Tim O'Rahilly from PwC gave a presentation to the Dublin Chamber of Commerce on 30 November 2011 about the current Irish tax environment, Budget 2012, and trends in tax-efficient structuring. He discussed how the tax system has changed significantly in recent years due to the public finances crisis, with new taxes introduced and reliefs restricted. Budget 2012 is expected to raise additional tax revenue through further income tax increases, an annual property tax, and a possible increase to the VAT and capital gains tax rates. Common tax planning trends involve using personal service companies, employee growth shares, and restructuring property and debt holdings into companies.

1. www.pwc.com
Presentation to
Dublin Chamber of
Commerce
Tim O’Rahilly
Private Client Services
30 November 2011

2. Overview
1. Current Tax Environment
2. Budget 2012
3. Trends in Tax-Efficient Structuring
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PwC

3. www.pwc.com
Current Tax
Environment

4. Current taxation environment
• Huge changes to tax system in last 3 years to cope with
crisis in public finances
• Climate for business remains generally positive
- Incentives for new businesses, new employees
- 12.5% corporate tax rate remains, despite challenges
• Situation more challenging for individuals....
- New taxes
- Restrictions on reliefs
PwC Slide 4

5. Recently introduced taxes:
• Income levy (superseded by USC)
• Carbon tax
• Non Principal Private Residence Charge (NPPR)
• Universal Social Charge
• Pension fund levy
• Domicile Levy
• Household charge (to come)
Combined with...
• Increases in rates / reduction in bands & credits
PwC Slide 5

6. Challenges for Individuals...
• Income level at which top tax rate is hit (single person)
Single Person
US (Boston) $373,650 40.3%
Germany €250,731 45%
Spain (Madrid) €175,000 44.9%
UK £150,000 50%
France €70,830 41%
Ireland €32,800 48%
PwC

7. Personal Tax: Future Directions
Income Tax 2011 2015
Marginal Tax Rate 52% - 55% ?
Property & Other Reliefs Mainly Phased Out? ?
Share Options Gains 52% tax ?
Pensions 2011 2015
Pensions Earnings Cap €115,000 Relief only at standard rate?
Max Tax-Free Fund €2.3M €1.5M
Max Tax-Free Lump €200,000 ?
Sum
CGT & CAT
CGT and CAT Rates 25% 30%?
CAT Parent-Child €332,084 €250,000?
Threshold
Business / Dwelling Currently untouched Flagged for limitation /
House Reliefs abolition
June 2011
PwC Slide 7

8. Corporation Tax: External Pressures
12.5% remains in place despite external
pressures...
 CCTB
 Discussion of Irish tax rate in context of EU
negotiations
 US Developments
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PwC

9. www.pwc.com
Budget 2012
What can we expect?

10. Budget 2012
• Context
• 4 year plan
• Medium Term Fiscal Statement
• Recommendations of Commission on Taxation (2009)
• Expected Changes
November 2011
PwC 10

11. November 2010 – 4 year plan
2011 2012 2013 2014 Total
€m €m €m €m €m
Income Tax 1,245 260 210 160 1,875
Pensions 260 225 225 155 865
Tax Expenditures 405 100 100 60 665
Site Value Tax - 180 175 175 530
Carbon Tax - 220 - 80 300
Capital Tax - 145 - - 145
Value Added Tax 310 260 570
Other measures 110 - - - 110
TOTAL 2,020 1,130 1,020 890 5,060
PwC 11

12. Budget 2012
€m
Tax required 1,600
Carry Forward 600
New 1,000
VAT 670
Household Charge 160
CGT & CAT: Rates & Reliefs 100
Misc 70
Total 1,000
November 2011
PwC 12

13. What’s in Store....Income Tax?
• Scope for further increases in income tax?
 General acceptance that “tipping point” been reached
• Annual Property Tax?
 Needs to raise €160M
 Cost per household €100 - €200?
• Other Measures
 Strengthening of residence rules / removal of remittance basis?
 Review of effectiveness of anti-tax avoidance measures?
November 2011
PwC 13

14. What’s in store.....VAT?
• Proposals in the area of VAT, Excise Duties and Carbon Tax are being
examined
• Programme for Government commitment that any increase in VAT will
limit the standard rate of VAT to 23%”
• VAT rates 1991 – 2011
o 1 March 1991 21%
o 1 January 2001 20%
o 1 March 2002 21%
o 1 January 2009 21.5%
o 1 January 2010 21%
• Impact on a fragile retail economy?
• Will VAT receipts rise?
PwC 14

15. What’s in Store.... Capital Taxes
Rate
 30% rate?
 Tiered rates?
Abolition of Reliefs?
 Retirement relief / Business property relief / Agricultural relief
 Thresholds
 Loss relief
 CGT / CAT offset
 Principal private residence relief
November 2011
PwC 15

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Trends in Tax Planning

17. Current Trends
High Earners Restriction limits use of traditional reliefs (patent income,
capital allowances etc) for High Net Worth individuals
Other avenues being explored:
-> personal service companies
-> employee incentivisation - growth shares
-> restructuring of debt
November 2011
PwC 17

18. Personal Service Companies
• Planning for the future/structuring for a tax efficient exit
• Deferral/mitigation of Income Tax & Capital Gains Tax (CGT)
• Tax-free reinvestment
• Tax efficient cash extraction
• Retain competitive edge – measures to avoid accounts information being
publicly available
• Various options depending on requirements, current cash resources,
timescale etc
June 2011
PwC Slide 18

19. Tax Planning around Employee
Incentivisation – Growth Shares
Management
Ordinary
Shares
„B‟ Shares
Company
June 2011
PwC Slide 19

20. Debt restructuring
Previously...
• individuals held property in own name
• capital allowance schemes meant rent could be earned tax-free
• no restriction on interest deductibility
No longer viable introduction of High Earner’s Restrictions and
broad application of Income Levy / Universal Social Charge
 now more efficient for both property and debt to be held in a company
 restructuring of debt / agreement of bank required
June 2011
PwC Slide 20

21. www.pwc.com
Tim O’Rahilly
Marie Flynn
Private Client Services

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Thank You