Using the Tax System to Free Capital

“The economic and technological triumphs of the past few years have not solved as many problems as we thought they would, and, in fact, have brought us new problems we did not foresee”

— Henry Ford, American industrialist and pioneer of the assembly-line production method (1863—1947)

Executive Summary of Key Points of Importance¹

• We propose a new personal tax regime for scientists and innovators active in areas identified under the National Development Plan, both to attract and retain world class personnel towards the development of products and intellectual property in this country. Section 4.5
• We recommend a full participation exemption on dividend payments from foreign subsidiaries to ensure Ireland is on par with other EU Member States as a location for holding companies. Section 4.1
• The R&D relief requires amendment to permit a cash refund of the relief where R&D ventures are in a start-up phase, and/or to permit its offset against Employers PRSI liabilities. This is to allow us to compete for R&D investment internationally. Section 3.3
• Two of the most important tax reliefs which encourage investment in Irish Industry are the BES Relief and the R&D Relief.

• – BES should be modified to permit investment in a wider range of companies by reference to their commercial activities, and to allow a higher limit of investment by individual investors. Section 3.1
• – A parallel proposal is to extend the tax relief currently available for employees investing in their employing companies. Section 3.2

1. INTRODUCTION

The Consultative Committee of Accountancy Bodies -Ireland is the representative committee for the main accountancy bodies in Ireland. It comprises the Institute of Chartered Accountants in Ireland, the Association of Chartered Certified Accountants, the Institute of Certified Public Accountants in Ireland, and the Chartered Institute of Management Accountants.

This year's pre-Budget submission from the CCAB-I has as its main focus the use of the Tax System to release capital.

Most of the content of this submission is new, reflecting CCAB-I's reaction to the changing economic climate. In certain instances we have developed further a number of the proposals made in our submission earlier this year to the Commission on Taxation.

2. CONTEXT

The 2008 Credit Crunch which began in America's sub-prime mortgage market has affected financial markets across the globe. Ireland is no exception. This has resulted in a decrease in the availability of credit; and an increase in the cost of credit, where available.

There has been widespread commentary on the deficit in the public finances in the year to date². We would urge caution before taking any action at this time. This shortfall must be viewed in the current environment and not in historical terms. It must be remembered that this deficit comes after a period of substantial growth in all areas of the Irish economy. In addition, it is crucial to note that the deficit is arising from an increase in expenditure; and not necessarily a decrease in income. The tax revenues in the year to date are €22.6bn; the comparative figure for 2007 is €25bn, 2006 is €23.3bn and 2005 is €20.8bn.

The activity in any economy is cyclical; with periods of rapid growth followed by periods of stagnation or decline. The quote from Henry Ford is equally applicable in today's environment as it was in the early 20th century. During times of stagnation or decline, it has been shown that increasing taxes usually prolongs the decline and in some situations can make the decline plunge even deeper. On the other hand, it has been shown that tax cuts reduce the extent and length of a decline. In Hungary, for instance, the Government is seeking to reverse tax increases applied in 2006. The increases only resulted in the slowest levels of growth in that country for over ten years.

It is important to focus the actual tax cuts on specific reliefs that will assist the position rather than blanket wide range tax cuts. Insofar as this submission proposes specific tax reliefs, they are aimed at measures to release capital.

There is a number of changes which could, and we believe should, be applied to the Tax System to assist taxpayers in releasing capital and thereby assist the economy in these challenging times. Measures include: extension of the Business Expansion Scheme (BES)/Seed Capital Scheme; increase in the limit for employees subscribing for shares in their employer company; refundable research and development (R&D) credit; prompt payment of overpaid tax, with interest; revision of preliminary corporation tax obligations; amendment of time of disposal for capital gains tax to date consideration received; abatement of the close company surcharge where profits are reinvested.

Directly tied in to the aim of releasing capital is to support management buyouts. Suitable amendments to the relief for employees subscribing for shares in the employer company could be used to encourage management buyouts.

The submission also considers other necessary amendments to the tax code, including those amendments necessary to ensure that Ireland remains competitive in retaining and attracting inward investment. As appropriate, we have pointed out where Ireland compares unfavourably with other jurisdictions in the tax treatment applied. In very many instances, the measures we suggest are aimed at enabling us to compete on an equal footing with other EU Member States.

Of equal importance is to remember that Government policy over the last twenty years or so has tended to use the tax system to stimulate indigenous growth and foster inward investment. The positive results of this are plain to be seen. We therefore have many measures in place-our highly competitive Corporation Tax and Capital Gains Tax rates are the flagship items-which must be retained. We would strongly caution against curtailing or disrupting any existing reliefs available to Irish taxpayers because that would have a negative impact on the economy.

Within this submission we highlight our concerns in relation to “aggressive tax collection”. Examples of such activity include:

• the relentless pursuit of RCT (relevant contracts tax) where, in general there is no loss of revenue, and more specifically, the connected party rule which brings private minor construction operations within the realms of RCT; and
• the specific targeting of capital gains tax, and subsequent charging of interest, penalties and surcharge, where contracts have been signed in an earlier year of assessment to the actual receipt of the consideration.

While it could be argued that these actions are within the letter of the Tax Law, such actions are considered unwieldy, unrelenting and unacceptable in promoting Ireland as a place in which to do business.

The recent introduction of mandatory electronic filing sends out a signal that our tax system is more geared to the business concerns of Revenue than to those of the taxpayer. It is an unfortunate abandonment of a truly innovative, customer based approach by Revenue (which had resulted in unparalleled levels of electronic filing by international standards) in favour of enforcement of taxpayer behaviour by regulation and penalty. There is surely a role for Revenue in focussing on underlying tax administration matters which result in cashflow and administrative costs to Irish business.

We must look to the future for solutions and not the past in dealing with the current economic position. Only then can solutions be formed to deal with the challenges which currently face the economy.

3. MEASURES TO RELEASE CAPITAL

3.1. Business Expansion Scheme/Seed Capital Scheme

• Key Recommendation – minimise qualification procedures & remove restrictions on investors to encourage greater use of BES/SCS

3.1.1. Relax grant aid qualification requirement

The extension to the Business Expansion Scheme (BES) and Seed Capital Scheme (SCS) in Finance Act 2007 will serve developing industry well. We also welcome the extension of BES relief to Recycling Businesses without prior grant aid as introduced in the Finance Act 2008. The CCAB-I feels it is now opportune to further extend the types of business which are eligible for the relief.

In addition to specified industries, BES has traditionally been available to companies which would have been regarded as manufacturing under the “old” 10% rate rules provided that those companies had received employment grant aid.

Employment grant aid has become a less prevalent element of the industrial environment in recent years. For example, in 2006, IDA Ireland extended such grants to a value of some €25m. However in 2005, the comparable figure was €42m which closely paralleled the 2004 figure. The employment grant criterion may be excluding worthy businesses, which would qualify in all other respects, from the relief.

We also note that from the experience with the enhancements to the scheme in 2007, grant aid can be restricted under the EU State Aid approvals process, as outlined in the Vademecum Community Rules on State Aid³, where the scheme is availed of. These additional conditions create another hurdle for Irish businesses in attempting to avail of BES. We therefore urge removing the grant aid criterion in favour of a certification process which does not necessarily entitle the company to the receipt of grants.

3.1.2. Target high end software/computer sectors, internationally traded services & IP Intensive business

The Department of Finance in conjunction with the Department of Enterprise, Trade and Employment and the Revenue Commissioners conducted a review of the BES scheme in 2006⁴. As part of the review, almost 1,400 companies who had availed of the scheme were surveyed. 58% of the respondents to the survey categorized their qualifying trade as that of manufacturing.

While manufacturing is a good job generating sector, it is somewhat at odds with the general national policy for job creation and sector growth in high end computer services, software development, IP intensive business and international services. These very services only make up 42% of the qualifying trades profiled under the Department of Finance's 2006 survey. The requirement that internationally traded services and computer services must also qualify for grant approval for BES relief vetting process is inconsistent with the emphasis placed on the need for growth in these sectors by national policy. We recommend that these sectors should have access to BES relief with minimal impediments to qualification.

Our closest European neighbour, the UK, offers tax relief under the Enterprise Investment Scheme⁵ (EIS). Similar to BES relief, EIS is designed to help small higher-risk trading companies to raise finance by offering a range of tax reliefs to investors who purchase new shares in those companies.

3.1.3. Limitations imposed on investors

Irish tax policy favours low income yielding personal investments structures which lead to low returns and low taxable income and gains. High risk investments which have the potential to generate greater tax revenue on higher taxable income and gains are treated with suspicion by the tax policy makers. In FA06, restrictions on the amount of allowances that may be claimed by high-income individuals were introduced. Qualifying allowances including BES are capped at €250,000. Therefore, the increase of the BES investment limit to €150,000 as introduced by FA07 will be inhibited by the cap on high-income earning investors despite the fact that BES investment is a risk capital investment. On a broader analysis, the qualifying reliefs restriction introduced in FA06 applies primarily to asset-backed property type tax schemes. It is clear the BES does not fall into this category and should therefore be excluded. The inclusion of BES relief in the list of tax reliefs restricted in use for high-income taxpayers ultimately will leave investment in BES companies at a severe disadvantage.

3.1.4. Seed Capital Relief — Restriction on Qualifying Individuals

An individual's eligibility to avail of the Seed Capital Scheme is contingent, among other things, on their not earning significant “non employment” income, for instance self employment income, during a specified period before the investment (per TCA97 s494). While we can appreciate the need for such a condition to prevent possible abuses of the relief, in practice the restriction is disqualifying some entrepreneurial individuals from making BES type investments.

We recommend that the current threshold amount of €25,000 be revised upwards without disqualification from the Seed Capital scheme. We suggest that €50,000 is now a more appropriate amount.

3.2. Relief to individuals on loans applied in acquiring interest in companies

At 3.1.3 above, we referred to the limitations on relief for BES investments applied by the general restrictions on the amount of allowances that may be claimed by high-income individuals. In the context of improving the supply of capital to business, we recommend that interest relief on loans to companies, as granted by TCA97 s248, also be removed from the categories of income tax relief which are subject to general restriction of €250,000 applied by TCA97 s485C.

3.3. Increase in the limit for employees subscribing for shares in their employer company

• Key Recommendation – increase lifetime cap on subscription of shares in employer company

TCA97 s479 provides a deduction for income tax purposes where an employee subscribes for new ordinary shares in the employer company (or holding company of the employer company). The key restriction to this relief is that there is a limit on the amount that the employee can subscribe-there is a lifetime cap of €6,350.

The limit was increased from £3,000 to £5,000 in FA96 and has not been increased since then. We would recommend increasing the limit to €10,000, which based on the Consumer Price Index takes account of inflation over that period of time. This measure would provide a much needed cashflow for employer companies during the current credit crunch.

As mentioned in the Context, one commercial solution to the current economic challenges is management buyouts. The tax code could support such a commercial move by allowing tax relief on the acquisition of the shares in the buy-out company. Suitable amendments to the relief for employees subscribing for shares in the employer company, such as removal of requirement that the shares be “new shares”, could be used to encourage management buyouts.

3.4. Research & Development

• Key Recommendation — Bring national spending on R&D and innovation infrastructure up to international standards by allowing tax credit refunds for R&D tax credit.

The economy of the 21st Century is the “Knowledge Economy”. Information is pivotal to the success of this economy; and research and development activity (R&D) is crucial to the harvesting of this information.

Without R&D, economies throughout the world will struggle. This has been widely recognised by Governments who have introduced various R&D tax incentives. These tax incentives encourage organisations to carry out R&D, thereby ensuring the success of the economy in those countries.

• The United Kingdom⁶ allows companies to deduct up to 150% of qualifying expenditure on R&D activities when calculating their profit for tax purposes. Companies which are SMEs can, in certain circumstances, surrender this tax relief to claim payable tax credits in cash from the HM Revenue & Customs;
• Singapore⁷ offers an enhanced deduction of 150% of the amount of R&D expenses incurred by taxpayers that incur expenses in respect of R&D activities carried out in Singapore, also taxpayers carrying on a manufacturing trade or business or a trade or business for the provision of services will be allowed to claim deductions for R&D expenses that are not incurred in respect of their existing trade or business provided the R&D expenses are incurred in respect of R&D activities done in Singapore, and the R&D tax allowance is a new incentive available to companies in Singapore that have chargeable income; and
• France⁸ allows a 50% tax credit on yearly R&D expenses, up to €100 million (and 5% for expenses above this level) in the first year, 40% the second year, 30% subsequent years; if the credit exceeds the tax, or if the company incurs a loss, the remainder can be deferred to future taxes paid over the next three years and, if necessary, reimbursed in cash at the end of this period; Innovative start ups and new SMEs owned by individuals (minimum 50%) for a new activity can receive immediate reimbursement for the tax credit during the five years following their creation; tax credits not charged or refunded will result in a credit with the Treasury-this credit may be transferred as a guarantee to a credit institution.

At present the R&D tax relief in Ireland is an incremental tax credit, i.e. in order to avail of the credit, there must be an increase in R&D expenditure in comparison with a “base year”. We welcome the changes in FA08 which have set the rules for the base year, as this has allowed some degree of certainty for companies carrying out R&D activities in Ireland.

However, if Ireland is to compete on the world stage, competitive R&D tax incentives are not desirable but are essential. In order for the current R&D tax credit to be considered competitive, it should be refundable or available as an offset against other taxes.

As successful R&D is driven by the availability of highly skilled talent in the workforce, it makes sense to focus the R&D credit towards employee taxes. The best possible means of achieving this would be to permit R&D credits earned to be offset against Employers PRSI.

The ability to surrender the R&D Tax Credit against PRSI in the year the credit is available would ensure a benefit where, in a startup phase, the capacity to use it against taxable profits might not be there. This approach would be cost neutral to the State whilst being hugely attractive to foreign multinationals, as it would put the emphasis of the incentive towards offsetting costs, rather than necessarily resulting in a below the line benefit.

It would also serve as a direct incentive towards labour intensive as well as capital intensive research and development.

3.4.1. Refund R&D tax credit in start up phase

Many companies who incur R&D costs in their early years are not making profits and hence are not able to get the benefit of the R&D tax credit until they become profitable. In the UK, there is a provision which allows the tax credit to be refunded to unprofitable SME's. As a possible alternative to our suggestion to permit R&D credits to be applied towards Employers PRSI, consideration should also be given to allowing a refund of the R&D Tax Credit up to a maximum annual cap which, for the SME market might be €500,000.

3.5. Prompt Repayment of Overpaid Tax and Interest

• Recommendation – Interest on overpaid tax should be paid from the date the overpaid tax is due. Also interest on refunds of VAT should be exempted from Income Tax and Corporation Tax from the date VATA72 s21A was introduced i.e. from 1 November 2003.

In general terms, it is essential for the cashflow of all taxpayers, in particular SMEs, to ensure the prompt repayment of overpaid taxes, in particular preliminary tax.

FA03 provided for the payment of interest on overpaid tax only where the tax has not been repaid within six months of the date the repayment was due. Where a taxpayer underpays tax, the interest to be paid commences on the date the tax was due. This gap in the timeframe is inequitable and should be removed.

We would recommend that interest on overpaid tax should be payable from the date the tax is due.

In addition, FA03 made significant changes to the regime on claiming refunds of tax including introducing a basis for allowing interest on refunds of VAT-following on from a series of appeal hearings on this area.

It has long been an established principle that interest on tax which is paid late is not allowable for Income Tax or Corporation Tax purposes and that interest on refunds of tax are likewise not subject to Income Tax or Corporation Tax. This is provided for in TCA97 s865A(4)(b). However, that provision only applies to interest paid under s865A. It does not extend to interest paid under VATA72 s21A. These two sections were introduced respectively by FA03 ss 17 and 125. It appears to have been an oversight that s21A does not carry a provision exempting the interest as the Sections are otherwise almost identical in content.

3.6. Revision of Preliminary Corporation Tax Obligations

• Key Recommendation – Tax payment threshold of €200,000 should be removed to allow all companies pay preliminary tax on prior year's liability

3.6.1. Discrimination against the larger taxpayer

Companies of any significant size are facing difficulties in meeting their preliminary corporation tax obligations because there is no rule permitting those companies to base preliminary corporation tax payments on the prior year's results. Some progress was made in the 2007 and 2008 Budgets by increasing the small company's relief from €50,000 to €150,000 and €200,000, respectively. However, a significant number of companies pay tax in excess of €200,000 in any given year. Time and interest based penalties arising on shortfalls in payments of preliminary corporation tax affect these companies because of the large sums involved.

On review of the Revenue Commissioners Statistical Reports for 2006⁹ we calculate that approximately 95% of all companies making corporation tax payments fell within the €200,000 tax threshold allowing such companies to base preliminary tax on the previous year's tax liability. Companies in the 5% range not allowed under current rules to base preliminary tax on the previous year's tax liability paid approximately 85% of the total corporate tax take. On first consideration of this information it may appear that Revenue have achieved their goal to maximise the cashflow of the payment of corporation tax without putting pressure on small companies. However the company paying the lion's share of the corporation tax bill is being discriminated against and is exposed to interest for differences in the tax liability which can reasonably occur between one month before the year end and the date it prepares its financial statements after the year end. Invariably this is the company employing the larger workforce and hence paying the majority of employer taxes.

Given the timing of payments and the fact that the payment is due by the 21st of the month, in reality, the estimate has to be based on management accounts for the first ten months of the year. This is not realistic for the following reasons:

• Application of generally accepted accounting principles (GAAP)
  
  

FA05 introduced the production of accounts using GAAP for corporation tax purposes. The majority businesses would not necessarily follow GAAP/IFRS in the preparation of their management accounts. It is on the management accounts that estimates before the end of an accounting period must be based-there is no other information to hand.

• Adjustments for Exchange Gains and Losses

Such gains and losses will of course impact on a company's results. No company can know, or precisely anticipate, what the impact of exchange differences will be forty days in advance of the period end.

• Mark to Market Adjustments — financial services companies

It is not possible to provide accurately for such adjustments at the preliminary corporation tax payment date.

In the interest of fairness and equity, all companies, wherever reasonably possible should be subject to the same tax rules and to take this one step further, the companies contributing 85% of the corporation tax revenue should, at the very least, not be subject to a less favorable tax rule than the companies making a lesser contribution to the Exchequer.

The matter is further complicated because many of the companies paying tax in excess of €200,000 per annum are multinational entities. As such, these companies will be sensitive to comparable arrangements in other jurisdictions and are suspicious of a tax payment system which appears to set up the larger company for a significant fall in the guise of an interest exposure on an underpayment outside of its control.

3.6.2. Inconsistency with tax payment rules for other tax heads

In addition to the obvious discrimination within the corporation tax system, the treatment of the large corporate is also at odds with the system for calculating preliminary income tax for individuals. The option to base preliminary income tax on 100% of an individual's tax liability for the previous year of assessment or on 90% of the liability for the current year of assessment has not given rise to any cashflow problems for the Exchequer and we submit that the same premise for corporation tax will apply if the current preliminary tax rules are repealed. There may in fact be revenue benefit-given the difficulties in arriving at accurate estimates already described, companies will always tend to take the safer option of basing preliminary tax on the previous year's outturn. In a declining market, this will result in a cashflow advantage to the Exchequer.

A universal rule permitting preliminary tax to be based on the previous year's tax liability would yield more accurate estimations of corporation tax outturns to the Exchequer on a year to year basis.

We strongly urge therefore that the €200,000 previous year liability ‘limit’ be removed entirely so that all companies can base their preliminary tax obligations on prior year results.

3.7. Capital Gains Tax Measures

• Key Recommendation – bring time of disposal for CGT purposes in line with consideration; re-introduce indexation for CGT

3.7.1 Time of disposal for capital gains tax

TCA97 s542, as reinforced by eBrief No. 20/2008, provides that where an asset is disposed of under a contract, the date of disposal for capital gains tax purposes is the time the contract is made and not the time at which the asset is conveyed or transferred. If the contract is conditional, then the time of disposal is the time the condition is satisfied.

There may be situations where a contract is signed in an earlier year of assessment to the year of assessment in which the asset is conveyed. This usually means that the consideration is not received until a later year of assessment. We understand that Revenue are pursuing taxpayers for interest, penalties and late filing surcharge where the taxpayers have treated the date of disposal for capital gains tax purposes as the later year of assessment. In the current economic environment we consider such pursuit as unjust where the taxpayer has not received consideration to pay for the tax liability.

We would recommend that the legislation be amended to treat the date of disposal as occurring in the year of assessment that the consideration is received.

3.8. Close company surcharge/Professional Services Company surcharge

• Key Recommendation – Abate close surcharge where profits are reinvested

In its Budget 2000 – Tax Strategy Group Paper, the Department of Finance's case for retaining the close company surcharge was based on concerns that the significant drop to 12.5% tax rate on corporation trading profits would mean that company structures would be increasingly used to shelter income at low rates of corporation tax while postponing distributions to shareholders and would lead to a loss of income tax revenue.

The close company legislation is based on the premise that the profits must be distributed if the company is not being used to shelter income. However, if the profits of the close company are re-invested in the company, then the company is not being used to shelter income.

A particular difficulty arises for Professional Services companies in that the income recognition accounting rules for work in progress will suggest a distributable profit not necessarily matched by actual cashflow or revenue reserves, particularly in the current economic climate.

Given the current credit crunch, the re-investment of profits into close companies would be a welcome source of finance. Therefore both instances of the close company surcharge should be amended to reflect this re-investment by reducing the surchargeable income by the amount of the re-investment in addition to distributions made.

3.9. Relevant Contracts Tax (RCT)

• Key Recommendation – amend procedures for RCT where no loss of revenue

As mentioned in the Introduction, the importance of highlighting our concerns in relation to “aggressive tax collection” cannot be overestimated. The relentless pursuit of RCT (relevant contracts tax) where, in general there is no loss of revenue, and more specifically, the connected party rule brings private minor construction operations within the realms of RCT cannot be justified. RCT is a collection mechanism and not a form of tax and it should be interpreted as such.

We would recommend amending the connected party rule within RCT regime to ensure that genuine innocent construction operations are not subject to RCT; and the re-examination of settlement procedures so the Revenue do not seek full recovery of tax, interest and penalties where there is clearly no loss of revenue to the Exchequer. In particular, as RCT is not a fiduciary tax, the current arrangements which permit a self correction without penalty within a one month interval should be modified to permit self corrections within a twelve month interval.

4. USING THE TAX SYSTEM TO RETAIN INTERNATIONAL COMPETITIVENESS

• Key Recommendation – Refine a series of aspects of our tax code to make Ireland an even more attractive locale for innovators

Forfás¹⁰ produced a study titled “Review of International Assessments of Ireland's Competitiveness” which consolidates four measures of Ireland's competitiveness conducted by WEF Global Competitiveness Report, IMD World Competitiveness Yearbook, EU Lisbon Growth and Jobs Strategy and Huggins Associates European Competitiveness Index.

All four measurements to competitiveness in the study conclude that Ireland's weak innovation and R&D infrastructure is a real threat to sustained economic growth. The study identifies low levels of Government expenditure in innovation and R&D as the driver for the low rating in this area. The scope for further national investment in establishing a solid and internationally acceptable standard of R&D and innovation infrastructure could take the form of tax refunds of R&D expenditure by companies (as mentioned in Section 1); and tax incentives for highly skilled foreign workers.

The BES relief and Research and Development (R&D) tax credit form part of the strategic need to cultivate Ireland as a location to develop, hold and exploit intellectual property (IP). More specifically, the IP sector needs significant improvement in order to add tax ‘teeth’ to the stated national policy objectives of transforming to a knowledge-based economy and ‘moving up the value chain’ in high end employment.

Our tax regime in this broader sense is not at all coherent. We have completely separate and different incentives/allowances/reliefs for acquisition of certain types of intellectual property such as software, know-how, scientific research, research and development, but for certain other forms of intellectual property such as goodwill, trademarks, and brands, we have nothing on offer from a tax perspective.

Our competitors, such as Luxembourg, the Netherlands, Belgium, Spain, France and Germany all offer very attractive regimes. The United Kingdom is currently engaging in a consultation process towards the introduction of a full participation exemption for foreign dividends. It is not overstating the case that unless Ireland takes action in this area, we will be the only territory operating a credit system on dividends.

The need for a coherent tax policy which encourages developing, holding, and exploiting IP from Ireland is critical as R&D in particular is very difficult to shift from a HQ location for control reasons. A very strong package of consistent tax measures is therefore vital to encourage the growth and retention of IP in Ireland. Fundamental to this is the retention of the 12.5% corporation tax rate.

4.1. Full participation exemption

Policy makers have to some extent recognised the power of tax as a tool to support the efforts of national agencies such as the IDA by introducing the CGT exemption on gains arising from the sale of a subsidiary, pooling of tax credits on foreign dividends and most recently, the availability of the 12.5% tax rate on dividends paid out of trading income received by Irish holding companies from subsidiaries located in the EU and countries with which Ireland has a Double Tax Treaty.

At present only the making of distributions from an Irish subsidiary to an Irish parent is exempt from tax. While the pooling of tax credits and the introduction of the 12.5% tax rate in its limited application may result in the effective exemption of distributions from tax, these measures can be unwieldy in a competitive tax environment, and often fail to persuade international groups that Ireland is an attractive location for holding companies.

On this basis, we would strongly recommend that all distributions from foreign subsidiaries be exempt from tax in Ireland. The substitution of what is frequently an effective exemption with an actual exemption as suggested would have little or no negative Exchequer impact-in fact we would expect a positive impact overall as more multinationals would decide to locate in Ireland (or for that matter, not leave Ireland) by virtue of a clear exemption policy.

Alternatively, the complexity of the FA08 changes could be amended. Once dividends are sourced from profits of a company in a “relevant territory” they should be taxable at 12.5% on repatriation to Ireland. This would eliminate the necessity to establish that the dividend has been paid out of trading profits as well as all of the tracing and apportionment rules which are currently contained within the provision. The experience of CCAB-I members operating the FA08 rules is that they serve to impede the dividend flow.

4.2. Expand scope of tax reliefs across all IP assets

Currently there are different capital allowances regimes available for software and patents; there are also different reliefs available for know-how, scientific research, and a tax credit system for R&D spend. There is no relief available for goodwill and other IP assets such as trademarks, brands.

In the context of promoting the knowledge based economy and removing disincentives for IP intensive inward investors, we recommend overhauling this collection of reliefs in such a way as to provide real incentive, expansion of scope and consistency of treatment. This would not preclude tailored allowances towards activities deemed more favourable to the Irish economy, for instance copyright and pharmaceutical patents.

Such a measure will bring Ireland into line with the approach taken in other EU Member States.

4.3. Withholding Tax on annual interest and other payments

TCA97 s246(2) provides for a withholding tax at the standard rate on a yearly interest payment. TCA97 s246(3)(h) provides relief from the withholding tax where the interest is paid to a person resident in an EU Member State or in a country with which Ireland has a tax treaty.

There is no relief where the interest payment is made to a person resident in a non-EU/non-treaty country. This may result in double taxation as there is no treaty to provide relief from the withholding tax paid in Ireland. There are withholding tax issues on interest payments to group companies in non EU/non treaty countries. In addition, there is no interest deductibility in Treasury companies paying interest to non EU/non treaty countries. These measures are in contrast with the position for example in the Netherlands, Luxembourg and Germany which don't impose withholding tax on interest.

The measure introduced in FA07 which sought to address the issue, failed to deliver the required result. FA07 distinguishes between ‘short’ interest and annual interest. It provided an option to deduct annual interest with a treaty protection to avoid withholding tax but no solution for non-EU/non-treaty countries for withholding tax on interest. No solution was provided to allow ‘short’ interest to be deducted.

We suggest that withholding tax should not be applied on any payment of annual interest or ‘short’ interest; and full deductibility of all trade interest for the financial services trade of a treasury company, again covering annual interest and ‘short’ interest, as the current rules leave Ireland in a non-competitive position, where foreign direct investment may choose another location.

To compound the above situation, there is no specific relief from the deduction of withholding tax in relation to royalties and other payments in respect of patents. At present there is only relief where the two companies are in a group (as defined). If Ireland is serious about becoming a knowledge-based economy, then the position of withholding tax on royalties must echo the position in respect of interest.

4.4. A New Approach to Research and Innovation

As mentioned in Section 1, if Ireland is to compete on the world stage, competitive R&D tax incentives are not desirable but are essential. In order for the current R&D tax credits to be considered competitive, it should be refundable or available as an offset against other taxes.

4.4.1. Restrictive definitions turn away good

The definition of qualifying Research and Development under the current legislation is very narrow and can deter multinationals from establishing high end job generating businesses in Ireland. In particular, the application of the R&D credit to software development is restrictive. The development of new software using existing tools or knowledge does not come within the definition of qualifying R&D. Serious consideration should be given to broadening the definition of qualifying research and development activities for R&D credit relief for the purposes of encouraging more software and computer development businesses to establish in Ireland in keeping with national policy.

We do accept that EU approval would be necessary in relation to the amendments we propose in respect of Research and Development tax incentives by virtue of our participation within the European Union. However, the proposed amendments should not restrict the Treaty freedoms or infringe State Aid rules.

4.5. Fiscal Incentives for Highly Skilled Foreign Workers

In order for Ireland to have a knowledge economy, we must strive to have centres of excellence in innovation. Key to establishing, developing and retaining such centres of excellence is a capacity to attract the “top” experts in relevant fields into Ireland. A new strategy is required to allow Ireland compete with its fellow EU Member States and non-EU countries in attracting and retaining the brightest and best.

We recommend the introduction of a new expatriate regime which allows key foreign personnel who are experts in their discipline, and research scientists with knowledge and skills that are scarce in Ireland to receive a tax relief which reflects their contribution to key areas of economic growth.

In the past, Ireland has granted special tax regimes to individuals where we wished to foster a particular activity or expertise-the exemptions in relation to greyhounds and stallions are cases in point. Even more pertinent is the artist's exemption. As a nation, we were not shy about our desire to foster creative artistic activity. Equally we should not be shy about fostering scientific innovation and development.

Nor is there likely to be any EU impediment to Ireland's introduction of fiscal incentives to attract knowledge workers. EU Member States¹¹ such as Austria, Belgium, Denmark, Finland, France, the Netherlands, Sweden and the United Kingdom operate special tax regimes to this end. Under the EC Treaty, individuals are entitled to move freely for work reasons from one EU Member State to another without suffering discrimination as regards employment, remuneration or other conditions of work or employment¹². Therefore, an incentive which allows foreign employees to have similar tax allowances to Irish resident individuals should meet the EC Treaty freedoms.

In order to ensure that the regime is not abused, the personnel for which the regime is applicable must be clearly defined. The conditions for eligibility under the regime should be aimed at preventing “tax-shopping”, and ensuring that the arrangement is targeted at highly skilled employees.

While such a relief could take many forms, we suggest that a relief for Ireland should have the following parameters. We identify these parameters to ensure that the relief is consistent with existing Government policy, is effective in attracting talented individuals to Ireland while being reasonable, ensures that knowledge is transferred within our economy, and that the relief is not open to abuse.

4.5.1 Eligible Individual

Non-domiciliaries holding appropriate post graduate qualifications and Irish domiciliaries with less than two years work experience following their attainment of appropriate post graduate qualifications. Post graduate qualifications are those to HETAC level 10 standard, or of a comparable standard where attained in other jurisdictions.

Appropriate post-graduate qualifications should be defined as those within the disciplines identified in The Strategy for Science, Technology and Innovation 2006-13 which forms a pillar of the National Development Plan, namely:

• World Class Research
• Enterprise
• Agri-Food Research
• Energy Research
• Marine Research
• Geo-science
• Health research
• Environment Research

The individual works either as a leader of, or otherwise part of a team, in either a private or public enterprise, in an activity related to their discipline.

The individual is required to work not less than 70% of their time within the State and be Irish resident for tax purposes.

The individual is required to spend not less than 20% of their time engaged in one or more of the following:

• Teaching
• Training or lecturing
• Coaching, team leadership or otherwise acting as a tutor
• Writing, setting or moderating examinable materials in connection with courses of education leading to a post graduate qualification

4.5.2 The Relief — Individuals

The basic relief should take the form of a deduction from total income in an amount equivalent to 30% of income assessable under Case II of Schedule D or Schedule E.

A further deduction from total income, not exceeding 10% of income assessable under Case II of Schedule D or Schedule E should be available in respect of:

• Costs arising from their relocation to Ireland
• Dependent children's education costs

For Capital Acquisitions Tax purposes only, the individual will not be regarded as resident or ordinarily resident in the State.

The relief should run for a period of five years from the end of the year of assessment during which the individual arrives in the State; for the sixth year at 50% of the available relief; for the seventh year at 25% of the available relief, and not available thereafter.

The relief should not be a specified relief for the purposes of computing the Limitation on Amount of Certain reliefs used by High Income Individuals.

The relief should only be granted to an individual once, and only be available for an uninterrupted period of residence within the State. If the individual ceases to be resident for tax purposes during the timespan of the relief, the unexpired portion should not be available to him or her in subsequent years.

4.5.3. The Relief-Groups

A 12.5% rate of taxation should apply to any bonuses taxable under Schedule E paid to innovators, researchers, developers, who are associated with appropriate innovations, whether in particular educational institutions or in commercial enterprises.

This rate would apply to all directly involved in a creative or research capacity (as distinct from a management capacity) in the innovation process.

Appropriate innovations would have the following characteristics, being

• A recognised and separately identifiable body of work in furtherance of the disciplines identified in The Strategy for Science, Technology and Innovation 2006-13
• “Recognised and separately identifiable body of work”, in this context could be defined as:

• – a patent registered in not less than two OECD countries, or as
• – a peer reviewed and published item of research in an established scientific journal, where the peer review had been done by respected academics from an internationally recognised educational institution.

4.5.4. Reform of the Patent Income Regime

The recommendations at 4.5.2 and 4.5.3 are designed to help ensure that highly skilled people in areas compatible with National Policy are offered real incentives to work in Ireland and raise the Irish skill set overall by developing their innovations in Ireland. To achieve the same ends, we believe that the existing Patent Income exemption regime needs some reform.

We recommend that the current regime should be maintained as at present. However, a further refinement could be instituted whereby dividends can be paid to shareholders who are directly involved in the innovation process (as with the bonus recommendation at 4.5.3 above). Such dividends would be subject to a 12.5% withholding tax rate, with that tax constituting the final liability.

This approach will be attractive in the commercial environment where the remuneration for an innovator and their team can be directly linked to the commercial return being made from their underlying work.

However it would not be sufficient to implement this measure on its own, as this would be to the detriment of innovation within the public, and in particular, the university sector.

4.5.5. Value for Money

Over the lifetime of the National Development Plan the State will invest €6.1 billion in Science and Technology Innovation. Fundamental to the success of this initiative is securing the appropriate knowledge and skill sets.

There is no Exchequer cost with this proposal in relation to the knowledge workers we would attract in-there would in fact be an Exchequer gain in that they would pay some income tax.

If the scheme we propose is successful in retaining 1,000 top class and re-focussing Irish individuals, the cost in terms of tax and PRSI, based on an average allowance of €40,000 per annum, would be in the order of €17m in a full year. Over the remaining life of the NDP, the cost would be approximately €100m-a tiny fraction of the STI commitment in the NDP.

5. NECESSARY REFINEMENTS TO OUR TAX REGIME

The passage of time and changing economic and social circumstances have made some of our existing tax procedures and reliefs less effective than before. In this section of our submission, we examine and make suggestions regarding some of the measures which are presenting difficulties in practice.

5.1. Appeal Commissioners’ Decisions

• Recommendation – All Special Commissioner decisions should be published.

CCAB-I made a submission to the Appeal Commissioners stressing the importance of the publication of all determinations made by the Office of the Appeal Commissioners, and requesting that more priority be assigned to their publication. A copy of the submission to the Appeal Commissioner is reproduced in the Appendix.

5.2. Tax relief for holiday cottages

• Recommendation – Allow off-season letting of holiday cottages without prejudice to the tax relief otherwise available.

The recent slowdown in residential housing completions suggests it may be necessary to reconsider restrictions on the availability of rented private residential accommodation.

In particular, we highlight the current terms of approval for tax purposes which may apply from time to time to tourism accommodation and other related projects.

The relevant legislation is TCA97 ss 268(3), 352, 353, being buildings or structures which are holiday cottages, holiday apartments or other self-catering accommodation, usually registered under provisions of the Tourist Traffic Acts. The combined effect of these provisions is that such accommodation may not be let long term if the tax relief is not to be denied. Longer winter or other off season lettings are thus impossible in practice.

As a consequence, property not occupied for long periods particularly when weather conditions are hostile is subject to deterioration through lack of ventilation, damp interior conditions and so on. This can lead to derelict and unsightly residential property in resort areas, making them unattractive and thus defeating the object of the legislation in the first place.

We suggest that the rules governing the letting of holiday accommodation be relaxed for the off-season while retaining the conditions regarding short term summer season letting.

In order to preserve the intention of the restrictions set out in the legislation, we would propose that rental income from “non-holiday” rentals would not be sheltered by capital allowances, but would not of itself prejudice the availability of capital allowances for holiday lettings.

The source of the rule prohibiting long term letting is essentially a F-ilte Ireland regulation and should not have been linked to availability of tax relief in the first place as it serves no commercial rationale.

5.3. Capital allowances — assets bought and sold in one year

• Recommendation – Extend the balancing allowance provisions to assets bought and sold in the one year.

TCA97 s288(1) provides for the making of a balancing allowance or a balancing charge where certain events occur such as the disposal of plant or machinery. The provision only applies where “... a wear and tear allowance has been made for any chargeable period to a person carrying on a trade”. A wear and tear allowance is available where plant or machinery is in use for the purposes of a trade at the end of the chargeable period.

Therefore, there is no legislative basis for allowing a balancing allowance where plant and machinery is disposed of during the chargeable period in which it was first brought into use.

Where the taxpayer experiences a catastrophic event during the chargeable period which results in the loss of plant or machinery, the taxpayer would be unable to claim a balancing allowance. We recommend that balancing allowances should be extended to allow a claim for plant and machinery which are bought and sold in one year.

The resolution of this issue on an administrative basis has been extensively explored with Revenue, without success.

5.4. Unilateral Credit and Withholding Tax

5.4.1. Insurance companies and withholding tax

TCA 97 Sch24 (9D) introduced unilateral tax credit relief in respect of interest income from non-treaty countries. The same issue arises periodically in relation to insurance or reinsurance premiums received by Irish insurance and reinsurance companies operating in the international arena.

Given the importance of this sector to the Irish economy, and its continued growth internationally, a unilateral credit similar to that in Paragraph 9D should be introduced for such withholding tax on insurance premiums.

The estimated cost of introducing such a credit would be expected to be negligible as business that attracts such withholding tax is not currently transacted through Ireland, and the existence of such a credit would be an additional string to our bow in attracting such business to Ireland.

5.4.2. Royalties and withholding tax

While unilateral relief from double taxation has been extended over the last number of years, there is no provision for any unilateral relief for royalties. There is, however, provision under TCA97 s449 for unilateral relief for withholding tax from computer services companies. This ceases on 31 December 2010.

Generally, we advocate that unilateral credit relief be extended to withholding taxes on interest and on royalties applied by ALL countries, irrespective of EU or other trading bloc status. This will unquestionably foster income flows to Ireland as we become the country of choice for capital and intellectual property holdings. The latter is of enormous significance in positioning Ireland as a knowledge economy.

5.5. Relief for fees paid for third level education

• Recommendation – Remove the condition that approved courses be provided by approved colleges for the purposes of granting tax relief on fees

TCA97 s473A provides for a generous form of tax relief for individuals on fees paid for undertaking third level education. It is entirely appropriate to provide for such reliefs given the emphasis on developing skills in our economy.

The key criteria for the relief are that:

• Fees be paid for an approved course
• The course must be conducted in an approved college

In most instances, these criteria do not give rise to difficulty. Course accreditation is usually granted by the Higher Education and Training Awards Council, and its work in this area is well respected both at home and abroad. However, a separate approval process is required in respect of the course provider. It seems anomalous that one taxpayer attending a HETAC accredited course can obtain tax relief, while another attending a similarly accredited course but at a different educational establishment would be denied it.

As the tax legislation pre-dates the significant reform and advances in the third level sector since the formation of HETAC in 2001, it may be appropriate to review the requirement that the college, as well as the course, be approved.

5.6. Capital Taxes Payment Dates

• Key Recommendation – Capital taxes return dates and payment dates should coincide

5.6.1. Capital Gains Tax

At present Capital Gains Tax (CGT) must be paid in two instalments:

• on or before 31 October in relation to gains incurred in the initial period (1 January to 30 September);
• on or before 31 January in the following year in relation to gains incurred in the secondary period (1 October to 31 December).

In addition, returns must be submitted on or before 31 October in the following year.

For simplification purposes, we recommend that the CGT return and payment regime revert to that applicable for Income Tax, i.e. coinciding the CGT return and payment for the previous year of assessment at the Income Tax due date of 31 October. As a further simplification measure, the interval of 35 years since the CGT base date requires review.

5.6.2. Capital Acquisitions Tax

A similar logic should be applied to Capital Acquisitions Tax. CAT is generally accounted for by reference to a date four months after the Valuation date.

To enhance CAT compliance and administration, we suggest that CAT returns and payments for gifts and inheritances under a specified value should coincide with Income Tax returns. The CAT Return and payment would be made on 31 October, by reference to valuation dates falling in the year to the previous June.

As for Capital Gains Tax, consideration should be given to revising the base date for CAT purposes.

5.7. Capital Acquisitions Tax — Dwelling House Exemption

• Recommendation – Extend the dwelling house exemption to unmarried couples

FA07 s116 introduced restrictions to the Capital Acquisitions Tax dwelling house exemption in relation to a gift of a dwelling house where the house was occupied by the disponer as his or her only or main residence in the three years prior to the gift. In this situation, unless the donee had to live in the house as the disponer was compelled to depend on the donee by reason of old age or infirmity, the gift would not qualify for the dwelling house exemption.

STANDARD RATE TAX BAND	2007	2008
Single/Widowed (without dependent children)	34,000	35,400
Single/Widowed (with dependent children)	38,000	39,400
Married Couple (one spouse with income)	43,000	44,400
Married Couple (both spouses with income)*	68,000	70,800
*The tax band of €70,800 available to married couples with two incomes in 2008 is transferable between spouses up to a maximum
of €44,400 per spouse.
TAX CREDITS
Single Person	1,760	1,830
Married Person	3,520	3,660
Widowed Person (without dependant children)	2,310	2,430
One Parent Family Credit	1,760	1,830
Home Carers’ allowance	770	900
PAYE Credit	1,760	1,830
OTHER CREDITS
Incapacitated Child Credit (Max)	3,000	3,660
Dependent Relative	80	80
Blind Tax Credit
Blind person	1,760	1,830
Both Spouses Blind	3,520	3,660
Widowed Parent
Year 1	3,750	4,000
Year 2	3,250	3,500
Year 3	2,750	3,000
Year 4	2,250	2,500
Year 5	1,750	2,000
AGE TAX CREDIT
Single/Widowed	275	325
Married	550	650
STAMP DUTY-COMMERCIAL
Over Euro 150,000*		9%
(*) Lower rates apply where consideration is less than €150,000
STAMP DUTY-RESIDENTIAL
	FTB		Own/Occ	Investor
Up to €125,000	Exempt		Exempt	Exempt
Next €875,000	Exempt		7%	7%
Balance	Exempt		9%	9%
CAT THRESHOLDS
	Group threshold (after indexation)
	2005	2006	2007	2008
Class A	€466,725	€478,155	€496,824	€521,208
Class B	€46,673	€47,815	€49,682	€52,121
Class C	€23,336	€23,908	€24,841	€26,060

While this restriction was introduced as a specific anti-avoidance measure, it has far-reaching consequences. In the case of an unmarried couple, a transfer of the family home to one or other of them, or the transfer of the home into joint ownership, is now subject to gift tax.

We would recommend that the FA07 amendments to the dwelling house exemption be repealed to the extent that gifts of dwelling houses between unmarried couples be exempt from Capital Acquisitions Tax.

5.8. Stamp Duty — Incorporation of a business

• Recommendation – A stamp duty relief should be introduced for the incorporation of businesses.

A business which is being incorporated avoids Capital Gains Tax under TCA97 s600 if it meets certain reasonable conditions. However, there is no similar stamp duty relief in respect of the same transaction. While it is recognised that not all assets are subject to stamp duty, e.g. assets may pass by delivery; or appreciating assets may be retained, it is necessary that all assets are transferred in order to avail of the Capital Gains Tax relief.

This has resulted in an anomaly in the tax system, whereby a significant stamp duty charge could be payable by the newly established company on the acquisition of the goodwill and property of the business. This is a serious commercial impediment to many business owners.

We would strongly recommend that a stamp duty relief be introduced when businesses are incorporated.

5.9. Pensions

• Key recommendation – Extend tax relief to encourage OECD recommended pension funding levels

The OECD April 2008 Economic Survey of Ireland¹³ emphasised the need for Ireland to “develop a long term framework now to ensure the sustainability of public finances and adequate retirement income”. The Report also noted that “the current system will become unsustainable as the population ages, even with the resources in the National Pension Reserve Fund”. The OECD Report specifically identifies that substantial changes are required in public spending, in taxation and in the pension system. The CCAB-I recommends a review of key taxation incentives as a means of encouraging the necessary substantial increase in pension funding as identified in the OECD report. The aspects of tax incentives in terms of pension funding in urgent need of review are as follows:

5.9.1. Pension contribution limits

TCA97 s787 provides for a limit on the allowable contribution that can be made to an approved pension scheme as a percentage of the net relevant earnings of the person. This is further restricted by a cap on the earnings of €254,000 as provided in TCA97 s790A.

While we welcome the provision in FA06 for this cap to be increased in accordance with inflation, we believe that the cap of €254,000 is too restrictive. For example, an individual aged between 50 yrs and 55 yrs cannot deduct a pension contribution of more than €76,200 in calculating their taxable income.

It is our members’ experience income tends to increase in the later years of an individual's working life. The earnings cap does not recognise this fact. In addition, the Minister for Social and Family Affairs is actively encouraging those workers who do not contribute to a pension scheme to do so. The restriction on the earnings limit seems to be at odds with public policy.

On this basis we would strongly suggest that the overall limit on pension contributions which attract tax relief be set at €250,000, all other criteria being met.

5.9.2. Encourage the young to pension fund earlier in life

There is a very real need to indoctrinate pension funding in the young as early in life as possible. Tax relief on pension contributions should be tailored to specifically target the young on first entry to the workforce and thereby establish a pattern of ongoing pension saving over the individual's entire work life. These specific measures could take the form of a double tax deduction for pension contributions in the first years of commencing to work and a PRSI holiday in total or partially for those who make voluntary contributions to a pension scheme.

It should always be borne in mind that up-front Exchequer costs of any form of pensions incentive have a considerable long term yield, both in terms of reducing the requirement for State support of the elderly, and in terms of the tax yield from the pensions when they are ultimately paid.

We accept that this is a long term measure with potentially high immediate costs which may not be assigned a top priority in the current circumstances. Nevertheless we feel it must remain on the agenda.

5.9.3. Refunds of PRSI to self employed persons on foot of pension contributions

CCAB-I wishes to highlight a significant anomaly in the treatment of self employed persons as against employed persons in the matter of pension contributions.

Where a payment is made either to a Personal Retirement Savings Account, an occupational scheme or a qualifying premium under an annuity contract approved by the Revenue Commissioners, a refund of PRSI is generally available to taxpayers. The legislation governing the repayment mechanism, ss 21(1)(c) and 38 of the Social Welfare Consolidation Act 2005 operate as to prevent a PRSI refund in respect of “reckonable income” (trading income) as opposed to earnings which are subject to PAYE under Schedule E.

In short, an employed taxpayer can claim a PRSI refund where he or she makes a pension contribution, but a self employed person cannot. This is inequitable and counterproductive in an environment where all citizens are being asked to make proper provision for their retirement.

5.9.4. Inequity in PRSI payable by ddfemployed compared to employees

The self employed individual is liable to higher rates of PRSI compared to employed individuals. Self employed individuals make PRSI contributions at a rate of 3% on all of their reckonable income where an employed contributor makes PRSI contributions at a rate of 4% subject to a ceiling of €50,700 and an exemption of €6,604 per annum.

For example, an individual self employed with reckonable income of €100,000 pays PRSI of €3,000 compared to an employed contributor's PRSI of €1,764 on a salary of €100,000. In addition, the self employed contributor must pay PRSI at 3% on unearned income such as rental income whereas an employed PRSI Class A contributor does not make PRSI contributions on unearned income. There is a clear discrimination in the operation of PRSI which should be amended to offer the same PRSI contribution structure to the self employed as available to employees for the purposes of encouraging the continued growth of an enterprise society.

5.10. Revenue audits

• Recommendation – Put in place an effective time limit on the duration of Revenue audits.

This has been raised on a number of occasions in our Pre Budget Submissions. We understand that the Revenue Commissioners are reviewing the Audit Code of Practice and we will pursue this measure on an administrative basis.

We may have to revisit this measure in future Pre Budget Submissions.

APPENDIX

Transcript from a letter to the Office of the Appeal Commissioners

Mr John O'Callaghan

Office of the Appeal Commissioners

8th Floor

Fitzwilton House

Wilton Place Dublin 2.

1 July 2008

Re: Publication of Determinations of Appeal Commissioners

Dear Mr O'Callaghan

I am writing to you on behalf of CCAB-I, the Consultative Committee of Accountancy Bodies -Ireland, to stress the importance of the publication of all determinations made by the Office of the Appeal Commissioners, and request that more priority be assigned to their publication.

We are both aware that section 944A of the Taxes Consolidation Act 1997 provides for the publication of reports of determinations of the Appeal Commissioners applying to determinations after 27 March 1998, and that this provision does not provide for a blanket publication of reports of all determinations but rather permits such of the determinations of the Appeal Commissioners “as they consider appropriate”.

There has been considerable debate within the profession on the necessity for the publication of determinations. This debate has been fuelled, at least in part, by the 2005 Report of the Comptroller and Auditor General. The C&AG reports Revenue's estimate that between 500 and 600 cases had been lodged with the Appeal Commissioners in 1999, and that approximately 250 cases were heard and decided annually¹⁴. The C&AG also noted that an approximation only is possible; he states that neither your office nor Revenue retained statistical or summary records.

Nevertheless these approximations contrast sharply with the record of determinations published on your website. In summary, just 32 determinations have been published, with 25 determinations relating to 2000; 5 to 2003; 1 for 2005 and 1 for 2007. As required by the Taxes Consolidation Act 1997, those determinations are anonymised to prevent the identification of any person whose affairs are dealt with in the determinations.

While the Appeal Commissioners are not required to publish reports of all their determinations, you are required (per TCA97 s934(7)) to record every determination of an appeal on a prescribed form and to forward to the Revenue Commissioners within 10 days after the determination. There is no apparent requirement to forward a similar record to the taxpayer. This would appear to be an inequitable situation as both parties to the appeal do not have the same rights to a record of the determination.

We also note your position that your office is not a tribunal of record. This may lead to a conclusion that you are not required to retain a written record of determinations, with the exception of those cases which are referred to the High Court by way of case stated. Nevertheless, if we are to follow the legal authorities, the Office of the Appeal Commissioners is indeed a tribunal¹⁵.

Lastly, we note the operation of the Freedom of Information Act 1997; section 16 of that act requires the publication of decisions likely to be of precedential value. We are aware of the points put forward by you at the Public Accounts Committee in 2001 to the effect that the determinations of the Appeal Commissioners are not precedents. However, in dealing with a point of law (as opposed to a point of fact) surely the Appeal Commissioner must and does apply the law, and inevitably in that process must follow precedent. This leads us to believe that your determinations do indeed have precedential value.

The publication of all appropriate determinations is we suggest integral to a fair, transparent and equitable Tax System. CCAB-I calls on the Appeal Commissioners to use your power to make public these determinations.

Kind regards

Yours sincerely,

Liam Lynch

Chairman, CCAB-I Taxation Committee

1As requested in letter from Dept of Finance, Mr Rory O'Kelly, 8 August 2008.

2The Exchequer Statement in the period ended 31 July 2008 shows a deficit of €6.712bn.

3ec.europa.eu/comm/competition/state_aid/studies_reports/vademecum_on_rules_2007_en.pdf.

4Department of Finance Publications 2006 Review of Business Expansion Scheme & Seed Capital Relief.

5HMRC Enterprise Investment Scheme www.hmrc.gov.uk/stats/ent_invest_scheme/menu.htm.

6From www.hmrc.gov.uk.

7Singapore Ministry of Finance Budget 2008, with effect from YA2009.

8From Invest in France Agency.

9Statistical Report for the year ended 31 December 2006 — Corporation Tax Distribution Statistics.

10Forfás Publications http://www.forfas.ie/publications/show/pub289.html.

11Trends in International Migration, 2004 edition.

12COM(2006) 728 final “Towards a more effective use of tax incentives in favour of R&D”.

13Policy Brief April 2008 www.oecd.org/dataoecd/38/12/40448199.pdf.

14See the Background to 2.10 The Management of Tax Appeals.

15Administrative Law in Ireland by Gerard Hogan and David Gwynn Morgan.

16SI No. 341 of 2008, Sch 2.