Key messages from Mr Michael Noonan T.D., Minister for Finance on 14 October 2014
"The 12.5% tax rate never has been and never will be up for discussion. The 12.5% tax rate is settled policy. It will not change."
"Today I am publishing a Road Map to secure Ireland's place as the destination for the best and most successful companies in the world."
The Irish Minister for Finance, Michael Noonan, made his Budget speech to the Irish Parliament on Tuesday, 14 October 2014. While there had been no suggestion that the corporation tax rate would change, the confirmation of Ireland's ongoing commitment to the 12.5% rate provides further reassurance to the international community. The road map includes welcome enhancements to the Irish offering, particularly in relation to the R&D and IP regimes. Budget 2015 is further evidence of Ireland's commitment to a certain and internationally competitive tax regime.
The detail of the various measures announced will be contained in the Finance Bill, which will be published in the coming weeks. The Bill itself should be adopted by 31 December. At this stage the key points of interest for the international business community include the following.
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"Double Irish" to end: In light of the OECD's move to tackle base erosion and profit shifting (BEPS) schemes Ireland has moved to take pre-emptive action on the 'double Irish'. The Minister announced today the phased elimination of the 'double Irish' structure. The legal change will take effect from the 1st of January 2015 for new companies. For existing companies, a transition period will apply until the end of 2020. The 'double Irish' is to close through a change in law requiring all companies seeking to be registered in Ireland to also be tax resident in Ireland but presumably, subject to any override (e.g. a tiebreaker) in a double tax treaty. The transition period is welcome and allows a reasonable timeframe for companies which already have the 'double Irish' in place to restructure in line with the new legislation.
Road Map for Ireland's Tax Competitiveness published: The Minister today published a Road Map aimed at positioning Ireland towards maintaining the most competitive taxation offering that conforms with good practice. Its purpose is to provide the foundations for Ireland to maintain and expand its position as a thriving hub for foreign direct investment (FDI). The Road Map builds on a public consultation held earlier in the year by the Department of Finance on BEPS. The 10 key business initiatives are:
- Maintain the 12.5% corporate tax rate on trading profits;
The 12.5% has been a cornerstone of Ireland's tax policy and success in attracting FDI for some years now and this is, as expected, to continue.
- Introduce a default corporate tax residence rule that all companies incorporated in Ireland are tax resident in Ireland;
- Improve Ireland's IP regime;
The Minister announced the Government's intention to put in place a 'Knowledge Development Box' along the lines of patent and innovation boxes that exist in other countries competing with Ireland for FDI. The aim is that it will be 'best in class' with a low competitive and sustainable tax rate. A public consultation process will begin with the plan being to legislate for the Knowledge Development Box in next year's Finance Bill. The willingness to consider regimes in competing jurisdictions and open a public consultation is welcome and we look forward to further enhancements to Ireland's IP offering in the near future.
- Enhance the R&D tax credit regime by removing the base year restriction;
In order to encourage activities in Ireland at the earliest stage of the IP lifecycle when the IP is actually being developed through carrying out of certain R&D activities, there is a generous tax credit system which is available at a rate of 25% of the qualifying expenditure on an incremental basis over a 2003 base. This form of relief further provides that a R&D tax credit is available on the first €300,000 of qualifying expenditure incurred on a volume basis (i.e. excluded from the incremental basis referred to above). The tax credit can result in an effective 37.5% (12.5% + 25%) deduction, taking into account the normal corporation tax deduction, for revenue expenditure on certain R&D activities and on plant and machinery used for such activities. Today the Minister has indicated the intention to remove the 2003 base year restriction altogether. This is something that the business community has been seeking and will be of benefit to those companies already engaged in R&D in 2003.
- Enhance the Special Assignee Relief Programme (SARP) to attract mobile talent;
SARP is being extended for a further 3 years until the end of 2017. SARP provides for income tax relief on a proportion of income earned by employees who having worked with a relevant employer for a certain period are assigned to Ireland to work for that employer or an associated company. Where certain conditions are satisfied the employee can claim to have 30% of his income between certain thresholds exempted from income tax. The conditions to avail of SARP are to be relaxed, e.g. the requirement to have worked abroad for 12 months is being reduced to 6 months and the upper salary threshold is to be removed. The proposed changes follow a public consultation and should make the scheme available to more international assignees and provide greater benefit to those who are eligible.
- Enhance Employment and Investment Incentive (EII) to support indigenous businesses;
The EII assists small and medium sized enterprise to access development capital to grow and increase employment. Following a review of the scheme it is to be amended to make it more attractive.
- Enhance the Foreign Earnings Deduction (FED) tax regime to support Irish businesses in accessing foreign export markets;
The FED is being extended for a further 3 years until the end of 2017 and the qualifying countries are being extended to include Chile, Mexico and a number of countries in the Middle East and Asia.
- Increase Revenue competent authority resources to defend transfer pricing disputes;
Ireland will move to strengthen its capabilities in its transfer pricing competent authority in recognition of the fact that international transfer pricing disputes are likely to grow in number over the next few years and Ireland must be ready to defend its tax base.
- Continue to expand Ireland's tax treaty network;
Ireland has signed 71 comprehensive double taxation agreements of which 68 are currently in effect. Ireland will continue to initiate negotiations for new agreements with other countries as these agreements are seen as a key factor in attracting globalised business to locate substance in Ireland.
- Maintain Ireland's commitment to ensuring an open and transparent tax regime;
To this end Ireland will be an early adopter of Automatic Exchange of Tax Information (the Common Reporting Standard). It is also supportive of OECD proposals for Country by Country reporting. Ireland is also one of the first countries to carry out a 'Spillover Analysis' of the impact of its tax system on developing economies. This follows from Ireland being one of the first countries to conclude an Intergovernmental Agreement with the US on FATCA.