Address to the National Economic Dialogue Anne Gunnell, Director of Tax Policy & Representations, Irish Tax Institute
Wednesday 26th June 2019
The Institute’s Director of Tax Policy and Representations, Anne Gunnell addressed the National Economic Dialogue and spoke on the need to develop tax policies to incentivise investment and innovation in our indigenous companies. Below is her statement:
Thank you Chairman
We believe the cornerstone on which our economy was built over the last four decades is tax. Our low corporate tax rate was introduced specifically to attract inward investment. And it has been a spectacular success – making this small economy one of the most advanced and globalised in the world. In fact, many countries look to us as a model of success.
As mentioned by the Taoiseach earlier, there is now a fundamental reappraisal underway on how to tax profits of multinationals across the globe, which the Minister and his officials continue to engage on.
This process has some way to go, but as the Minister highlighted in this very room at our Global Tax Policy Conference last month, changes are coming. And they will challenge the sustainability of our FDI business model.
We believe after tinkering with tax policies for SMEs over the last number of years, it is now time to really develop our homegrown business sector. And just as tax policy played a major role in attracting big multinationals to Ireland, it can now be used to incentivise investment and innovation in our indigenous companies.
We already have tax measures that promote investment in SMEs, but they are not working as they should.
External investors are specifically excluded from CGT Entrepreneur Relief. Third party angel investors are welcomed by economies all over the world, not only for their risk appetite but also for the experience and support they bring to our small businesses. But, under the current regime, we ask them to pay a third of the return on their investment back to the State.
Another blocker is the lifetime limit of €1m for claiming the lower 10% CGT rate. The UK limit is £10m sterling. This is a competitive disadvantage that we can fix. And with Brexit around the corner, we surely should!
The income tax relief for investors in early stage businesses (the EII scheme) is a good incentive. But again, there are flaws, flaws that were pointed out in the Indecon report commissioned last year.
The full tax relief should be allowed in the first year of investment. It’s just a timing change, but it would make the relief much more attractive. We also agree that the annual investment limit should be increased for longer-term investors and that capital losses should be allowed under the scheme.
A big challenge for SMEs is attracting skilled workers. Tech start-ups are competing with multinationals who have deeper pockets. The key employee share scheme (the KEEP) introduced two years ago, was designed to address this problem but, so far, only 38 employees have taken it up.
We welcome the Department’s consultation on this scheme, and we note that the changes proposed largely reflect recommendations we made last year. We really need action this year to make this scheme accessible to SMEs.
Finally, we have an attractive R&D tax credit regime. But it just doesn’t work for most SMEs. Almost three quarters of R&D relief goes to multinationals. Yet every authoritative advisory body, nationally and internationally is telling us that our indigenous companies need to invest in R&D.
At this critical juncture in industrial policy, we need an innovation incentive that’s tailored for Irish companies, so that they can grow and compete for new markets in a post Brexit world.
Tax expenditures to incentivise Irish entrepreneurs and start-up companies should
not be treated with suspicion. The resilience of our economy at a time of growing uncertainty and risk, depends on these risk takers. We should believe in them.