Irish Budget 2016

Key messages from Mr Michael Noonan T.D., Minister for Finance on 13 October 2015

"The Knowledge Development Box adds a further dimension to our 'best in class' competitive corporation tax offering, which includes the 12.5 per cent headline rate; the R&D tax credit; and the intangible asset regime."

"[KDB] will be the first OECD-compliant KDB in the world."

"Our corporation tax system is transparent and statute based."

"Our long-standing policy has been to align our tax system with substantial economic activity, investment and jobs."

"Ireland is well positioned for the post-BEPS world."

The Irish Minister for Finance, Michael Noonan, presented his Budget to the Irish Parliament on Tuesday, 13 October 2015.  The Finance Bill will be published on 21 October 2015 and will contain further details of measures announced. The Bill itself should be adopted by 31 December 2015.  Many of the Budget announcements are for a domestic audience – (i) in terms of individuals, dealing with reducing personal taxes through cuts in the rate of the Universal Social Charge, increasing the inheritance tax exemption threshold and abolishing the pension fund levy and (ii) in terms of small business, dealing with the extension of the current three year tax relief for certain start-up companies to the end of 2018, reducing capital gains tax from 33% to 20% on certain small business sales and retaining the 9% VAT rate to assist the tourism sector.

At this stage the key points of interest for the international business community are:

Budget highlights

The Knowledge Development Box (KDB) is given the Green Light for 6.25% Tax Rate

The KDB, announced last year in Budget 2015, is being introduced to encourage companies to develop intellectual property in Ireland and thereby engage in substantive operations that have a high 'value-add' for the Irish economy.  Income qualifying for the KDB (broadly, profits arising from certain patents and copyrighted software resulting from qualifying R&D carried out in Ireland) will be subject to a reduced rate of corporation tax of 6.25%.  Further details including the operative date for the KDB, are expected to be included in the Finance Bill.

Country-by-Country Reporting

Following swiftly on the publication of the BEPS report on Action 13 on 5 October, and in line with OECD recommendations, the Finance Bill will provide for the introduction of country-by-country reporting.

An Update to Ireland's International Tax Strategy is Published

The update explains Ireland's approach to the implementation of the BEPS reports and how the emerging EU tax agenda will be managed. 

On BEPS:

  • Ireland has committed to the BEPS project and will play its full part in implementation.
  • The KBD is being introduced in accordance with the OECD 'modified nexus' model.
  • Ireland will continue its close engagement at OECD level on the multilateral instrument providing the mechanism for extensive changes to tax treaties.
  • Ireland will deliver upon important OECD BEPS actions including agreed standards on treaty shopping and dispute resolution and best practice recommendations on Permanent Establishment rules.
  • While Ireland will continue to engage constructively with international developments on CFC rules, interest deductibility and hybrid mismatches, indications are that there is no intention to make pre-emptive moves to legislate in these areas.

On the EU proposal for a Common Consolidated Corporate Tax Base (CCCTB)

  • The postponement of the consolidation aspect of the CCCTB has been welcomed.
  • Ireland will constructively engage in discussion on the CCTB (i.e. the common base without the consolidation element).
  • Ireland maintains its position that taxation remains an area for unanimous decision making at European Council level in accordance with the European Treaties.
  • Ireland disagrees with any harmonisation of the tax rates or minimum levels of taxation.

For further information please contact a member of the Tax team.

Date published: 14 October 2015