FDI and the 2018 Budget

Oct 10, 2017

  • The re-introduction of the 80% income cap limitation for IP capital allowance claims is effective for all companies for intellectual property acquired from midnight on 10 October 2017
  • Ireland does not support any proposals considered to be an erosion of Ireland’s tax sovereignty or any attempt to erode same
  • The Government is actively seeking input from the business community on the implementation of the Coffey Report and ATAD directives
  • Companies should seek to understand what the various proposals could mean for their business and ensure their views are represented as part of this consultation process
PwC 2018 Budget Ireland logo.

There were three key points for multinational companies in Minister Donohoe’s 2018 Budget speech. Taken together with the “Update on Ireland’s International Tax Strategy” document published in conjunction with the Budget, the points of interest were:

  1. A strong re-enforcement of Ireland’s position on the maintenance of our 12.5% corporate tax rate.  This included a statement that, at an EU level, the question of any change to the principle of unanimity for tax policy is not one for negotiation.
  2. The announcement of a 16-week consultation process on some of the Coffey report recommendations, particularly around Transfer Pricing and the implementation of the EU Anti-Tax Avoidance Directive (ATAD).
  3. The re-introduction of the 80% cap on intellectual property capital allowances that can be utilised in any one year.

Businesses have an opportunity to express their views on key legislative changes Ireland will need to make in the coming years.

Harry Harrison PwC Ireland

The one element of the Budget speech that will have an immediate impact on companies is the fact that the 80% income cap has been re-introduced for Intellectual Property (IP) capital allowances claims.  Importantly, the Minister stated that this is intended to apply in respect of expenditure incurred by a company on intangible assets from midnight on 10 October 2017.

In practice this means that, at a minimum, 20% of a company’s IP trading profits will be subject to tax each year. Any excess capital allowances above this amount will be carried forward for use in future years.

The cap will not apply to IP acquired before this date, meaning it will be important for companies to be able to track the income being earned from IP acquired before and after this change was made.

This change has been announced on the recommendation of Seamus Coffey, who regards it as being important to help support the sustainability of Irish corporation tax receipts.

The Minister also announced the commencement of a 16-week consultation processes in relation to other key Coffey Report recommendations, as well as the implementation of the ATAD provisions.

The latter includes the introduction of controlled foreign company provisions, thin capitalisation rules, exit taxation and hybrid taxation provisions over the coming years.

The “Update on Ireland’s International Tax Strategy” document highlights that the Government believes consultation is “important” in helping to deliver certainty to business as the views expressed “may help influence the taxation treatment and policy to be applied in the future”.

We believe that companies should look to ensure their voice is heard in this respect and that they use this opportunity to try and help shape the future Irish corporation tax framework.

Portrait of Harry Harrison, PwC Ireland.

Harry Harrison, Tax

Harry Harrison is a tax partner specialising in FDI/inward investment projects and international tax issues for US multinational clients.

+353 (0)1 792 6646

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The Minster strongly signalled the Government’s position on tax sovereignty and the maintenance of our 12.5% corporate tax rate.

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