A new tax regime to try to retain Ireland’s attraction for foreign direct investment has been announced as part of the Budget.
This comes as the Government announced the phasing out of the ‘double Irish’ tax relief, which will be abolished for new companies establishing here from next January. Companies already here who currently use the structure will have until the end of 2020 to phase it out.
The abolition of the scheme had been well flagged and follows intense pressure on Ireland, particularly from the European Commission, which had threatened to launch a formal inquiry. The ‘double Irish’ helped multinationals to route money earned outside the US through Ireland to offshore tax havens.
Minister for Finance Michael Noonan set the abolition of the double Irish within the context of the introduction of a new regime for corporate taxation. Central to this is a proposal to establish a new incentive to encourage companies to locate research in Ireland by offering them a lower tax rate on the commercialisation of this research.
To achieve this, Mr Noonan has proposed the introduction of a knowlege development tax box. This “box” would in effect offer companies a lower rate of tax on earnings that flowed from research. It would be similar to the UK patent box, introduced last year.
However, these arrangements are themselves controversial, so Mr Noonan has said he will await the views of the EU and OECD, which are currently examining them. He hopes to introduce the new box from 2016 if the structure gets the green light.
As part of the new regime, Mr Noonan also announced a loosening of the rules relating to the research and development tax credit, a tax break given to companies relating to the money they spend on research here. He has abolished a so-called base year rule which meant longer-established companies could only claim on research and development which was at a higher level than in the base year, which was 2003.
According to Brian Keegan, head of taxation at Chartered Accountants Ireland, by abolishing this Mr Noonan has potentially given significant tax gains to some longer-established multinationals here who will now have to meet less strict requirements for claiming tax relief on research.
These are part of a 10-point plan being put in place which the Government hopes will boost Ireland’s position.
Google, which had used the ‘double Iris’ structure, was one of the first companies to react to its abolition.
John Herlihy, head of Google in Ireland said: “As we’ve always said, it’s for governments to decide the law and for companies to comply with it. We’re deeply committed to Ireland and will work to implement these changes as they become law.”
