The Irish economy has been in the international spotlight in recent months and there have been a number of tax developments that may be of interest to the international observer. Ireland has experienced a tough budget, a general election and a change in Government in the past months. However, despite developments in other areas, the Irish commitment to the long established 12.5% corporation tax rate remains beyond doubt. The newly elected Government is a coalition of Fine Gael and Labour, with the centre right Fine Gael being the largest party. The election manifesto of both parties was committed to the 12.5% rate and this is reflected in the agreed Programme for Government. This reinforces the certainty and stability that our corporation tax regime offers to international investors. Ireland remains open for business and our corporation tax rate is to remain a fundamental part of future economic growth. Under the new Government, the Department of Finance will be split in two. The Finance Minister will look after budgets and taxes while another minister will take control of spending and the overhaul of the public sector.

Some of the recent developments of relevance from an international perspective are set out below.

Business Taxes:

• No change to Ireland’s 12.5% Corporation Tax Rate for trading companies. The 12.5% rate of corporate tax is a fundamental part of the Irish international brand. Fine Gael and Labour, the incoming government parties, have emphasised their commitment to the 12.5% rate.
• There is some positive news for the financial services sector. A special tax regime exists for “qualifying companies” engaged in certain financial transactions, including securitisations. Companies under this regime could previously only invest in financial assets but can now invest in a large range of commodities, plant and machinery (including aircraft, ships and motor vehicles) and carbon credits.
• The Corporation Tax exemption for start up companies has been extended to cover new trades commencing in 2011.  Relief is now linked to the amount of employers’ social security (“PRSI”) paid by the company.
• Anti-avoidance measures have been introduced to restrict the corporation tax deductibility of interest in two circumstances, namely (i) where intra-group loans used to purchase assets from another group company, and (ii) where interest as a charge relief is claimed on loans used to fund the financing activities of foreign connected companies where the foreign return earned is not repatriated to Ireland. Loans made before 21 January 2011 will not be affected by the new restrictions on interest deductibility.
• The tax exemption for dividends and income earned from patent royalties is abolished with effect from 24 November 2010.
• A mandatory reporting regime is in place effective from 17 January 2011. Essentially, it requires tax advisors, banks and in some cases the user, to report certain transactions to Revenue. The introduction of the regime followed a period of consultation.
• The Finance Act gave effect to a number of Double Taxation treaties. Treaties with Albania, Hong Kong, Kuwait, Montenegro, Morocco, Singapore and United Arab Emirates came into force on 6 February 2011.
• Changes have been introduced to the tax treatment of pension arrangements and share option/share award plans. Businesses are advised to review existing arrangements in light of these changes.

Property Taxes:

• The Finance Act provides for the abolition of most property based reliefs and allowances.  The implementation of these measures has been postponed until after an impact assessment is published.  

Indirect Taxes:

• The Programme for Government states that the standard VAT rate is not to increase above 23%. It also proposes a temporary (2-year) cut in the reduced rate of VAT from 13.5% to 12%.  This rate applies to labour-intensive services such as construction, hotels, restaurants, hairdressing, newspapers etc.  

Other developments:

• The European Commission has formally requested Ireland to amend provisions which impose an exit tax on companies when they cease to be tax resident in Ireland. The commission considers that such taxation serves as a discriminatory penalty on companies wishing to transfer their place of central management abroad.

Contributed by Niamh Keogh, Martin Phelan.