pwc pre-budget 2012 presentation

Presentation to Dublin Chamber of Commerce

Tim O’Rahilly Private Client Services

www.pwc.com

30 November 2011

PwC

Overview

1.Current Tax Environment

2.Budget 2012

3.Trends in Tax-Efficient Structuring

2

Current Tax

Environment

www.pwc.com

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

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• Income levy (superseded by USC)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

PwC

• Income level at which top tax rate is hit (single person)

Challenges for Individuals...

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%

Personal Tax: Future DirectionsIncome 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 Sum

€200,000 ?

CGT & CAT

CGT and CAT Rates 25% 30%?

CAT Parent-Child Threshold

€332,084 €250,000?

Business / Dwelling House Reliefs

Currently untouched Flagged for limitation / abolition

Slide 7June 2011

PwC

PwC

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

Budget 2012

What can we expect?

www.pwc.com

PwC

Budget 2012

• Context

• 4 year plan

• Medium Term Fiscal Statement

• Recommendations of Commission on Taxation (2009)

• Expected Changes

10November 2011

PwC

November 2010 – 4 year plan

11

2011€m

2012€m

2013€m

2014€m

Total€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

Budget 2012

12November 2011

€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

PwC

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?

13November 2011

PwC 14

• 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 – 2011o 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?

What’s in store.....VAT?

PwC

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

15November 2011

Trends in Tax

Planning

www.pwc.com

PwC

Current Trends

17November 2011

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

Personal Service Companies

PwC Slide 18June 2011

• 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

Tax Planning around Employee Incentivisation – Growth Shares

PwC Slide 19June 2011

Company

Management

‘B’ Shares

Ordinary

Shares

Debt restructuring

PwC Slide 20June 2011

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

Tim O’Rahilly

Marie Flynn

Private Client Services

www.pwc.com

Thank You

www.pwc.com