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Tax Insights
from International Tax Services
Irish Budget 2015 – Significant
changes to corporate tax residence
and enhancement of IP regime
October 15, 2014
In brief
On October 14, 2014 the Minister for Finance announced the Irish Budget 2015. As part of this process
he also published a policy statement entitled ‘A Road Map for Ireland's Tax Competitiveness,’ which
provides some overall international tax strategy context for the Budget announcements.
The package of tax measures including ‘grandfathering’ of existing arrangements and a new intangible
property (IP) regime should provide certainty on the Irish tax regime for both existing and new investors.
These announcements should enable Ireland to remain competitive and attractive as a location in which
to align IP, profits, and substance.
In detail
The Minister for Finance
made a number of key
announcements of interest to
US multinationals. We have
summarized these below and
more detail is also available
on our website at:
http://www.pwc.ie/budget
Road Map for Ireland’s
Tax Competitiveness
In last year’s Budget the
Minister published a new
international tax strategy
statement to provide a clear
and accurate picture of
Ireland’s corporation tax
regime for the foreign direct
investment (FDI) sector. The
policy statement ‘A Road Map
for Ireland’s Tax
Competitiveness’ published
yesterday as part of Budget
2015 updates the objectives
set out in that strategy
statement.
In addition to confirming
some of the measures
outlined below, this
document also outlines other
commitments relevant to US
multinationals. These include
strengthening the capabilities
of Ireland’s transfer pricing
competent authority,
expanding our tax treaty
network and maintaining an
open and transparent tax
regime. For more
information, see A Road Map
for Ireland's Tax
Competitiveness
12.5% tax rate
The Minister also reaffirmed
the government’s “100%”
continued commitment to
maintaining Ireland’s well
established and competitive
12.5% corporation tax rate for
active trading income. The
Minister specifically
confirmed that the 12.5% rate
is settled policy and will not
change, stating that “the
12.5% rate never has been
and never will be up for
discussion”.
Corporate tax residence
reform
In an effort to further
enhance the tax regime’s
transparency, the Budget
announced changes to
Ireland’s corporate tax
residence rules.
Following on from limited
changes to residency last
year, broader corporate tax
residence reform will be
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Tax Insights
introduced this year to ensure that
Irish incorporated companies can only
be considered non-Irish tax resident
under the terms of a double tax treaty.
These new provisions will apply
effective January 1, 2015 for new
companies.
In order to give certainty to
companies with existing Irish
operations, the Budget includes a
transition grandfathering period to
the end of 2020. This means that
existing investors should not need to
take immediate action.
IP tax regime & new Knowledge
Development Box
The Budget also proposes IP tax
regime enhancements, most notably
the introduction of a new ‘Knowledge
Development Box’ regime, and
enhancement of the existing IP
regime.
The government announced its
intention to introduce a ‘Knowledge
Development Box’ tax regime for
intangible assets in 2015, and will
open a public consultation on the
regime’s development in late 2014.
While the announcement provides no
details, the regime likely will be
similar to FDI competitor country
regimes (e.g., in the United Kingdom,
Netherlands, Luxembourg). The
Minister specifically stated that he
intends for the regime to be “best in
class” and at a low competitive and
sustainable tax rate.
In addition, Ireland will enhance its
existing IP tax amortization regime for
expenditure on intangible assets. The
government will:
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i.
remove the current 80% cap
on the aggregate amount of
allowances and related
interest expenses that
companies may claim and
ii.
amend the current definition
of qualifying intangible assets
to explicitly include customer
lists.
before moving to Ireland to six
months.
Both of these proposals enhance
Ireland’s existing IP offering. They
should add to Ireland’s attractiveness
as the location of choice in which to
create, manage and utilize IP.
The Finance Bill will provide further
details. These measures should
improve Ireland’s competitiveness in
attracting senior foreign executives to
relocate to Ireland.
R&D tax credit enhancements
Other positive income tax
measures
In tandem with IP regime
improvements, the Minister proposed
further enhancements to Ireland’s
existing R&D tax credit regime which
is recognized as one of the leading
R&D incentive regimes globally.
Currently Ireland’s 25% (refundable)
R&D tax credit applies to incremental
expenditure with reference to
expenditure incurred in a 2003 fixedbase period. This ‘2003 base year’
limitation on qualifying spend will be
removed effective January 1, 2015
(i.e., from this date the R&D tax credit
will be calculated on a volume basis).
While this does not impact new
investors who would not have had
such a ‘base year’, multinationals
established in Ireland may welcome
this positive development.
Secondee Assignment Relief
Programme
The government also announced a
number of additional positive income
tax measures to reduce the
employment tax burden. These
measures include, amongst others, a
reduction in the higher income tax
rate from 41% to 40%, and a reduction
of the income tax bands at which the
higher tax rate applies.
Property Purchase Incentive
Budget 2012 introduced relief where
property purchased between
December 7, 2011 and December 31,
2013 and held for seven years would
be exempt from capital gains tax for
any gains arising in that period. This
measure was introduced to encourage
property transactions, and, in last
year’s Budget, was extended to include
properties acquired up to December
31, 2014.
Ireland’s Secondee Assignment Relief
Programme (SARP) regime was
introduced in 2012. This was designed
to attract executives from abroad to
work in Ireland by offering an
effective 30% reduction on income tax
on salaries within a certain threshold.
The Minister confirmed that this
year’s Budget would not further
extend this relief. In addition, the
exemption would remain limited to
properties bought in the period
between December 7, 2011 and
December 31, 2014.
The government is extending the
current regime for an additional three
years until the end of 2017. The upper
salary threshold (of EUR 500,000),
which some thought limited the
relief’s effectiveness, is being
removed. In addition, the government
is reducing the required time period
that the executive must have been
employed abroad by the employer
International Financial Services
Ireland’s international financial
services sector is, in a global context,
extremely competitive and supports
over 33,000 jobs in Ireland. The
Finance Minister announced that it is
developing a new strategy for
Financial Services in Ireland. It will
launch this strategy next year to
support further growth in this sector.
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Tax Insights
Other developments of interest
There is no change proposed to the
standard rates of Capital Gains Tax
(CGT) and Capital Acquisitions Tax
(CAT). Both currently apply at a 33%
rate.
There is no change to the 23%
standard VAT rate or the 13.5%
reduced VAT rate. The Budget also
retains the temporarily reduced 9%
VAT rate for certain tourism and
hospitality-related supplies.
direct investment. This Budget
supports that position.
The takeaway
The Finance Bill will outline the
details for the announced proposals.
The Bill is scheduled to be published
on October 23, 2014. US groups
should monitor the proposals to
assess how any changes may impact
their operations.
Irish Budget 2015’s proposed changes
are broadly positive for US groups
with operations in Ireland. The
Minister has stated that Ireland is
committed to playing fair, but playing
to win, in the battle for global foreign
Let’s talk
For a deeper discussion of how this might affect your business, please contact:
International Tax Services, United States
Susan Roche
+1 646 313 0813
susan.x.roche@us.pwc.com
International Tax Services, Ireland
Liam Diamond
+353 1 792 6579
liam.f.diamond@ie.pwc.com
Denis Harrington
+353 1 792 8629
denis.harrington@ie.pwc.com
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