As the dust settles on the Government’s recent Budget, Norah Collender and Brian Brennan consider the tax measures announced for businesses in Ireland

Although the cost of living crisis dominated Budget 2023, announced by Finance Minister Paschal Donohoe and Public Expenditure Minister Michael McGrath on 27 September, it also heralded some interesting tax measures for business.

The finer details of these measures—along with possible additional business tax measures—will be set out in the Finance Bill, due to be published on 20 October. For now, here is a rundown of what we know so far.

R&D tax credit & KDB

Budget 2023 outlines amendments to the payment provisions of the Research and Development (R&D) tax credit, aligning it with new international definitions of refundable tax credits.

The changes include the removal of caps on the payable element of the credit and a new fixed three-year payment system.

Under the new payment system, a company will have an option to request either payment of its R&D tax credit, or for it to be offset against other tax liabilities.

The first €25,000 of the credit claim will be payable in the first year. This will provide a welcome cash-flow benefit for small companies, which make up two-thirds of claimants.

The Knowledge Development Box (KDB) regime was due to expire at the end of this year, but Budget 2023 has extended the scheme for a further four years to accounting periods commencing before 1 January 2027.

The extension is welcome, but companies need a long-term incentive to make investment decisions, so it would be preferable if the regime was to become a permanent fixture of the tax system.

The KDB will be impacted by changes under the Organisation for Economic Co-operation and Development’s Pillar Two rules for a global minimum effective tax rate of 15 percent.

The Government is taking initial steps to prepare for the OECD changes by increasing the effective tax rate of the regime from 6.25 percent to 10 percent (subject to a Commencement Order).

In our view, more amendments will be required to ensure the KDB’s viability as an incentive in light of Pillar Two.

It is also worth noting that, for companies not impacted by the proposed minimum effective tax rate of 15 percent, the increased rate of 10 percent will significantly reduce the benefit of the regime.

Given the low numbers currently availing of the KDB, this change is unlikely to help with the uptake of the relief.

Film relief/multimedia industry

The film corporation tax credit was scheduled to cease on 31 December 2024. Recognising the long production cycle for audio-visual productions, however, Budget 2023 has extended the credit to 31 December 2028. Minister Donohoe has also signaled an intention to explore opportunities to encourage international players in new and innovative multimedia industries to locate to Ireland.

Bank levy

The bank levy, due to expire in 2022, is to be extended to the end of 2023. The levy was originally designed to produce a fixed annual yield of €150 million, but just €87 million will be raised in 2022 due to the exclusion of Ulster Bank and KBC Bank on their exit from the Irish market.

The same yield is projected for 2023. The future of the levy is being assessed by the Department of Finance as part of the Retail Banking Review.

Investment products and section 110

The Government will establish a working group to consider the taxation of funds, life assurance policies, and other investment products.

The Commission on Taxation and Welfare suggested that such a review should consider how to simplify the tax treatment of investment products, and identify opportunities for horizontal equity and neutrality in the tax system when it comes to investment decisions.

Currently, funds and life assurance policy providers are obliged to deduct 41 percent tax on both income and gains, which is higher than the rate of income tax and capital gains tax.

It is hoped that the working group will focus on the scope and possible impact of reducing these rates.

Minister Donohoe also announced plans to review the section 110 regime. The Commission on Taxation and Welfare’s report referenced the section 110 regime in the context of the role of institutional investors in the Irish property market.

However, acknowledging that the regime applies to a broader range of assets than debt secured on Irish property, the report went on to recommend a wider review of the regime.

Agri-business measures

Budget 2023 outlined the extension of several agricultural reliefs set to expire at the end of this year. The proposed extensions are dependent on the outcome of negotiations at EU level on the Agricultural Block Exemption Regulation.

Stamp duty reliefs for young, trained farmers and farm consolidations are to be extended to the end of 2025. Farm restructuring capital gains tax relief is also to be extended until the end of 2025. Stock relief enhancements for young, trained farmers and registered farm partnerships are being extended until the end of 2024.

A new accelerated capital allowance scheme for the construction of slurry storage facilities is set to be introduced from 1 January 2023 and will run for three years.

This article originally appeared in Accountancy Ireland and is reproduced here with their kind permission.

Get in touch

The tax measures announced in Budget 2023 will have wide-ranging business impacts. If you have any related queries, please contact Brian Brennan of our Tax practice. We'd be delighted to hear from you.

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