Aidan Byrne of RSM Ireland recommends rolling with the changes as the tax landscape continues to shift, writes JJ O’Donoghue.
If past is, as they say, prologue, then the next few years looks likely to be one of great upheaval within the global tax landscape. One constant, though, has been the unchanging figure that is Ireland’s corporate tax rate, holding steadfast at 12.5 per cent, its attractiveness undiminished. Amid the wave of onshoring business operations to Ireland in the past few years, stemming from a global effort to tackle domestic tax base erosion and profit shifting (BEPS), “key to Ireland’s success is that 12.5 per cent tax rate”, according to Aidan Byrne, lead tax partner at RSM Ireland.
“The fact that it’s there since around 2000 is a huge benefit to business because they know it’s going to be there, it can be relied upon,” Byrne said, referring to the tax rate.
But our corporate tax rate does not exist in a vacuum. “The fact that we have a reasonably open economy that allows people to come in and work here, and that it is actively encouraged by government bodes well for Ireland in the medium term.”
As Byrne outlined, with a new US administration in place, our corporate tax rate takes on an even greater significance for multinationals. A Biden-led administration is likely to re-engage with globalisation and global tax reform, but as it looks to resuscitate its economy, bringing jobs back to the US might also be on the cards.
“There is a potential for tax changes in the US,” Byrne said, adding that many countries are either acting or threatening to act unilaterally with tax reform, especially around areas such as digital taxes.
When it comes to the hot topic of digital taxes, Byrne thinks that tech companies – many of which have had a bumper past year – will have to plan for it. “If a country with a huge population decides to impose a tax because its citizens are utilising a particular platform, I don’t think there’s anything that a large global company can do about that. I think it will become a cost of doing business,” he said.
However, he cautioned that potential tax reforms don’t necessarily mean that companies will look to reshuffle operations out of Ireland. Given the infancy of the new US administration, there’s still a certain amount of guesswork going on, but given Biden’s tenure and experience, re-engagement with globalisation is on the cards.
For countries such as Ireland, the competition to attract FDI is fought within Europe, which has become fractured since Brexit, a lengthy and messy process that could actually benefit Ireland. “We’re competing with the UK, the Netherlands, Luxembourg and Germany, and while the tax rate is important, really there are very few clients that have come to Ireland purely for tax reasons,” Byrne said.
The deciding factor is always a mix of factors such as “market access and talent” among other things, Byrne said.
One area in which Ireland still has work to do is ensuring that more companies based in this country commit to research and development and avail of the valuable tax reliefs available. Introduced in 2016, the Knowledge and Development Box, enables companies carrying out research and development (R&D) activities in Ireland to benefit from a favourable tax rate of 6.25 per cent. The scheme was due to end in 2020, but has been given another two-year extension.
On the domestic front, Byrne said more could be done to help indigenous businesses, especially as they deal with the effects of an historic economic and health crisis.
While businesses have been allowed to warehouse tax debt, Byrne said that “the liability will still need to be paid down the road”.
While there’s much that the government is doing that is helpful to business, for example by way of providing soft loans via the pillar banks, Byrne thinks given the scale of the financial crisis facing many businesses, we need to think creatively and boldly to help business rebound.
One way would be to allow businesses to turn losses into cash, “almost like a tax refund”, similar to what is done with the research and development tax credit. That cash refund may be key to these businesses getting back up and running.
“Little things like that to support domestic companies would be very helpful,” Byrne said.
The government has shown that it is well able to get creative and competitive when it comes to matters of tax, and perhaps some of that spark is what is needed once more.
*As seen in Business Post, January 2021.