Jim O'Callaghan (Dublin Bay South, Fianna Fail)
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35. To ask the Minister for Finance his response to the recommendations relevant to his Department of the Joint Oireachtas Committee on Budgetary Oversight’s ‘Examination of the Commission on Taxation and Welfare Report’; and if he will make a statement on the matter. [27409/24]

Jack Chambers (Dublin West, Fianna Fail)
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The Committee on Budgetary Oversight published its report examining the Report of the Commission on Taxation and Welfare in September 2023. The committee’s report makes 40 recommendations that further build on some of the issues dealt with by the Commission’s report.

The Commission’s report sets out that the recommendations are not intended to be implemented all at once, but rather provide a clear direction of travel for this and future Governments around how the sustainability of the taxation and welfare systems may be improved in a fair and equitable manner. Many of its recommendations will need further consideration and research and the committee’s report represents useful progress in that regard.

This Government clearly recognises that many of the recommendations contained in the report are challenging, particularly in this current environment, however that should not take away from this important work which is focused on the longer term and will contribute to debates on the optimal balance of taxation for many years to come. While the recommendations are aimed at the medium to longer term, my Department has already taken a number of actions.

For example, my Department conducted a review of Ireland’s personal tax system which was published with Budget 2024. In addition, as recommended by the Commission, my Department is conducting a wide-ranging review of the funds sector under the broad and interlinked themes of “Open Markets, Resilient Markets and Developing Markets”. A public consultation has been completed and a wide range of research, analysis and stakeholder engagement has been undertaken.

Regarding tax equity and base broadening, I note that the committee broadly agrees with the Commission’s proposals to broaden the tax base.

In relation to capital taxes, my Department remains cognisant of the potential impact of any proposed capital tax measures on the property market, including any possible distortionary effects on the market’s function.

The committee has made recommendations on retirement savings, my Department and Revenue are working with the Department of Social Protection to prepare legislative provisions governing the taxation treatment of Auto Enrolment savings, and the committee’s recommendations will feed into that work.

The committee has made observations on a Site Value Tax on land not currently taxed under the Local Property Tax (LPT) regime. There are a number of factors to be considered and as noted by both the committee and the Commission report, the introduction of such a regime will be complex and challenging.

In relation to supporting enterprise and in particular small and medium enterprises (SMEs), the Finance (No. 2) Act 2023 implemented a number of enhancements to the Employment Investment Incentive (EII). A review of this incentive is currently underway. That Act increased the rate of the R&D tax credit from 25 percent to 30 percent, maintaining the net benefit of the credit for large corporates in scope of Pillar Two and providing a real increase in support for SME companies. It also provided for a new capital gains tax relief for angel investors.

The current policy approach to carbon tax involves a long term multi annual trajectory of increases leading to a rate of €100 per tonne of carbon dioxide emitted in 2030. Budgetary publications clearly signpost the carbon tax rate changes and related impacts such as estimated yields and the specific allocation of funds arising from the increase for expenditure measures.

My Department is focused on and committed to improving how Tax Expenditures are reported and evaluated. Officials have been working closely with Revenue to implement recommendations in this area. Progress is being made in my Department on evaluating and reviewing tax expenditures and updated Guidelines on Tax Expenditures will be published by my Department in the coming months.

Both the Commission’s report and the committee’s report stress the need to plan for the future challenges facing Ireland. It is important to note that in addition to the annual budgetary cycle that going forward, EU Member States will be required to prepare and submit medium-term structural-fiscal plans to the European Commission under a new economic governance framework. Ireland will publish its first medium-term structural-fiscal plan in the autumn.

Cathal Crowe (Clare, Fianna Fail)
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36. To ask the Minister for Finance if he will consider changing current taxation rules which are overly burdensome on individual investors who are seeking to grow their savings and plan for the future (details supplied); and if he will make a statement on the matter. [27487/24]

Jack Chambers (Dublin West, Fianna Fail)
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I note the Deputy's query in relation to the taxation of individuals savings and investments and whether any changes are being considered in this regard. As with all areas of tax policy, the taxation of savings and investments will be kept under review throughout the annual budgetary and Finance Bill process.

As regards the Deputy's comments in relation to individual savings schemes. The Deputy will be aware that the UK have individual savings account (ISA) schemes in place, which allows for savings and investments free from UK tax. The introduction of a new financial services product in Ireland on the lines of the UK ISA or the TFSA in Canada would need to be considered in the wider policy context. The introduction of a similar type scheme would need to comply with EU financial services legislative and regulatory requirements and the tax implications would be determined by the structure of such a scheme.

Last year, on 6 April 2023, I published the Terms of Reference for a review of Ireland’s funds sector - ‘Funds Sector 2030: A Framework for Open, Resilient & Developing Markets’. The review is wide ranging and looking at a range of issues relevant to the funds sector, taking into account the recommendations in this area of the Commission on Taxation and Welfare 2022 report, Foundations for the Future.

In that context, one area being considered by the review is the taxation regime for funds, life assurance policies and other related investment products; with the goal of simplification and harmonisation where possible. A public consultation was held from 21 June 2023 to 15 September 2023 and the review is now well advanced.

A progress update was subsequently published on 21 December 2023. The progress update highlighted the main trends, risks, challenges and opportunities facing the funds industry in Ireland out to 2030, as identified in the responses. Based on the data available, Irish savers and investors do not invest in as broad a range of products as in many other Member States. However, there are many reasons for this including taxation. The progress update also summarises proposals made in submissions in relation to the taxation of Exchange Traded Funds and for a tax-free/tax-advantaged retail savings and investment product. As per the terms of reference, the Review team will report to me this Summer and I look forward to considering its findings at that point. On that basis it would not be appropriate to presuppose any outcomes of the review at this time.

Additional information on the taxation of ETFs

An ETF is an investment fund that is traded on a regulated stock exchange. A typical ETF can be compared to a tracker fund in that it will seek to replicate a particular index.

ETFs, being collective investment funds, generally come within the regimes set out in the Taxes Consolidation Act 1997 for such funds. The domicile of the ETF will generally determine the applicable fund regime, specifically whether the ETF falls within the domestic fund regime or the offshore fund regime.

Where the domestic fund regime applies, a ‘gross roll-up’ applies such that there is no annual tax on income or gains arising to a fund but the fund has responsibility to deduct an exit tax in respect of payments made to certain unit holders in that fund. To prevent indefinite or long-term deferral of this exit tax, a disposal is deemed to occur every 8 years. Where the offshore fund regime applies, the applicable tax treatment depends on the location and nature of the fund.

Income and gains arising from investments into Irish and EU domiciled ETFs are subject to income tax at a rate of 41% on a self-assessment basis. Such income and gains are not subject to Pay Related Social Insurance (PRSI) or Universal Social Charge (USC) liabilities. This charge to tax does not apply in the case of unit holders who are non-resident. In the case of non-resident investors, liability to tax on gains from the fund will be determined in their home jurisdiction.

To assist taxpayers in determining the appropriate tax treatment for investments in ETFs, Revenue has published guidance which is available at: www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-27/27-01a-03.pdf .

Michael Healy-Rae (Kerry, Independent)
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37. To ask the Minister for Finance if the 9% VAT rate will be reinstated for the hospitality sector (details supplied); and if he will make a statement on the matter. [27500/24]

Jack Chambers (Dublin West, Fianna Fail)
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As the Deputy will be aware, the 9 per cent VAT rate was applied on a temporary basis to the hospitality and tourism sectors until 31 August 2023 when it reverted to the 13.5 per cent rate. The 9 per cent rate was introduced on 1 November 2020 in recognition of the fact that the tourism and hospitality sectors were among those most impacted by the public health restrictions put in place throughout the pandemic.

The economic rationale for a VAT rate reduction at that time, as it was in 2011 when it was also reduced to 9 per cent, was to lower consumer prices, encouraging higher demand, more output and an increase in employment.

Despite facing numerous successive headwinds over recent years, the domestic economy has proven to be remarkably resilient. Looking ahead, as inflation eases, the real disposable income of households should recover and support consumer spending. As a result, households are on a stronger financial footing and this will support demand for contact-intensive services including the tourism and hospitality sectors.

In relation to employment, between the end of 2020 when the 9 per cent rate was re-introduced, and the final quarter of 2023, total economy-wide employment expanded from 2.3 million to reach a record high of 2.71 million, an increase of over 17 per cent. The Q4 2023 Labour Force Survey indicated that employment in the accommodation and food service sector stood at 183,000.

It is noteworthy that 14 EU countries have a VAT rate of 12 per cent or higher on food services. Our nearest neighbour Great Britain and Northern Ireland has a VAT rate of 20 per cent on food services.

It is important to remember that VAT reductions, even temporary VAT reductions, have a cost to the Exchequer. The estimated cost of the 9 per cent VAT rate for tourism and hospitality, from 1 November 2020 to 31 August 2023, was €1.2 billion. This represented a very substantial support by the Government to the hospitality and tourism related sectors.

The cost of a further temporary VAT reduction to 9 per cent for a full year is estimated to be €764 million. Even where the measure is restricted to food and catering services, the estimated full year cost is €545 million.

The Government wants to maintain a healthy and profitable environment for these sectors going forward. However, in making any decision in relation to VAT rates or other taxation measures, the Government must balance the costs of the measures in question against their impact and the overall budgetary framework.

The Deputy will also be aware that, on 5 February, I announced changes to the tax debt warehousing scheme including a reduction in the interest rate on warehoused debt to 0 per cent which, amongst other sectors, will assist businesses in the tourism and hospitality sectors.

The Government has provided significant support to business throughout the period of increasing costs and Budget 2024 contained a number of measures which will support businesses facing increased costs, including the Increased Cost of Business (ICOB) grant, which aims to provide financial support to small and medium sized businesses who operate from a rateable premises, at a cost of €257 million. The grant will be at a rate of half an enterprise’s commercial rates bill, for 2023, for firms paying up to €10,000 in rates. A flat €5,000 grant will be available to firms who pay between €10,000 and €30,000 in rates.

Broader supports for SMEs which were announced in Budget 2024 include the extension of the 9% VAT rate on gas and electricity from end-October 2023 to end-October 2024.

In addition, the Deputy may have noted the wide range of measures brought forward by my colleague, the Minister for Enterprise, Trade and Employment, announced on 15 May. Details of these measures can be found at the following link:

Finally, the Deputy should note that any decisions about VAT rates for this area is a matter for consideration as part of the Budget 2025 process.

Catherine Connolly (Galway West, Independent)
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38. To ask the Minister for Finance the options available to a person under the new guidelines for self-employed persons to allow for recognition as a self-employed sole trader without the necessity to register as a limited company; and if he will make a statement on the matter. [27505/24]

Catherine Connolly (Galway West, Independent)
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39. To ask the Minister for Finance to provide details of the review undertaken in advance of the publication of the new guidelines for self-employed persons which obliges a sole trader to register as a limited company in order to be recognised as self-employed; and if he will make a statement on the matter. [27506/24]

Catherine Connolly (Galway West, Independent)
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40. To ask the Minister for Finance the options available to a person (details supplied); and if he will make a statement on the matter. [27507/24]

Jack Chambers (Dublin West, Fianna Fail)
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I propose to take Questions Nos. 38, 39 and 40 together.

Where an individual is engaged under a contract of service, i.e. as an employee, he or she is taxable under Schedule E, and income tax, USC and PRSI is deducted from their employment income through their employer’s payroll system on or before when a payment is made (the PAYE system). For the avoidance of doubt, “office holders” (e.g. Company Directors) are always subject to PAYE.

Where an individual is engaged under a contract for service, i.e. as a self-employed individual taxable under Schedule D, they will generally be obliged to register for self-assessment, to pay preliminary tax and file their own income tax returns using the Revenue Online Service (ROS).

Each business making payments to individuals is obliged to correctly determine whether individuals are employed or self-employed based on the facts and circumstances of each relationship and payment. There is no single, clear legal definition of the terms “employed” or “self-employed” in Irish or EU law.

On 20 October 2023, in a unanimous decision, the Supreme Court delivered an important judgment on the key factors to be considered when classifying an individual’s employment status for income tax purposes. The detailed judgment was delivered by Mr. Justice Brian Murray in The Revenue Commissioners v. Karshan (Midlands) Ltd. t/a Domino’s Pizza. The case was concerned with whether the delivery drivers were independent contractors under a “contract for service” and taxable under Schedule D of the Taxes Consolidation Act 1997, or employees under a “contract of service”, and taxable under Schedule E of that Act (PAYE).

The judgment provides an extensive review of relevant case law, and succinctly summarises it through the provision of a five-step decision-making framework. The decision-making framework consists of five questions that is to be used to resolve the question of whether a contract is one of service (employee) or for service (self-employed).

On the same day, Revenue issued a press release which encouraged any business which engages contractors, sub-contractors or other workers on a self-employment basis, i.e., where that worker is not treated as an employee of the business for income tax purposes, to review the nature of any such arrangement(s) in light of this judgment.

While the judgment related to companies engaging individuals as delivery drivers, as a decision of the Supreme Court, it has application across all sectors. Revenue, in carrying out its statutory function, is obliged to apply the judgment.

The Deputy poses questions about individuals incorporating as limited companies and obligations in relation to this arising from the judgment. It is important to note that the judgment applies to the tax implications for businesses who engage individuals and whether such individuals are to be treated as self-employed or employees. The judgment does not apply to businesses that engage companies to carry out work.

The decision of a business as to whether it wishes to engage an individual or a corporate is a commercial decision. If a business engages a corporate entity, the judgment is not relevant, as a company will never be an employee for tax purposes. If however, the business decides to engage an individual, it must apply the five-step framework from the judgment to determine whether or not that individual is to be treated as an employee for tax purposes. In the same way, it is for an individual who is supplying services to a business to decide whether he or she wants to operate as an individual or operate through a corporate structure.

I am advised by Revenue that its treatment of services supplied through a companies, for example Personal Services Company, or a Managed Services Company, which are common structures through which contracting services are supplied, has not changed. Revenue does not “look through” corporate structures, except in very limited circumstances specifically provided for in the Taxes Consolidation Act 1997.

To assist taxpayers in understanding their tax obligations, Revenue publishes detailed guidance on many topics, on its website and in the various Tax and Duty Manuals (TDMs). Revenue developed a detailed TDM, to outline its position in relation to the application of the judgment and to assist businesses who engage individuals to carry out work.

Prior to the publication of relevant TDM, Revenue sought input from across Government and relevant external stakeholders to seek feedback on the development of the draft manual. A copy of the draft was shared with 13 key external stakeholders, including professional representative bodies, trade unions, employer bodes and representative bodies from specific sectors. Feedback from the stakeholders, where appropriate, was incorporated into the final draft.

The TDM (Part 05-01-30) was published on 21 May 2024 and is available on the Revenue website at the following link:

The detailed TDM runs to 58 pages and contains 19 examples, based on real cases. The key message in the TDM is that in determining whether an individual is self-employed or an employee, the business (entity engaging the person) must apply the five-step framework by references to the facts and circumstances on the individual case.

It is for the business who engages the person to make the determination. It is not a matter of choice, either for the business, or the individual. Businesses are free to disagree with elements of the TDM and self-assess based on the facts and circumstances of their own case. Revenue will then, in the normal way, look at cases based on risk and make assessments or amended assessments where appropriate and a right of appeal will exist, which may lead to future litigation in this area.

In relation to the specific case the Deputy refers to, it appears that the individual is being engaged by a number of businesses to carry out various functions. It is for those businesses to apply the five-step framework determine whether or not the individual is an employee. The TDM represents Revenue guidance and has not imposed this approach, it has always been a matter for the business engaging the individual to determine whether that individual is an employee for tax purposes, which determines whether that business is obliged to operate PAYE. The Supreme Court has confirmed how such a determination is to be made and each business will make a decision in relation to each engagement and operate accordingly on a self-assessment basis. It is also a matter for such businesses to decide if they wish to change their business model and only engage companies to carry out work, as opposed to individuals.