This year Minister Donohoe could not reaffirm his commitment to the 12.5 percent rate as the Government has taken the historic decision to join the global international tax agreement which will see the corporate tax rate increase to 15 precent for large multinational companies. The Budget measures announced today are aimed at supporting enterprise with the extension of tax relief for start-up companies and the introduction of a digital gaming tax credit. Also announced was the final transposition of the EU’s Anti-Tax Avoidance Directive (ATAD).
Relief from tax for certain start-up companies
The relief for certain start-up companies from corporation tax (Section 486C TCA 1997) is extended for a period of five years until 31 December 2026. The relief is granted by reducing corporation tax payable on the profits of the new trade and gains on the disposal of any assets used for the purposes of the new trade. The amount of relief available is directly linked to the amount of employers’ PRSI paid.
During his speech, Minister Donohoe announced that in view of the challenges companies currently face in utilising the relief due to the impact that pandemic related supports have had on Employers’ PRSI payments, the relief will also be amended so that start-up companies will be able to avail of the relief for up to five years, in place of the current three years.
Tax credit for digital gaming sector
This new relief will support digital games development by companies by providing a refundable corporation tax credit for expenditure incurred on the design, production and testing of a digital game. The relief will be available at a rate of 32 percent, on eligible expenditure, up to a maximum limit of €25 million per project. There will also be a per project minimum spend requirement of €100,000.
Relief will not be available for digital games produced mainly for the purposes of advertising or gambling. A claimant will not be allowed to qualify for additional relief under Section 481 TCA 1997 (Film Relief) or the Research and Development tax credit.
A claim for the tax credit for digital games can only be made in respect of a digital game which has been issued with a cultural certificate from the Minister for Tourism, Culture, Arts, Gaeltacht, Sport and Media. Full details will be published in the Finance Bill 2021 and will be implemented subject to commencement order because European State aid approval is required for the credit to be introduced.
Interest Limitation Rules
Budget 2022 confirmed the introduction of a new Interest Limitation Rule in line with Article 4 of the EU Anti-Tax Avoidance Directive (ATAD). For companies within the scope of these rules, this measure will place a limit on deductible interest expenses equivalent to 30 percent of EBITDA, commencing on or after 1 January 2022. Disallowed interest may be carried forward and may be deducted in future years if the company has sufficient interest capacity.
A de-minimis rule will apply where net interest deductions are below €3 million, and exemptions will apply for standalone entities, legacy debt where the terms were agreed before 17 June 2016, and certain long-term infrastructure projects. Companies may operate the restriction on a single entity or local group basis, and certain group reliefs may apply where the Irish taxpayer is part of a consolidated worldwide group for accounting purposes.
Full details of the measure will be contained in the Finance Bill.
Anti-reverse hybrid rules
Anti-reverse-hybrid rules in line with Article 9(a) ATAD are being introduced. This measure will bring certain tax transparent entities (such as partnerships) within the scope of Irish tax where the entity is 50 percent or more owned or controlled by entities resident in a jurisdiction that regard it as tax opaque and, as a result of this hybridity, double non-taxation occurs. Full details of the measure will be contained in the Finance Bill.
International corporation tax reform
The Irish Government has signed up to OECD proposals for a global minimum effective tax rate of 15 percent for multinationals with global revenues in excess of €750 million. Ireland has negotiated an effective minimum rate set at 15 percent instead of the original “at least” 15 percent proposal by the OECD and endorsed by the G7 in July this year. Ireland has also secured agreement that the 12.5 percent rate continues to apply to companies below the €750 million revenue threshold. The new rules are expected to be implemented as early as 2023.
Bank levy (Stamp duty)
The bank levy, which was due to expire in 2021, is being extended for one further year. It will apply to a reduced number of institutions, as, Ulster Bank Ireland DAC and KBC Bank Ireland plc are being excluded from its scope due to the fact that they are exiting the market. The banks to whom the levy will continue to apply to will not pay any more in 2022 than they did in 2021, thus explaining why the level collected will be in the region of €87 million.
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