Key messages from the Irish Minister for Finance, Paschal Donohue TD, and the Irish Minister for Public Expenditure and Reform, Michael McGrath TD on 13 October 2020:
On the COVID-19 pandemic
"…we will build a stronger and more resilient Ireland."
"…while we continue to prepare for Brexit, we are now responding to the worst global pandemic in a century."
On corporation tax
"…reaffirm Ireland's commitment to the 12.5% corporation tax rate."
On international tax reform
"Further work is needed at international level before final agreements can be reached. What is certain however is that change is inevitable."
The Irish Minister for Finance, Paschal Donohue TD, and the Irish Minister for Public Expenditure and Reform, Michael McGrath TD made their respective speeches to the Irish Parliament on Tuesday 13 October 2020. The Budget has been shaped in the context of the COVID-19 pandemic and in the midst of a potential "No Deal" Brexit on 1 January 2021.
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 2020 which will be published on 22 October 2020. This should be signed into law by 25 December 2020.
Given the current health, economic and geopolitical environment, the majority of measures focus on reacting to and dealing with the COVID-19 pandemic in addition to Brexit.
At this stage, the key points of interest for the international business community include:
IP depreciation clawback tweaks – all intangible assets acquired after 13 October 2020 to be brought fully within the tax depreciation balancing charge rules.
To ensure Ireland's tax regime for intellectual property is fully consistent with international best practice, all intangible assets acquired after 13 October 2020 will be fully within the scope of the tax depreciation balancing charge rules. This measure will be implemented with effect from tonight by way of Financial Resolution. While full details on this change will not be available until the Financial Resolution is published it is understood that this change will ensure that a potential balancing charge can arise if the IP is sold at any time in excess of its tax written down value (rather than falling outside the balancing charge rules if disposed of after a certain period of time from its acquisition).
Exit Tax – amendment to the Exit Tax legislation in relation to calculation of interest on instalment payments.
Specific Exit Tax provisions introduced last year as part of ATAD implementation will be amended with respect to the calculation of interest on instalment payments of Exit Tax. This measure will be implemented with effect from tonight by way of Financial Resolution.
Knowledge Development Box extension – extension of the Knowledge Development Box relief available in respect of certain IP development activities until December 2022.
A company qualifying for Knowledge Development Box relief (i.e. qualifying R&D activities for computer programmes, patent protected inventions and small company patentable IP) may be entitled to a deduction equal to 50% of its qualifying profits. This relief is to be extended for a further two years until the end of December 2022.
VAT rate reductions – no further extension of the temporary reduction in the VAT rate from 23% to 21% (due to expire at the end of February). A reduction in the VAT rate for the entertainment, tourism and hospitality sectors from 13.5% to 9% with effect from 1 November.
The temporary reduction in the VAT rate from 23% to 21% will expire at the end of February as originally envisaged. In line with other jurisdictions and as a response to the impact of the COVID-19 pandemic on the tourism, hospitality and entertainment sectors, the VAT rate for those sectors will be reduced from 13.5% to 9% with effect from 1 November 2020.
Anti-Tax Avoidance Directive (ATAD) implementation delay – transposition of new interest limitation and anti-hybrid rules delayed until 2021 / 2022.
Particular omissions from this Budget relate to the pending transposition of the Interest Limitation and Anti-Reverse-Hybrid Rules pursuant to the EU Anti-Tax Avoidance Directive. In line with the recent Budget 2021 Tax Strategy Group papers published in September 2020, further progress is to be made on consultation and transposition of these measures during 2020 and 2021 with a view to legislation being introduced in Finance Bill 2021 (to take effect from 1 January 2022).
Stamp duty changes – as a consequence of the Brexit related migration of the settlement of Irish share trades from CREST to Euroclear.
Although not specifically referred to in the Budget, the associated documents also confirmed that changes will be included in the Finance Bill 2020 to ensure that stamp duty on transfers of Irish shares will continue to be collected after the Brexit related migration of the settlement of Irish share trades from CREST to Euroclear.
Corporation Tax Roadmap update
Minister Donohue made a commitment to updating Ireland's Corporation Tax Roadmap, which will reflect on the actions taken to date on corporation tax reform and outline further areas for consideration, consultation and action. This Roadmap will also consider the reports published recently by the OECD BEPS Inclusive Framework on the taxation of the digital economy.
For further information please contact a member of the Tax team.