Brian Caulfield, managing partner at Draper Esprit, is one of the most accomplished tech founders and venture capitalists in Ireland. Image: IVCA
Another year and still nothing has happened with capital gains tax.
With no changes to capital gains tax, it remains to be seen if Budget 2018 is a budget for start-ups, said Brian Caulfield, key technology investor and managing partner at Draper Esprit.
The good news for businesses, revealed by the Minister for Finance and Minister for Public Expenditure and Reform Paschal Donohoe, TD, is that the State is coming up with a Brexit loan scheme for SMEs exposed to the UK market.
‘It seems they just don’t get start-ups, and the start-up community is badly organised and fragmented and does not have a powerful lobby in the same way that the farmers or the tourism sector does’
– BRIAN CAULFIELD
As well as that, a new Key Employee Engagement Programme (KEEP) to support SMEs in their efforts to attract and retain key employees in a competitive international labour market was revealed. Details on how KEEP will work were not divulged and proponents of share options are keeping an eye on next week’s finance bill to learn more.
But nothing significant has happened in terms of changes to Ireland’s dangerously outmoded capital gains tax (CGT) system, which continues to punish entrepreneurs who sell their businesses.
Continued failure to act decisively on CGT
Image: Department of Finance
Last year, former Finance Minister Michael Noonan, TD, reduced the CGT rate from 20pc to 10pc, following on the previous year’s reduction from 30pc to 20pc.
However, this affects only the first €1m of the sale of a business, and a rate of 31pc applies to the remaining amount.
This compares harshly with the more progressive scheme in the UK, which allows entrepreneurs to pay just 10pc tax on the first €10m they make. There is also the UK EIS scheme, which makes early-stage capital much more readily available in the UK, enabling firms to attract investment of up to £5m a year.
According to Caulfield, the continued failure to address the enduring CGT fiasco does not bode well for the emerging start-up ecosystem. He described last year’s changes to CGT as “peanuts”.
Caulfield is an established entrepreneur and was an early investor in Movidius, which was recently sold to Intel for a reported $300m. Prior to being a venture capitalist, Caulfield sold Exceptis Technologies, an electronic payments company, to Baltimore Technologies in November 2000 for $26m. Six years later, he sold Similarity Systems, a data quality company, to IT giant Informatica Corporation for $55m in cash.
Caulfield cautiously welcomed the new KEEP scheme and said he looks forward to learning more. However, with no change to the CGT regime, he said it signals an unwillingness in Government to see reform in the area.
“If I had to pick one issue I’d like to see resolved, it would be share options. But, having said that, we definitely need to be moving in the direction the UK has moved.
“The UK CGT scheme allows a lifetime allowance of £10m and you only pay CGT at 10pc of that.”
So, why the continued failure to address the issue? “Part of the issue is, the Department of Finance is implacably opposed to reform in this area.
“It seems they just don’t get start-ups, and the start-up community is badly organised and fragmented and does not have a powerful lobby in the same way that the farmers or the tourism sector does.
“Failure to resolve CGT is yet another missed opportunity. To some extent, there is a sense of, ‘Well, sure aren’t they doing grand’, which is informed by the perception of the rude health of the tech economy they read about in the newspapers.
“But, as we all know, young start-ups and small tech companies are struggling to keep the show on the road.
“While Enterprise Ireland has been supportive of efforts to address the issues of taxation and share options, the reality is that there isn’t an influential lobby to persuade the Department of Finance to take action on this ongoing problem.”
