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The Minister’s budget speech was remarkably brief in relation to taxation. A large number of topics known to be under consideration in official circles were not touched on in the speech. These may yet surface in the Finance Bill.
A budget consists of as much of the good news as the Minister can think of, and as little of the bad news as he is obliged to reveal to balance the arithmetic.

Many measures important to business surface in Finance Bills without having been previously referred to in budget speeches. For that reason the Minister’s silence on several topical matters does not mean that the Finance Bill will not deal with them. We shall know in late February or early March, when the Bill is published, and when the Committee Stage amendments are subsequently produced.

Transfer pricing
The Revenue Commissioners have made it known over the last two years that they have been studying the possible introduction in Ireland of transfer pricing. Transfer pricing rules in a tax code normally require that transactions by taxpayers with connected parties overseas should be done on a basis that does not unfairly reduce Irish taxable profits. Ireland does not have a problem in this area for the greater part. Ireland’s low tax rates encourage people to maximise their Irish profits rather than to attempt to minimise them.

The possible introduction of transfer pricing rules is more for the sake of ‘international respectability’ than for any practical needs of the Irish tax system.

It had been expected (and hoped for) that the Minister would announce a consultation process before finalising legislation in the area. This is an issue on which Civil Servants may not have a monopoly of wisdom. The absence of any reference to it could mean that the process has been put off for at least one year.

Share options
Ever since the law was changed to impose income tax on the capital gain arising to an executive when he exercises a share option obtained from his employment, there have been vain attempts to modify this penal treatment.

Most recently the 2001 Finance Act introduced approved share option schemes. These restored the capital gains tax charge on the gain on the exercise of the option and cancelled the income tax charge.

However it has proved in practice virtually impossible for options granted prior to Finance Act 2001 to be fitted within this structure. The restrictive conditions of the scheme, which inhibit a company from primarily favouring its most valuable employees and directors, has proved unattractive to business. It had been expected that the Minister would address these defects in some fashion.

Participation exemption
Ireland is geared to attracting foreign investment but paradoxically foreign investors find that it is not a suitable location for a holding company. Primarily this is because Ireland charges capital gains tax on the disposal of overseas subsidiaries of such a company. Many continental countries grant an exemption in such circumstances. The UK (our major competitor for US investment) is proposing to introduce such an exemption. Action by the Minister was expected.

Intellectual property and intangibles
Irish legislation on the taxation treatment of the cost of acquiring intellectual property is generations old. It has not been revised to reflect the fact that mobile international investment is now largely knowledge driven rather than screwdriver based. The UK (our principal competitor for inward US investment) is proposing to introduce a regime that will allow the cost of acquiring know-how to be written off, generally on an accounts basis. Some action in Ireland would seem inevitable.

R&D credits
Irish industry is not as significant an investor in research and development as is desirable. Due to a fall in corporate tax rates it is difficult to provide an incentive for such expenditure by improving the conditions for writing off the costs. The UK has published a consultative paper in which it proposes to introduce a system of tax credits ie for offset of the expenditure against the tax payment, rather than against the taxable profit. A similar proposal has been on the Irish agenda for several years.

Capital duty and stamp duty
Ireland has a 1 percent rate of capital duty which is levied on increases in the share capital of most limited companies. It charges a 1 percent stamp duty on share transfers. In contrast the UK has abolished capital duty and the stamp duty rate on shares is generally 0.5 percent. The capital duty charge places Irish financial service companies at a disadvantage vis a vis UK competitors, and competitors in many other European states who have abolished the tax. The higher stamp duty rate may make shares in Irish quoted companies relatively less attractive to international (and even domestic) investors compared to quoted shares in many jurisdictions that do not charge stamp duty.

The Pension Bill 2001 is legislating for a new pension product, a personal retirement saving account (PRSA). This will be a pension vehicle linked to the individual employee and moving with him from job to job, rather than one linked to a particular employer. The tax regime to apply to a PRSA has not yet been disclosed. It would be surprising if it is not legislated for in the Finance Bill.

Car park benefit in kind
For two years the Minister has endeavoured to impose a benefit in kind charge on employees who park their cars in an employer provided car park space. The state is one of the largest providers of car park spaces in the country (including at Leinster Lawn). It remains to be seen if the Minister has given up on the idea or is still trying to find a workable method of imposing the tax. The idea has been greeted with widespread scepticism and would be seen as applying primarily to Dublin based employees.

Plastic bag levy
The Minister for the Environment has already announced that a plastic bag levy will be introduced in February 2002. This has already been implemented by a government order.

It will be surprising if some at least of the topics outlined above do not appear in the Finance Bill when it is finally passed into law at the end of March.

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