The 12.5% Corporation Tax Rate

The 12.5% corporation tax rate is, and will remain, a core part of Ireland's corporate tax policy.

SME Key Employee Engagement Programme (KEEP)

The scheme is being amended to allow companies operating through a group structure to qualify for KEEP. Additional amendments have been announced relating to conditions for qualifying employees to allow for part-time / flexible working arrangements and movements of employees within group structures. There will also be amendments to allow existing shares to qualify for KEEP.  Full details will be set out in the Finance Bill 2019.

Employment and Investment Incentive Scheme (EIIS) 

A package of measures has been announced to enhance the EIIS scheme including technical amendments to improve the scheme's operation. The main changes include full income tax relief (40%) being provided in the year in which the investment is made, which is an improvement over the current relief of 30% being offered on the initial investment with an additional 10% being given after three years subject to certain conditions. An increase in the annual investment limit up to €250k from €150k and up to €500k in the case of investors investing for a minimum period of 10 years has also been announced. 

Research and Development (R&D) Tax Credit

The R&D tax credit is being amended with the aim of helping micro and small companies engaging in R&D activities. The announcements include an increase of 5% in the R&D credit from 25% to 30% for micro and small companies and a new provision being introduced to allow micro and small companies to claim the credit before trading commences, limited to offset VAT and payroll tax liabilities only. 

A further amendment in relation to the limit on outsourcing R&D activities to third level educational institutions has been announced which will see an increase from 5% to 15% on such expenditure.

Microbrewery Relief

The production ceiling for qualification is being raised from 40,000hl to 50,000hl.

Betting Duty

Relief from betting duty and betting intermediary duty aimed at small betting businesses will be introduced. The relief will be limited to €50,000 per calendar year and will apply to single undertakings only. 

Stamp Duty

An amendment to existing stamp duty legislation has been announced that will result in a stamp duty charge of 1% being applied to a scheme of arrangement, in accordance with Part 9 of the Companies Act 2014 (so called cancellation schemes) used for the acquisition of a company.

The measure has been introduced with effect from midnight on 8 October 2019 to counter situations where a company being restructured cancels its existing shares and re-issues new shares to an acquiring company resulting in no charge to stamp duty applying.

Dividend Withholding Tax (DWT)

The rate of DWT is set to increase from 20% to 25% with effect from 1 January 2020. The Minister also announced that a modified DWT regime is being proposed from 1 January 2021 that will utilise real-time data collected under the modernised PAYE system to allow for a personalised DWT rate to apply to each individual taxpayer based on the actual rate of tax applicable to them.

Carbon Tax

There will be an increase in the rate of carbon tax from €20 to €26 per tonne in 2020 with an overall objective of increasing this to €80 per tonne by 2030. 

Base Erosion and Profit Shifting (BEPS) / Anti-Tax Avoidance Directive (ATAD)

As expected, the Minister has announced that updated transfer pricing rules and anti-hybrid rules will apply from 1 January 2020.

Transfer Pricing

Following on from the publication of the Coffey Report in 2017 and the public consultation undertaken earlier this year by the Department of Finance, a first draft of the revised transfer pricing legislation was published on 2 September 2019 by the Department of Finance. Budget 2020 has confirmed that the revised transfer pricing rules will be effective from 1 January 2020. While we await the final legislation to be published in Finance Bill 2019, here is what we can expect:

  • the 2017 OECD Transfer Pricing Guidelines will be incorporated into the legislation along with related guidelines issued by the OECD on Hard to Value Intangibles and the Transactional Profit Split Method
  • transfer pricing rules will be extended to cover all transactions, including non-trading transactions
  • a carve out for Irish-to-Irish non-trading transactions will apply, in line with policy objectives, to target aggressive cross border transactions that involve base erosion and profit shifting between jurisdictions
  • capital transactions of a value of less than €25m will not be subject to the revised transfer pricing rules nor will certain transactions which are generally subject to relief from capital gains tax be within the scope of the revised transfer pricing rules
  • specific "substance over form" rules are to be incorporated into legislation to allow re-characterisation of transactions and various other anti-avoidance measures are to be included to avoid exploitation of carve outs from transfer pricing rules
  • master file and local file concepts are to be introduced into Ireland's transfer pricing regime for the first time
  • grandfathering provisions will no longer apply to transactions agreed before 1 July 2010
  • SMEs will be required to comply with the revised transfer pricing rules which will undoubtedly result in increased compliance costs. Medium sized businesses will be required to prepare limited documentation on transactions with an aggregate value of over €1m. Small businesses will be exempt from the requirement to prepare transfer pricing documentation. The extension of the transfer pricing rules to SMEs may be delayed beyond 1 January 2020.

Anti-hybrid rules

As part of Ireland’s commitment to implementing the ATAD, the Finance Bill 2019 will provide for new ATAD compliant anti-hybrid rules to apply from 1 January 2020.

The purpose of anti-hybrid rules is to prevent arrangements that exploit differences in the tax treatment of an instrument or entity under the tax laws of two or more jurisdictions in order to generate a tax advantage. The Minister outlined that consequential legislative provisions are also being introduced to ensure that the existing treatment of stocklending and repo transactions and of investment limited partnerships is clear.

Interest Limitation Rules

The Minister did not make any reference to the introduction of ATAD compliant interest limitation rules.

For further information on Budget 2020, please contact Brian Duffy or your usual William Fry Tax contact.