Ireland Sets 80 Percent Limit for Capital Allowances Deductions

13 October 2017

* Ireland sets 80 percent limit on income business can deduct against capital allowances
* Stamp duty hike on commercial property, lower time frame for CGT exemption

By Ali Qassim, (BNA) -- Irish-based businesses will face a new 80 percent limit, effective Oct. 11, in the amount of income against which capital allowances for intangible assets and any related expense can be deducted in a tax year, Ireland's finance chief announced Oct. 10.

"I intend to make this change in respect of expenditure incurred by a company on intangible assets from midnight tonight," Minister for Finance Paschal Donohoe said told the Irish lower house Dail Eireann during the annual fiscal budget announcement.

As widely anticipated, Donohoe also reiterated Ireland's longstanding commitment to its 12.5 percent corporation tax rate, one of the lowest in the European Union, and launched a consultation on how Ireland will comply further with anti-tax avoidance rules set out by both the Organization for Economic Cooperation and Development and the European Union.

Kevin Doyle, a partner at Dublin-based BDO, told Bloomberg BNA that Prime Minister Leo Varadkar said
before the budget "there would be no fireworks and no big bonanza on budget day itself. He wasn't lying! But perhaps in this time of rapid global change when it comes to tax and political matters, a level of "steady as she goes" and of certainty and consistency is just what businesses need."

Other announcements of relevance to businesses included:

  • increasing stamp duty on commercial property transactions from 2 percent to 6 percent, with effect from midnight, Oct. 10;
  • reducing the time frame for capital gains tax exemption on disposal of land or buildings;
  • raising the rate of income tax for single earners;
  • introducing a sugar tax in April 2018 at a rate of 30 cents per liter on drinks with over 8 grams of sugar per
  • 100 milliliters;

Limit to Capital Allowances Deductions

The new limit of income against which firms can deduct capital expenses was one of several
recommendations made by a government-commissioned report last month "to ensure some smoothing of
corporation tax revenues over time," Donohoe said.

Businesses in Ireland can claim capital allowances for plant and machinery at a rate of 12.5 percent a year
over eight years and can claim allowances for most industrial buildings at a rate of 4 percent per annum over 25 years, according to the Irish revenue commissioners.

In practice, this means that, at a minimum, 20 percent of a company's intellectual property trading profits
will be subject to tax each year, Harry Harrison, a tax partner specializing in foreign direct investment at PwC Ireland, said in a statement.

The cap will not apply to IP acquired before this date, meaning it will be important for companies to be able
to track the income being earned from IP acquired before and after this change was made, he said.
BDO's Doyle said details of the measure will only be provided in the Finance Act 2018. The government
estimates the tax yield from the measure for 2018 could reach 150 million euros ($177 million).

Effective Oct.11, the government is raising the stamp duty on commercial property transfers from the
current two percent, introduced to stimulate the market, up to six percent. Despite the significant increase, the rate is still "well below" the maximum rate of nine per cent charged between 2002 and 2008, Kevin
McLoughlin, head of tax for EY Ireland told Bloomberg BNA.

Meanwhile, the government will amend Section 604 of the Taxes Consolidation Act 1997, otherwise known
as the 7-year Capital Gains Tax relief, which, according to the budget document, "will allow the owners of
qualifying assets to sell those assets between the fourth and seventh anniversaries of their acquisition and still enjoy a full relief from CGT on any chargeable gains."

"This incentive in its original form, which was available in respect of purchases between 7 Dec 2011 and 31 December 2014, was availed of by quite a number of foreign investors," according to Doyle.

Moderate Income Tax Changes

The point at which people enter the higher 40 percent rate of income tax will rise from its current level of
33,800 euros ($39,893) for a single person to 34,550 euros. Danny McCoy, the CEO of leading business lobby Ibec, said this is a "welcome change of direction" and will "help businesses to attract and retain talent."

Although the government also introduced a favorable regime for share options issued by small and medium businesses, McLoughlin noted that "it does little to allow Irish business to attract mobile talent from overseas," which will remain an important element of resourcing for Irish businesses into the future. "This is an area where innovation in our tax policy can assist the overall competitiveness of Ireland as a location of choice for sustainable investment," McLoughlin said.

Other measures included a loan scheme for small and medium enterprises aimed at protecting businesses that could suffer from new trading arrangements with the U.K. once it leaves the European Union in March 2019.

Reproduced with permission from International Tax Monitor, 195 ITM, 10/11/17. Copyright 2017 by The Bureau of National Affairs, Inc. (800-372-1033) <>