Budget 2014 Pre-Budget Submission

Executive Summary
There are a number of signs that the Irish economy has turned a corner, and that the prospects of economic growth are more substantial now than in recent years. Nevertheless, any evidence of recovery is tangible at best and distributed unevenly across sectors of the economy. Many smaller businesses and those more focused on the domestic economy struggle to grow their business, and those that are able to grow face increasing pressure on their working capital. Whilst it is prudent to provide for the future investment needs of firms, Government policy and supports are incorrectly focused on this area, as evidenced by the low take up of investment schemes such as the Temporary Partial Guarantee scheme. More must be done to alleviate the cash flow problems faced by companies. Government needs to develop a growth-friendly tax system that supports business activity, which in turn leads to job creation. The 12.5% rate of corporate tax is the cornerstone of future growth. Tax competition between jurisdictions remains intense, with the UK in particular being singled out as pursuing an aggressive series of tax reforms. It is the stated objective of the UK to become the most tax competitive economy by the end of the decade. Access to procurement remains a problem for many SMEs. We support the Governments objectives of achieving better value for money for the Exchequer. However, many firms feel precluded from tendering for public contracts, due to poorly structured contracts, poor feedback and the fact that the scale of some contracts precludes access by SMEs. For its part, Dublin Chamber is working to support the growth of business and employment in Ireland through a number of initiatives. The programme of projects, entitled Activating Dublin, is also supported by Dublin City Council. These are aligned with the Governments efforts on a range of issues - from increasing the number of SMEs trading online, to helping Dublin become the best place to startup a business, and working to improve the cash flow of businesses. Significant progress has been made due to the coordination and cooperation of private sector, departments, agencies, local government, higher education institutions, non-governmental organisations and private individuals giving their time to help the initiatives succeed in order to support job creation and economic recovery.

Recommendation Summary Working Capital & Cashflow Introduce a reduced CGT rate (15%) for individuals investing/loaning to SMEs. Increasing Investment Amend the Employment and Investment Incentive Scheme by increasing the period of investment and removing the phased nature of the relief. Improve the existing Special Assignee Relief Programme to help attract key executives with the power to create jobs in Ireland.

Increase the threshold for the cash receipts basis of VAT from 1.25m to 1.6m. Also companies operating on the cash basis would not switch to an invoice basis until they reached a turnover of 1.85m. Prepare a comprehensive report on actual credit availability broken down into key areas on a quarterly basis. Introduce a single scorecard of prompt payment by all Government departments & agencies. Increase of de minimis level for the Close Company Surcharge and Professional Service Charge from 2,000 to 10,000. Abolish the Professional Services Withholding Tax. Public Procurement Adopt clearer award criteria and provide feedback. Reduce administrative burden.

Increase the outsourcing limit of the R&D tax credit to 25% and remove the restriction on the surrender of tax credit to key employees for startups. Remove the investment barriers to addressing office capacity constraints in Dublin through development charge reductions. Provide receivers clarity on commercial property transactions as broadly outlined in the Revenue Commissions recent consultation paper on this issue.

Improve the access to public procurers.

Encourage use of the Purchasing Card system by all Government departments and agencies, and local government bodies, for all goods and services procured from SMEs.

Macro Taxation & Spending Matters Reaffirm the status of the 12.5% corporation tax rate for companies trading in Ireland. Consider the use of Public Private Partnership to deliver significant value to the Exchequer. Ireland should maintain its opposition to the imposition of a FTT on anything other than a Europe wide basis. Stand by commitment to keep 80% of Local Property Tax for use locally. Do not introduce restrictions in relation to specific grants to undermine this change in transparency and accountability. Extend the tourism rate of VAT to beyond 2013 and extend the range of services to which the rate applies.

Introduction
Dublin Chamber represents over 1,300 member companies, from multinational corporations to small businesses, across all sectors of the Greater Dublin Area.It is the largest Chamber of Commerce in Ireland. We are committed to ensuring that Dublin is a world-class city, helping to grow Irelands economy and increasing employment. This submission has been debated and adopted by Dublin Chambers governing Council. Table of contents 1 Working Capital Access and Cash Flow ..........................................................4 1.1 Reduced rate of CGT for investment in SMEs ........................................5 1.2 Cash receipts basis of VAT .................................................................6 1.3 Report the actual volume of credit available to enterprises .....................6 1.4 Introduce single quarterly scorecard of prompt payment by Government .7 1.5 Closed Company Surcharge................................................................8 Increasing Investment ................................................................................9 2.1 Employment and Investment Incentive Scheme....................................9 2.2 Attracting international executives, attracting jobs .............................. 11 2.3 R&D Tax Credit ............................................................................... 12 2.4 Growth inhibition caused by lack of office space in Dublin .................... 13 2.5 Uncertainty surrounding the position of receivers ................................ 14 Procurement ............................................................................................ 15 3.1 Adopt clearer award criteria and provide feedback .............................. 15 3.2 Reduce Administrative Burden .......................................................... 15 3.3 Access to Public Procurers ................................................................ 16 Macro 4.1 4.2 4.3 4.4 4.5 Taxation and Spending Matters ......................................................... 17 Corporate Tax ................................................................................ 17 Public Private Partnerships ............................................................... 17 Financial Transaction Tax ................................................................. 17 Property tax ................................................................................... 18 Tourism rate of VAT extension and expansion..................................... 19

Working Capital Access and Cash Flow

Dublin Chamber believes the primary purpose of this Budget must be to continue the process of restoring business, investor and consumer confidence. Increasing revenue is the greatest concern for business, reflecting weak domestic demand and poor economic conditions particularly in Europe. However, the second greatest concern for business, outside of sales, is managing their working capital. Dublin Chamber member surveys consistently highlight these concerns. In particular, many more companies say that they have concerns about working capital or cash flow (23%) as opposed to investment finance (4%). Main challenge to Dublin Chamber members:
Most Important (1st or 2nd) Least Important (5th or 6th) 2013 q2 29% 21% 9% 24% 3% 14% 15% 9% 2009 5% 16% 53% 6%

- Year of survey 2013 q2 Maintaining/growing revenue Managing cash-flow Increasing productivity Reducing costs Accessing finance

2009 39% 23% 18% 15% 4%

17% 60% 19% Source: Dublin Chamber Survey Q2 2013

Problems with working capital places a considerable burden on companies, leading to payment delays, cuts in wages or working hours for staff as well as the use of personal funds or resources to maintain the business. To date the response from Government has largely focused on investment finance, with measures such as the Temporary Partial Credit Guarantee Scheme and the Microfinance scheme. More recently there have been measures introduced to improve working capital with the increase in the turnover threshold for companies to pay VAT on a cash basis and the increase in the de minimis level of the Close Company Surcharge announced in Budget 2013. In addition, earlier this year the late payments directive, which introduces general payment deadlines and financial penalties for non-compliance, was transposed into Irish law. Dublin Chamber welcomes any move that addresses the concerns of SMEs and acknowledges the work that has been done to increase the supply of credit. However, Dublin Chamber is concerned that Government policy is inadequately addressing the present needs of SMEs, as it does little to ease their cash flow. Whilst it is prudent to plan for the future expansion of firms, ensuring that there is sufficient access to investment capital, Dublin Chamber believes that much more must be done to deal with the issues that SMEs face in the present. The poor focus of Government policy is reflected in the low take up of the investment capital schemes. For example, the Temporary Partial Credit Guarantee Scheme went live on the 24th October 2012, with the objective of generating lending facilities of 150m per annum. However its third report shows that, as from the 30 th June 2013, the scheme was taken up by just 47 companies, with facilities of 5.9m and an estimated employment impact of 273 new jobs created and 115 jobs maintained.[1] So, three quarters of the way through the first year of operation of the scheme, the take-up is 4% of the annual target. The report notes that the uptake of the scheme remains disappointing.

[1]

http://www.djei.ie/enterprise/smes/CGSQuarterlyReport30thJune2013.pdf

Therefore, Dublin Chamber makes the following recommendations: a) Introduce a 15% rate of Capital Gains Tax (CGT) for investment in SMEs; b) Increase the threshold for the cash basis accounting of VAT from 1.25m to 1.65m, equivalent to the level pertaining in the UK ; c) Report the actual volume of credit available to enterprises, with a breakdown of new lending, roll over and restructuring of credit; d) Introduce a single quarterly scorecard of prompt payment by Government which includes, most importantly, all Government agencies; e) Increase the de minimis level of the Closed Company (& Professional Service) Surcharge; and f) Abolish the Professional Services Withholding tax. Reduced rate of CGT for investment in SMEs Many established SMEs are experiencing working capital difficulties which inhibit their ability to grow. These difficulties would be eased if SMEs were able to attract more finance from the private sector. An incentive to invest in SMEs already exists. Venture capitalists (VCs) are taxed on CGT at a favourable rate on profits from certain investments: 12.5% rate for companies and 15% rate for partnerships. The low rate compensates for the risk of these investments and encourages the reinvestment of any profits made. The potential exists to divert passive savings from individual bank deposits, on a small scale, to invest in enterprise by way of unsecured loans or shares. There is an estimated 92bn in Irish private sector deposits in the Irish covered financial institutions.1 A modest yet meaningful target is to channel, say, 200m of the 92bn in deposits into Irish SMEs. To attract private sector savings, the tax rate must be lower than the current CGT & DIRT rates of 33% and it needs to be a final liability for income tax purposes. Dublin Chamber recommends a tax on this interest of 15%. The rate should only apply to new monies invested from 2014 and not to existing arrangements. In the event of loss, and given the risk, this may be likely, the loss should be allowable for tax purposes. This alternative finance needs to be targeted effectively. This can be achieved by: Providing for the loan/shares to be limited to a defined set of SMEs, say with an upper limit defined by turnover; Limiting investment by an individual to an overall annual cap of 200k; and Ensuring that the monies cannot be lent or invested for less than a period of one year or more than three years. In order to stimulate take up of this proposal, the following should apply: The borrowing business and the lender/investor may be connected; In the event of profit, the borrower withholds and remits the tax on the return earned and the lender has no further tax liability; and A simple finance document is used as evidence of the money transfer. Dublin Chamber estimates that the Exchequer cost of diverting 200m in deposits to investment in SMEs to be 2m.

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Central Bank Money and Banking Statistics March 2013

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Cash receipts basis of VAT Dublin Chamber strongly welcomed the increase in the threshold of the cash receipts basis for VAT from 1 million to 1.25 million, announced in Budget 2013. Making VAT due on the basis of cash receipts rather than on the issuance of an invoice, has the effect of easing the cash flow pressures on small businesses. We estimate that Budget 2013 made an additional 1,000 companies eligible for the cash receipts basis of VAT. Various countries have a cash receipts basis with higher thresholds including the UK, which has a 1.35m (circa 1.6m) threshold, Italy (2m) and Australia ($2m, circa 1.5m). We believe that a further increase is warranted from 1.25m to 1.6m, which is equivalent to the UKs cash receipts basis of VAT (1.35m). In addition, we recommend that companies already using the cash receipts basis scheme be allowed to continue until their turnover is over 1.85m. A similar leeway system and threshold is applied in the UK. The highest potential amount of VAT that could be deferred due to the increase (based on average payment period data available and 100% uptake) is approximately 40m. However, past experience has shown that this level of take-up is unlikely, as there is a cost for companies to switch accounting systems. There is also no benefit to be gained by companies not impacted by cash flow delays. We estimate that the likely deferred VAT would be closer to 10m.2 Dublin Chamber invites the Revenue Commissioners to provide details of the take-up of the cash receipts basis, since the announcement in Budget 2013, for companies with turnover between 1m and 1.25m. Reporting actual volume of credit available to enterprises The Mazars report on SME lending reinforces the view that working capital and cash flow are the primary drivers of demand for credit. Awareness, on the part of SMEs, of the services of the Credit Review Office remains low. Mazars also indicates that the pervasive perception that banks are not lending to SMEs is informed more by media reports rather than experience of direct engagement with financial institutions. Dublin Chamber will promote the use of the standardised loan application process used by the CRO and emphasise to members that a formal credit application is required in order to trigger an internal bank review, a review by the CRO and an application to the microfinance initiative. There should be an agreed measure of the volume of credit available to enterprises, with a breakdown of new lending, roll over and restructuring of credit, perhaps published by the Credit Review Office. This problem is acknowledged by the CRO in its 9th report, where it states There remains considerable confusion within commentators on the lending targets set by the Minister of Finance, and the figures reported to the Central Bank. Simply put, the two sets of reports have different

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It is also worth noting that while deferring such a sum has a cash flow impact on the Exchequer, the true accounting cost is the financing cost of the deferred VAT revenue. The companies will end up paying - it is just a timing issue. Therefore, under this approach the cost for an increase (with Government bond yields at ~4%) would be 2.5m annually for 100% take-up.

objectives and measure different aspects of lending. The recent analysis by the ESRI of the Red C data begins to address this problem. 1.4 Scorecard of prompt payment by Departments & Agencies One of the measures introduced by Government to ease the cash flow problems of firms has been to introduce a 15 day prompt payment commitment for all departments and agencies. Government statements regarding the success of this measure are greatly exaggerated and even misleading. For example, prompt payment returns by all Government departments are monitored by the SME Unit in the Department of Jobs, Enterprise and Innovation. However, these reports only measures returns by department and not by the agencies working under the aegis of those departments. So, the latest report for 2012 shows the Department of Health pays 98% of its payments (circa 2m) within 15 days. The Minister for Health is on record as saying it is unable to provide data for its spend of 12bn: it has consistently been my Department's view that it is not logistically possible to apply the 15 day payment rule to the HSE at this time. Dublin Chamber recommends that a single quarterly scorecard of prompt payment be prepared by Government which includes, most importantly, all Government agencies. Professional Services Withholding Tax Government departments, agencies and semi-state bodies are obliged to withhold, from professional service providers, an amount equal to the standard rate of tax (20%).3 The amount deducted is a credit given against income tax or corporate tax. Dublin Chamber has been informed by many companies that the process of getting tax credits against withheld payment can take over a year-and-a-half. This additional cash flow burden can be significant for a company. The amount withheld is not limited to the profit from service but includes third party costs, outlays and other expenses. Given that evidence of a tax clearance certificate for contracts in excess of 10,000 is now required, a professional services withholding tax is unnecessary. Tax compliance rates for Irish companies are very high compared to 1987 when it was introduced. Dublin Chamber recommends that it be abolished as put forward by the Department of Jobs, Enterprise & Innovations Advisory Group for Small Business. The Dublin Chamber was disappointed with the decision taken last summer by the Minister for Finance (Written Answer 33644/12) not to advance the recommendation in Budget 2013. However, given the number of Irish businesses with cash flow problems, this decision needs to be reviewed urgently. Dublin Chamber recommends the removal of the Professional Service Withholding Tax obligation for professional service providers where evidence of tax clearance is obtained.

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Basically, all professional services are subject to Professional Services Withholding Tax. This includes the following services: accountancy, auditing or finance and services of financial, economic, marketing, advertising or other consultancies, solicitor or barrister (and other legal services),geological services, architectural, engineering, quantity surveying or surveying nature, medical, dental, pharmaceutical, optical, aural or veterinary nature. The 20% is applied on total amount including any third party costs but ex-VAT.

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Closed Company Surcharge Most Irish resident companies are what are called 'close' companies. A Close Company is a company where rights to control and income distribution are held by five persons or fewer. Close companies are liable for a surcharge on undistributed income payable of 20%. Professional service close companies are separately liable for 15% on half of their undistributed after-tax trading income. As a result, there is a disincentive for companies to maintain the necessary level of cash-flow on demand through their deposit account. It would also seem that many of the historical reasons for the surcharge no longer apply.4 The Commission on Taxation Report 2009 recommended a significant increase in the de minimis amount for which investment income could be undistributed, and the elimination of the professional service charge. In Budget 2013, the Government raised the de minimis level from 635 to 2,000. This move is welcome, but in the context of the cash flow requirements of companies, it is still too low. The Commission on Taxation examined de minimis amounts of 5,000 and 10,000 as indicative amounts.5 The professional service charge also saw a rise in the de minimis amount in Budget 2013. This is insufficient and is put best by the Commission on Taxation which stated: The close company surcharge on professional services companies inhibits such companies from re-investing their trading income. Similar restrictions do not apply to other trading companies. We cannot see an objective rationale for distinguishing between professional services companies and other trading companies and we therefore recommend the abolition of the surcharge for professional services companies. Therefore, Dublin Chamber believes that the de minimis level should be increased from 2,000 to 10,000 and that the professional services charge be abolished in Budget 2014.

The justification for extending the surcharge regime in 1976 to include retained profits of close companies was based on concerns of leakage of income tax from the self-employed sector as well as concerns about the equity of a corporation tax system that permits very low-taxed profits. However the introduction of self assessment for companies, the introduction of dividend withholding tax, and the bringing forward of preliminary Corporation Tax payments has achieved the acceleration of payment of tax on the profits of companies generally. - Submission to the Commission on Taxation by the Consultative Committee of Accountancy Bodies Ireland. http://www.commissionontaxation.ie/submissions/Accountancy%20Tax%20Financial%20Law%20Insurance//A02%20 -%20CCABI.pdf
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The 2011 Tax Strategy Group discussion of this topic notes: The Report does not specify what the increased limit should be. However, the Reports costing figures indicate that they consider 5,000 to 10,000 as appropriate levels.

Increasing Investment
Dublin Chamber believes that the potential for business investment in Dublin is turning a corner. However, there remain market failures for high risk investments, competitiveness issues in attracting international executives, and legacy issues of the economic collapse that are limiting the space for growth. The Chamber has four recommendations to address these issues: a) Revise the Employment and Investment Incentive Scheme; b) Make Ireland a more attractive location for international executives; c) Reform the development levy system to increase the supply of high quality office space in Dublin; and d) Clarify the position of receivers in regard to potential tax liabilities in the buying and selling of property.

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Employment and Investment Incentive Scheme Dublin Chamber welcomed the Governments announcement that they would be seeking to extend the Employment and Investment Incentive Scheme. The Chamber appreciates that this process includes approval from the European Commission, which makes amending it much more difficult. However, in light of the low uptake (13.4 million invested) in 2012, changes need to be made. There i. ii. iii. are five amendments that would significantly increase uptake of the EIIS: Increase the period of investment from three to five years; Remove the phased nature of the relief and allow full relief from the start; Help address the complexity of the EIIS legislation by including deeming conditions (such as being an Enterprise Ireland client) to clarify which companies qualify; iv. Allow subsidiaries in a group to apply for EIIS; and v. Recognise the existence of the existing protection from tax avoidance already in place in the legislation and abolish the limits on high earners investing in EIIS.

The overall cost of the amendments suggested would be marginal given that the costing built into past Budgets remains largely unspent. These changes will help to realise the growth and employment potential of these SMEs. 2.1.1 Three to five year investment period One of the changes in the switch from the Business Expansion Scheme to the Employment and Investment Incentive Scheme has been the shortening of the investment period from 5 years to 3 years. Based on our engagement with members, Dublin Chamber believes that this period is too short for companies to have accrued any benefit and, therefore, weakens the supply of companies looking to avail of EIIS financing.

The below case study is based on a real company scenario. Case Study (No name basis of actual company) Company sector: Engineering and Tooling sector Actual results for the year ended 31 December 2011 Turnover: 4.5 million Net profit: 155,000 Net assets: 438,000 Number of employees: 36 Notes: The company applied for 600,000 in Ell Scheme funding in 2012 and the purpose of the finance was to fund an expansion of its production capacity to meet increased Irish and export demands. The increase in production capacity includes new machinery and finance for stocks and working capital. It is projected that the company's turnover will increase by c. 48% to c. 6.6 million in 2015 as a result of the increased production capacity. A detailed projected cash flow for 3 years after investment shows a negative cash flow position on repayment of the 600,000 with a negative closing cash balance of 257,000. In a projected cash flow scenario of 5 years after investment, the company would be in a positive cash flow position with a positive cash balance of 355,000 after the repayment of the 600,000. The Chamber appreciates that the objective of the change was to make the scheme more attractive for investors by shortening the investment period. However, for many companies the period is too short to secure the funds, put the investment to work, adjust the business model, and generate a return sufficient to repay the investment. 2.1.2 Remove the phased nature of the relief and allow full relief at the start Under the Employment and Investment Incentive Scheme, an investors relief is provided at the marginal rate of tax (41%) but it is granted in two tranches unlike the Business Expansion Scheme. The first tranche of relief is provided at 30% of the amount invested and is permitted in the year of investment. The second tranche of 11% is available in the year after the three year investment period has elapsed (subject to the company meeting at least one of two criteria: (1) increasing employment numbers and maintaining average remuneration; or (2) increasing expenditure on research and development). In practice, the EIIS is presented as a 30% relief. The additional relief is not emphasised to potential investors due to the complexity and risk that the qualifying conditions may not be achieved. Investment in companies using these schemes is inherently risky, and recognised as such by the European Commission (which supports the relief on the grounds of market failure). The two tranche phasing was designed to address concerns of a major take up of the programme. However, the results from 2012 demonstrate that such a concern has not materialised. Therefore, Dublin Chamber recommends the full 41% relief be granted from the investment date. The release of the additional 11% would add to the attractiveness of investing in Irish businesses and support employment growth.

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Help address the complexity of the EIIS legislation by including a deeming condition to clarify which companies qualify The EIIS legislation has a requirement for the company to be trading. However, for companies in the tech sector, for example, there is a high level of product development that takes place prior to the company beginning trading. This can take up to three years. Dublin Chamber recognises that there is a requirement to prevent abuse. Therefore, it is suggested that, in addition to the existing criteria, a deeming condition be included in the legislation which would recognise companies that are not trading but are in receipt of an Enterprise Ireland grant, enrolled in a recognised Incubator/Accelerator or other relevant deeming condition. Amend to allow subsidiaries in a group to apply for EIIS EIIS legislation that has been carried over from the Business Expansion Scheme prevents some subsidiary companies from being able to apply for EIIS. Even though the scope of companies which can avail of funding under the EII Scheme has been widened, the old legislation still in place is very restrictive to companies operating a group structure. In such cases, subsidiary companies must satisfy restrictive criteria in order for the holding company/group to qualify. It is quite common for companies to have a group structure and in reality it is unlikely that all entities will be qualifying companies. Therefore, the current legislation is preventing what would otherwise be eligible companies from availing of EII funding. A review and amendment of this part of the legislation is necessary prior to renewal with the European Commission.

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2.1.5

Recognise the existence of the current protection from tax avoidance abuse already in place in the legislation, which makes current limits on high earners redundant Access to investors has decreased in the years since the recession began and the failure of the market to provide sufficient investment capital has been exacerbated. A potential area to increase the pool of investment finance available is to relieve those blocked by the high earners restriction. The lifting of this restriction should not be interpreted as opening a flood gate for these individuals, as there is already a maximum level of tax relief that an investor can receive - 150,000 per annum. The UK Government have proposed not to include their similar enterprise investment schemes in the overall cap on income tax relief. This is because, like the Irish EIIS, the schemes are already subject to an income cap. Dublin Chamber recommends the removal of the high earners restriction for EIIS. Attracting International Executives The issue of attracting international executives through their tax treatment is a sensitive one, and yet has a potential to create significant jobs. Prior to 2006, there was a good system for the "remittance basis" which had been in place since 1922. However, following the high profile use of loopholes, the remittance basis was abolished. At the time, there were a number of big front office projects that were going to move to Dublin in 2006, but were cancelled when the system was abolished. While at the time it may have been seen as a small price to pay, such job creating potential should not be ignored given the unemployment crisis. For Ireland to compete globally and attract both business and key skills into the country, an effective expatriate regime is essential. The introduction of the Special Assignee Relief Programme (SARP) in the 2012 Finance Act and the improvements subsequently made in 2013 have helped only a limited number of Irish-based 11

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multinationals attract highly skilled employees to Ireland for particular assignments. The Minister for Finance reported to the Dil on 21 May 2013 that only 6 individuals qualified for the relief in 2012. Attracting key senior international talent continues to be a significant challenge for multinationals in Ireland. A major issue cited by potential senior hires, who declined the opportunity to come to Ireland, is the personal tax regime, as these employees typically have the option of locating elsewhere within the company where more favourable regimes exist. The remittance system provided that persons who were non-domiciled but working in Ireland, were not taxed on their income, unless it was brought into Ireland. The current SARP scheme limits the income qualifying for the relief and provides for an earnings cap of 500k per annum. Dublin Chamber believes that the following measures to improve the existing SARP regime should be considered: i. Remove the requirement for executives to conduct no more than incidental duties related to the employment outside of Ireland. This precludes many executive employees with regional/global responsibilities from availing of the relief because they are required to frequently travel outside Ireland for business trips in carrying out their Irish based role. ii. Remove the 500,000 cap on earnings eligible for rel ief. iii. Remove the requirement for the individual to be resident in Ireland and not resident elsewhere in a tax year. This requirement precludes individuals considered dual-resident in more than one jurisdiction in a tax year and individuals moving from jurisdictions which impose taxation based on citizenship, or criteria other than residence, such as in the US. It also precludes claiming the relief in the year of arrival for employees assigned to Ireland in the latter part of a tax year. iv. Extend the period of eligibility of the relief beyond 2014 to give greater certainty for groups looking to plan for the medium term. It is urged that the necessary enhancements to the current SARP regime are considered a priority as part of Budget 2014, so as to better align the Irish offering for mobile talent, with the incentives available to expatriates in other countries with which we compete for investment. Such enhancements should serve to significantly improve Irelands ability to attract mobile talent into the country and in turn attract new investment and encourage growth in the Irish economy. R&D Tax Credit Global competition is particularly strong in the area of R&D. In Europe, for example, the Dutch Innovation Box and UK Patent Box regimes provide clear examples of effective challenges to Irelands competitiveness in this area. The UK patent box has no base year for R&D, a 10% rate, and exemptions on foreign dividends & branch profits. Such developments require Ireland to ensure its R&D tax treatment is adaptive and responsive to these challenges. The Irish R&D tax credit is available to a company in respect of expenditure incurred by it in conducting research and development activities. The relief is restricted in circumstances where the company contracts with another person (including a company) to provide services or perform activities in connection with research and development activities. This expenditure is restricted as it does not fulfil the requirement that the activities are carried on by the company. The relief is restricted to 5% of the total expenditure

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incurred by the company on research and development activities in the case of third level institutions and 10% of the total expenditure in the case of third parties. This limit is restrictive and negatively impacts small and start-up companies who may use contract staff for specific R&D projects. Such companies benefit greatly from the flexibility of using contract staff when required. In addition, certain sectors experience skills shortages and companies have difficulties recruiting permanent staff. The activities undertaken by these companies are in line with the ambitions of the scheme, i.e. to encourage an increase in the amount of research and development carried out by companies in Ireland. Dublin Chamber recommends increasing the outsourcing limit to 25%. Surrender of the R&D tax credit to key employees The R&D tax credit may only be surrendered to employees by companies which make profits and pay tax. This restricts the availability of the relief for companies which are in the start-up phase and have not begun to generate profits. Dublin Chamber recommends amending the relief to remove this restriction for companies in the start up phase, for a period of 3 years from when the company begins to trade. This would enable companies to utilise the relief as an incentive to attract key personnel in the start up phase. 2.4 Growth inhibition caused by lack of office space in Dublin Dublin continues to be an attractive destination for both financial and non-financial service industry investments, aimed at both export and local markets. Central to ensuring a continuation of this trend is the availability of high quality office accommodation at a reasonable cost. There is growing evidence that, regardless of the national situation, there is a potential shortage of suitable accommodation for investors in Dublin. This arises from the fact that despite a decline in construction costs (of about 30%), the decline in commercial rents has been significantly greater. While the latter has in the short term increased Dublins attractiveness, it has also created the potential for a deterioration of its attractiveness in the medium term as investors are deterred either by rapidly escalating rentals due to lack of supply, or the sheer unavailability of suitable buildings due to time lags. For the majority of the investments locating in Dublin, the main competitors for this investment are other metro locations across Europe. Failure to address the availability issue is a loss, not just for Dublin, but for Ireland. There is a need to encourage investors that have the resources to invest in high quality office accommodation in Dublin. Essentially, such investors are faced with having to make an investment that cannot be justified at current rental levels in the hope that there will be sufficient rent increases in the future to provide an adequate yield.

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In order to incentivise them to do so it is suggested that local authorities, in the case of development charges and the State and in the case of project specific levies, share some of that risk. This would be done by: i. In the case of the four Dublin local authorities, a complete waiver of development charges is needed where the construction project does not require any additional infrastructure development and a 50% waiver where some additional infrastructure is required. In both cases the local authority will gain additional future revenues from future increases in value as rental yields rise so there should be no net cost. ii. In cases where the cost of additional infrastructure exceeds the 50% development charge, arrangements might be put in place to recover the cost over time. In the case of project specific levies such as Metro North, the upfront levy should simply be transmuted into a future annual levy based on the increased value of the property when and if the project proceeds. Uncertainty surrounding the position of receivers One of the factors contributing to the weakness in the commercial property market is the lack of transactions in the market. One potential group of vendors is receivers and banks which have taken possession of properties. However, due to uncertainties in respect of potential tax liabilities, which may arise in the sale of certain properties and banks, receivers have been reluctant to dispose of certain properties. This has limited one group of potential vendors from disposing of properties, thereby reducing the number of overall transactions in the market thus contributing further to the instability and weakness in the market. The recent follow-up consultation paper by Department of Finance and the Revenue Commissioners from July 2013, in respect of the tax implication of appointing a receiver, has addressed many of the concerns of Dublin Chamber, particularly in providing clarity to the market by: i. Dispensing with balancing events and clawbacks of property reliefs in receivership cases with a corresponding restriction that the purchaser of the property will not be entitled to any allowances or tax reliefs in respect of the property. However, the consultation paper did not address the issue regarding the liability for Capital Goods Scheme adjustments. Dublin Chamber recommends that an amendment be made to ensure that the Capital Goods Scheme adjustments remain chargeable on the borrower. In most circumstances, a receiver/bank will not have access to sufficient information to determine the amount (if any) of a capital goods scheme adjustment which may arise and it therefore is impractical for the receiver to be liable to any adjustment which arises.

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Procurement
Research has shown that, given the right conditions and assistance, SMEs can become more effective in winning and retaining supply contracts to Government and other authorities. This is a win-win for all; SMEs are the backbone of our economy and the primary generation source of employment and business taxes. When successful and facilitated, SMEs also have the potential to grow into large companies with an international reach. Dublin Chamber has been working closely with its members to provide input on improving the procurement process to foster supplier access to public contracts, and makes a number of suggestions for improvement under the following headings: a) Adopt clearer award criteria and provide feedback b) Reduce Administrative Burden c) Access to Public Procurers d) Prompt payment options Adopt clearer award criteria and provide feedback Two of the most consistent issues raised by members of Dublin Chamber in relation to the tendering process are the lack of clarity regarding award criteria and the lack of feedback. Dublin Chamber believes that the following measures should be taken to offer more clarity in contracts and for the provision of concise feedback that will make it easier for suppliers to tender for public contracts: i. Tailor the criteria for contracts of varying value (e.g. below 50k, 500k, 1m, 10m) and then ensure turnover & insurance criteria are appropriate to the size of these contracts. ii. Ensure that public servants do not bundle contracts simply to reduce the administrative burden they face. The current level of paper work required for assembling a tender document remains the same regardless of the value of the contract. This makes it more likely for public servants to bundle contracts together to ease (their own) administrative burden. iii. Insert social clauses in the tender criteria, rather than focusing on minimum criteria. These clauses might focus, for example, on the benefit of local job creation and supply chain proposals. iv. Ensure that feedback is provided to all firms. This will highlight areas where they need to improve for the next tender. It can also help them come to a decision that a particular area of work is not for them. For tenders of all sizes, detailed feedback should outline why the applicant was not successful in winning a contract. Reduce Administrative Burden The administrative burden of tendering for public contracts has been cited by many suppliers as an obstacle to tendering for public contracts. We believe that a number of basic measures can be implemented to improve this. i. Increase the use of standardised tender documents. This will enable suppliers to become more familiar with the questions to be answered and the forms to be appended to their tender. ii. Provide a longer lead in time by the early advertisement of available contracts. iii. Minimise the number of questions asked of suppliers and be mindful of the resource constraints which micro and small enterprises operate under. iv. Eliminate jargon from tender documentation. v. The provision of audited financial statements is not relevant to all entities, e.g. a partnership. This should be clarified in the contract.

3.1

3.2

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3.3

Access to Public Procurers Identifying and communicating with public sector procurers has long been a difficultly encountered by suppliers tendering for public sector contracts. To overcome this barrier experienced by suppliers, especially suppliers relatively new to public sector tendering, it is recommended that public sector organisations make contact persons publically available for supplier inquiries inside and outside of competition periods. Prompt Payment Options Since earlier this year, the government now has available to it a Purchasing Card facility from certain banks which can have a very significant positive effect on the job-sustainability of suppliers of goods and services to numerous departments and agencies of the State. This new facility, which can reduce the average cashflow delay from over 50 days to as little as 3 days, can also significantly reduce the States overall costs of making payments to its suppliers. It is vital that small businesses can be paid faster for their work. Dublin Chamber recommends that the Purchasing Card system be used by all Government departments and agencies, and local government bodies, for all goods and services procured from SMEs.

3.4

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4.1

Macro Taxation and Spending Matters

Corporate Tax Irelands recovery will come from business investment. The single biggest reason that businesses invest in Dublin and Ireland is market access. 6 An important secondary factor is Irelands stable taxation environment. Uncertainty over the future of corporate taxation will jeopardise further foreign direct investment and dissuade entrepreneurs from establishing new businesses in Ireland. Reaffirming, as the Government has, that Ireland has a stable and transparent corporation taxation regime is essential. In each Budget, it is essential that the Minister for Finance reaffirms the status of the 12.5% corporation tax rate for companies trading in Ireland.

4.1.1

Concern regarding moving forward of Income Tax payment dates With the bringing forward of the Budget process, consideration is likely being given to bringing forward the Income Tax payment deadlines from 31 st October. On this date 90% of the payment is due for the year. Bringing this date forward will obviously have an impact on many small businesses (e.g. sole traders and partnerships). The Chamber would suggest that any change in this date should reflect the impact the acceleration would have on these businesses and look to minimise that impact. Public Private Partnerships The signing of the Public Private Partnership (PPP) for the Newlands Cross project marks a significant step. Dublin Chamber appreciates that the Department of Public Expenditure & Reform is actively exploring the potential to unlock additional moneys for investment. Dublin Chamber is aware the Department of Transport has commenced work on a Strategic Investment Framework for Land Transport which will inform the Governments next capital spending plan. A critical analysis of the transport investment needs of the GDA is being prepared by the National Transport Authority (NTA) which will provide updated costings and likely funding options. Dublin Chamber believes that the Public Private Partnership model can deliver significant value to the Exchequer and provide much needed investment for such employment creating infrastructure. Financial Transaction Tax The FTT is under political consideration by the European Commission as a way to enhance the efficiency and stability of financial markets and reduce their volatility. Proponents also see it as financial institutions delivering a significant contribution to the public purse. The Commission proposal envisages the imposition of a levy of 0.1% on the value of transactions involving stocks and bonds and a levy of 0.01% on derivative transactions. Eleven member states have agreed to proceed with the FTT under the enhanced co-operation procedure (Germany, France, Greece, Spain, Italy, Estonia, Portugal, Austria, Slovakia, Slovenia and Belgium).

4.2

4.3

Economic Intelligence Unit, 2012, Investing in Ireland: A survey of foreign direct investors in association with Matheson Ormsby Prentice.

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The first point to note is that the Minister for Finance, Michael Noonan TD, commented that Ireland would not support a FTT, so long as the United Kingdom did not adopt it. Other member states also oppose the FTT (Sweden, the Netherlands and Finland). The United Kingdom has launched an action in the European Court of Justice in relation to the European Commissions approval of the enhanced co operation procedure. Irelands opposition to the FTT is really quite pragmatic and simply expressed. Ireland is located beside one of the largest financial centres in the world and, if Ireland were to impose an FTT, financial transactions would swiftly leak across the border to London. This would not be good for employment in the financial services industry in Dublin. Sweden has a similar rationale for its refusal; during the 1980s it imposed a financial transactions tax, only to see activity relocate to more hospitable jurisdictions. The United Kingdom shares Irelands concerns about relocation of transactional activity, merely writ large. As a global player, the UK is in favour of an FTT only if it were to be adopted on a global basis. Again, this is unlikely as neither the US nor China is in favour. Dublin Chamber is supportive of the position taken by the Government in this respect. Ireland should maintain its opposition to the imposition of a FTT on anything other than a Europe wide basis. 4.4 Property tax In March 2013, the Minister for Environment, Community & Local Government announced that 80% of the local property tax would be retained by the local authority in which it was raised, while the remaining 20% would go to a national fund. Dublin Chamber sought 100% retention as a point of principle, but welcomed this announcement as it was highly significant in ensuring that the local property tax delivers accountability and transparency to the process of local government reforms. The 80% move towards the Chambers recommendation followed initial talk of 50 60% retention. This coupled with the 15% discretion of local authorities will mark a significant change in how local authorities are managed by elected Councillors to the benefit of the business community. These changes are all welcome. However, it is important that the Department of Environment does not modify the policies surrounding the specific grants it and other departments grant local authorities, in a way that would offset these changes. Such changes would be significant steps backward in terms of transparency. Dublin Chamber will monitor over the coming years the budgets of all local authorities and their revenue streams to ensure such manipulation is not occurring. The Chamber will make this information available to all Dublin TDs.

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4.5

Tourism rate of VAT extension and expansion The 9% reduced rate of VAT in the tourism sector as part of the Jobs Initiative has been an undoubted success. Mr Brendan OConnor, a senior economist in the fiscal section of the Department of Finances Economics Division, notes in his review of this section of the initiative that the 9% rate appears to have had the desired impact both in terms of price pass through and by contributing to employment gains, with an additional 3,000 jobs in quarter 1 2012 relative to quarter 2 2011 in the labour intensive food and accommodation services sector of the economy. The 9% rate places Ireland in a favourable position versus a majority of other EU Member States in particular in relation to food/restaurants. As noted in Mr OConnors report, the area where the clearest benefits have accrued is in relation to food service. Noticing the effects of the reduced rate, a campaign in the UK to lower VAT in the tourism sector is gaining pace. With other countries moving in a similar reduced tourism VAT direction (Germany, France and Spain all currently operate low VAT rates for hotel stays and Switzerland has announced a 4-year renewal of its reduced rate), it is imperative that Ireland maintains this rate to continue to encourage growth and employment in this sector, but moreover to entrench Irelands current advantages gained in the past 24 months by the existence of the rate. As we are competing with a variety of different countries both within and outside the EU for limited tourism business, we fervently believe this policy would have the desired effect should it be extended out to 2015. Providing this level of certainty in advance would allow the tourism industry to market this competitiveness advantage throughout 2014 in selling tourism products for 2015. Furthermore, there are a variety of other labour intensive industries which could stand to benefit from a similar reduction in the VAT rate. More particularly, services such as construction, the renovation and repair of private dwellings and hairdressing services are mostly operated as small business and do so on very tight margins. A small reduction in operating costs could yield extremely positive effects, both for the consumer and in terms of growing employment opportunities. The possibility of extending the reduced VAT rate to labour intensive areas such as these is something we believe should also be examined further.

4.6

Vehicle Registration Tax Weak domestic demand has led to a sharp decline in new car sales, with a consequent reduction in tax revenue for the Exchequer. More recently, there is some evidence showing an increase in the importation of second hand cars, which provide a lower level of revenue to the Exchequer than an equivalently priced new car, sold locally. The 2010/2011 Scrappage Incentive led to 33,000 scrappage sales which resulted in additional revenue of over 130m to the Exchequer in the period. We believe that the success of this scheme should be assessed, with a view to introducing a similar scheme in Budget 2014. We understand that the car industry estimates that incremental sales of 20,000 units are possible, generating over 160m in additional revenue, with a VRT rebate of an average of 2,800 for cars that are six years or older.

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