Readers may be aware of a minor update to the guidance on relief for investment in corporate trades (including the Employment Investment Incentive Scheme (EIIS)), whereby the date on the face of the Tax and Duty Manual (TDM) was changed from April 2023 to May 2024. This has caused some confusion as there had been no updates to the contents of the manual since the April 2023 release. Revenue has provided an update to the Institute through the TALC Direct & Capital Taxes Sub-committee confirming that the TDM is presently being updated to reflect the changes implemented by Finance (No. 2) Act 2023.
Revenue’s update is as follows:
“In the course of the last meeting of the TALC Direct and Capital Taxes Sub-Committee and subsequently, queries were raised regarding the updating of TDM Part 16-00-02 “Relief for Investment in Corporate Trades” and initial risk finance investment.
We wish to advise that the matter which delayed publication of the update of TDM Part 16-00-02 “Relief for in investment in corporate trades” is still under consideration and it remains the intention to circulate a draft of the updated TDM prior to publication as soon as we are in a position to do so. We note that a version of the TDM was recently published on www.revenue.ie stating that it was last reviewed in May 2024. This was an error that arose whereby the retention of the TDM last reviewed in April 2023 was extended which resulted in an incorrect date on the first page. This has been rectified and we confirm that no changes have been made to the TDM. We regret any confusion caused.
In relation to the queries raised on initial risk finance, and in light of the delay in publication of the TDM, please note the following clarification.
We wish to confirm that it remains possible to raise initial risk finance investment in tranches as has always been the case. The position is unchanged from that as set out in the TDM which states “Many companies who seek to raise EII, SCI or SURE supported funding, do so in tranches. That is, they embark on a fundraising round over a number of months. Shares are usually issued at the end of the fundraising round, but there may be occasions where the shares are issued as the amounts are invested. The initial risk finance investment will be the initial round of fund raising, whether the shares are issued at the end, or throughout that fundraising round. It should be noted that the shares should be fully paid up at all times throughout the relevant period.” The initial risk finance investment requirements must be set out in the business plan in line with the legislative requirements in that regard and as specified in the TDM. Where a business plan identifies a need for State aid in the form of initial risk finance and those funds are subsequently raised in tranches, each tranche will form part of the initial risk finance investment and will not constitute follow-on investment until the initial risk finance investment as provided for in the business plan has been raised.
Where an investment is raised in tranches, it should be noted that the rate of relief that may be availed of on investment could differ over the course of an extended period i.e. a company may be part of a RICT group that is not operating in any market at the time of one tranche of investment and it may be a company that is part of a RICT group operating in a market at the date of a later investment tranche. The rate of relief to apply to the investment will depend on whether the company is part of a RICT group that is not operating in any market or part of a RICT group that is operating for less than 10 years post incorporation or less than 7 years following its first commercial sale at the time the eligible shares are issued in line with section 496(5) TCA.
For shares issued on or after 1 January 2024, the amount of a qualifying investment that may qualify for relief is as follows:
- In the case of initial risk finance investment in a RICT group which has not been operating in any market, pursuant to section 496(5), 125% of the investment may qualify for relief giving rise to a rate of relief of up to 50%.
- In the case of initial risk finance investment in a RICT group which has been operating in any market for less than 10 years post incorporation or less than 7 years following its first commercial sale, pursuant to section 496(5), 87.5% of the investment may qualify for relief giving rise to a rate of relief of up to 35%.
- In the case of expansion risk finance investment pursuant to section 496(6), 50% of the investment may qualify for relief giving rise to a rate of relief of up to 20%.
- In the case of follow-on risk finance investment pursuant to section 496(7), 50% of the investment may qualify for relief giving rise to a rate of relief of up to 20%.
- In the case of investments made indirectly via a qualifying investment fund, 75% of the investment may qualify for relief giving rise to a rate of relief of up to 30%.
Accordingly, in the case of a company that is raising its initial risk finance investment in tranches throughout 2024 where it is part of a RICT group that makes its first commercial sale on 1 June 2024 for example, the rate of relief will be up to 50% where the eligible shares are issued prior to 1 June 2024 and it will be up to 35% where the eligible shares are issued on or after 1 June 2024.”
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