Speech by Karen Frawley, newly elected President of the Irish Tax Institute at the AGM
9 September 2021
Former Presidents, fellow Council Members, it’s a great honour for me to accept the role of President of the Irish Tax Institute. I feel privileged to have been entrusted with the job and I will do all I can to serve the Institute well over the coming year.
I want to thank Sandra for her stewardship over an exceptionally difficult twelve months. In a year that was all about tax administration and effective collaboration with Revenue, Sandra was the right woman in the right place. She did a superb job for members, and I hope to continue that work with the help my colleagues, Colm Browne and Tom Reynolds. Congratulations to them both on their appointments today as Deputy President and Vice President.
Compliance workload
We are into the busiest time of the year and the burden on practitioners hasn’t got any lighter. The Covid supports’ compliance demands remain onerous, and pressure is building as the Pay&File deadlines near. The Institute will work with members on any administration issues that emerge over the coming months.
While the economic indicators are very encouraging, businesses in the sectors worst hit by the pandemic will need time to rebuild. The Institute will continue to press for understanding and forbearance from Revenue as government supports are unwound. Some businesses will fail, but those that were previously profitable and compliant deserve a fighting chance. The Government spent a lot of money keeping these businesses going during the pandemic. We need now to secure that investment by bearing with them as they get back up on their feet.
Corporation Tax
One of the few fortuitous outcomes of the pandemic was the powerful performance of our multinational sector. Its resilience, in terms of exports and business continuity throughout the crisis, boosted our headline economic performance and our Exchequer which collected record corporation tax receipts from a small group of companies in the sector.
Multinational companies will continue to play a major role in our economy, but our FDI model will be tested as the long running international tax reform process reaches a crunch point this autumn.
October’s G20 meeting in Rome is expected to give final approval to the OECD proposals on a global minimum tax rate and the taxation of multinational profits. Details on the exact rate and how the proposed changes are to be implemented have yet to emerge.
Meanwhile, Congress is due to debate US tax reform proposals which are potentially more damaging to Ireland than the OECD draft agreement. The deliberations in Washington look set to be fractious and could derail the entire reform process.
Against this backdrop, the Institute believes the Minister for Finance was right not to sign the draft agreement that emerged in July. Given the lack of clarity on proposals that have serious implications for our economic model, it made sense to reserve our position. We hope, however that an agreement can be reached before year end because the ongoing uncertainty is damaging global trade.
Either way, significant change is on the way and, as a small trading nation, Ireland must come to terms with whatever reforms are agreed. However, imminent changes provide an opportunity for policymakers to take stock of our current offering in terms of tax strategy and our overall competitiveness.
The Institute strongly believes now is the time to simplify our tax code so that we can strengthen our position as a business friendly and pro-enterprise economy. The Government’s current approach to the adoption of new ATAD rules is making our regime unnecessarily complex. For example, over layering interest limitation on to existing interest deductibility provisions could potentially create a compliance nightmare.
We should simplify our corporation tax system and remove the distinction between trading and non-trading income for tax purposes. This distinction makes no sense in the modern industrial context of intangible assets and is not a feature of the tax codes of our main competitors.
We should move to a territorial regime with a participation exemption for dividends and remove Schedule 24. If a global minimum tax rate is applied, our current regime for taxing income from foreign earnings makes no sense.
We also need to examine above the line tax measures like the R&D tax credit, to ensure they are competitive. Other countries have a much more extensive range of incentives. We would need to follow suit if we are to maintain our competitive edge.
We have included these recommendations in successive submissions over recent years. But there is a real urgency now because the current proposals risk making key parts of our business tax code obsolete.
Changes to international tax also have implications for our domestic SME sector and our wider industrial strategy. We must reduce our obvious overdependence on corporation tax receipts from the multinational sector. There is a crying need to apply to our domestic SMEs, the same rigorous and innovative approach that has served us so well in the FDI sector.
We have all the reports and recommendation we need from the OECD, the IMF and the European Commission. We know what must be done to build an innovative, productive, exporting sector. We just need to deliver.
There are excellent examples of world class Irish businesses: we just need more of them to create a vibrant sector that will provide good jobs and pay taxes to fund high-quality public services.
CGT
The headline rate of Capital Gains Tax is a deciding factor for investors. At 33%, ours is high by international standards. To attract investment in our SMEs, we need to consider reducing it for active business assets. We know from previous experience that cutting the rate can stimulate activity and increase the yield to the Exchequer. The low level of receipts in recent years certainly suggests the rate is dampening productivity in the SME sector.
A priority for the Commission on Taxation and Welfare will be to examine how the tax base can be broadened to mitigate future risks. But the Commission also has a mandate to examine how tax can support economic activity. In that context, it should examine our CGT regime and recommend how it can be reformed for the benefit of business and the Exchequer.
An era of significant change in tax is fast approaching and, in preparation, we must reform our system and sharpen our competitive edge. Delivering that change will require a mind shift among policy makers that allows them to trust our capacity to build for ourselves the kind of high-performance business sector we have worked so hard to attract from abroad.
Digitalisation
Tax practitioners have weathered many storms and change has become the norm in our profession. One such change, hastened by the pandemic, is the shift towards real time interventions by revenue authorities around the world. Members will have to keep pace with this development and the Institute will endeavour to support them in their digital transformation.
As compliance is automated, there is an opportunity for the profession to concentrate on the strategic contribution we can make to businesses. In the coming year, the Institute will profile the value a Chartered Tax Adviser can bring to key business decisions. We will also run a campaign to attract talented graduates into the career, starting with our first virtual careers fair later this month.
The last 18 months has proven how resilient and agile we are as a profession. We survived a pandemic: I have no doubt we can undergo the digitalisation of the tax system and continue to serve our clients’ need for strategic advice in the fast-changing world of tax.