Ms Olivia Buckley:

Thank you very much, Chairman. I intend to share my time with my colleague, Cora O'Brien, our policy director.

I thank the committee for the invitation and the opportunity to outline our views on the tax barriers and tax-related costs of doing business. The institute has recently undertaken a detailed analysis of the Ireland's tax policy and tax administration system as it relates to Irish business. The analysis highlighted some of the aspects that have a restrictive impact on the growth potential of our businesses. These restrictions act not only as blockers but also build additional costs into the system. These costs and the additional costs that are already emerging because of Brexit impact on the competitiveness of our businesses at a time when they need to be business-ready and fully supported not only for the challenges but the opportunities that arise in the global environment.

Tax-related costs to Irish businesses arise from two issues: tax policy and tax administration. Ms O'Brien will deal with the tax administration issues presently.

Many issues arise on the tax policy side. Some of these have already been mentioned by Chambers Ireland. The first is personal tax. Our high effective personal tax rates continue to be a challenge for employers trying to source the best possible staff in Ireland and abroad. Obviously, they represent a labour cost. We have had progress in the recent budget around the threshold for the higher income tax rate and the USC cuts. However, the fact remains that there is a marginal income tax rate of 52% for some earners in Ireland. This is among the highest personal tax rates in global terms.

Funding is also an issue for Irish businesses. Its relevance has been highlighted in the past week in particular given the ECB reports on Irish interest rates to business versus those of other EU countries. There are also issues with regard to interest rates in our tax administration system, which will be elaborated on further by Ms O'Brien.

Irish small and medium-sized businesses are more reliant on bank finance than those of other EU member states. They need to diversify into other sources of finance, including equity, a point that has been made by the European Commission and the National Competitiveness Council. This makes our capital gains tax environment critical. Yet, at 33%, we have the fourth highest capital gains tax rate in the OECD. This does not incentvise investment into businesses.

We also need angel investors. They are important part of the funding story. Yet, when it comes to Ireland's entrepreneurs relief system these important angel investors are locked out of our regime. They bring not only money but experience, contacts, expertise and enthusiasm. The rate of business angel investment in Ireland is low compared to other countries, including the UK, Spain, France, Germany and Sweden. We are also behind similar economies of a similar size, including Denmark and Finland. This is to the detriment of building and scaling Irish businesses. It was a subject on the business news on "Morning Ireland" this morning.

There are also costs associated with policies that do not work. For example, in our Brexit environment there is recognition across the board that we need more exports. Yet, measures such as our foreign earnings deduction regime are limited. The measure is aimed at encouraging businesses to send employees into emerging markets. However, only 144 claims were made in 2014. Across the policy regime we are not fully aligned with the needs of the indigenous sector. We need to look at the blockers and costs involved.