Budget 2017: Noonan urged to keep promise on shares

The Irish Stock Exchange has called on Minister for Finance Michael Noonan to fulfil his two-year-old pledge to eliminate stamp duty on share trading on Dublin's junior market (ESM) .

In a submission to the Government ahead of the budget, the bourse operator also reiterated its long-standing plea for stamp duty on Irish share trading be cut in half, at a minimum, to the UK rate of 0.5 per cent. The rate levied in France and Italy is 0.2 per cent.

The ESM was set up in 2005 to enable small and growing companies to raise capital. Recent admissions include medical technology investor Malin Corporation, Dalata Hotel Group, the country's largest hotel group, and fuel retailer Applegreen.

Markets

Dalata, which raised €265 million in 2014 through an initial public offering (IPO) before going on to sell a further €210 million of shares last year to finance acquisitions, joined the main markets in Dublin and London in recent months.

“Some recognition that stamp duty is a counter-productive measure to investment and growth in Irish companies came in budget 2014,” the ISE said in its pre-budget submission, referring to the announcement in October 2013 that stamp duty on ESM shares trading would be abolished.

“However, the ESM exemption is still not in place – almost three years on – and there is no confirmation of when it will become operational.”

A spokeswoman for the Department of Finance said that implementing the exemption remained subject to EU state-aid approval. "Discussions are ongoing with the EU Commission."

The ISE has also called for the Government to return capital gains tax (CGT) to the 20 per cent rate that was levied before the financial crisis on profits from asset sales. While the tax rate was cut in half to 20 per cent in 1998, the past two governments increased it gradually between 2008 and 2012 to 33 per cent as they sought to rein in the public finances during the downturn. The rate in the UK is 18 per cent.

The ISE said Ireland’s way of taxing share options also puts Irish companies at a disadvantage compared to the UK and other jurisdiction as it was levied as soon as options were vested, at rates of up to 52 per cent, rather than when the actual shares were sold.

Shares

“We are aware of employees of companies which have listed on the stock market through an IPO who wanted to retain their shares but were forced to sell all or part of their investment following listing in order to fund the income tax liability” arising from options having been exercised, the ISE said.

“This is counter-intuitive to the research which shows there is a real benefit to the company and the wider economy in employee continuing to maintain their investment in the company.”

The exchange recommends that the tax be deferred until shares are actually sold, and that they be subject to the capital gains tax rate.

In an interview with The Irish Times last month, ISE chief executive Deirdre Somers said the State's tax regime made it almost inevitable that companies ended up being sold rather than scaled up and floated.

“We have a very poor tax policy around entrepreneurial relief, a very poor tax policy around CGT rollover relief, a very poor tax policy on stamp duty and a very poor tax policy on share options. And these are all the tools that enable companies to scale rather than sell.”