The Department of Finance published Budget 2022: Report on Tax Expenditure 2021. The report lists the tax expenditures that have been in effect since the previous report and contains four tax/tax expenditure related reviews. This includes a review on corporation tax relief for certain stat-up companies.
Page 10 of the reports sets out the top ten most expensive tax expenditures in terms of revenue foregone, and most expensive tax expenditure under each tax category. These include the R&D tax credit under corporation tax, CAT business relief under CAT/CGT, certain company reconstructions and amalgamations for stamp duty and the VAT refund to flat rate farmers for construction.
Section 486C TAC 1997, was introduced to provide relief from corporation tax for start-up companies in their first three years of trading. The objective is to support new business ventures in their critical early years of trading, thereby supporting the creation of additional employment and economic activity in the State.
In review of the corporation tax relief for certain start-up companies, the report details the need for Ireland to continue to support and safeguard SMEs and having regard to the challenges posed by the pandemic the relief is said to remain relevant. The annual cost of the relief has increased modestly over time, and it’s currently estimated at €6.2 million as of 2019 with the average cost of claims of the relief in the region of €5,200 per company. This represents an estimated average cost of €384 per job supported by the relief. The report notes that this figure is modest relative to the cost of providing unemployment supports.
The report recommends a 5-year extension of the relief in view of the need to support and provide certainty to small businesses as the economy emerges from the pandemic and adapts to the changes of Brexit. It is also recommending changes to the relief to enhance or extend the benefit available to firms in operation during the pandemic (2020 - 2021) and highlights the need to minimise administrative complexities through an extension of the claim window.
The Minister for Finance announced as part of Budget 2022 that the relief is being extended to companies commencing a qualifying trade over the next five years and the period for which the relief can be claimed is also being extended from three to five years.
The other reviews contained in the report relate to:
- Review of the young trained farmer stamp duty relief and the age limits applicable to certain agri-tax reliefs – page 37;
- Equality budgeting from a tax perspective – page 78; and
- Special Assignee Relief Programme – Statistics for 2019 (Revenue – June 2021) – page 105.
The report is available on gov.ie.
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