The broadening of Ireland’s tax base will help withstand future economic shocks, a Deloitte report has said.

An increased focus on the taxation of labour is a vital step in improving Ireland’s tax offering both for multinational companies and SMEs, the report says.

Currently, the income tax system may be a disincentive to attracting talent and inward investment, particularly when compared with codes in other countries, Deloitte says.

Personal tax rates should be reduced and the entry point to the higher marginal rate increased, the consultants believe.

The marginal rate of tax should be reduced from its current level of 52% and the entry point to the higher rate of tax should be significantly increased, Deloitte adds.

Tax-base erosion

Personal tax rates will become a greater differentiator for the investment location in a post-base erosion and profit shifting (BEPS) world.

And a strong and innovative SME sector, as well as supports for Ireland’s position as a headquarter/holding company location, form part of Deloitte’s response to the Commission on Taxation and Welfare’s consultation, Your Vision, Our Future. 

In its submission to the review of the country’s tax system, Deloitte also says that SME tax incentives need to be refreshed and streamlined.

Ireland should focus on supporting a first-class productive and innovative SME sector, capable of being scaled from Ireland, that is profitable and produces high value jobs, the report adds.

A strategic review of SME taxation should be carried out to create a competitive system.

Deloitte head of tax Lorraine Griffin said: “Ireland’s tax system should be equitable, deliver certainty, and be designed to attract and grow businesses.

“Importantly, as a small open economy, it should position us competitively vis à vis other countries. Critically, the system needs to be sustainable to withstand economic shocks and support long term economic growth.”

Broadening the tax base is an important action in this regard, she added, and Ireland’s narrow tax base should be addressed, particularly with the potential reduction in Ireland’s corporation tax base as a result of international tax reforms.

A 15% minimum tax would level the playing field with other competitor countries, Griffin added.

Reform

Reform is needed in reducing the complexity of interest-deductibility rules and the double taxation relief rules, the report says.

And improving the R&D tax credit offering, by expanding the list of qualifying scientific fields to include artificial intelligence, data analytics and carbon neutrality would be beneficial, the report continues.

Consideration could be given to reducing CGT for entrepreneurs who stay with their respective businesses with a view to scaling up over the medium to long term.

A form of tapering relief together with relief for dividends may be an alternative option open to an entrepreneur.