What will Budget 2023 mean for corporate tax?

12 September, 2022

Budget 2023 should form part of a wider roadmap towards ensuring Ireland is an attractive place to do business. Given the unknowns playing out in terms of global tax reform and economic uncertainty, we need—more than ever—to make smart decisions about policy options and review our tax code as part of a long-term strategy to grow the overall economy. We should consider the merits of investing in areas that will contribute to longer term growth and returns by way of personal, corporate and indirect taxes. We should also aim to stay attractive by offering a simple, stable and competitive regime where stakeholders feel they have a voice in policy-making. Budget 2023 should build on previous tax policy successes to ensure the resilience of the overall economy in the longer term.

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Our key asks for Budget 2023

  1. A 'no surprises' budget: Given the negative response that accompanied previous 'surprises' announced for the first time on Budget Day, we hope this Budget will not contain any unwelcome surprises for businesses.
  2. Introduction of a territorial regime or participation regime: Along with required changes to the research and development (R&D) tax credit regime, a commitment to the introduction of a participation exemption is our key ask of the Minister for Finance on Budget Day.
  3. Investing excess corporation tax receipts to generate future growth: In considering the tax mix of the future, we recommend that unforecasted corporation tax receipts (currently running to €1bn) be ring-fenced and invested in high-potential growth areas to promote sustainable long-term tax receipts.
  4. Property: Maintain the certainty and stability of the regime to continue attracting necessary investment and supporting activity in the Irish property market. Doing so will help tackle supply constraints, prevent further escalation of construction costs and ultimately support a properly functioning and sustainable market.

A missed opportunity?

Maintaining the attractiveness of Ireland's corporate tax regime over the medium-term (i.e. the next five to ten years) will depend on how well we navigate global tax reform in the short-term. Our ability to come out on the right side of OECD, US and EU tax reform will ultimately decide whether or not we hold or lose our position as a key global hub for foreign direct investment (FDI) and an attractive place for Irish companies to grow.

In terms of corporate tax policies, budgets of the past half-decade have centered around new tax rules (the Multilateral Instrument or MLI, Controlled Foreign Company or CFC rules, Interest Limitation Rule or ILR, hybrids, exit tax and transfer pricing) that needed to be implemented because of international obligations, but in turn made doing business in Ireland more complex. Budget 2023 will be different because we don't face a similar commitment this year. This fact in itself is more luck than design, given the significant delays in agreeing the Pillar Two rules globally. Had Pillar Two moved forward as planned, we would be implementing these rules this year.

This breathing space offers an opportunity for the Minister to address some of the many implementation issues that remain unresolved. It gives us the chance to identify and tweak elements of the tax code that will no longer work in a post-OECD tax reform world. It also gives Ireland a chance to tidy up our tax code and simplify the rules overall.

However, our expectation is that very few of these opportunities will be seized on Budget Day, with the exception (we hope) of changes to the R&D tax credit regime.

It is unlikely that a participation exemption will be announced on Budget Day as a 2023 offering, although we remain hopeful that the Minister will commit to this initiative for 2024. Neither is it likely that significant simplification of the tax code is forthcoming. Tweaks to the tax code to make it 'Pillar Two ready' will not be made until next year.

This is unfortunate, as the pipeline of global tax reform measures indicates that corporate tax policy-making in Ireland will return to the norm (i.e. focusing on the implementation of external commitments) from next year.

Safeguarding the future

Notwithstanding the above, there is a huge opportunity open to the Minister in terms of unforecasted corporation tax receipts. While there is continuing discussion over the merits of putting some of the corporation tax receipts into a resilience fund, we believe that unforecasted corporation tax receipts should be ring-fenced and reinvested into industries and sectors that offer the best potential for growth.

Our rationale for this approach is as follows:

  1. In the current inflationary environment, directing national income into a resilience fund will eat into the value of the capital over time. Ireland's comparatively high projected GDP growth suggests we would be better to invest directly in our own economy.
  2. By directing investment into high-performing and profitable sectors that generate returns through tax receipts, we ensure a sustainable pipeline of tax receipts for the medium- to long-term.
  3. Investing in areas that attract outside investment of substance in the form of jobs, infrastructure and knock-on benefits will ensure steady growth in tax receipts across income tax, corporation tax and indirect taxes. This will help manage the risk of over-reliance on corporation tax receipts.
  4. Investing in offshore wind, renewables and the green economy would help attract external FDI to grow the sector further. Making Ireland a green finance hub would complement this course of action. This will ultimately help us achieve our climate change ambitions and avoid the costly consequences of not meeting our targets.
  5. Investing in measures that support the viability of homebuilding and affordability. Doing so will help address supply challenges and contribute to a more sustainable and functioning property market overall.

We are here to help you

PwC is uniquely positioned to shed light and share insights on how tax policy decisions will impact your business and the wider economy. Combining our practical experience in advising a wide range of businesses with our global tax policy expertise means that we can offer you the tax advice you need to thrive in a changing economic environment.

Contact us

Peter Reilly

Tax policy leader, PwC Ireland (Republic of)

Thomas Sheerin

Partner, PwC Ireland (Republic of)

Tel: +353 87 467 7481

Colin Farrell

Partner, PwC Ireland (Republic of)

Tel: +353 86 086 7302

Ilona McElroy

Partner, PwC Ireland (Republic of)

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