Jimmy Sheehan, Commercial Director of Contracting PLUS with Michael Dineen, Chairman of Contracting PLUS. Photo: Photocall Ireland.
A fairer tax deal for Independent Professional Consultants (iPros) will help stem a brain drain that could hamper the increasingly complex challenge of securing FDI, says Jimmy Sheehan, Commercial Director at Contracting PLUS, who is calling for change in the upcoming Budget.
Accounting for somewhere in the region of 200,000 Irish jobs and spending over €18 billion in the Irish economy annually on payroll, products and services, Ireland’s continuing ability to attract foreign direct investment is vital.
Alongside our favourable corporation tax rates, Ireland’s multinational investment is down to our skilled, educated, English-speaking workforce and the IDA supports available in getting established.
A small but significant cog in facilitating the set-up of incoming multi-nationals is our deep pool of highly skilled Independent Professional Contractors, or iPros, short.
Ireland’s iPros in I.T., engineering and pharma have a proven track record in delivering production facilities, factories and technological infrastructure on time and within budget. We punch well above our weight on specialist skills to get these plants designed, constructed and commissioned.
Similarly, Irish engineering, consulting and construction companies bid for and win contracts on a world stage, knowing they can rely on our pool of home-grown specialist iPros to travel to wherever the project is based, on an ad-hoc project by project basis that suits the business model.
The iPro will often commute long distances, multiple times a week, to a project site, or even base themselves there until their portion of the project is complete, which is often the case with the set-up of new overseas companies in Ireland.
Unfair Tax Anomaly
The problem is, however, an anomaly in Irish taxation where, essentially, travel and subsistence expenses for IndependentProfessional Contractors are not allowed for tax purposes. This is a disincentive to taking on these projects, and can make it more advantageous for Ireland’s top engineering, project management and technology professionals to work abroad.
Either that or build in the additional cost to the development project, which is not what an overseas investor wants of Ireland’s céad míle fáilte!
The fact that iPros are being disadvantaged in relation to all other categories of worker can be easily addressed by the Finance Minister in the upcoming Budget.
An employee receives mileage & subsistence expenses tax-free, employers can use these expenses as a tax deduction, public servants and public representatives receive these, tax-free. So, disallowing bona fide iPro expenses, incurred for business mileage and subsistence, is not just unfair, but actively disadvantages an important sector of Irelands workforce.
When you add up these iPro costs incurred on a major contract, maybe up to a year’s work at the other side of the country, then not being allowed travel and subsistence adds-up to a serious disincentive to provide these services in Ireland.
And, professional contractors unwilling to take on roles in projects where they incur travel expenses could have larger consequences for Ireland Inc and its ability to attract FDI.
Consequences of the Revenue anomaly could mean increasing the cost of investing in Ireland, increased cost in completing capital projects here, and damage to our international reputation, meaning Ireland becomes less competitive in an ever more competitive global marketplace.
Growing countries, large and small, are now vying for these MNC investments. Trump’s tax policies are discouraging U.S. corporates from overseas moves. And Ireland is losing rankings in international competitiveness reports, particularly with issues like the housing crisis and the high levels of personal taxation. So we need to look seriously at what attracts MNCs and how we maintain our appeal.
Tax Home Concept
The solution the iPro sector wants Minister Donohoe to put forward on October 9th is based on the successful model used in the USA, Canada, Germany and the U.K.; the concept of the “Tax Home”.
This is the location where normal living expenses are incurred and, often, where your family is located. It means specific well defined expenses are then allowed on an actual cost basis, once the individual is required to be absent from this “Tax Home” for work purposes.
With Ireland’s economic recovery, emphasis in recent years has been on giving more workers, especially the self-employed who support economic expansion, a fairer deal. So, dealing with this expenses issues would be another low-cost move in the right direction.
Ireland’s iPros pay their taxes, create jobs for themselves and others, and their expertise is a major draw for MNCs with project based work. Similarly, they support small and mid-sized companies that need specialist services for a duration, or specific project, but cannot engage them full time.
An IBEC survey two years ago with some of the biggest international pharma and chemical companies based in Ireland highlighted the availability of iPros as an important factor in winning international capital investment projects for the country.
Contracting professional services is a rapidly growing trend, with the increase of workers opting for a better work-life balance in the gig economy. While there are no official numbers for this sector, estimates put the number of iPros working in Ireland at around 12,000.
Therefore, this simple tax-take adjustment is not only a fairer, sensible move; it is also a low-cost strategy to secure access to top professional services within Ireland.
The availability of skilled expertise on a pay-as-you-go basis is a well-documented driver of innovation and job creation in Ireland. Encouraging this cohort to ply their specialist trade overseas in other tax jurisdictions is not benefitting Ireland Inc in any way, and can only have a detrimental effect in the long run.
A Certified Public Accountant with experience in many corporate sectors, including running his own accountancy practice, Jimmy Sheehan is Commercial Director at Contracting PLUS.
The technology enabled international professional services company supplies accounting, tax and financial advisory services to independent professional contractors (iPros), as well as legal and administrative supports; a one-stop-shop financial planning and management resource.