47-49 Pearse Street, Dublin 2

Transcription

1 47-49 Pearse Street, Dublin 2 Mr Michael Noonan T.D. Minister for Finance Government Buildings Merrion Square Dublin 2 by to Minister@Finance.gov.ie 28 July 2013 Dear Minister Budget 2015 On behalf of CCAB-I, I enclose for your consideration our submission in respect of Budget We would be pleased to provide any additional detail to you or to your officials, and will be in touch with your office with a view to arranging a meeting in due course. I wish you every success in the important work of formulating the 2015 Budget. Yours sincerely Paul Dillon, Chairman, CCAB-I Tax Committee

2 47/49 Pearse Street, Dublin 2. Pre-Budget Submission 2015 A Tax Regime for a Recovering Economy

3 Summary List of Main Recommendations Assist workers on the average wage on the transition from the 20% income tax rate to the 41% rate by introducing a targeted additional tax credit given by way of claim. Ensure that the Irish tax base is not compromised under OECD Base Erosion and Profit Shifting proposals. Allow the Special Assignee Relief Programme (SARP) generate additional income tax for the Irish Exchequer by amending some of the restrictions which apply. Reward investing in Irish marketing staff in foreign countries with more effective use of the existing Foreign Earnings Deduction. Provide an income tax credit of 6% to individuals who move savings out of deposit accounts into SME ventures. Reduce the rate of Capital Gains Tax charged on gains made by individuals on their business assets. Change the Enterprise Investment Incentive Scheme to make it available to a broader range of businesses and investors. Change the system of R&D expenditure to allow all companies claim the same level of credit for the amount they spend, irrespective of commencement date. Commence a public debate on the appropriateness of Legal Professional Privilege secrecy within the tax system 2 of 23

4 Table of Contents Summary List of Main Recommendations... 2 About CCAB-I Introduction Preserving Ireland s Corporate Tax System Ireland and BEPS Assisting FDI and Export Led recovery Special Assignee Relief Programme Foreign Earnings Deduction Funding Individual/SME Innovation Tax relief for Individuals on the Average Wage Tax Incentive for Entrepreneur Investments Expand tax incentive for Venture Capital Investors Reform of Enterprise Investment Incentive Scheme (EIIS) and Seed Capital Relief Recognising Individual/SME Innovation Lower CGT rate for shareholder/owner of SMEs Base Year Limitations of Research and Development Relief Certainty in a Fair and Transparent Tax System Address the inequities of Legal Professional Privilege as applied to tax Reporting of tax practitioners to Professional Bodies of 23

5 About CCAB-I The Consultative Committee of Accountancy Bodies Ireland is the representative committee for the main accountancy bodies in Ireland. It comprises Chartered Accountants Ireland, the Association of Chartered Certified Accountants, the Institute of Certified Public Accountants in Ireland, and the Chartered Institute of Management Accountants. Brian Keegan, Director of Taxation at Chartered Accountants Ireland ) may be contacted if any further details in relation to any points made in this submission are required. 4 of 23

6 1. Introduction The theme of our Pre-Budget Submission for Budget 2015 is to develop a tax regime which will support the Irish economy as it recovers from the economic decline of the last six years. With this in mind we put forward a number of recommendations for: Protecting our existing corporation tax base Supporting our indigenous SME enterprises Encouraging investment in the SME sector (inclusive of both corporate and individual enterprise) Alleviating the tax burden for individuals on the average wage While Ireland s income tax system is predicated on being progressive, those on incomes falling just within the higher rate tax band face a disproportionate increase in tax compared with workers on comparable incomes in other EU Member States. This factor combined with the downward pressure on wages 1 over the last six years has resulted in the average wage earner facing a substantial decrease in take home pay. This is a problem which should be remedied at the first opportunity permitted by economic recovery. Tax reform is not the only remedy, but a significant component of a solution. Problems in accessing finance for the SME sector are highlighted regularly by our members who are the accountants and tax advisors to the SME sector. This view is supported by a report on funding for SME s in the island of Ireland by InterTradeIreland which noted that bank funding, largely in the form of overdrafts and loans, accounts for 94% of total SME finance which is comfortably greater than other European counterparts. 2 With these challenges in mind, we recommend tax measures aimed at funding individual/sme innovation and also aimed at rewarding individual/sme innovation. 1 According to CRO data, earnings per week have dropped by from Q to Q Access to Finance for Growth for SMEs on the Island of Ireland, December InterTradeIreland. 5 of 23

7 A number of our recommendations involve a reduced rate of Capital Gains Tax by way of tax relief for SME sector entrepreneurs. Ever aware of the need to achieve budgetary targets, we are not making suggestions which are expensive and of limited benefit. Tax cuts, when used properly, will stimulate the economy, generating replacement revenue from PAYE earned from job creation and VAT on increased consumption. The rate of Capital Gains Tax has increased from 20% to 33% since However CGT collected has not increased to correspond with the rate increases. At this crucial juncture in Ireland s recovery, capital gains tax increases have failed to generate additional revenues and have hindered the investment requirements of SMEs and individual investors. 6 of 23

8 2. Preserving Ireland s Corporate Tax System Recommendation: Ensure that BEPS does not become a vehicle for protectionism and national selfinterest of a few larger countries. 2.1 Ireland and BEPS Our country s tax regime has become something of a target in the discussion of global tax policy. This is unfair and unfounded. Harmful tax practices are simply not a feature of the Irish tax landscape. Harmful tax practices as and when highlighted either by the OECD or by the EU, were changed by successive Irish Ministers for Finance. While the BEPS initiative is understandable in light of the media attention given to the tax affairs of large multi-nationals over the last number of years, Ireland s corporate tax system has already been through the mill of good practice scrutiny. That is why concepts such as the requirement to have a substantial presence in Ireland, anti-transfer pricing rules, and exchange of information between Revenue Authorities are features of the Irish system. There is a need to review tax treaties as suggested by BEPS, but the concept of limiting their application to enterprises owned and controlled within the respective signatory states means that companies in smaller countries like Ireland could be frozen out of treaty access. Our Double Taxation Agreements are based on OECD principles. In particular, Double Taxation Agreements are bilateral instruments; agreements between sovereign nations. Such agreements have to work for both countries involved, and they can be changed where they do not work. Our corporation tax system is more transparent than other taxation systems which have higher headline tax rates but also provide for significant deductions to arrive at taxable income and taxable profits. The main question for the BEPS proposals is whether they should be evolutionary or revolutionary to international tax practices. From a business perspective, the change does need to be evolutionary, including dealing with perceived hybrid and treaty abuses, and considering the appropriateness of current transfer pricing standards. But a degree of 7 of 23

9 certainty must be retained - constant changes to the framework or rules that are hard to interpret or subject to post event reappraisal simply add to an environment which degrades entrepreneurship and discourages business. Ultimately tax is a business cost for companies, to be predicted and managed. It carries responsibilities but also it must be managed in the same way as utility, distribution, employees and other costs must be predictable and manageable. If our tax regime were to be too closed and protectionist, Irish companies simply would not be able to trade abroad, nor would Ireland be an attractive destination for companies seeking to locate operations in this part of the world. Among the most challenging proposals of the BEPS project are those which involve a redefinition of the current Permanent Establishment concept, for example the introduction of a virtual permanent establishment. The consequences would be that for tax purposes, company profits would move away from where value is actually created to the locations where products are sold or consumed. The bigger the market, the more Corporation Tax would be paid there. This is a major risk for Ireland. Concepts in the BEPS discussion drafts concerning Treaty Limitation of Benefits tests which focus on local ownership would also severely prejudice smaller economies. Companies operating in small economies must go beyond their geographical bounds to source both markets and capital. These ownership restrictions are only workable, even in the case of the largest economies, with considerable derogations and exclusions so as not to be detrimental to international trade. An extension to all countries, would, even with many of the exclusions adopted, effectively limit much trade to within the country. Again, this would pose a major threat to Ireland. Finally, it is very important to consider that early adopters of BEPS proposals will endure at least a year of uncertainty, maybe more, during which time other countries will have more compelling regimes. While some of those other regimes will remain under the spotlight, they will still exist. It may well be better judged not to move too soon on BEPS proposals, perhaps not before 2016, by which time Ireland will have a better sense of the new 8 of 23

10 parameters and options. Not all of the BEPS outcomes might be clear by Budget 2015 day, nor even by Budget 2016 day. 9 of 23

11 3. Assisting FDI and Export Led recovery SARP is too restrictive and requires substantial amendment for the purposes of attracting international assignees and their corresponding business into Ireland. The Foreign Earnings Deduction should change its focus to also include countries with which Ireland already has a trade market 3.1 Special Assignee Relief Programme The SARP is not a tax expenditure item. It actually contributes to the national Income Tax take because it generates income tax from individuals who otherwise would be outside the charge to Irish income tax. 100 taxpayers eligible for SARP, earning 100,000, would generate additional income tax of 3.08m, additional employer and employee PRSI of 1.475m and additional USC of 631,900. The regime introduced in Finance Act 2012 has failed to generate any significant level of uptake because of the following restrictions: The emphasis on basic pay as a qualifying criterion for entitlement is contrary to the tax equalisation arrangements in place with many multinationals. Tax equalisation policies are implemented to ensure that a seconded employee retains the same after tax disposable income irrespective of the tax regime of the country to which they are assigned. Over a certain threshold, less tax relief is available than had been available in the pre scheme, No relief is offered either from the USC or PRSI, The requirement that the assignee must be non-resident elsewhere is too restrictive and the relief should be made available to all assignees to Ireland once they become tax resident in Ireland, The existing condition of at least 12 month s prior service with the foreign employer should be relaxed and the relief should be open to all new hires, Overseas travel is an integral part of any business which operates across borders and the relief should not operate in a way which restricts normal business travel, and 10 of 23

12 The application and reporting requirements of the relief should be simplified as much as possible. The SARP is a means of attracting highly skilled workers to Ireland who in turn will act as magnets in bringing more business and investment into the country but only if SARP can hold its own against competing jurisdictions. The relief should aim to be best in class or at least internationally competitive. This can be achieved by removing the restrictions outlined above. In addition, the relief should be increased to 35% of qualifying income and the maximum earnings limit should be removed. The availability of an enhanced SARP relief could be linked to a requirement for increased payroll on the part of the employer company so as to link the availability of the relief to growth in employment and related spin off benefits in Ireland. 3.2 Foreign Earnings Deduction The Foreign Earnings Deduction was originally introduced to target the BRICS countries and was further extended in Budget 2013 to eight African states. However, the Foreign Earnings Deduction is an example of a tax incentive looking attractive as a headline but coming up short as a genuine tax incentive because it has such a narrow application. The Foreign Earnings Deduction has the potential to encourage even greater development of trade with lucrative locations such as the US, Saudi Arabia, Switzerland, Singapore, Japan and Australia. Therefore the relief should be extended to growing established markets as well as new markets. We understand that the current country selection may have been made with a broader export policy 3 in mind. It is laudable to have a coherent approach, but it does not follow that an export policy is always a sound basis for a tax policy. The relief should be framed in a manner which allows Irish exporters to direct their efforts at the markets they have identified offer the best opportunities for expansion for their business. 3 Food Harvest 2020, Milestones for Success Department of Agriculture, Food and Marine 11 of 23

13 3.3 Tax treatment of non-resident directors of Irish resident companies Irish business has available a relatively narrow pool of local expertise to meet the requirements for directors with appropriate skills and experience to sit on the boards of Irish companies both in an FDI context and for Irish business expanding into new markets overseas. In order that Irish business can get best value for their expertise, non-resident directors recruited to join the boards of Irish resident companies must travel to Ireland to attend board of directors meetings here. A provision was introduced in Finance Act 2007 which exempted from tax the travel and subsistence expenses paid to certain members of non-commercial bodies, in both the public and private sectors, in respect of the attendance at meetings of such bodies. In order to provide greater certainty in the tax treatment of travel and subsistence expenses of nonresident directors, and to ensure consistency of treatment, this provision should be extended to cover payments to non-resident directors of commercial bodies. 12 of 23

14 4. Funding Individual/SME Innovation Recommendation: Assist workers moving from the 20% Income Tax Rate to the 41% rate Introduce a tax incentive for capital investment by entrepreneur into his/her business Extend tax incentives for venture capitalists Permanently remove EIIS from the list of reliefs subject to the High Income Earners Restriction Tailor a facility for company owner/managers to invest in their company under EIIS/SCR 4.1 Tax relief for Individuals on the Average Wage Within the OECD, the Irish Income Tax system is considered the eighth most progressive. A single person earning 15,000 per annum pays income tax, universal social charge and PRSI to a total value of about 3% of their earnings. However, a single person earning four times that amount, 60,000, actually pays about 34% of their earnings. The Irish system works well when comparing the poorly paid with the well paid, but less so perhaps in the middle ground. As with any arrangement where different rates are charged depending on the level of income, there are a few pressure points in the income tax system where treatment is especially harsh. The 41% rate of income tax begins to apply at just over the average wage of approximately 31,500. The steep jump from 20% to 41% in the rate of income tax applied at such a modest wage is unusual. In most countries, the top rate of tax only begins to apply at income levels which are several multiples of the average wage 4. There are approximately 300,000 taxpayers earning between 30,000 and 40,000 per annum. We suggest providing an additional tax credit, by way of a supplementary PAYE 4 Taxpayers in the UK earned 4.2 times the average wage before incurring tax at the top income tax rate as per the Department of Finance s Tax Strategy Group Papers, Budget of 23

15 credit to these individual taxpayers, granted by way of claim. An additional 300 tax credit to employees in this earning bracket would make an appreciable difference to those concerned. Unfortunately a step would remain for those earning over 40,000, because they would lose the benefit of the supplementary PAYE credit, but the step may be easier to deal with on a higher income. The advantage of a claimable credit is that its benefit does not automatically ripple up to higher earners, nor trickle down to those who cannot avail of it because they do not pay enough income tax to absorb it. In the past, there have been practical difficulties associated with targeting tax reliefs to a particular category of individual, but the capacity of Revenue to administer focused relief claims online has dramatically improved in recent times. In particular, the recent automation of the Form 12 process should have made it relatively inexpensive to administer such claims. The cost of this relief would be in the order of 75m. It may result in some small uplift in indirect tax receipts, but these would probably be insufficient to ensure that the relief is tax neutral. 4.2 Tax Incentive for Entrepreneur Investments One of the main barriers to growth in the SME sector is access to finance. We recommend the introduction of a tax credit for equity investment made by an entrepreneur into his/her business. This credit would operate on a similar basis to section 253 TCA 1997 which provides for a deduction for interest on loans that were used to invest in a partnership. The tax credit for the equity investment would be based on the commercial interest rate applicable if the investment had been borrowed from a bank. For example if the entrepreneur commits 20,000 of his own savings to his business, a tax credit equal to 20,000 x the appropriate 14 of 23

16 commercial interest rate (say 6%) = 1,200 is available against the entrepreneur s income tax liability for each year his funds remain committed to the business. At the proposed rate of relief, the cost to the Exchequer of providing 100m in funding to the SME sector would be in the order of 7m, comprised of the proposed 6m tax credit and approximately 1m in DIRT foregone on money otherwise on deposit. The State has no exposure to the capital amount advanced. Section 253 TCA 1997 is no longer available for interest paid on new loans made on or after 15 October 2013 while the relief for interest on existing loans, which previously qualified for relief is to be phased out from 2014 to 2016 with no further relief available in 2017 and subsequent years. This was a very valuable relief for individuals taking on loans for the purpose of investing in a trading partnership as it assisted in funding loan repayments. Therefore this relief should be reintroduced to encourage growth and innovation in partnerships which are an important component of the SME sector. 4.3 Expand tax incentive for Venture Capital Investors A 2013 European Commission report on SME finance stated. national tax systems generally perpetuate a debt bias as the tax treatment of debt and equity differs and equity is less favoured. This can clearly create a disincentive for companies in seeking to attract nonbank investment via venture capital and as such it would be important that national regimes consider how best to accommodate private sector equity investment 5. Ireland does operate a special venture capital carried interest CGT rate of 12.5% for corporates and 15% for individuals (as per section 541C TCA 1997). However, this relief is quite restrictive as it only applies to investments made in certain types of businesses such as those engaged in research, development or innovation activities. In order to encourage more sources of investment for SME sectors who do not qualify under section 541C, unconnected loans from individual investors to SMEs should be eligible for 5 P.46. Report of the High Level Expert Group on SME and Infrastructure Financing. 11 December of 23

17 CGT loss relief. Likewise returns on such loans should be subject to CGT at a reduced rate of 12.5%, again provided that the parties are not connected. 4.4 Reform of Enterprise Investment Incentive Scheme (EIIS) and Seed Capital Relief Seed Capital Relief should be amended to allow for a mix of loan and equity investment which can be structured to ensure that the relief is not abused while still allowing the entrepreneur to make a commercially viable investment. EIIS relief should be permanently removed from the list of reliefs to which the High Income Earner restriction applies, and the relief should be extended to service companies. A scheme similar to the UK s Seed Enterprise Investment Scheme should be introduced to assist small start-up companies. Funding outside of Share Capital EIIS and Seed Capital Relief are predicated on the requirement for the investor to purchase shares in the company and hold those shares for a three year period. While this requirement is commercially appropriate for investments aimed at third party investors, it is not a tax efficient or a commercially appropriate means for the owner/manager to invest in his company. The exit mechanism of share sale, which is the only mechanism currently permissible, does not support his/her long term involvement with the business. In general, owner/managers of SMEs make a personal investment in the business by way of a loan to the company. If a share investment is made then he/she must either liquidate or sell the shares in order to realise a return on the investment. The Seed Capital Relief rules for owner/managers of SMEs require such individuals to dispose of the business they have worked hard to build up in order to get a return on their investment. EIIS and Seed Capital Relief are the only tax relief options open to the owner/manager since the income tax relief for loans used to invest in companies was abolished. We strongly recommend that the Seed Capital Relief scheme in particular should allow for investment by way of loan to facilitate the long term development of the business and involvement of the entrepreneur. 16 of 23

18 This could be structured by extending the definition of a relevant investment to a 15% investment made up of both equity and loan capital. Concerns on safeguarding genuine use of the relief could be addressed perhaps by linking the holding period to the loan/capital ratio. For example, a 15% investment made up of 5% equity and 10% loan might require a holding period of 5 years. Correspondingly, a 15% investment made up of 10% equity and 5% loan might require a holding period of 1 year. It may also be necessary to introduce a preclearance mechanism to any refinancing of the loan capital, to ensure that the original funding purpose is adhered to. A clawback of relief would apply if the loan is repaid before the requisite holding period or the refinancing arrangement covers personal loans etc. Professional Service Companies Professional service companies are equally capable of providing job opportunities but are excluded from the EIIS. The financial model of professional service companies is currently based on running the business on an overdraft or loan. These companies have many uses for outside investment which would be used for equally worthy purposes as with other trading companies who can benefit from the EIIS. The EIIS should be expanded to allow for investment in professional service companies. Re-establishing the Credibility of EIIS Relief The EIIS relief was temporarily removed from the list of reliefs to which the High Income Earner restriction applies under Finance (No 2) Act 2013 for a period of three years. However, it is important for the purposes of establishing the relief as a credible option for investors that the relief is permanently removed from the High Income Earner restriction. The EIIS investor should also be entitled to upfront tax relief at 41%. The tax benefit of 30% as a reward for high risk investment is inadequate when coupled with the absence of a guarantee that an additional 11% relief will ultimately be available as a result of the company not meeting the requirements necessary to generate the 11% additional relief or as a result of a change in tax law. 17 of 23

19 Small Start-Ups Specific EIIS Small start-up companies must compete with established companies for limited investment and the investor will obviously favour the established company due to lower risk. The startup company is directly creating new jobs. A tax incentive for investment in smaller start-up companies should be introduced similar to the Seed Enterprise Investment Scheme launched in the UK in As of November 2013, this scheme has raised over 89 million in funding for more than 1,250 start-ups. The key features of the Seed Enterprise Investment Scheme are as follows: The scheme is focused on smaller, early stage companies carrying on, or preparing to carry on, a new business in a qualifying trade Tax relief is available to investors who subscribe for shares and have a stake of less than 30 per cent in the company. It applies to smaller companies with 25 or fewer employees and assets of up to 200,000, carrying on or preparing to carry on a new business. The scheme provides income tax relief worth 50% of the amount invested up to 100,000 per individual investor with a stake of less than 30% in such companies, including directors who invest in their companies. 18 of 23

20 5. Recognising Individual/SME Innovation Recommendation: Introduce a 12.5% rate of CGT for entrepreneurs Move to a full volume based system for R&D expenditure 5.1 Lower CGT rate for shareholder/owner of SMEs Section 597A TCA 1997, introduced last year, provides a relief for individual entrepreneurs who reinvest before December 2018 the proceeds of disposals of assets made on or after 1 January 2010 in chargeable business assets in new business ventures. While the introduction of such a relief is a positive step in that it acknowledges the need to reduce the CGT liability faced by entrepreneurs, the manner in which the relief operates means that is will be of limited value to any entrepreneur. This fact seems to have been anticipated as the estimated cost of introducing such a relief is 4 million per annum for the five years it is set to exist. Other jurisdictions, for example the United Kingdom, already operate a similar regime. However, the relief is far more substantial as it provides for a 10% CGT rate for individuals involved in a business on disposals of all or part of a business, the assets of a business after it has stopped trading or shares in a company up to a life time limit of 10 million. We recommend a similar relief be introduced in Ireland at a CGT rate of 12.5% on disposals of trading assets/shares subject to a life time limit. A reduced rate of CGT on productive assets improves the after tax rate of return on such assets, thereby incentivising investment in business assets in the first place. The stimulus effect of reduced CGT rates in the Irish marketplace is borne out by the long term CGT exemption on principal private residences. It is not possible for us to analyse with any certainty the amount of CGT currently being paid on business assets. However, we estimate that this relief would be tax neutral if the value of transactions in chargeable business assets were to double. It is possible that, just as the value of transactions soared in 1998 following the reduction in the CGT rate from 40% to 20% 19 of 23

21 because of a release of pent-up deals, there might be a corresponding short term uplift in CGT yield from the introduction of this relief. Such a rate reduction would also have a positive effect on economic activity which in turn would lead to an increase in other tax revenues, notably Income Tax, Corporation Tax and VAT. 5.2 Base Year Limitations of Research and Development Relief A full volume based R&D relief system would remove the administrative burden on companies established for R&D purposes in 2003 and encourage otherwise restricted companies to increase annual expenditure beyond 300,000. The introduction of a volume based R&D relief for the first 100,000 of qualifying expenditure in FA 2012 and successive increases to this threshold in Budget 2013 and 2014 were steps in the right direction when it comes to ensuring the fair application of R&D relief. However, the 2003 base year concept continues to discriminate between companies established before 2003 and those who came into the market after that date when expenditure exceeds 300,000. As a result, companies with long term high levels of R&D expenditure are at a disadvantage compared with companies with substantially lower R&D expenditure established after We therefore echo the findings of the Department of Finance s Review of Ireland s Research and Development (R&D) Tax Credit 2013 report which states that the 2003 base year threshold creates a significant administrative burden for companies as its existence requires companies to maintain records for more than 10 years in order to support claims. It is recommended that consideration be given to phasing out the base year threshold when resources allow. Given Ireland s policy to promote itself as a location for R&D activities, the removal of this historic threshold will encourage more R&D within smaller domestic firms. 20 of 23

22 6. Certainty in a Fair and Transparent Tax System Recommendation: Create a public debate on the appropriateness of LPP exemptions within the tax system Remove bias against accountancy profession under section 851A TCA Address the inequities of Legal Professional Privilege as applied to tax Significant powers of information gathering have been granted to Revenue through the Mandatory Reporting Regime. We have no issue in regard to Revenue being granted powers provided that any such powers are proportionate and subject to appropriate checks and balances. However specific exclusions from compliance are specified in the legislation where the information which Revenue might request is subject to Legal Professional Privilege (LPP). This provides an unacceptable commercial advantage to law firms providing tax services. In the UK court case, Prudential PLC & Anor v Special Commissioner of Income Tax & Anor [2009] EWHC 2494, LPP was described as where legal advice is sought in confidence from a qualified legal adviser in his professional capacity, privilege may be claimed for the communications made for that purpose. The idea behind LPP was to ensure that any person can feel confident in seeking advice about their legal rights and obligations and in particular advice about litigation or potential litigation. Equally, Revenue need information about taxpayers to ensure that they are paying the right amount of tax. It is quite right that there should be a balance between the right of Revenue to know and the right of the taxpayer to privacy. It is not right that this balance can be skewed when the taxpayer uses a legal adviser to deal with his tax affairs. Firms of accountants and law firms are not treated equally when it comes to providing information to Revenue. While providing for the Mandatory Disclosure of Certain Transactions Chapter within section 817J TCA 1997 states that Nothing in this Chapter shall 21 of 23

23 be construed as requiring a promoter to disclose to the Revenue Commissioners information with respect to which a claim to legal professional privilege could be maintained by that promoter in legal proceedings. Case law has established that only legal firms can avail of this protection. It is clearly in the public interest to have a fair, robust tax system within which taxpayers can know with certainty how they will be taxed. We suggest that Legal Professional Privilege (LPP) exemptions within the Taxes Acts will result in their sufficient prevalence as to be discriminatory affording some taxpayers greater protection under the law by virtue of the kind of firm they choose to handle their affairs. By extension this leads to an inference that advisors who qualify for the LPP exemption are preferred from an official policy perspective, even though they provide exactly the same service as those that do not qualify for the exception. This is clearly anti-competitive and of extreme concern to our members. Equally, the appearance of specific LPP provisions in the legislation is new, and can only be interpreted as an enhancement of the LPP already claimed by legal firms in respect of all advice that they provide and a recognition that this is accepted and will not be challenged by the State. We believe that a public debate needs to be conducted on the appropriateness of LPP exemptions within the tax system, the enshrining of such exemptions in the legislation itself as an enhancement of the fundamental legal principle and the preferential treatment of one set of advisers in this regard even where they provide the same service as those with the officially preferred qualification. Until this can be resolved we would suggest that the existing exclusions in the legislation be suspended and allowed to rest on the basic legal principle, and that no further legal enhancements to the LPP principle as it applies to those with a legal qualification be introduced until the basis for the preference being conferred is fully aired and understood. The Australian Government issued a discussion paper entitled Privilege in relation to Tax Advice to consider whether legal professional privilege ought to be extended to accountants and other tax advisers. Whilst no decision has yet been taken in the Australian context, interestingly the recent Supreme Court decision R (on the application of Prudential plc) v 22 of 23

24 Special Commissioner of Income Tax on the subject of LPP, references the Australian Law Reform Commission s 2007 recommendation supporting the New Zealand model of creating a separate 'tax advice privilege. Australia also operates a common law system, comparable to Ireland and the United Kingdom. Concerns in relation to how the mandatory disclosure regime operates in the Irish context surround legal professional privilege. Revenue apparently felt constrained, because of their interpretation of the LLP requirement, to operate carve-outs for legal firms offering tax advice which might otherwise be subject to mandatory reporting. Such a distortion of the agent market, where its unbiased operation is essential in a modern self-assessed tax regime, is not appropriate. The CCAB-I has called for this issue to be addressed in successive Pre- Budget Submissions since 2011 and reluctance among officials to deal with this issue is unacceptable. 6.2 Reporting of tax practitioners to Professional Bodies Under section 851A (7) TCA 1997 a Revenue officer may use taxpayer information to report a tax practitioner to his/her professional body where the Revenue officer is satisfied that the work of the tax practitioner does not meet the professional standards of a professional body. However, Revenue s power to report a practitioner to a professional body introduces a two tiered system. This is because practitioners who are members of a professional body as defined under section 851A(1) TCA 1997 will be at a disadvantage compared to practitioners who are not members of a professional body and practitioners who are members of the Law Society (which is not included in the definition of a professional body under section 851A(1)). This provision shows further bias against the regulated accountancy profession which is unacceptable and should be corrected in Finance Act of 23