The key measures impacting domestic and international corporates in the Finance Bill include:
the transposition of the EU Directive on Pillar Two into Irish legislation;
amendments to the taxation of outbound payments from Ireland;
an increase in the R&D tax credit rate from 25% to 30%;
the extension of the Accelerated Capital Allowances scheme for Energy Efficient Equipment to 31 December 2025;
an increase to the maximum value of expenditure for calculating the Film Tax Credit from €70 million to €125 million; and
the introduction of a new stamp duty exemption for any electronic transfers of interests in Irish shares within central securities depositories in the US and Canada.
Pillar Two
The Bill introduced legislation to implement the 15% minimum effective tax rate for large corporations (applying to groups with consolidated revenues of €750m or more). As outlined in the Minister’s Budget 2024 statement, Pillar Two is a once-in-a-generation reform to our corporation tax system and marks the culmination of a ten-year global project to reform the taxation of multinational enterprises.
Outbound payments from Ireland
Following the public consultation earlier in the year, the Bill includes new measures on the tax treatment of distributions (including dividends), royalties and interest payments to recipients in no-tax and zero tax jurisdictions, as well as those included on the EU list of non-cooperative jurisdictions. The new legislation will limit the operation of certain domestic withholding tax exemptions in respect of captured payments, as well as requiring reporting of same.
The new measures propose that withholding tax should be applied on applicable payments by Irish companies to associated entities that are resident in no-tax, zero-tax or non-cooperative jurisdictions. Entities are associated by virtue of one entity having control of the other or both are under the control of another entity or where one entity has “definite influence” in the management of another entity.
One of the conditions for interest and royalty payments to be in scope of the new rules is that the amount has or can be deducted in computing profits for corporation tax purposes. Furthermore, the new legislation introduces the concept of an “excluded payment”, whereby the rules do not apply to any of the captured payments, in scenarios, broadly speaking, where there is no double non-taxation. There is a further carve out for interest payments where the entity to whom the interest was made, subsequently makes a payment of a corresponding amount within a defined time period to a person to whom such payment (had it been made directly by the Irish company) would have been considered an excluded payment. This particular exclusion is subject to a bona fide commercial purposes test.
The interaction between the outbound payments rule and Pillar Two also needs to be considered carefully, as the rules do not apply where the recipient is subject to a “supplemental tax”, such as those contained in the PIllar Two regime.
The proposed legislation is intended to apply to payments of certain dividends, royalties and interest to associated entities made on or after 1 April 2024. However, there are grandfathering provisions that apply to arrangements which were in place on or before 19 October 2023. As such, the new measures will not apply to such grandfathered payments until 1 January 2025.
Dividend withholding tax (‘DWT’)
The Bill also outlines changes to the current withholding regime, which ensures that withholding tax provisions operate in line with EU law. As part of the amendments contained in the Bill, it is proposed that the withholding exemptions should be extended to apply to distributions to residents of EEA states and equivalent pension schemes in countries where Ireland has a Tax Information Exchange Agreement.
R&D tax credit
The Bill legislates for two changes to the R&D tax credit regime:
an increase in the headline rate of the R&D credit from 25% to 30%; and
an increase in the first instalment threshold of an R&D tax credit claim from €25,000 to €50,000. The first instalment threshold that a company can claim is now the greater of 50% of the company’s R&D tax credit claim for the year or an amount of the credit up to €50,000. The increase from €25,000 to €50,000 is directed at small and medium-sized companies.
In addition to the above, a number of technical amendments are introduced in the Bill to rectify some oversights in the ‘new’ rules introduced in last year’s Finance Bill. These include legislating for the inclusion of the following provisions in the ‘new’ R&D tax credit rules:
a plant and machinery R&D apportionment provision; and
the ability for unused R&D tax credits to transfer with a trade transfer in certain group restructures.
These were previously provided for in the context of the ‘old’ R&D tax credit rules and now apply to the ‘new’ R&D tax credit rules. In addition, a new reporting provision is introduced in the Bill concerning new R&D claimants.
The increase in the headline R&D tax credit rate will ensure no net impact of the taxation of the R&D tax credit under the Pillar Two GloBE rules. It should, in fact, result in a net benefit for companies.
These amendments build on the positive changes introduced in last year’s Finance Bill to make our R&D tax credit regime a fully payable credit regime and to abolish the maximum amount of an R&D tax credit that can be monetised. The amendments also endorse the importance of the R&D tax credit regime in anchoring and stimulating investment and high-quality employment in R&D activities in Ireland.
Accelerated Capital Allowances scheme for Energy Efficient Equipment
The Bill provides for the extension of the accelerated capital allowances scheme for energy efficient equipment for a further two years to 31 December 2025.
Film Relief (Section 481 TCA 1997)
Following the extension of Section 481 relief until 31 December 2028, which was introduced last year, the Bill increases the maximum qualifying expenditure in respect of which the 32% credit can be granted from €70 million to €125 million for films certified by the Minister for Tourism, Culture, Arts, Gaeltacht, Sport and Media. This crucial amendment provides a significant opportunity for growth in the Irish audiovisual industry and for the promotion of Irish culture on a global scale. This amendment is subject to EU State Aid approval and, as such, will commence at a future date.
In his Budget 2024 speech, the Minister also stated that he will engage with the European Commission to develop an incentive for the unscripted production sector in line with State Aid rules. This is a very welcome development for companies operating in this area.
Digital Gaming Credit (Section 481A TCA 1997)
The Finance Bill includes a number of amendments to the digital gaming credit which, among other things, include changes to how it can be claimed. This should ensure that it will be a qualifying refundable tax credit for the purpose of Pillar Two. The proposed amendments will apply in respect of accounting periods beginning on or after 1 January 2024 and specifically include that companies will have the option to request:
a payment from Revenue in respect of the credit claimed; or
the credit be offset against tax liabilities.
Any payment or offset will be made within 48 months of making a valid claim. If the credit is to be offset against the company’s corporation tax liability, it can be taken into account when computing preliminary corporation tax.
The deadline for claiming the credit for a completed game has also been extended in certain circumstances.
Territorial regime
In his Budget 2024 statement, the Minister confirmed that Ireland will introduce a participation exemption for foreign dividends next year. This is a welcome step in simplifying Ireland’s tax system, thereby enhancing Ireland’s attractiveness as a destination for inward and outward investment.
Interest deductibility
In his Budget speech, the Minister acknowledged that Ireland’s current regime for interest deductibility is a complex area. He has committed to reviewing this issue and will engage with stakeholders in the year ahead. This is a welcome development and will be particularly relevant for many large corporations operating in Ireland.
The Bill also introduces a new section (Section 76E), which provides for interest deductibility for a qualifying financing company (being a company that obtains third-party finance and advances this finance to a qualifying subsidiary for the purposes of its trade) once certain criteria are satisfied.
Stamp Duty (Section 78B SDCA 1999)
The Bill introduced an exemption for any electronic transfers of interests in Irish shares within central securities depositories in the US and Canada, where those shares are dealt in on a recognised stock exchange in either of those countries. Before this, taxpayers had to seek Revenue confirmation on a case-by-case basis that the ADR exemption, an exemption originally introduced specifically for transfers of American Depository Receipts, could apply to such electronic transfers. The amendment will put an administrative practice of the Revenue Commissioners on a statutory footing and simplifies the administrative burden on taxpayers.
Public country-by-country reporting
While not within the Bill, EU Directive 2021/2101/EU was transposed into Irish law by way of a statutory instrument (S.I. No. 322 of 2023) effective from 22 June 2023. This requires public disclosure of certain financial and non-financial information by certain undertakings and branches (i.e. public country-by-country reporting or pCbCR). The rules apply to multinational enterprises with global turnover exceeding €750m in each of the last two consecutive financial years.
The introduction of pCbCR reinforces the EU’s and Ireland’s commitment to a culture of corporate transparency. The transposition of this Directive is especially significant from a large corporate taxpayer’s perspective given the additional information required to be publicly disclosed in the report. As per the statutory instrument, the pCbCR obligation will apply in relation to financial years beginning on or after 22 June 2024.
Non-cooperative countries for tax purposes
The Bill amends existing legislation to account for changes to the EU list of non-cooperative countries for tax purposes. As the EU Council updates the list of non-cooperative countries twice yearly (February and October), companies should ensure they refer to the appropriate list for their particular accounting period.
Miscellaneous
The Bill introduced a number of technical amendments, including;
- An amendment to the pre-trading expenditure provisions such that this expenditure is not treated as incurred on the commencement of a trade for the purposes of existing loss relief and group relief provisions. This amendment is effective for accounting periods commencing on or after 1 January 2024.
- Group relief is restricted where the accounting periods of the surrendering company and the claimant company are not fully aligned, or where a company joins or leaves a group of companies. The Bill amends existing legislation to clarify that this restriction also applies in respect of group relief which may be set off against other income taxable at the corporation tax rate of 12.5% or on a value basis. This amendment will apply to accounting periods commencing on or after 1 January 2024.
- The definition of “entity” in the Irish anti-hybrid mismatch rules has been amended to include any legal arrangement, of whatever nature or form, that is within the charge to tax. This limb was previously limited to legal arrangements that own or manage assets. Additionally, the Bill revises the rules to apply to a collective investment scheme both during its start-up and wind-down phases in certain circumstances.
- In his Budget 2024 speech, the Minister demonstrated a strong intention to further support sporting bodies. As part of this, the Minister noted that there will be a review of sporting legislation to promote capital investment in our sports facilities.
We are here to help you
The Finance Bill contains many important changes that will have implications for domestic and international corporations, particularly the transposition of the EU’s Pillar Two Directive into Irish legislation. PwC’s tax team is available to help you and your business understand how these changes will impact your business. Please get in touch today.
