Ms Anne Gunnell:

Against that backdrop, we cannot allow our tax regime to block what is good. We have dedicated agencies, educated talent, the ability of our people and an expanded global footprint within our diplomatic service. We must have tax policies to match that. Given the severity of access to finance for Irish business, I will first address the existing tax measures that promote investment. We have two major schemes, namely, the targeted capital gains tax, CGT, relief for entrepreneurs and the income tax incentive for individuals who invest in Irish business, known as the employment and investment incentive, EII. The backdrop to Ireland's high CGT rate makes analysis of the measures even more important.

CGT is a key determining factor for investment in businesses. It can help or hinder the process. It is unquestionably the tax that matters most to investors and influences their behaviour. When we addressed the committee last year, Ireland had the fourth highest CGT rate in the OECD at 33%. France was at the top of the table. This year, President Macron, in his determined effort to attract more investment into French start-ups and tech companies, slashed the French rate to 30%, pushing Ireland into third place, 13 percentage points above the OECD median rate, a stark position considering what we are trying to do for Irish companies. Our targeted revised entrepreneur relief is important in that, to a limited extent, it helps reduce the CGT burden on the sale of a business. However, this tax measure is uncompetitive. It compares poorly with the UK, which makes London a more attractive location for the investors we badly need. The relief applies to a £10 million gain in the UK but in Ireland the gain is limited to €1 million. From the point of view of an investor, there is no competition between the two offerings. As Ms Buckley mentioned, the relief also locks out the important angel investors who invest not only money but also experience and industry expertise, which are vital factors when we consider the deficit of managerial capability in Irish business, as highlighted by the OECD. While cities such as Paris, Berlin, Stockholm and Tokyo embrace angel investors, Ireland's tax regime excludes them. The impact of this is that business angel investment in Ireland is low compared with that in other countries.

The second financing tax measure of Irish businesses is the EII. It encourages investors to place finance in early stage and small businesses that have limited funding options. Such businesses must very often rely on finance from family and friends. The EII plays a vital role in scaling start-ups and small businesses to the next level of growth. While the scheme is welcome, there are now many blockages within it. Several design features of the scheme are barriers to investment, such as splitting the tax relief into two tranches, the annual investment limit of €150,000 and the revised connected party rules following the Finance Act 2017. The EU state aid general block exemption regulation, GBER, under which the EII operates, also has a significant impact on the scheme and adds to the cost and complexity of claiming EII. It is particularly difficult for businesses seeking to raise a second tranche of EII funding and those wishing to raise EII after having been in operation for seven years. A restrictive administrative process is stifling the use of the relief. The GBER provisions are applied retrospectively to business plans prepared before its introduction. The institute recommends that a full economic analysis of the impact of the GBER on the EII be undertaken and welcomes the consultation currently being undertaken in that regard by the Minister for Finance, Deputy Donohoe.

As Ms Buckley mentioned, Irish companies need the best human capital and talent to increase managerial skills, innovation and research and development capability. Given the high personal tax rates in Ireland, a workable share option scheme that can help Irish small and medium enterprises, SMEs, to attract talent to grow their businesses is essential. We welcome the introduction of the new key employee engagement programme, KEEP, which provides an opportunity for SMEs to compete with listed companies to attract and retain such talent. However, the scheme has limitations which could significantly impact its feasibility and, ultimately, its success in achieving its policy aim. Issues surrounding the qualifying criteria for individuals, the design of the remuneration limits and the narrow definition of a qualifying holding company under the scheme rules are creating difficulties for many SMEs in qualifying for KEEP.

Innovation is a central ingredient in the strategic plans for other countries when it comes to growing their SMEs. The link between innovation and productivity has been highlighted by the OECD, the IMF and the European Commission. Ireland has an attractive research and development tax credit regime but administrative blockers are weighing heavily on its success in terms of the low take-up among SMEs. Research undertaken by the institute in 2017 found that only 35% of companies surveyed intended to use the research and development tax credit over the next 18 months, although that would rise to 62% if there were more clarity on the criteria for qualification. Of significant concern is the fact that the research and development tax credit regime restricts outsourcing and collaboration, a condition that is at odds with best practice by international standards, which actively promote outsourcing and collaboration with the university sector. In Germany, the incentives are aimed at collaboration and partnership with universities is key.

From our submission in 2016, members will be aware that one of the key challenges in our current tax policy making process is the insufficient time available to scrutinise legislation announced in the budget. Apart from key income tax changes and other sensitive measures, we believe that tax legislation should be published for consultation in advance of the finance Bill. This could be done on an issue-by-issue basis throughout the year in the same way that consultation takes place on important policy matters such as controlled foreign company rules, share options and the tax treatment of entrepreneurs. In their 2017 report on tax certainty, the IMF and the OECD stated, "Legislative and tax policy design issues are a major source of tax uncertainty, mainly through complex and poorly drafted tax legislation and the frequency of legislative changes." Given the importance of all the anticipated complex changes to the Irish tax code over the next two years arising from the EU anti-tax avoidance directives, the mandatory disclosure directive and the Coffey review recommendations, it is imperative that we address this problem. I thank the members and we welcome their questions.