Answer ... There is a separate set of rules for computing capital gains in Ireland. Those rules are broadly as follows:
- Costs of acquisition and disposal are deducted from disposal proceeds;
- Enhancement expenditure is generally deductible where such expenditure is reflected in the value of the asset; and
- The application of capital losses carried forward may reduce the amount of gain.
The rate of tax imposed upon capital gains is currently 33% and therefore differs from the rate imposed on business profits (12.5% for trading income, 25% for investment income).
Generally, book depreciation is not deductible for Irish tax purposes. Instead, tax depreciation (known as capital allowances) is permitted on a straight-line basis in respect of capital expenditure incurred on assets used by the company. Plant and machinery are depreciated at 12.5%. For certain IP assets and for leased assets with a life of less than eight years, tax depreciation can follow the book depreciation.
Answer ... Yes, Ireland operates a research and development (R&D) tax credit. This credit is calculated at 25% of qualifying expenditure and is used to reduce a company’s corporation tax liability. A company may qualify for the R&D tax credit if the following criteria are satisfied:
- It is within the charge to corporation tax in Ireland;
- It carries out qualifying R&D activities in Ireland or the European Economic Area; and
- The expenditure does not qualify for a tax deduction in another country.
In addition, the company must have engaged in qualifying R&D activities which involve systemic, investigative or experimental activities in the field of science or technology and involve one or more of the following categories: basic research, applied research, experimental development, scientific or technological advancement, and resolution of scientific or technological uncertainty.
Ireland has also established a tax relief known as the Knowledge Development Box. This relief applies to income from qualifying patents, computer programs and, for smaller companies, certain other certified intellectual property. The result of the application of this relief is that a company’s qualifying profits will be subject to tax at a rate of 6.25%.
Ireland operates several other investment tax incentives. These include accelerated tax depreciation allowances for energy-efficient equipment and an established tax regime for securitisation companies and investment funds.
Answer ... There are no special tax or valuation rules for inventories. Any method of computing the value of stocks and work in progress which is recognised under generally accepted accounting principles is an acceptable method of valuation, provided that the method is consistently applied and does not conflict with taxing statutes as interpreted by case law.
Answer ... The underlying principle is that in arriving at a company’s taxable profits, reliance must be placed on the accounting principles adopted in the financial statements. Unrealised gains or losses on derivatives included in the profit and loss account are charged to tax where they are trading in nature.
A credit derivative may also qualify for hedge accounting treatment. If a hedged item is not regarded as a capital item but was issued for trading purposes, any fair value movements on the item should be taxable or deductible, as the case may be.
Where the item hedges a capital asset or liability, the appropriate treatment will generally be to treat it as non-trading (and subject to the higher rate of tax) or subject to capital gains tax depending on the circumstances. In this case profits will be taxed on realisation.