Ireland's Budget 2021 was prepared on the assumption that there will be a no-deal Brexit and no COVID-19 vaccine next year and therefore the primary focus of Budget 2021 delivered by Minister for Finance, Paschal Donohoe TD and Minister for Public Expenditure and Reform, Michael McGrath, TD was on government expenditure to support the affected parts of the economy. However a number of tax measures were also announced and further tax provisions are likely to be included in Finance Bill 2020 which is due to be published later this month.
Corporate tax regime
- Ireland's commitment to the 12.5% corporation tax rate for trading activities was reaffirmed.
- As had been signalled in recent weeks Ireland's implementation of the EU Anti-Tax Avoidance Directive, interest limitation rules will be introduced together with anti-reverse-hybrid rules in 2022.
- Earlier this week the OECD published an update on its BEPS 2.0 project which seeks to deal with the tax challenges of digitalisation including proposals in relation to the re-allocation of taxing rights of multinational organisations ("Pillar one") and the introduction of global minimum tax rules ("Pillar two"). A public consultation on this matter has opened by the OECD. Minister Paschal Donohoe TD noted that change in this area is inevitable and commented that "agreement at the OECD would present challenges for Ireland as changes to the international tax framework would see a reduction in the level of profits taxable here" but that "failure to reach agreement at the OECD would also have negative consequences for the Exchequer."
- An update on Ireland's Corporation Tax Roadmap will be published in order to reflect on the action taken to-date on corporation tax reform and outline further areas for consideration, consultation and action over the coming months and years. The update on the Roadmap will also consider the OECD BEPS 2.0 reports.
Corporate tax incentives
- A tax credit for the digital gaming sector will be introduced, with a view to supporting qualifying activity from January 2022 onwards. No details were provided in respect of this scheme.
- The Knowledge Development Box is an intellectual property regime which provides for an effective 6.25% rate of corporation tax on income arising from qualifying assets. This regime was due to expire at the end of 2020 but has been extended for two years until 31 December 2022.
- The Minister announced his intention to provide that all intangible assets acquired from 14 October 2020 will be fully within the scope of capital allowances clawback rules. Under existing rules no clawback arose where certain qualifying intangible assets had been held for at least five years.
- The accelerated capital allowances scheme for energy efficient equipment ("EEE") provides a tax incentive for companies and sole traders which allows for the full cost of expenditure on EEE to be claimed in the year of purchase (rather than over eight years under normal rules). This regime was due to expire at the end of 2020 but has been extended for a further three years. In addition, the energy efficiency criteria for the scheme will be re-assessed over the coming year to ensure the categories of equipment availing of the scheme remain appropriate and reflect the most up-to-date efficiency standards.
- A new COVID Restrictions Support Scheme was announced which will apply to businesses where the Government restrictions directly prohibit or restrict access by customers. Qualifying businesses can apply to the Revenue Commissioners for a cash payment in respect of an advance credit for tax deductible trading expenses for the period of the restrictions. The scheme will be effective from today until 31 March 2021, and the first payments will be made to affected businesses by mid-November. Payments will be calculated on the basis of turnover for 2019 and will be subject to a maximum weekly payment of ?5,000. Once the scheme is operational and a county or region is subject to Government restrictions of Level 3 or above, qualifying businesses can make a claim and valid claims will be paid for the period of the restriction. Payments will automatically cease at the end of the COVID-19 restriction period. If restrictions are extended a subsequent claim can be made. The scheme will operate on a self-assessment basis and qualification will require a business to demonstrate that their turnover has been severely impacted; that is it may not exceed 20% of the turnover for the corresponding period in 2019.
- The debt warehousing scheme will be expanded to include repayments of Temporary Wage Subsidy Scheme owed by employers and preliminary tax for adversely affected self-employed income taxpayers. This scheme provides for a deferral of tax payment for a year interest free and at a lower rate of 3% thereafter.
- The Employment Wage Subsidy Scheme is currently set to expire on 31 March 2021, however, it was confirmed that the scheme will continue during 2021 and the Government will decide on the form of its extension when economic conditions are clearer.
- A reduced VAT rate for the hospitality and tourism sector from 13.5% to 9% will apply with effect from 1 November 2020 to December 2021.
Tax on chargeable gains
- There were no changes in the 33% tax rate applicable to the taxation of chargeable gains.
- CGT entrepreneur's relief will apply from 1 January 2021 where a person has owned at least 5% of the shares in a company for a continuous period of any three years. Under current rules, a person must own at least 5% for a continuous period of three years in the five years immediately prior to the disposal.
- The following technical amendments
will be made by Financial Resolution with effect from midnight
- An anti-avoidance provision dealing with tax on chargeable gains on the disposal of certain foreign currency debts
- An amendment to our ATAD-compliant Exit Tax rules to clarify the operation of interest on instalment payments.
- There was no change to the stamp duty rate for residential or non-residential property.
- The stamp duty refund scheme which was introduced in Finance Act 2017 provides for a refund of a portion of the stamp duty on non-residential land (to which a 7.5% stamp duty rate applies) where the land is subsequently used for residential purposes. The refund of stamp duty is designed to bring the net effective rate of stamp duty down to 2%. Under existing provisions to be eligible for a refund, construction must commence by 31 December 2021 and be completed within two years. This has been extended to 31 December 2022 with a completion time limit of two and a half years.
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.