The international tax landscape is shifting, driven by a range of factors: a more digitised economy, political uncertainty, a continued focus on the taxation of multinationals and new policy objectives in areas like health and the environment.

2018 saw a major push towards a more digitised tax environment, with preparations in full swing in Ireland for a move to real-time reporting and the UK stepping up work on its Making Tax Digital project.

Uncertainty over Brexit hung in the air in 2018, and huge questions remain over how the UK’s exit from the EU will play out and the likely tax implications of the move.

The past year also saw the introduction of a sugar tax in Ireland, and further tweaks to personal taxation with modest changes to the USC regime and a small increase in CAT thresholds. A consultation on pension provision gave rise to discussion on tax-based incentives for retirement saving, while the budget speech brought a reaffirmation of our 12.5 per cent corporate tax rate.

Tax will always be a mix of seismic shifts, and incremental change. For every big idea, there’s also a tiny tweak. With that in mind we asked our member community to share their views on what will shape the tax landscape in the year ahead. 2019 will be a year of big changes, and small ones too, all of which will impact upon the work of tax practitioners in the months to come.

Real-time revolution ahead for Irish taxpayers

When PAYE Modernisation was first announced by the Minister for Finance in the October 2016 Budget Statement, it seemed a long way off. But now that it is about to come into operation, every employer, agent and payroll provider needs to check that they are ready for the new system and understand its implications.

PAYE Modernisation represents a move to Real Time Reporting. From 1 January 2019, all employers will be required to accurately report employee remuneration and PAYE data on a real time basis. Employers must notify Revenue at the same time as, or in advance of, any payment to employees.

Some employers will need to change current payroll practices to comply with the new system. In particular, practices around estimation, shadow payrolls and end of year corrections will need to change.

Employers will need to review payroll procedures so that accurate information is provided to Revenue on a timely basis. This is more difficult then it may seem, particularly regarding BIK details, share-based compensation and employee expenses. Employers should:

• Ensure their data is complete, accurate and up to date
• Engage with payroll software or payroll service provider
• Have a current tax credit certificate for each employee
• Issue a P45 to anyone who no longer works for them
• Check that they have allocated an Employment ID to each employee
• Know each employee’s date of birth
• Advise employees of the payroll changes
• Encourage employees to register for and use Revenue’s myAccount service and review – and if necessary – update their tax credits

If employers make mistakes or do not comply with the new rules, a €4,000 fixed penalty can be imposed. Where PAYE is not withheld correctly, Revenue will recoup the tax on a grossed up basis.

Under real time reporting, Revenue will be able to monitor each employers’ adherence to the rules. Where there are significant and or recurring errors in the information provided to Revenue, this is most likely to lead to Revenue interventions and penalties.

It’s not just employers who need to prepare. Agents assisting clients with PAYE Modernisation will need to:

• Review their current terms of engagement
• Prepare for an increased workload
• Clarify exactly what their role will be (eg. are they processing the PAYE returns or advising on same?)
• Review fee quotes
• Consider GDPR implications
• Ensure clients supply accurate information in a timely manner to enable the filing of returns.

This is the biggest change to the PAYE system in 60 years and hiccups are likely to arise. There were lots of problems in the UK when it introduced a similar system in 2014; hopefully Ireland can learn from that experience.

Revenue have indicated that they will support those who do their best to be compliant. However, the penalty regime is too harsh and need to be revised. In the UK the penalty for errors is £100, compared with €4,000 here. If there are a number of errors (no matter how small) a penalty of €4,000 per error can be applied.

Employers need to ensure that payroll information is accurate (including BIK, expenses etc.) and produced on a timely basis to enable compliance with PAYE real time returns. They should also prepare for closer monitoring of PAYE data by the Revenue, which is likely to lead to more Revenue interventions.

Gerry Higgins is a tax partner with Cooney Carey in Sandyford, Dublin 18.

Email: ghiggins@cooneycarey.ie

Policy changes and regulatory shifts increase burden on small practitioners

As 2018 is coming to a close, I’m sure that other practitioners like myself are trying to wind down before the end of the year and recharge the batteries before entering a new one. We are living in a world where regulation is constantly changing, leaving us trying to keep pace with the changes. This year has brought significant changes with GDPR and 2019 will see a fundamental change in the way that the PAYE system operates. Brexit, and whatever it may bring, looms on the horizon for us all. Ongoing Revenue compliance checks continue to take up substantial amounts of our time. While I understand that these are required in a fair tax system, it sometimes feels as if all the work is being piled onto the practitioners.

The Revenue Commissioners have recently carried out an internal re-structure which may continue to erode those invaluable relationships we have spent time building with our local tax offices. Tax matters are becoming national rather than remaining local; the days of picking up the phone to speak with the local office are fast becoming a thing of the past. Dealing with everything through the Revenue Commissioners’ My Enquiries secure email service works well in theory, but in practice it causes additional headaches for practitioners and clients. Sometimes we need a quick response to a relatively simple query and waiting up to 20 days (or 25 days during peak times) is not an effective solution. Clients often don’t realise that the response times are completely out of our hands. I expect the recent restructure by the Revenue to cause further headaches to us small practitioners in 2019 –but I remain hopeful!

Kathya Rouse is a tax partner with McMoreland Duffy Rouse in Sligo

Email: kathya@mcmdr.ie

2019: a Brexit odyssey

Without doubt the biggest tax event of 2019 for Irish SMEs will be Brexit. But what Brexit? A Brexit based on the withdrawal agreement endorsed by the EU27 on 25 November? Or a no-deal Brexit? Or no Brexit at all?

As of the date of writing, the position is unknowable. The so-called “meaningful vote” of the House of Commons, scheduled to take place on 11 December has been delayed.

Why will Brexit be the SME tax story of 2019? Should the withdrawal agreement pass the Commons, the UK will on 29 March 2019 enter the agreed transition period. Avoiding a calamitous cliff-edge no deal Brexit, cet. par., the Irish economy is set to continue on its current steady trajectory. This means SME customers’ confidence should remain buoyant. Supply chains and trade will continue to operate unaffected. Exchequer receipts are expected to keep in line with projections. In short, there will be no Brexit shock to the Irish economy, a market dominated by SMEs – factories, farms and family businesses.

The same analysis may be applied to a no-Brexit scenario. Should the Commons reject the withdrawal agreement, and by some set of circumstances (however unlikely) the UK remain in the EU, the SME sector will avoid a shuddering economic blow.

The immediate tax consequences for SMEs of a no-deal Brexit sit mainly in the realm of VAT and customs duties. These have been widely commented upon. The direct adverse impact on trade with the UK, and the damage to economic confidence could raise the spectre of emergency budgets, of the kind experienced in the depths of the Celtic Tiger crash. Increases to business taxes, and payroll levies such as the USC, cannot be ruled out. Curtailment of Exchequer spending plans must be anticipated, with knock-on consequences for SMEs.

Writing in late November, the hope is that Brexit will be soft and SMEs can get on with business. The fear is that those businesses yet to plan for a no-deal Brexit have left it too late.

Another tax development which may impact Irish SME’s is the potential extension of Transfer Pricing (TP) rules to SME’s. TP rules are those in tax law which prescribe that the price paid for goods and services between related parties should be the same as that payable between third parties. It is anti-avoidance measure which aims to minimise the ability of multinational companies to shift profits from high-to-low tax jurisdictions. In order to defend the pricing charged between related parties, TP rules require that detailed documentation be maintained by affected companies. Currently, SMEs (broadly groups with less than 250 employees and either a turnover of less than €50 million or assets of less than €43 million) are exempt from TP rules, including their documentation requirements. The Government (on the recommendation of the Coffey Report) is currently considering amending our TP rules so that SMEs will be brought into these rules, including associated documentation requirements. Our strong view, which we have relayed to government officials, is that the administrative burden that such changes would bring are simply not justified and, in particular, the documentation requirements would place an undue burden on Irish SMEs.

Derek Henry is a tax partner with BDO in Dublin

Email: dhenry@bdo.ie

2019 promises landmark changes for Irish corporate tax

Considering the changes we’ve seen to our tax code in the last few years it’s hard to believe that 2019 could witness the biggest changes yet but that is what’s on the cards.

Since the leaders of the G8 nations met in county Fermanagh in June 2013 we have seen a complete redrawing of the international tax landscape. The official theme of the 39th G8 summit was “Tax Evasion and Transparency” and at that meeting the G8 leaders agreed to measures aimed at (i) tackling what was termed aggressive tax planning and profit shifting by multinational companies and (ii) improving transparency around global financial transactions.

The OECD led the initial charge, but since then the EU has been the chief instigator of change. In the five and a half years since that meeting we have seen numerous reports published by the OECD and a number of legally binding EU directives. As a result, Ireland has made fundamental changes to its corporate tax code: our tax residence rules have changed, Controlled Foreign Company (CFC) rules have been introduced and come into effect on 1 January 2019, and we introduced an exit tax overnight on Budget Day.

So what could 2019 have in store that could surpass all that? The recently published Corporate Tax Roadmap signalled the following:

1. An updating and expansion of our transfer pricing rules;
2. The introduction of interest limitation rules;
3. Potentially moving from a worldwide to a territorial taxing system and;
4. Introducing new EU mandatory disclosure rules.

There will be public consultation processes on the first three of these items during 2019, one of which has already started. PwC will be contributing to these consultations and it is important that businesses and other stakeholders do likewise. We are witnessing extraordinary changes and it is all happening in a very short period of time. It is critical that those who will be affected – and will have to live with the results – have their say while there is still time to change the outcome.

Colin Smith is a tax partner with PWC in Dublin

Email: colin.p.smith@pwc.com

Making tax even more difficult?

Remember the man in the bowler hat who told us all in a tv ad that “tax doesn’t have to be taxing”? I wonder what he would make of today’s tax regime in the UK. Budget 2019 has come and gone. One thing is for sure; UK tax legislation is more complex than it has ever been.

Look at capital gains tax alone. At least ten different reliefs come to mind. Inheritance tax has at least six different reliefs. And on the income tax side, there are now five different types of allowance an individual taxpayer is potentially entitled to. And don’t even get me started on how these interact with the various tax rates and bands.

The income tax system is so complex that even HMRC’s own filing software cannot cope. For 2017/18, there are almost 100 different scenarios where taxpayers cannot file their self-assessment online using either HMRC or commercially available software and must use paper instead. Almost ten new exclusions were added to the 2017/18 exclusions list.

To support these cases, the paper return deadline for 2017/18 has been extended from 31 October 2018 to 31 January 2019. HMRC will accept that the taxpayer had a reasonable excuse for failing to file by the normal paper deadline where the relevant return is excluded from online filing. Once filed, HMRC will manually check that the tax calculation is correct. So much for digitisation!

But how will all this work when Making Tax Digital for income tax starts? Making Tax Digital for VAT begins from 1 April 2019, however certain businesses with complex VAT profiles do not need to comply until 1 October 2019.

Will HMRC really see the expected billions in additional tax receipts from errors supposedly corrected in real time? Or is the UK tax system simply too complex to cope with the move to digitisation? Watch this space.

Leoontia Doran is a tax manager with Chartered Accountants Ireland

Email: Leontiadoran@charteredaccountants.ie