2007
To view the full text of the IEA Pre Budget Submission, click here.
Press Release
Pre-Budget Submission 2007
Immediate Release
Monday 15 October 2007
The Irish Exporters Association (IEA) today (15 October 2007) met with Minister Brian Cowen TD to present the Association’s Budget recommendations.
The key messages delivered to the Minister were;
Global trade dynamics are very favourable for the continued rapid growth of Services exports from Ireland if we re-focus the Irish taxation system to meet the needs of the major international and rapidly growing services companies.
Joe Lynch, President of the IEA, stated at the meeting with the Minister;
“Services exports can, with the right taxation environment, double in size to over €100 Billion in the next 5 years.”
He stated that:
“Services exporters had managed to double exports in the past 5 years to €53 Billion but that a number of supporting measures had been dropped in recent Budgets and that consequent difficulties arising from these changes, if not corrected, would undermine future growth of the sector.”
In addition he said; “many of these countries had introduced new measures which had enabled their service exporters to move their game forward, and make advances in market share. Similar advances in the Irish business legislation were now needed to ensure we were not attempting to trade at a competitive disadvantage in future years.”
Recommendations by the IEA to improve service export competitiveness and enable continued growth were presented as follows;
(1) Reintroduce Remittance based taxation to help retention of skilled staff.
Irish industry faces strong competition internationally for highly skilled staff that are required in our services industry sectors and our advanced manufacturing sectors.
The remittance basis of taxation was a highly attractive proposition to enable Irish based companies to bring in skilled workers to Ireland. Under the scheme, an individual resident, not domiciled in Ireland (e.g. a citizen of Germany, working and regarded as a tax resident in Ireland), was liable for Irish income tax on their Irish remitted income, but not on “foreign” income.
Liam Shanahan, Chief Executive of rapidly growing international services company Shanahan Engineering and Vice President of the IEA stated at the meeting with the Minister;
”This scheme was abolished in January 2006 and has had a negative impact of the ability of MNCs and Irish indigenous companies to attract key staff required in areas such as financial services, hi-tech manufacturing and engineering services.
He went on to say;
“If we want high-value jobs in Ireland we have to attract in high skilled professionals. These people are used to imbue their skills through working with, and mentoring other local staff. In this way, knowledge is passed on to create the knowledge economy we are now moving into.”
(2) Reintroduce Relief for income tax for staff who work abroad on export sales.
Liam Shanahan, Vice President, IEA, on this issue stated;
“The reintroduction of this tax without the requirement to spend two weeks overseas – this condition no longer accurately reflects today’s profile of key executives - who fly out on a Monday and return on a Friday. This is a very demanding routine when carried out week after week and incentives are required to encourage more executives to take on this demanding schedule. This is more critical for services exporters than for goods exporters.”
In particular the IEA point to many other countries such as the USA who offer these inducements to keep international presence.
Hence the IEA recommends that 50% of salary with a cap of €80,000 euro tax free for employees spending more than 90 days in the year working abroad.
(3) Holding company legislation no longer competitive
The benefits of placing high added-value and strategically important business functions in Ireland such as head quarters or R&D centres and regional head offices are well known.
However, the international competition to attract foreign multinational corporations’ strategic business functions has increased. But so also has the nature of fast-growing indigenous Irish companies who primarily trade internationally, and these companies are also faced with competitive pressures to locate HQ activities abroad.
Currently Ireland has double taxation agreements with approximately 44 territories. However, the UK has agreements with 112 territories approximately, and the USA 120 territories approximately.
Hence, a company locating its HQ in Ireland has to pay 12.5% on profits in a wide range of territories, compared to locating the HQ in London, for example.
This situation will come to a head for a range of companies currently on 10% corporation tax, but due to loose this in 2010.
Joe Lynch, IEA President stated at the meeting with the Minister;“It is essential that we introduce a tax exemption regime for a list of territories (a “White List”), agreed with industry as key trading countries, other than those currently covered by the double taxation agreements.”
He also asked the Minister to introduce a “Pooling” arrangement for royalties so that they can be paid in territories not included in the Double Taxation agreements. This would benefit particularly pharmaceutical and software corporations. The idea is to pool all overseas territories and their income as one, and tax would apply only on Irish profits.
(4) Closed Company Surcharge (CCS)
The 20% surcharged on undistributed profits was introduced some years ago to tackle the problems in SME and services companies where owner directors avoided normal income tax arrangements.
However, tax legislation has moved on in many respects which makes the closed company surcharge outdated. The BIK legislation for example, has taken much of the attention off the need to continue with the surcharge.
Mr Lynch stated;
“The IEA members are particularly concerned that the CCS legislation discourages SMEs to re-invest in their business. This is particularly important if we wish to encourage SMEs to invest to expand into international markets.”
“Hence we are asking the Minister in his up coming Budget to abolish the 20% surcharge for closed companies on undistributed profits.”
(5) R&D – Interpretation of Definition is problematic for service exporters
When taken with other grant aid measures of the State, the tax credit for research and development is quite generous.
However, as we move more towards a service based economy, with services exporters leading the growth tables, an anomaly has arisen due to the legacy nature of R&D definitions being orientated to the pursuit of manufactured products.
Exporters small and large have stated their problems in this regard;
- Difficulty in knowing if the activity qualifies for tax credit
- The complicated regulations associated with applying for tax credits are daunting for many SME services exporters
- The Revenue Commissioners have different interpretations for qualifying R&D to those used by Enterprise Ireland or the IDA
- The accepted accountancy profession definition of qualifying R&D also varies from the definition used by the Revenue Commissioners
The core problem seems to be the interpretation of the legislation in the Finance Act.
Joe Lynch, IEA President, stated;
“Exporters, particularly service exporters, need an alignment of the legislation on tax credits to the accountancy profession definitions. This we believe will assist services companies, both large and small; make better use of the tax credit system in expanding into more new service development.”
Ends.
For the full text of the Pre-Budget submission by the IEA see the IEA website, or contact John Whelan Chief Executive:
Email: jfwhelan@irishexporters.ie
Tel: + 353 1 661 2182
About the Irish Exporters Association (IEA)
The IEA represents the needs of export industry ensuring that the necessary conditions are created and the necessary support is provided to assist companies to maximise their export sales. The IEA draws its membership from every exporting sector, ensuring that the interests of all industries are represented and promoted at the highest level.
www.irishexporters.ie
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