Hope and fear over eWHT reform

The proposals reflect changed times as Revenue has identified a third audience: service providers to the platform economy. A 2022 study by UCD found up to 31% of Irish workers have engaged in some form of informal, platform-based digital work, including content creators, resellers and professional freelancers.

Technology first

Strategically, eWHT fits within Revenue’s growing focus on streamlined, digitally based ‘real-time’ compliance and is designed to address the limitations of the current process, which include the administrative burden of reporting, claiming and tax calculation, and the lack of in-year certainty on tax due.

Revenue envisages eWHT will work as a frictionless, digitised process and says it is engaging with service providers to develop the updates to payments software that will be required (the core design elements are set out in the ‘How eWHT will work’ box).

The move aligns with the OECD’s positive disposition to greater withholding tax usage and the EU’s DAC7 reporting directive, which requires digital platforms to automatically report the earnings of sellers and service providers to tax authorities.

In Europe, Italy provides the closest working model. There, self-employed professionals typically see an e-withholding tax of 20% on invoice payments.

Serious implications

So is eWHT the innovative approach to overdue reform that Revenue claims it is? The public consultation process held last December and January sent decidedly mixed signals, and the joint consultation report from the Department of Finance and Revenue, published in July, found support for the eWHT model to be heavily qualified, and dependent on the detailed design and implementation of any future regime.

Responses from businesses, tax professionals, representative bodies, public sector organisations and other stakeholders show that under half (44.2%) back eWHT, while 19.9% are undecided, 16.5% have concerns and 16.9% are opposed.

Supportive respondents like the potential for tax obligations being more visible and accurate, and better cashflow management and tax planning. The main concerns relate to administrative burden, compliance costs and operational complexity.

Welcome – and warning

Peter Reilly, tax policy leader for PwC Ireland, captured the general sentiment when he welcomed ‘the aim to modernise withholding tax processes in Ireland’ but cautioned that ‘without key safeguards, the proposed changes could intensify existing cashflow strain and compliance burdens’.

A critical issue for many is the proposal to abolish RTC and PSWT alongside the introduction of eWHT – in particular, the 0% RTC rate, which is widely utilised in the construction industry by subcontractors.

In its submission, the Irish Tax Institute (ITI) says: ‘It is imperative the 0% RCT withholding tax rate is retained for compliant resident and non-resident subcontractors. Its removal would have serious implications for the cost and delivery of critical housing and infrastructure projects,’ adding that large construction projects priced and financed on the basis of the 0% withholding rate could be at risk.

The ITI is also critical of the more general aim of eWHT to accelerate the payment of tax by the self-employed. ‘Cash is the lifeblood of business and individuals are familiar with their obligations under the current regime and can plan accordingly,’ it points out.

The move to embrace the digital economy is also a concern. Deloitte says: ‘Layering eWHT on top of DAC7 could add material complexity, cost and GDPR challenges, risk competitive distortions and create structural cashflow issues for low-margin sellers.’ Revenue should consider exemptions for fully compliant platform operators, it argues.

Dynamic taxation

The proposed use of personalised deduction rates (PDRs) is another point of controversy. Revenue has not yet specified what the likely PDR rates bands will be but has suggested a dynamic approach could be taken where ‘the rate will be calculated and updated on an ongoing basis’.

The ITI says such an approach ‘could result in the unintended disclosure of an individual’s personal circumstances’ and ‘the GDPR implications of such a measure would also need to be fully considered’.

Others have been more receptive. Deloitte sees benefits to ‘personalised rates reflecting actual tax liability’. It also says: ‘PDRs could improve financial predictability and reduce year-end reconciliation complexity.’

The next steps towards eWHT have yet to become clear, with Budget 2027 providing the most likely opportunity for an update on the direction of travel.

The uncompromising pushback from bodies such as the ITI, which has warned that eWHT ‘risks damaging Ireland’s competitiveness’, must provide pause for thought. Revenue’s appetite for change – and risk – should be clear by the end of the year.