Ireland’s economy continues to perform well above the average euro zone GDP growth rate. The State continues to attract significant foreign direct investment despite the uncertainties posed by Brexit and the changes to the global tax landscape, which are being led primarily by the OECD Beps process and EU developments.

Overall, Ireland is very well placed in the international context, with an open and transparent tax regime that is recognised by the EU and OECD as broadly fit for purpose and a very attractive suite of offerings.

Our low rate of corporation tax, coupled with our measures to encourage and support innovation in the form of the R&D tax credit, the Knowledge Development Box regime and other reliefs for intellectual property acquisitions, position us well for the future.

However, given the wider debate under way regarding the levels of tax which multinationals pay and where these taxes should be paid, getting international agreement on a suitable tax system is key.

Ireland has been a leading participant in the OECD Beps process, making a number of early changes to its regime, and we must continue to engage robustly in this process.

Good opportunity

Against this backdrop,

Budget 2017

has presented a good opportunity for Minister for Finance Michael Noonan to reaffirm the stability of Ireland’s tax policy while at the same time laying the foundations for further growth and new opportunities.

Until the Brexit negotiations commence, it is impossible to know the exact nature of the UK’s future relationship with the EU and the direct impact on Ireland.

However, PwC’s pre-budget survey of senior business leaders shows that almost half of those surveyed view Brexit as posing more of a threat than an opportunity to their businesses. A high proportion also believe the Minister should improve measures that encourage entrepreneur investment and enhance employee participation in companies.

Closer to home, the minority Government presents its own challenges and has led to Budget 2017 being described as the “most complex” budget ever. Confidence in Ireland’s political stability is vital both at home and overseas, so it is important that this budget is passed by the Government.

With a modest budget of just under €300 million to spend on tax adjustments this year, Noonan has thus sought to play it safe with tax measures that give a little to everybody and largely maintain the status quo for businesses. He has continued the trend of recent years by targeting the adjustments mainly at reducing personal taxes and making some enhancements to tax reliefs for entrepreneurs.

From a personal tax perspective, while the decreases in the univeral social charge (USC) rates will benefit all taxpayers, they are intended to ease the tax burden on lower- and middle-income workers.

Headline rate

It is disappointing to see that yet again no move has been made to address the marginal income tax rate for high-income earners. Ireland’s headline rate of 52 per cent for earnings above €70,044 is one of the highest in the OECD. In many countries, the top rate of tax does not apply until earnings reach minimum thresholds of €150,000 or more.

This is widely seen as a threat to Ireland’s ability to attract overseas talent. Revising the marginal tax rate and entry point would be a positive step.

Alternatively, more targeted initiatives could be used such as improving the Special Assignee Relief Programme (SARP) which, while greatly enhanced and more widely availed of in recent years, still remains less attractive than other regimes in Europe.

Entrepreneurs are key to economic growth in Ireland and it is important that Ireland is seen as an attractive location for mobile capital investment. The enhancement announced to entrepreneur relief, decreasing the preferential capital gains tax (CGT) rate to 10 per cent, is a positive step. However, the relief remains subject to a lifetime limit of €1 million which is far lower than similar incentives provided overseas. It is hoped that this threshold will be increased in future budgets.

Ireland is undoubtedly facing into an era of significant international change. Key challenges will be to ensure that we continue to strengthen our competitiveness and create the opportunities which allow start-ups, SMEs, large corporates and multinationals to thrive and prosper in Ireland.

Joe Tynan is head of tax at PwC