PwC Tax Strategy Group Paper Review

11 August, 2022

The Tax Strategy Group (TSG) papers, which are released annually in advance of the Budget, were published on 10 August 2022. The TSG is comprised of senior officials and political advisers and is chaired by Emma Cunningham, an Assistant Secretary General within the Department of Finance with responsibility for taxation policy. The TSG is not a decision-making body and the papers produced are simply a list of options and issues to be considered in the budgetary process. Our subject matter experts have highlighted some of the key takeaways in advance of Budget 2023 below.

The full TSG papers are available on the Department website.

People working with paperwork on a table

Income tax

Key to the current Budget policy considerations is the issue of inflationary pressures on households. To tackle this, the TSG highlights several options including:

  • Indexation of the income tax system to ease the impact of inflation and avoid “bracket creep”. The TSG considers the merits of introducing a formal policy of indexation with automatic year-on-year adjustments, as opposed to maintaining a more flexible and informal approach that has been applied in recent budgets.

  • An intermediate rate of income tax between the current standard rate of income tax (20%) and the higher rate of income tax (40%). The TSG highlights some of the difficulties such a measure would bring about, both administratively and from an equity perspective, with low- to middle-income earnings unlikely to benefit from this measure.

The TSG also considers the Flat Rate Expense regime. A review of the regime was carried out by Revenue in 2018 and 2019, but planned changes have been deferred pending the outcome of a policy review by the TSG. At present, there are approximately 182 flat rate expense rates in operation and the TSG consider some of the measures that could be introduced to ease the burden on workers where certain flat rate expenses were withdrawn. They include:

  • Increases to the Employee (PAYE) Tax Credit;

  • Grandfathering provisions to ensure that no current beneficiaries would be worse off as a result of future changes; and

  • The introduction of a new transitional tax credit for those who would see a reduction or withdrawal of their existing flat rate expenses entitlement.

A review of the KEEP scheme is underway, including an international comparison and a review of the responses to the public consultation that took place earlier in 2022. The TSG suggests that, given its relatively modest costs, the continuation of the scheme beyond its current sunset date of 31 December 2022 should be considered, as well as measures to assist in the uptake of the scheme (such as measures to facilitate share valuations, permit share buybacks, and the widening of the definition of eligible group structures among others).

An update on Transborder Workers’ Relief is also provided following the detailed consideration of this issue as part of the 2021 TSG review. The paper highlights the complexities involved in cross-border taxation and the need to ensure a competitive playing field between Irish employers and those located cross-border, while cognisant of protecting the Irish tax base. While previous COVID-19 concessions have been withdrawn, the Department of Finance is continuing to engage with stakeholders, with a particular focus on obtaining better data on cross-border working to support decision-making.

Interestingly, the TSG has also indicated that the reduced rate of USC for medical card holders has fulfilled its policy objective of transitioning those previously exempt from the Health & Income Levies (2008) into the rollout of the USC. Absent any specific Government policy to protect such individuals, consideration should be given to phasing this relief out.


At the heart of the TSG’s comments on PRSI is the issue of funding for future State pension entitlements. The paper notes that in 1991, there were five working age people to one pensioner. However, this is anticipated to fall to 2.3 working age people to one pensioner by 2051. In addition, people are living longer than previous generations and the State pension is payable over a longer period of time as a result.

Some of the measures suggested to support the Social Insurance Fund are as follows:

  • Increase PRSI, currently 11.05% payable by employers, to a standard rate of 12.55% over a multi-year timeframe;
  • Increase the current employee contribution rate of 4% (which has remained static since 2001) to 5.5%;
  • Gradually increase the rate of contribution for the self-employed to the standard employer rate prevailing at the time (currently 11.05%); and
  • Broaden the social insurance contribution base by removing the exemptions from a social insurance charge for persons over 66 and those in receipt of occupational pensions.


  • Further implementation of pension simplification rules.
  • Aligning the PRSA contribution limits with those of occupational pension plans will be important in light of the effective elimination of “one member schemes” as a pension option.
  • Pension simplification:
    • Employer contributions to Personal Retirement Savings Accounts (PRSAs) to be aligned with contributions to Occupational Pension Schemes;
    • Legislation to permit transfers from Retirement Annuity Contracts to Occupational Pension Schemes, enabling the consolidation of pension arrangements; and
    • The introduction of legislation to facilitate a Pan-European Pension Product (PEPP). The new product will be aligned to PRSA-type rules, however the Central Bank will be the sole competent authority for the new PEPP product.
  • Implement legislation to tax lump sums from foreign pension plans in line with Irish rules. This is an area where there is a diversity of approach at present.
  • Work to continue on auto-enrolment, but no expectation of legislation in this year’s Budget or Finance Bill. Organisational and process structure work to continue throughout 2022 and 2023 in light of the previous commitment for contributions to be paid in 2024.

Corporation tax

The paper notes the strong performance of corporation tax (net receipts in 2021 were €15.32bn, representing 22.6% of total tax receipts) and the importance of the 12.5% rate in context of international competition and the objective of providing an attractive, stable and transparent corporate tax regime that provides certainty to businesses. It also notes that certain credit regimes are under review:

  • The Research and Development credit is being evaluated in line with the Department’s Tax Expenditure Guidelines. A consultation was held earlier in the year and more in-depth analysis on the responses and the review of the credit will be published later in 2022. The paper notes what is required in order for the credit to be treated as a “qualified” refundable tax credit for Pillar Two purposes and what is needed to qualify for US Foreign Tax Credit Regulations.
  • The Knowledge Development Box (KDB), which is due to expire on 31 December 2022, is being reviewed ahead of its sunset clause and in the context of the ‘Subject to Tax Rule’ under Pillar Two. Three options are being considered for the scheme:

    1. Extend the KDB at the current effective rate of 6.25%;

    2. Extend the KDB, but increase the effective tax rate to 9% or above; and

    3. Cease the scheme.

  • The Film Relief credit, which is due to expire on 31 December 2024, is also being evaluated.

The Tax Strategy Group papers also consider the progress of items covered in the 2021 Corporate Tax Roadmap and the items that remain ongoing:

  • Territorial regime: the paper notes that ongoing consideration of a possible move to a territorial regime in Ireland focuses on a participation exemption and/or a branch exemption. It notes that the introduction of the Pillar Two global minimum tax rate will also introduce additional anti-BEPS measures into the Irish and global tax architecture. It is therefore intended that any move towards a territorial regime, if such a decision is taken, would progress in tandem with the introduction of the GloBE rules, currently planned for Finance Bill 2023.
  • Interest Limitation Rules: a process is proposed in order to fairly evaluate applications for the Long-Term Public Infrastructure Exemption. However, criteria for making such a judgment are technical and require a high level of expertise to judge any breach of State Aid rules.
  • International Mutual Assistance Bill: the papers note that there is an expectation that this Bill will progress to the Government shortly.
  • Outbound payments and additional defensive measures regarding countries on the EU list of non-cooperative jurisdictions: the paper notes that an outbound payment consultation was held in December 2021 and consideration is ongoing. It also notes that consideration is ongoing with regard to the introduction of additional restrictive measures, if required, for countries on the EU list of non-cooperative jurisdictions. Such measures could include a denial of tax deductions or the imposition of withholding taxes where material payments are made from Ireland to listed jurisdictions.

International developments

  • Pillars One and Two: the papers include a high-level overview of the progress of the project to date and Ireland’s involvement. It also notes the ongoing work to integrate the GloBE provisions into the Irish tax code in 2023.
  • European Union Tax Developments: the paper notes the EU Commission’s proposed legislative developments, including the un-shell Directive (ATAD 3), a Debt Equity Bias Reduction Allowance, and a legislative proposal for BEFIT (Business in Europe: Framework for Income Taxation) and caveats with the need for unanimous approval by Council before they can advance. Other items noted as being on the horizon are the bi-annual updates to the EU list of non-cooperative jurisdictions for tax purposes and amendments to DAC 8 (crypto assets and e-money) by extending EU rules to keep pace with technological developments. Both are due later in 2022.

Other points to note

  • Apple state aid case: the paper provides an overview of the progress of the case. However, there are no new developments this year as a hearing date has yet to be set by the Court of Justice of the European Union (CJEU) for the Commission’s appeal.
  • Tax credit for digital games – Section 481A: the introduction of a tax credit for digital games is subject to a commencement order as European Commission state aid approval is required, with a number of minor technical amendments required to ensure that the credit is state aid compliant.
  • Non-Euro currency transactions: views are sought from the Tax Strategy Group in relation to the extension to the trading tax treatment of non-Euro currency movements to i) trade debtors and ii) non-Euro currency held in trading bank accounts.


  • 9% VAT rate: The 9% VAT rate applicable to tourism and hospitality will remain in place until 28 February 2023. The document mentions that no further extension to this measure is envisaged, so the VAT rate of 13.5% will apply to these sectors with effect from 1 March 2023..
  • Cost of living: The report acknowledges that Ireland applies a zero-rate to foodstuffs, a zero-rate to oral medicines, an exemption on transport and a reduced VAT rate to fuel supplies. As such, it states that there is little scope to provide further targeted interventions for cost of living issues.
  • Housing: While the report states that it is possible to apply the reduced rate of 9% to the supply and construction of housing (currently 13.5%), there is no proposal to revise the rate downwards for residential property given the administrative difficulties of managing two VAT rates on different construction services and the possibility that any rate change may not be passed on to consumers.
  • New policy options: The amendment to Annex III of the EU VAT Directive gives Member States the option to apply a reduced VAT rate to an expanded list of goods and services. The report acknowledges that new policy options are now open to the Government to consider. Examples of areas that may be considered include the extension of a zero-rate to non-oral medicines and medical equipment not already within the scope of 0% VAT. The possibility of a zero or reduced VAT rate for solar panels and other retrofitting materials is also referenced. The report also notes that representations have been made to have the VAT rate applicable to bicycles reduced from 23% to 13.5%.


  • The papers note the impact of the geopolitical landscape on Ireland’s ability to manage decisions regarding tax, which could positively or negatively impact the already inflationary situation regarding energy and fuel costs from the perspective of households and businesses.
  • They include a comprehensive overview of energy-related taxes and subsidies (excise taxes on fuels and indirect fossil fuel subsidies), their impact on the exchequer and where changes may come—in particular, from the proposals set out in the ‘Fit for 55’ package. In particular, it looks at the option of equalising the rate of mineral oil tax on diesel with that of petrol and the options available for phasing out the diesel rebate scheme (DRS) in the medium-term. In terms of the latter, it notes that the road haulage sector has called for amendments to the DRS to make it more beneficial given current fuel prices.
  • Among the proposals published under the ‘Fit for 55’ package, three proposals are significant in terms of national taxation and climate action—the revision of the Energy Taxation Directive, the Carbon Border Adjustment Mechanism (CBAM) and the reform of the EU ETS. In relation to CBAM, which will apply to certain products with embedded emissions imported from third countries and where data reporting will be required from 2023, the document notes that its scope will have a significant “trade impact for Member States and their trading partners”.
  • The document discusses the low revenues generated from electricity tax due to the rate per megawatt, but also the various exemptions and reliefs (including renewable sources). To the extent that we transition to an electricity system generated from renewable sources, the overall yield will fall and the impact on the exchequer needs to be considered.
  • The document also references the Department of Finance’s research paper, ‘A Review of Green Budgeting from a Tax Perspective’, which states that “the analysis undertaken in this review demonstrates that the tax system as a whole can be considered climate positive, in monetary terms. This review also demonstrates that recent budgetary changes have improved the climate positive contribution of the tax system. This is due significantly to the positive climate effect of tax revenue measures, which outweigh the overall climate negative effects of tax expenditures”.
  • The document reiterates the commitment to the carbon tax trajectory with an expected increase in 2023, which will be based on charging an additional €7.50 per tonne of CO2 emissions. Any revenues derived from carbon tax are to be ring-fenced into expenditure on targeted social welfare and other initiatives to prevent fuel poverty and ensure a just transition, fund a socially progressive national retrofitting programme targeting all homes—but with a particular emphasis on the midlands region and social and low-income tenancies—and allocate funding to agricultural programmes to encourage and incentivise farmers to farm in a greener and more sustainable way.
  • The document discusses in detail the s664 concession available to farmers. On top of the normal deduction farmers get in respect of their input costs (including fuel), they also get a second deduction in respect of any increases in the carbon tax in excess of €41.30 per 1,000 litres. There is a conflict between retaining the concession (or extending it, as requested by agricultural contractors) and our wider climate goals. The document suggests that, given the current energy and fuel crisis expected for autumn and winter 2022/2023, signalling a change in tax policy this year but implementing it in later years would be the likely approach.
  • Motor taxation is identified as a key lever for the Government in influencing behavioural change with regard to passenger vehicles. Key messages are as follows:
    • Key taxes include vehicle registration tax (VRT), annual motor tax and vehicles benefit-in-kind (BIK). It is noted that the impact of changes in the last number of years, including a full overhaul of VRT and motor tax, appears to be positively impacting the uptake of electric vehicles (EVs) and hybrid cars.
    • With regard to company car taxation, the 2019 Finance Act legislated for a fundamental overhaul of the regime which brought in discounts and surcharges based on a car’s emissions profile. These changes are due to commence from 1 January 2023.
    • The papers also note that if the Climate Action Plan 2030 EV target is achieved, the Exchequer will lose approximately €1.5bn in revenue annually from motor tax, VAT and fuel excise. While medium-term options will encompass newer approaches such as road user charging, in the short-term, decisions will have to be made on how the State maintains or adapts revenue streams.

The paper concludes with two budget options:

  • VRT: it is likely that there will be limited changes while the new regime is given time to take effect and changes are observed over time.
  • Emissions-based options for commercial vehicles: considering a discounting only or a discounting and surcharge option, it is not clear that either will produce the desired outcome—particularly as there is a lack of alternative low-emission options in this area.

General excise

The papers note the public health policy objectives underpinning the traditional areas of excise—alcohol products tax and tobacco products tax—and address the social objectives underpinning betting duty. Each area is addressed separately.

Alcohol products tax

  • Notes that Ireland has one of the highest rates of excise duty on alcohol products in the EU, but is based on a “long-standing policy to support public health objectives”. The drinks industry has called for significant cuts to excise duty to bring Ireland into line with other lower tax EU jurisdictions to support the recovery of the hospitality sector.
  • The document reiterates the amendments introduced to the Alcohol Products Directive 92/EC/EEC through Directive 2020/1151, which included an option for Member States to provide excise relief to small cider producers (similar to existing reliefs for microbreweries). To this end, the document states that the forthcoming Finance Bill 2023 will bring forward a new relief in Ireland for small cider producers.
  • Cross Border and Duty Free Trade: the document references the re-emergence of duty-free alcohol shopping due to the United Kingdom leaving the European Union on 1 January 2021. Similarly, while Northern Ireland has relatively similar excise duties on alcohol products, price differentials have emerged due to the introduction of minimum import pricing. The papers suggest that meaningful data is not yet available to determine the impact on the Irish Exchequer. It appears, therefore, that measures will not be introduced in the short-term to mitigate any exchequer impacts.

Tobacco products tax

  • Document reiterates the Government’s plans to introduce a targeted taxation regime to specifically discourage ‘vaping’ and e-cigarettes.
  • The paper reiterates that minimum excise duties (MED) on cigarettes is an available tax policy tool, but notes that any benefits of increasing the MED may introduce a risk of increased consumption of illicit and non-Irish duty paid cigarettes. This risk is viewed as being greater than any benefit that would accrue from increasing the MED.
  • The paper notes that increases in excise may not lead to increased exchequer yields as it may contribute to product substitution (e-cigarettes) or the purchase of non-Irish duty paid products.

Betting taxes

  • Suggests an increase in betting duty by 0.25%, but references Revenue’s concerns of extending existing relief due to potential State Aid compliance challenges and the fact that benefits are limited to a small number of operators in the market.

Capital and savings taxes

Capital acquisitions tax (CAT)

  • The papers look at reducing agricultural relief and business relief and mention the prior suggestion of reducing both reliefs to 75%, with the reduction subject to an overall limit of €3m.

  • Lower or remove the percentage point at which a CAT return is required (currently 80% of the relevant threshold with the exception of business relief and agriculture relief claims, in which case a CAT return must be filed).

  • The aggregation period of gifts or inheritances should be 15–20 years.

Capital gains tax (CGT)

  • In relation to entrepreneur relief (ER), the papers seem to be supportive of amending the lifetime threshold (currently €1m) to a ‘per venture’ threshold.

  • A further option regarding ER is the removal of the current working time requirement as a way of incentivising investment in businesses.

  • The papers suggest that a 33% rate of CGT helps maintain a balance between the rate of taxation of capital assets and the higher rate of income tax, as well as preventing planning behaviour.

  • The papers examine the concept of an increased rate of CGT for high income individuals. The report caveats that any increase in rates may have a significant behavioural impact and therefore, a change in rate may not produce a corresponding increase in tax yield.

DIRT and Life Assurance Exit Tax (LAET) rates

  • The 2020 TSG papers suggested that, despite the higher tax rate of LAET, the overall tax payment was lower. Notwithstanding this point, an argument can be made for considering the current difference in the tax treatment for DIRT and LAET product.

Stamp duty

Residential property rebate scheme

  • The stamp duty rebate scheme for land that is acquired and developed residentially is due to end on 31 December 2022. While the papers do not explicitly promote an extension of the scheme, they do note the success of the scheme to date in delivering new housing units, and state that “it can be expected that there are many more in the pipeline”.

  • While calls from developers for an easing of the 75% coverage test for new housing developments have been noted, it is suggested that the focus of the scheme is on high density urban housing, so we do not expect any relaxation of this test for houses.

Defective blocks redress scheme

  • Significant technical work is currently ongoing to design an appropriately targeted levy to fund this scheme, and the levy is expected to be introduced in 2023.

Irish shares

  • While Revenue has mechanisms in place to collect Irish stamp duty on transfers of Irish shares in Euroclear Bank and in CREST, no duty is collected on transfers of Irish shares in other settlement systems. Consideration is being given to how this mismatch should be addressed.

  • The papers note that the charge to stamp duty on share buybacks by Irish companies depends on how the buyback is effected. While most buybacks are not stampable, some will be if stock transfer forms are used. Issues around this discrepancy are being considered.


  • The current Young Trained Farmer and Farm Consolidation stamp duty reliefs are due to expire on 31 December 2022. We expect extensions to these reliefs, but such extensions are subject to EU State Aid rules.


  • It is noted that no decision has yet been made as to whether the Help to Buy Scheme will be extended beyond its current deadline. The Government will review an external independent report, which is due to be finalised soon, before making a decision.

  • The potential introduction of a Vacant Property Tax is discussed, but it is noted that the levels of vacancy are low in Ireland and are at the levels expected of a functioning housing market. It is highlighted that one potential challenge to introducing a Vacant Property Tax would be the identification of vacant properties. Officials are still considering the matter.

  • Amendments to the Living City Initiative to enhance its attractiveness are suggested provided State Aid considerations are borne in mind. The following changes are suggested:

    • Shortening the term of the relief from ten years to seven years (15% for the first six years, 10% for the final year);

    • Allowing the carry forward of unutilised relief; and

    • Extending the qualifying period by three more years (and for it to be reviewed afterwards).

  • A number of tax changes aimed at encouraging more private landlords in the market are discussed (as previously outlined in the 2017 Report of the Working Group on the Tax and Fiscal Treatment of Rental Accommodation Providers), but acknowledged as being difficult to apply in practice. One change that is suggested as being more viable is an increase to the current deduction available for pre-letting costs (currently €5,000). It is suggested that this cap be increased to address cost rises since the measure was introduced.

Economic and fiscal situation

  • The war in Ukraine has impacted global markets, both in terms of rising fuel costs and rising commodity prices.

  • Stagflation is looking increasingly likely due to a weakening of economic growth and an increase in inflation in advanced economies.

  • The exit from quantitative easing has resulted in a sharp increase in borrowing costs.

  • The aforementioned rising inflation has also led to a decline in consumer sentiment, with retail sales essentially being flat since last summer.

  • One positive economic trend is the rapid rebound in employment, with employment now at its highest level ever and near full employment.

  • There is a very modest surplus in prospect due to the corporation tax overshoot. The TSG notes that over half of corporate tax receipts come from ten taxpayers and they view this as a vulnerability for public finances. It is noteworthy that there is a year-on-year churn of the taxpayers who make up the ten, indicating there is a broader base than might first be assumed.

  • The Government must try to provide economic support without adding to inflation.

Contact us

Peter Reilly

Tax policy leader, PwC Ireland (Republic of)

Marie Coady

Partner, Global ETF Leader, PwC Ireland (Republic of)

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