employees and the economy. The high marginal tax rates necessitated by the extreme progressivity of our system no doubt have distortive effects for Ireland with marginal rates of almost and over 50% for large cohorts of workers being a real challenge for Irish firms creating high-value jobs and rewarding skilled workers. In addition, as the pay and income recovery now clear in the economy broadens a failure to keep average workers out of the top rate of tax will continue to cause serious labour market issues.
Recent research in Denmark has provided clear evidence that mobile skilled workers are affected by marginal tax rates at the top of the earnings distribution (Kleven et al, 2013). The evidence points to a very large elasticity of migration with respect to tax. A 1% increase in the marginal tax rate reduces inward migration of highly skilled workers by between 1.5% and 2%.
Another solution which would help Ireland attract more skilled workers is having a favourable treatment of stock options. Currently, Ireland’s treatment of these schemes is less favourable than other locations, particularly the UK. Measures can be delivered without risking fiscal prudence. Tax indexation is done automatically in most developed countries. A fiscally neutral overall tax package would be of the order of €600 million given that the exchequer yield from non-indexation of the income tax system is of the order of €600 million on a full year basis.
o Increase the entry point to the 40% rate of income tax by €1,000 to keep ahead of wage growth. Cost €168 million
o Remove USC and PSRI liabilities on revenue approved stock option schemes. Cost €10 million
o Reduce the income tax liability of unapproved schemes to the ordinary rate of tax. Cost €20 million
o Reduce the higher marginal rate of tax for those earning over €70,000 by 1% and commit to reducing the all-in marginal rate for all employees to 47% over the coming years. Cost €136 million
o Extend the 30-day period in SARP to 90 days to reflect HR realities in most firms availing of the scheme. No cost
o Review the tax legislation and in particular penalties for employers in the run-up to the introduction of the PAYE modernisation scheme. No cost
o Review the work visa and apprenticeships systems to ensure they can support the employment demands of the industry. No net cost
o Produce a credible response to the under-funding of tertiary education and develop a sustainable model based on contributions from the state, individuals and business. In 2019 Exchequer funding for the third-level education sector should increase by €250 million in excess of that already set aside for demographic pressures. Cost €250 million, funded from the rainy day fund allocation.