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

PwC Pre-Budget 2012 Presentation

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Page 1: PwC Pre-Budget 2012 Presentation

Presentation to Dublin Chamber of Commerce

Tim O’Rahilly Private Client Services

www.pwc.com

30 November 2011

Page 2: PwC Pre-Budget 2012 Presentation

PwC

Overview

1.Current Tax Environment

2.Budget 2012

3.Trends in Tax-Efficient Structuring

2

Page 3: PwC Pre-Budget 2012 Presentation

Current Tax

Environment

www.pwc.com

Page 4: PwC Pre-Budget 2012 Presentation

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

Page 5: PwC Pre-Budget 2012 Presentation

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• Income levy (superseded by USC)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

Page 6: PwC Pre-Budget 2012 Presentation

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%

Page 7: PwC Pre-Budget 2012 Presentation

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

Page 8: PwC Pre-Budget 2012 Presentation

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

Page 9: PwC Pre-Budget 2012 Presentation

Budget 2012

What can we expect?

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Page 10: PwC Pre-Budget 2012 Presentation

PwC

Budget 2012

• Context

• 4 year plan

• Medium Term Fiscal Statement

• Recommendations of Commission on Taxation (2009)

• Expected Changes

10November 2011

Page 11: PwC Pre-Budget 2012 Presentation

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

Page 12: PwC Pre-Budget 2012 Presentation

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

Page 13: PwC Pre-Budget 2012 Presentation

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

Page 14: PwC Pre-Budget 2012 Presentation

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?

Page 15: PwC Pre-Budget 2012 Presentation

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

Page 16: PwC Pre-Budget 2012 Presentation

Trends in Tax

Planning

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Page 17: PwC Pre-Budget 2012 Presentation

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

Page 18: PwC Pre-Budget 2012 Presentation

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

Page 19: PwC Pre-Budget 2012 Presentation

Tax Planning around Employee Incentivisation – Growth Shares

PwC Slide 19June 2011

Company

Management

‘B’ Shares

Ordinary

Shares

Page 20: PwC Pre-Budget 2012 Presentation

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

Page 21: PwC Pre-Budget 2012 Presentation

Tim O’Rahilly

Marie Flynn

Private Client Services

www.pwc.com

Page 22: PwC Pre-Budget 2012 Presentation

Thank You

www.pwc.com