The Institute submitted its Pre-Budget 2024 Submission to the Minister for Finance, Michael McGrath T.D., on 30 June. In the submission, we highlight the changes the Government must make to the tax system to strengthen the resilience of the economy.

While retaining and attracting foreign direct investment (FDI) will continue to be key part of a balanced and sustainable growth strategy, building productivity and innovation in the indigenous sector must be a key focus of Government policy.

The Institute asserts that tax is central to both these objectives and unlike the external forces buffering the Irish economy, there is much policymakers can do to enhance the Irish tax system and make it more competitive in a post-Pillar Two world.

Ireland’s Indigenous Sector

The best way to mitigate the risk of an over-reliance on the multinational sector is to build an innovative, productive, and competitive indigenous sector. The Minister’s commitment to take a fresh look at the range of enterprise tax measures is a welcome start.

Building on the detailed legislative and administrative recommendations in the Institute’s Pre-Finance Bill Submission, in this submission we highlight the underlying issues that beset the suite of enterprise tax measures:

• administrative complexity involved in availing of the reliefs,
• overly restrictive qualifying criteria that create barriers to the development of SMEs, and
• structural requirements which are out of step with the start-up economy.

The Institute believes if these issues could be addressed, the full potential of the measures to provide a significant boost to innovation and productivity in Ireland’s indigenous sector could be unlocked.

Remaining a Good Place to do Business

Now that Ireland can no longer differentiate itself on its corporation tax rate for larger multinational groups, a spotlight has been shone on uncompetitive elements of our corporation tax regime that put the country on the back foot in the intensifying battle for global investment. In the submission, the Institute outlines the areas of the code that require immediate attention to bring us into line with our EU counterparts:

• the inclusion of a participation exemption for foreign dividends in the forthcoming Finance Bill, in tandem with the implementation of the Pillar Two Minimum Tax, as a first step in the move to a territorial system of taxation.
• prioritise the simplification of our interest deductibility provisions as part of an overall tax simplification project in line with the recommendation of the Deputy Director of the OECD’s Centre for Tax Policy and Administration, Achim Pross, that countries should undertake a “spring clean” of their tax codes after a decade of EU and OECD changes that have made tax systems enormously complex and inefficient.

Optimising the Tax System to Incentivise Sustainability

Tax is a critical lever in the fight against climate change. Many jurisdictions are using tax incentives to support businesses in their journey towards decarbonisation and to attract investment in green enterprises. In the Institute’s view, Ireland’s current offering needs to be more competitive.

In our submission, we outline ways in which existing tax measures can be amended to support businesses as they meet their carbon emission reduction goals and to incentivise innovative green enterprises. Ireland should position itself to advantage of the new business opportunities emerging from the drive towards renewables and green tech by enhancing our tax system to support indigenous startups and to attract investors from abroad.

Making the Personal Tax System Competitive

The personal tax system and the cost of employment is a key competitive factor for all businesses. The Institute believes that if Ireland is to attract and retain FDI, the marginal cost of employment must be reduced for individuals and the businesses that ultimately bear the cost of employment.

The cost of employment is also a critical factor for indigenous companies and in an already tight labour market, the relatively high tax burden on middle income earners makes it difficult to attract talented workers. The Institute supports any measure that reduces the burden on middle-income earners without adding complexity to the system.

In our submission, we recommend the reform of PRSI, and the broadening of the tax base, while ensuring fairness and equity within the personal tax system.

Read the full submission here.