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Ireland publishes Finance Bill 2022
October 2022
In brief
The Irish Department of Finance on October 20 published Finance Bill 2022 (the Bill) which would set into law the measures announced as part of the Irish budget last month. While the amendments, as expected, are primarily focused on personal taxes and the cost of living, the Bill does feature a provision amending the R&D tax credit and includes certain other business tax measures.
The takeaway: The Bill includes additional provisions, amendments, and clarifications that were not yet announced and which may be of interest to MNEs with Irish operations. The Bill will progress through various stages before likely being signed into law before the end of the year.
Key announcements
Tax credits
The Bill would amend the payable element of the R&D tax credit to ensure it aligns with new international definitions and to bring the credit within the scope of a ‘qualified refundable tax credit’ for the purposes of Pillar Two.
The key changes introduced include:
- The new regime is being introduced with retroactive effect, for accounting periods commencing on or after January 1, 2022. Transition rules apply, and allow companies to make a claim under the current regime for accounting periods beginning on or after January 1, 2022 but no later than December 31, 2022. This essentially provides for a one-year transition period to the new regime. The transition rules also permit payable R&D tax credit installments that are carried forward from accounting periods that commenced before January 1, 2022 (i.e., payable installments two and three) to be claimed in the accounting period commencing on or after January 1, 2022. This allows installments carried forward under the current regime to be dealt with in 2022 tax returns.
- A new three-year fixed payment regime would be introduced for claiming the R&D tax credit. Under this new regime, a company could claim the R&D tax credit in cash in three fixed installments. Alternatively, a company could specify that any part of each installment be offset against other tax liabilities of the company.
- The caps on payable R&D tax credit claims would no longer apply.
- Companies could claim at least the first €25,000 of an R&D tax credit as payable in the first year. This would benefit companies with particularly small R&D tax credit claims.
- Companies would have the ability to claim pre-trading expenditure as a payable credit over a three-year period once the company commences to trade.
The Knowledge Development Box (KDB) regime is due to end for accounting periods commencing on or after January 1, 2023. However, under the Bill it would be extended for four years. The KDB will be impacted by changes in the international tax environment, specifically the Subject to Tax Rule (STTR), which is part of the OECD Pillar Two agreement. In order to prepare for implementation of the agreement, the effective rate of the KDB would increase to 10%. These changes are subject to a Ministerial commencement order.
Other measures
- The Bill provides for technical amendments to the legislation with respect to the taxation of the sale of patents rights for a capital sum. The changes confirm that the outright sale of a patent or a patent pending is not a sale of patent rights and as a result should be subject to Irish capital gains tax at 33%. The sale of patent rights for a capital sum should be subject to corporation tax at 25%. In addition, an amendment is made to provide relief for intra-group transfers of patent rights in a similar manner to that which is available to intra-group transfers of patents.
- Various minor technical amendments have been made to the interest limitation rules (ILR) to align the legislation with guidance previously issued by the Irish tax authorities. These include a clarification with regard to the treatment of repayments made on facilities which have a mixture of legacy and non-legacy debt to specify that a ‘first-in, first-out’ basis should apply. Other changes include the interaction of the carry forward of interest restricted under the ILR rules and the interest arising on the provision of specified intangible assets (Section 291A).
- The Bill proposes a technical amendment to the definition of ‘relevant monetary item’ to confirm that foreign exchange movements arising to a trading company in respect of trade debtors and trading bank accounts are to be included in the computation of the trading income.
- The definition of the ‘transfer pricing guidelines’ in Irish tax legislation has been amended to now refer to the 2022 version of the OECD Transfer Pricing Guidelines.
- Last year’s Finance Act introduced rules to provide for the transposition of new EU tax transparency rules for digital platform operators (DAC7) into Irish law. Finance Bill 2022 would repeal and reinstate these rules to ensure that the domestic law effectively transposes DAC7 into Irish law.
- The Special Assignee Relief Programme (SARP), which provides income tax relief for certain people who are assigned to work in Ireland, has been extended for three years. The minimum annual relevant income required by an individual to benefit from the relief has been increased to €100,000.
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