Following the budget statement last week, the Irish Finance Bill 2014 (the “Bill”) was published yesterday, 23 October 2014. The key points relevant to multinational companies were announced last week and the Bill contains the details relating to those announcements.

As expected, the Bill did not include any detail relating to the “Knowledge Development Box” announced last week. Over the coming weeks we expect a consultation process to be launched with a view to implementing legislation being published in 2015. Matheson will participate in that consultation process.

Corporate Tax Residency Rules

Under existing Irish law, certain companies incorporated in Ireland are not treated as tax resident in Ireland if they are managed and controlled outside of Ireland.

The Bill replaces the old corporate tax residence rules. The new provisions provide that:

  • the general rule will be that an Irish incorporated company will be treated as Irish tax resident; and
  • the general rule will not apply to companies treated as tax resident in another jurisdiction by virtue of the terms of a double tax treaty.

The new rules will apply:

  • after 31 December 2014 for companies incorporated on or after 1 January 2015; and
  • after 31 December 2020 for companies incorporated before 1 January 2015.

Ireland’s Onshore IP Amortisation Regime    

The Bill seeks to enhance Ireland’s onshore intellectual property (“IP”) amortisation regime in a way that should interest multinational groups with valuable IP currently held outside Ireland. We expect these changes to make Ireland even more attractive for multinationals wishing to onshore IP over the coming years.

The key enhancements to the onshore IP amortisation regime include:

  • the definition of qualifying IP is broadened to specifically include customer lists. The definition of qualifying IP is already very broad and includes patents, trademarks, secret processes, secret information, licenses and goodwill related to qualifying IP;
  • all of the profits derived from the exploitation of qualifying IP may be sheltered by the amortisation of the qualifying IP plus interest paid on the sums borrowed to acquire the qualifying IP. Previously the combined deduction was limited to 80% of the relevant profits.

Research and Development Tax Credits

The 2003 base year threshold has been removed for research and development (“R&D”) expenditure incurred in a relevant period commencing on or after 1 January 2015, allowing for a full volume based R&D tax credit regime.

There are also technical amendments to the provisions relating to the calculation of the threshold amount where a R&D centre ceased to be used for R&D activities after 1 January 2010.     

Special Assignee Relief Programme

The Bill includes welcome enhancements to Ireland’s special assignee relief programme (“SARP”). SARP is a tax incentive designed to attract key employees in multinational groups to work in Ireland. SARP operates to reduce the personal income tax liability of these key employees.

Under the enhanced SARP regime:

  • 30% of an employee’s salary above EUR 75,000 is tax free.  Previously, there was an upper salary cap of EUR 500,000 on which relief could have been claimed;
  • employees may now be tax resident in another country at the same time;
  • employees can now carry out duties outside Ireland;
  • employees need only have been employed elsewhere within the multinational group for six months prior to relocating to Ireland;
  • SARP is available to employees coming to Ireland in any tax year up to the end of 2017.

Foreign Earnings Deduction

The foreign earnings deduction (“FED”) is a form of income tax relief available to employees of Irish companies who carry out part of their employment duties in certain qualifying countries. The FED was recently introduced to support efforts by Irish companies to expand in emerging markets and, following public consultation, has been improved under the Bill by (amongst other things) extending the list of qualifying countries and reducing the number of days abroad required in order for it to apply. It is hoped that the reforms to the FED will increase take-up of the relief and enhance support to Irish companies trying to expand their exports into emerging markets.

Double Tax Treaties

Protocols to Ireland’s existing double tax treaties with Belgium, Denmark and Luxembourg and double tax treaties previously agreed by Ireland with Botswana and Thailand will be ratified.

General Anti-Avoidance Rule

Ireland’s general anti-avoidance rule and mandatory disclosure regime has also been revised under the Bill. These changes may have been prompted by recent case law and developments under the BEPS project.

The Bill will now be debated by both houses of the Oireachtas (parliament) and is due to be enacted before the end of 2014.