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ISME Calls for Refresh of Ireland’s Commercial Tax Code

26th July 2021: The Irish SME Association (ISME) has written to the Minster for Finance Paschal Donohoe TD concerning Ireland’s Corporation Tax (CT) rate of 12.5% and plans by the Organisation for Economic Co-operation and Development (OECD) to adopt a global minimum rate of 15%. While Ireland has had a long-standing position of advocating an OECD position on CT, ISME believes Ireland must fall in line with the proposed standardised global minimum rate.

Ahead of Budget 2022 and in view of the inevitable increase in CT rate, ISME believes that it is an opportune time to review Ireland’s unrealistically high rate of Capital Gains Tax (CGT). According to ISME’s CEO, setting a 15% global CT rate will be pointless unless there is also agreement on what are fair deductions allowable against it.

Neil McDonnell, CEO of ISME said: “Ireland’s Capital Gains Tax is one of the highest in the world at 33%, which results in the Exchequer yielding far less than could be available from this tax head. We believe CGT should be reduced to 25% in Budget 2022 and should be applied to productive assets only. There should also be reduced rates of CGT for assets and businesses held for longer periods of time, and indexation of assets should be permitted. At a time when Ireland’s borrowing has reached worrying levels, a reduction in CGT would have the positive effect of producing a permanent uplift in yield from this tax head.”

ISME has advocated for a reduction in CGT for some time, as outlined the Pre-Budget Submission 2022.

Neil McDonnell added: “While we are not advocating a return to the 20% rate, we believe a reduction in the current rate to 25% would increase the rate of capital churn in the domestic economy and would generate a permanent uplift in yield.

We understand there are reservations about applying a lower rate of CGT to “passive assets” such as land that might result in lower yield from disposal windfalls. We would therefore be agreeable to a lower rate of CGT applied to investments in productive businesses while the 33% rate could be maintained for property. However, we also believe that a “standard” rate of CGT should be dynamic and encourage the investment in and retention of productive companies.”

Read the full letter sent to the Minister for Finance here.