Bold choices needed for corporation tax in Budget 2026

Another issue is the definition of ‘relevant subsidiary’. It is overly restrictive and impractical, particularly where it requires information about third-party companies in non-EU/EEA or non-treaty jurisdictions — information often unavailable to parent companies. This makes compliance unworkable, discourages legitimate use of the exemption and puts Irish holding companies at a clear disadvantage internationally.

Excluding Ireland as a ‘relevant territory’ is another unjustified requirement, as it disqualifies subsidiaries receiving transfers from Irish companies while similar transfers within other EU Member States remain eligible. We believe this is an unintended limitation within the new participation exemption legislation given it is discriminatory against Ireland under EU law. Therefore, we advocate for it to be rectified in this year’s Finance Bill with retrospective effect to 1 January 2025, when the participation exemption rules were brought into force.

Finally, the geographic scope of the exemption remains too narrow; it is limited to EU/EEA and treaty jurisdictions and falls short by peer standards. Broadening it is essential to support international investment and strengthen Ireland’s position as a holding company hub.

Separately, the continued absence of an exemption for foreign branch profits is a significant weakness that leaves Ireland’s tax system at a disadvantage compared to competitor countries. Although the Government plans to address this in a multi-year project, prompt action is essential for Ireland to remain a leading global investment hub. Introducing a branch exemption regime, particularly for financial services sectors such as banking and insurance, is especially important.

In summary, while the introduction of a participation exemption for dividends was a positive step, the regime in its current form is undermined by excessive complexity, restrictive definitions, unnecessary exclusions, and a narrow geographic scope. This makes the regime’s effectiveness fundamentally compromised. It is critical that we have a participation exemption that works in practice for our multinationals and that provides certainty in its operation. These practical issues must be urgently addressed to ensure that Ireland’s participation exemption is workable and competitive.

Enhancing Ireland’s R&D tax credit and innovation incentives: Key measures and recommendations

Ireland’s research and development (R&D) tax credit regime has been instrumental in establishing the country as a global hub for R&D, attracting high-value investment and supporting skilled employment. However, the landscape for R&D investment is rapidly evolving, with rising costs, increased international competition, and changing global tax rules threatening Ireland’s competitive edge in attracting R&D investment. To address these challenges and ensure that Ireland remains a top destination for R&D, a suite of targeted enhancements to the current regime is urgently needed. This is reflected in the Action Plan on Competitiveness and Productivity, recently published by the Government, which identifies the need to examine options to enhance the competitiveness of the R&D tax credit as a priority action.

A key measure we propose is a further increase in the R&D tax credit rate. To restore Ireland’s competitive advantage, it is recommended that the base rate increases to 35%. Additionally, the introduction of an incremental rate, whereby additional R&D expenditure above the prior year or average of the last two years qualifies for a higher credit, would directly incentivise increased investment.

The Action Plan also highlights the need to address the significant investment gap between multinational enterprises (MNEs) and small and medium-sized enterprises (SMEs) in R&D, noting that the current tax credit is less accessible to smaller firms. We recommend that Budget 2026 explicitly calls for tailored enhancements to the R&D tax credit to improve SME uptake.

Another key issue that needs to be addressed is the restrictive interpretation of qualifying expenditure. Over time, the scope of eligible R&D costs in Ireland has narrowed, with key expenses such as rent and other supporting costs now excluded. Expanding the definition of qualifying expenditure to include these necessary and directly incurred costs would better reflect the realities of modern R&D operations and align Ireland with more flexible regimes in competitor jurisdictions.

Ireland’s intellectual property (IP) tax regime also requires reform. The Knowledge Development Box has limited uptake and is comparably less effective for companies within the scope of Pillar Two. Introducing a supplemental refundable tax credit for companies that retain and exploit IP developed through R&D activities would anchor high-value decision-making and commercialisation activities in Ireland.

Finally, to support innovation in areas such as digitalisation and decarbonisation, which may not currently qualify for the R&D tax credit, the introduction of a dedicated innovation tax credit is recommended by PwC. The introduction of a separate, but complementary, innovation-focused credit was also proposed by the National Competitiveness and Productivity Council (NCPC) and cited in the Government’s recent Action Plan. Ireland needs to move quickly to develop and implement incentives to support innovation and to remain competitive on the global stage. Now is the time to take decisive action and introduce bold initiatives that unlock Ireland’s full potential. This would enable Irish companies to accelerate their transition to more sustainable and digitally enabled business models, supporting both national policy objectives and global competitiveness.

Implementing these measures and others outlined in PwC’s response to the R&D Public Consultation will ensure that Ireland’s R&D and innovation ecosystem remains robust, dynamic and globally competitive, supporting high-value employment and sustainable economic growth.

Boosting Ireland's competitiveness through simplification

Ireland’s ability to provide tax certainty and consistency to both domestic and multinational enterprises would be considerably enhanced by taking bold steps towards simplifying the tax code and decreasing the complexity of tax compliance. Streamlining processes is vital to bolster Ireland’s competitiveness. The administrative burden of compliance has increased significantly in the last decade, and change is now urgently needed to alleviate this burden and make it easier for firms to do business in Ireland.

The recent Department of Finance consultation on Ireland’s tax treatment of interest represents a crucial commitment, aiming to simplify the interest provisions of the tax code. This momentum must continue by addressing stakeholder concerns raised in the consultation. Recent years have seen increased complexity in Ireland's tax laws, particularly through the EU’s Anti-Tax-Avoidance Directives’ (ATAD) interest limitation rules, complicating interest deductibility in commercial intra-group operations like acquisitions or reorganisations. While the Department of Finance has indicated that the reform of tax treatment of interest may be a multi-year project, a significant overhaul (not mere incremental changes) of the interest regime is critical to achieve effective interest deductibility. Making fast and decisive improvements in this area is essential to enhance Ireland's attractiveness to businesses.

Given the administrative burden of tax compliance for smaller businesses, consideration should be given to introducing a shorter, simpler version of the Form CT1 for companies that meet certain criteria — for example, where a company is not actively trading or has transactions below a certain amount. This form has been extended year-on-year to facilitate the increased complexity of corporate tax laws over time. In 2010, the Form CT1 was just 22 pages long; by 2024, it had tripled in length. Providing a simplified Form CT1 with fewer pages and reduced reporting requirements for qualifying small companies would help reduce unnecessary complexity and administrative obstacles, thus enabling Irish businesses to focus on more important matters such as growth and sustainability.

In conclusion: Bold decisions are needed in Budget 2026

Ireland stands at a critical juncture in shaping its future as a premier destination for international investment and innovation. Recent reforms, most notably the introduction of a participation exemption for foreign dividends, signal a clear intent to modernise the tax regime and reinforce Ireland’s competitive edge. Nevertheless, these measures alone are not enough; we need to act urgently to implement further measures to maintain our leading position in the global market.

However, addressing the shortcomings of some of the key tax provisions in Ireland, simplifying tax compliance and introducing a branch profits exemption is essential. By embracing bold, targeted reforms and prioritising simplicity and certainty, Ireland can ensure its tax system remains fit for purpose, supports sustainable economic growth, and continues to attract high-value investment in an increasingly competitive global landscape.