Taxation and incentives

The coming years will see a significant change to our business tax model, not least the introduction of a minimum effective tax rate for large multinational enterprises (MNCs) from January 2024 and significant changes to our tax base. In this context, standing still is not an option. Tax will be less central to our offering in the future, but it will still be a lever of competition. It is imperative that both our offering for FDI and Irish headquartered multinationals is maximised to drive investment and growth. There will be a particular need to focus on tax simplification, investment in R&D and ensuring we maximise the attractiveness of our tax offering for highly skilled and mobile talent.

Recommendations:

• Continue to improve the R&D tax credit: The current credit would benefit from greater certainty around decision-making consistency and broader administration. We should also remove or significantly increase the €100,000 or 15% limit on qualifying outsourced expenditure to Third Level Institutions and the restrictions on outsourcing to related parties. Continually review Appendix 1 (SI No. 434 /2004) R&D qualifying activities to ensure they keep pace with ongoing scientific progress.

• Introduce accelerated capital allowances for advanced manufacturing: This should include computerised/computer-aided machinery and robotic machines. Ireland has the second-lowest density of industrial robots in the EU15, despite them being strongly linked with increased productivity. Research by Micheals and Graetz (2018) has shown that growth in robot density (robots per worker) accounted for about one-sixth of productivity growth between 1993 and 2007.

• Simplify our corporate tax regime to reflect new realities: Ibec supports a move to a territorial system of taxation for Ireland on the basis that there are many wide-reaching policy benefits of such a move. The merits of such a regime have been discussed in previous consultations over recent years, most notably the Coffey Review of Ireland’s corporation tax code. These include reduced complexity, lower administrative costs, and greater certainty for taxpayers. Indeed, Ireland is unusual as the only EU country left operating a global regime and one of only four OECD countries doing so. This undermines Ireland’s reputation for competitiveness vis-a-vis other regimes globally. We also strongly support the reform of Ireland’s interest deductibility rules. The increased complexity of Ireland’s interest deductibility rules combined with Anti-Tax Avoidance Directive (ATAD) rules, and a new layering of Pillar 2 will require simplification of the overall system to avoid it becoming vastly complex and restrictive compared to our competitors.

• Introduce a low-carbon super deduction: The accelerated capital allowance for energy-efficient equipment which has recently been extended to 2025 should be improved to ensure the uptake of low-carbon technologies. The capital allowances should be increased to a super deduction of 130% of capital outlay and significantly simplified – to bring forward investment in our low carbon future.