As the UK’s exit from the EU draws nearer, Chartered Accountants Ireland has written to the Minister for Finance calling for the urgent reform of a number of tax laws to support the SME sector.

The letter, reprinted below, deals with:

• transfer pricing obligations,
• the EII scheme,
• entrepreneur relief,
• accounting for VAT.

Dear Minister

We trust that this letter finds you well. We appreciate that this is an extremely busy time of year for you but we wish to bring to your attention a number of tax matters, raised in numerous submissions by the CCAB-I to the Department of Finance, which are now at a critical juncture.

As the autumn deadline for agreement on the future of the EU and UK’s relationship draws near, the professional regulated accountancy community in Ireland have concerns relating to tax law in need of urgent reform for the purposes of supporting the SME sector through the upheavals of Brexit.

Transfer pricing and the SME sector

The recent Department of Finance publication “Ireland’s Corporation Tax Roadmap” confirmed that legislation will be introduced in Finance Bill 2019 to update Ireland’s transfer pricing rules with effect from 1 January 2020.

While the CCAB-I will respond to the public consultation on transfer pricing in early 2019, we wish to underscore now the importance of getting the right balance between risk of mispricing and the compliance burden for the SME sector given the imminent pressures facing this sector. In our view, extending transfer pricing rules to SMEs would merely increase the burden of paperwork without significantly enhancing the integrity of the system. The limited resources of SMEs will be better spent responding to the commercial landscape post-Brexit.

Funding for the SME sector

Changes to the EII scheme rules for qualifying funding in response to the 2014 revision of EU General Block Exemption Regulation (GBER) for State Aid have had a substantially negative impact on funding for start-ups and established SMEs. A public consultation was conducted on this topic in May this year to which the CCAB-I responded. Our members wish to emphasise the urgent need for reform or replacement of the EII scheme to get much needed funds into start-ups and SMEs who cannot otherwise access the necessary finance.

Entrepreneurism in the SME sector

The 10 percent CGT rate for entrepreneurs was introduced with the objective of using tax policy to encourage entrepreneurship in Ireland as part of the Government’s “Build Your Business Initiative”. Especially in the context of a changed competitive environment post Brexit, we suggest that significant limitations to the relief should be addressed in Finance Act 2018 for the purpose of achieving the stated government policy objectives.

The relief applies a reduced CGT rate of 10 percent on qualifying gains of up to €1million in a vendor’s lifetime. The lifetime cap of €1million means that the Irish relief is not operating on a par with the UK’s regime which provides for a 10 percent rate of CGT on gains of up to £10million. One of Ireland’s stated policy objectives is to introduce policies to provide a strong foundation and competitive environment to attract and retain scaling SMEs. Incentivising the entrepreneur and creating a tax regime for entrepreneurs that both attracts and retains entrepreneurial talent and capital should form a core part of Ireland’s regime.

The benefits available to an entrepreneur under the UK relief dwarfs the Irish relief and is at risk of discouraging mobile entrepreneurship to take root in Ireland when a far superior relief is available in the UK.

Another obstacle to accessing this relief is a technical one and the manner in which the definition of a qualifying group of companies is framed which means that sales of shares in standard commercial corporate structures can be prohibited from benefiting from the reduced rate.

VAT initiatives to help cash flow pressures of Irish importers

A postponed method of accounting for VAT should be introduced in Finance Act 2018 so that Irish businesses importing goods from the UK will not incur a potentially crippling upfront VAT cost. The postponed method of accounting for VAT is an established procedure in other EU member states and the introduction of this procedure in Ireland would send a clear and positive signal to SMEs that the Government is serious in its initiatives to support the sector through the upheavals of Brexit.

We would welcome the opportunity to meet with you to discuss these issues in further detail and we trust that the appropriate changes will be made to tax policy and tax law to address these concerns for the benefit of the SME sector.

Yours sincerely

Sharon Burke

Chair of the CCAB-I Tax Committee