Key messages from the Irish Minister for Finance, Paschal Donohoe, and the Irish Minister for Public Expenditure and Reform, Michael McGrath on Irish Budget Day 12 October 2021.

On international tax reform and the OECD agreement reached last week

  • "The agreement, which we shaped, is balanced and represents a fair compromise. While there will be a cost to the Exchequer, it provides long-term certainty for businesses and investors…"

On the corporation tax rate

  • "Ireland will apply the new minimum effective rate of 15%. This will be less than many of our key competitors. Importantly, Ireland will continue to offer the 12.5% rate for businesses with revenues less than €750m."

On the COVID-19 Pandemic

  • "Our solidarity, our common purpose has saved lives and allowed our society and economy to reopen. Our country now reaches for a better and brighter future."

On Brexit

  • "The government also continues to be aware of, and prepared for, the risks and consequences of Brexit."

The Irish Minister for Finance, Paschal Donohoe, and the Irish Minister for Public Expenditure and Reform, Michael McGrath made their respective speeches to the Irish Parliament on Tuesday 12 October 2021. The Budget has been shaped in the context of the recovery from the COVID-19 Pandemic (with a more optimistic outlook than this time last year), Brexit and the recently agreed OECD international tax reform package.

Further detail in respect of the measures announced, apart from those introduced with immediate effect by way of Financial Resolution later tonight, will be contained in the Finance Bill 2021 which will be published on 21 October 2021. This should be signed into law by 25 December 2021.

Budget highlights

At this stage, the key points of interest for the international business community include:

Implementation of final Anti-Tax Avoidance Directive (ATAD) measures – transposition of new interest limitation rules (ILR) and reverse anti-hybrid rules into Irish tax law with effect from 1 January 2022.

In line with obligations arising from the EU Anti-Tax Avoidance Directive (ATAD), new ILR rules are to be transposed into law with effect from 1 January 2022. This change is required for Ireland to fully transpose ATAD and at a high level seeks to restrict tax-deductible interest expenses to 30% of EBITDA in a given period. There has been an ongoing consultation process with relevant stakeholders throughout the year in respect of these.

The other outstanding limb of ATAD relates to the reverse hybrid mismatch rules. 2020 saw the introduction of the basic anti-hybrid rules into Irish tax law. These rules are focussed at arrangements that exploit differences in the tax treatment of a financial instrument or entity under the laws of two or more jurisdictions to generate a tax advantage.

The reverse anti-hybrid rules seek to build on the basic anti-hybrid rules introduced last year by bringing certain tax transparent entities (such as partnerships) within scope of Irish tax where the entity is at least 50% owned/controlled by entities resident outside Ireland that regard it as tax opaque and, as a result of this hybridity, double non-taxation occurs.

Further detail will be available when the Finance Bill 2021 is published next week.

Start-up relief – extension of corporation tax relief for certain start-up companies until the end of 2026.

Section 486C Taxes Consolidation Act 1997 provides relief from corporation tax for start-up companies in the first three years of trading, with the objective being to support those companies in early years of trading. The relief will be extended in Finance Bill 2021 for a period of five years until 31 December 2026.

Digital gaming tax credit – introduction of a tax credit for digital gaming companies.

In light of the growth in the digital gaming sector, a relief to support digital gaming development is to be introduced. The relief will support digital gaming development companies by providing a refundable corporation tax credit for expenditure incurred on the design, production and testing of a game. The relief will be available at a rate of 32%, on eligible expenditure of up to a limit of €25m per project and there will be a per project minimum spend requirement of €100m. The relief will not be available for digital games produced mainly for the purpose of advertising or gambling.

As European State Aid approval is required for this measure, it will be introduced in Finance Bill 2021 subject to a commencement order.

VAT rate – reduced 9% VAT rate for the hospitality sector to remain in place until 30 August 2022.

In continued response to the recovery from the COVID-19 Pandemic, the reduced VAT rate of 9% for the hospitality sector will remain in place until 30 August 2022.