Tuesday, 8 October 2019
Financial Resolutions - Budget Statement 2020
For the self-employed, I am increasing the earned income credit by €150 to bring the value of the credit to €1,500. These changes will cost an additional €27 million in 2020.
I am also announcing the extension of the reduced rate of universal social charge, USC, for medical card holders for a further year to the end of December 2020.
I am announcing a two-stage process that will increase tax compliance and, thereby, increase tax yields as part of budget 2020, focused on ensuring the correct amounts of income tax and USC are paid on the income from distributions of resident companies. Revenue has identified a potential gap between the dividend withholding tax remitted by companies and the income tax and USC that is ultimately payable by the individual Irish resident taxpayer.
To address this gap, I am announcing targeted changes to the dividend withholding tax regime that will take place in two steps. First, there will be an increase in the rate of dividend withholding tax from 20% to 25% from 1 January 2020. Second, from 1 January 2021, Revenue will introduce a modified dividend withholding tax regime. This will utilise real-time data collected under the newly modernised PAYE system and allow a personalised rate of dividend withholding tax to be applied to each individual taxpayer, based on the actual rates of tax that they pay.
These changes will not alter the underlying amounts of tax that are due to be paid by Irish residents and will increase compliance by facilitating taxpayers in paying the right amount of tax at the right time. They also provide further opportunity to deliver tangible benefits to taxpayers of the newly modernised PAYE system that has been in effect since January this year.
As I announced in May of this year, I have decided to increase the rate at which the banking levy is charged from 59% to 170%. This new rate will preserve the existing contribution of €150 million paid by the affected financial institutions for 2019 and 2020. A financial resolution will give effect to this increase from tonight.
Ireland has a competitive corporation tax rate. It has served us well and it will not be changing. Our corporation tax revenue has been growing strongly. At the end of September, receipts totalled €5.8 billion, a year-on-year increase of 13.2%. While this is welcome, I am acutely aware of the risks associated with their concentration. This is something I have already acknowledged.
Earlier this year I committed to the publication of a paper to address these specific vulnerabilities and the risks they raise. I am publishing this paper and looking at the policy options that are available to ensure the sustainability of the public finances.
Corporation Tax Reform
The certainty of Ireland's corporation tax rate and our broader regime is an important factor in promoting investment here at a time of growing uncertainty. That certainty is only achievable because we continue to take actions to ensure our tax regime is transparent, sustainable and legitimate. To that end, I will continue to take action on corporation tax reform, as set out in the Government's roadmap.
In the finance Bill of 2019, I will introduce new anti-hybrid mismatch rules in line with our commitments under the anti-tax avoidance directive. I will also make a technical amendment to the exit tax rules introduced last year to ensure they function as intended to be introduced via financial resolution tonight. I will also reform our transfer pricing provisions to ensure they are in line with the up-to-date standards of the Organisation for Economic Co-operation and Development, OECD. Those new rules will apply from 1 January 2020.
The process of global tax reform is ongoing. The challenge before us is to build a global and robust tax architecture that works for all into the future. I believe that it is in Ireland’s interest that this work be successful at ensuring the continuation of a stable and consensus-based international tax framework into the future. As this work continues, my priority will be to ensure that our interests are central to the process of forming a new consensus.
Irish Real Estate Funds and Real Estate Investment Trust
Institutional investors have an important role to play in increasing supply both of commercial and residential property. This type of investment is very welcome at a time when increasing supply to meet housing challenges is so important. However, it is also essential that an appropriate level of tax is paid by such investors. Following review of the first financial statements filed this year by IREFs, Revenue has identified that some IREFs have engaged in aggressive behaviour to avoid tax.