By Martin Phelan, Sonya Manzor, Brian Duffy, Cliona Donnelly, Shane Wallace, and Nora Lillis, Partners
The Finance Bill 2014 (the "Bill"), which was published 23 October 2014, proposes a package of measures which focuses on Ireland's tax rate, regime and reputation. The changes seek to reinforce Ireland's position as a top destination for multinational companies and emphasise the importance of real and substantive foreign direct investment in Ireland.
Many of these changes are to be introduced as part of a "road map" containing 10 key elements designed to enhance Ireland's competitiveness internationally from a tax perspective.
We have set out below a brief summary of some of the key points which should be relevant to the FDI sector.
Corporation Tax Rate
The Government has reiterated its strong commitment to the 12.5% corporation tax rate as part of the "road map."
Tax Residency and "Double Irish"
As announced during the Budget speech on 14 October 2014, the "Double Irish" structure will be phased out with changes to Ireland's corporate tax residency rules.
Companies which are incorporated on or after January 1, 2015, should no longer be able to avail of the structure as it currently exists. A grand-fathering period will apply until 2020 to companies incorporated before January 1, 2015. This means that there is appropriate time to restructure any current arrangements.
As anticipated the proposed law sets out that these provisions will be subject to double tax treaty override so that companies may be considered tax resident in a treaty jurisdiction under the "tie-breaker" clause of a double tax treaty. It has also been confirmed in the Bill that this change will not apply to non-Irish incorporated companies resident in Ireland by virtue of the "central management and control" test.
In light of these changes we would recommend that existing structures are reviewed and alternative structuring options are considered.
It is intended that a "Knowledge Development Box" regime similar to a patent box regime will be introduced.
The Minister announced a consultation process to ensure it is "best in class" with a low, competitive, sustainable rate of tax. The regime is expected to be legislated for in 2015 and will be subject to EU approval.
There is speculation that a rate of 6.25% will apply to income under the regime. However it is likely that the Government will await the outcome of EU and OECD discussions before announcing further details.
Improvements will also be made to the IP allowances regime by removing the 80% restriction on the use of capital allowances for expenditure incurred on "specified intangible assets" for accounting periods commencing on or after January 1, 2015, thereby ensuring a 100% write-off.
Overall the changes announced in relation to IP are to be welcomed and show that Ireland remains a competitive onshore jurisdiction for FDI companies to structure IP investment through.
Research and Development Tax Credit Regime
The 2003 base year restriction will be removed from January 1, 2015.
This measure aims to benefit R&D focused FDI companies which were located in Ireland in 2003 and encourage further investment in R&D projects in Ireland. It should allow such companies to claim the 25% R&D tax credit on all eligible R&D expenditure without reference to the amount of expenditure incurred in 2003.
Special Assignee Relief Programme ("SARP")
SARP is a tax relief intended to encourage the relocation of key talent to Ireland. The changes introduced as part of the Finance Bill will now allow for SARP to be available to a larger group of key talent relocating to Ireland from January 1, 2015. The level of relief has also been increased as the cap of €500,000 has been removed. Broadly, an employee who meets the relevant conditions will get a deduction in their taxable income equal to 30% of the difference between €75,000 and the total of the employee's relevant income. This should result in a significant reduction in the effective income tax rate for qualifying employees. The relief is to be extended until the end of 2017.
These changes should increase Ireland's competitiveness by encouraging key employees of multinational companies to relocate to Ireland.
For more information, in the Tax Management Portfolios, see Ryan, O'Shea, and Fahy, 965 T.M., Business Operations in the Republic of Ireland.
© 2014, William Fry, Solicitors
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