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Ireland’s National Recovery Plan... What it Really Means for Taxpayers


Ireland's National Recovery Plan 2011-2014 was published on 24 November 2010. Significantly key changes to tax measures such as business tax matters, income tax, pensions, abolition of certain tax incentives and reliefs, property tax, indirect taxes and excise duties and capital taxes were announced, all of which will have an impact on taxpayers. With the Irish Budget due to be announced on 7 December 2010 all eyes will be on how Ireland and their plans for 2011. Taxand Ireland reviews the National Recovery Plan and identifies what this actually means for taxpayers, whilst also quashing rumours that their attractive corporate tax rate is to be abolished.

Key Highlights

Business Tax
Notably the 12.5% corporate tax rate is a fundamental part of attracting multinationals to Ireland. The rate when introduced was unanimously supported by all parties. Since its introduction each successive government has reiterated support for maintaining the 12.5% rate of tax. The Plan reiterates the Government's support of retaining the 12.5% rate of corporation tax. Recent press speculation concerning Ireland's ability to retain the 12.5% rate of corporation tax from certain sectors within the European Union is misleading and mischievous.

Income Tax
On Income Tax the Plan envisages a EUR15 billion reduction in the deficit with 40% being delivered in the next Budget to be held on 7 December 2010. The Plan intends to raise nearly EUR2 billion in additional income tax. It intends to raise this money by a reduction of 16.5% in the value of the tax credits and bands. The idea is to rebase the income tax system to what it was in approximately 2006. The challenge for the citizen will be to rebase their expenditure to 2006 levels, which will prove to be the greater challenge. With interest rates at historically low levels the real worry for the Irish citizen will be the impact on raising interest rates through the ECB in the coming years. The reduction in the average net disposable income as a result of this Plan is approximately EUR4,600 per family.

By far the largest use of taxpayers money by the State is in public sector pay and pensions. The Plan does nothing to tackle this problem. While the Plan tinkers around the edges, it unfortunately refuses to grasp the nettle firmly.

Indirect Taxes & Excise Duties
The standard rate of VAT (currently 21%) is to be increased to 22% in 2013 and 23% in 2014. Irish businesses for years have suffered the migration of shoppers over the border to Northern Ireland to purchase products. This activity was encouraged due to the fact that the UK had a VAT rate of 17.5% and the Euro had appreciated significantly against Sterling. The UK Exchequer is raising its VAT to 20% from January 2011 and the Euro is weakening against Sterling. These factors act as a disincentive for Irish citizens to purchase goods in the United Kingdom. Raising the Irish VAT rate again is a mistake.

The 2010 Budget introduced a carbon tax at a rate of EUR15 per tonne and the price of carbon is to be doubled over four years. This is effectively a fuel tax as Ireland provides no alternative energy source other than the burning, in some shape or form, of fossil fuels. This will make transportation of goods within Ireland expensive and will not help in our competitiveness.

Capital Taxes
In recent budgets the CGT and CAT rates have been increased from 20% to 25% and the DIRT rate now stands at 25% and 28% for certain savings products with less frequent payments of interest. The Plan envisages that the process of increasing tax rates will continue. The base for CGT and CAT will be broadened and the level of reliefs/exemptions will be reduced. In 2012 the current single CGT rate of 25% will be changed to a system of differing tax rates for different levels of gains.

Read the full Plan analysis and commentary from Taxand Ireland here

Taxand's Take

Both home-grown and foreign businesses should keep an eye on how these tax changes unfold to ensure tax efficiencies are maximised as these changes are put in place. Multinationals can breathe a sigh of relief in the knowledge that the attractive corporate tax rate in Ireland is here to stay, for the time being at least. However, close attention should be paid to the increase in VAT from 21% to 22% in 2013 and 23% in 2014. Planning for this increase should get underway now to mitigate risks and minimise additional costs that could arise when putting these changes in place.

Your Taxand contact for further queries is:
Martin Phelan
T. +353 1 639 5138

Taxand's Take Author