Finance (No.2) Bill 2013

Corporation tax

Conor Hynes, Partner, Deloitte

With the Budget focused substantially on employment and in particular encouraging Irish entrepreneurs to start up or even expand their existing business, it is not surprising that there are a limited number, but focused measures, affecting corporates in the Finance Bill.

A cornerstone of Ireland’s tax regime is the 12.5% corporate tax rate. The Minister re-affirmed the Government’s commitment to the 12.5% rate of corporation tax in the Budget and this is important in providing on-going certainty to corporate tax payers, including multinationals who have invested in Ireland.

The Finance Bill contains positive announcements on R&D tax credits. The Economic and Fiscal Divisions’ review of the R&D tax credit concluded that the scheme has been a significant contributor to the growth in R&D activities in Ireland and advocates a number of key enhancements, some of which are reflected in the Finance Bill.

  • The relief allows a credit for qualifying expenditure above the level incurred in 2003 (the base year). Last year, the first €200,000 of expenditure qualified for the tax credit irrespective of the base year expenditure. This amount is now being increased to €300,000. However, more important is the Minister’s stated intention to phase out the 2003 base year limitation over time.
  • The limit on the amount of qualifying expenditure on R&D outsourced to third parties is being increased from 10% of internal expenditure to 15%.
  • The Finance Bill provides Irish Revenue with an ability to recover any tax foregone in respect of a R&D credit which was incorrectly claimed by a company and surrendered to a key employee, from the company rather than the key employee.  In that case, where the R&D claim is found to be deliberately false or overstated, the company may be taxable on twice the amount of the credit which is aimed to act as a deterrent.

The above amendments, especially the intention to phase out the base year limitation will substantially enhance Ireland’s overall attractiveness to compete effectively for global R&D projects.

In acknowledging the debate on multinational cross border tax planning arrangements, the Government published an international tax strategy statement. Setting the record straight, this statement sets out Ireland’s international tax strategy, with a stated aim of providing a clear and accurate picture of Ireland’s corporate tax regime. The document sets out Ireland’s strong commitment to a transparent tax system based on OECD principles and endorses fully the work of the OECD Base Erosion and Profit Sharing project.

The Finance Bill includes targeted measures to remove the ability to have Irish incorporated ‘stateless’ companies which avail of mismatches between Ireland’s tax residence rules and those of our tax treaty partners. Practically, this measure will have very limited impact for a small number of companies with such ‘stateless’ companies within their organisation. For those impacted, there should be sufficient flexibility to restructure their arrangements.

The Finance Bill also introduces provisions to bring Ireland’s tax rules into compliance with EU requirements where a company migrates its tax residence out of Ireland to another EU Member State or an EEA State.

Overall the Finance Bill does not significantly impact the corporate landscape. The Government is focused on not adding to the burden of corporate businesses, and focusing on targeted measures which can enhance Ireland’s attractiveness as an inward investment location and support indigenous business, such as the positive changes to the R&D tax credit regime.

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