Paschal Donohoe (Dublin Central, Fine Gael) | Oireachtas source

The section amends section 288 of the Taxes Consolidation Act 1997 to better align our tax regime for intangible assets with international best practice.

Financial Resolution No. 4 allows this measure to take effect from 14 October. Like many other countries, Ireland has, since 2009, granted capital allowances on certain intangible assets that companies manage, develop or exploit. These intellectual property, IP, allowances encourage substantive activity and high-quality employment in Ireland. In some respects, our IP allowance rules are more restrictive than those for normal capital allowances, as well as similar reliefs in other countries. The operation of the balancing charge mechanism, however, was identified as being less restrictive than that in most, but not all, jurisdictions with similar reliefs.

Prior to Financial Resolution No. 4, no clawback of capital allowances arose, while an intangible asset was disposed of after five years and the disposal proceeds exceeded the costs not yet relieved through IP allowances. This differs from the treatment of a disposal within five years, where any such excess would, effectively, be treated as a taxable receipt to the company. As a result, section 288 of the 1997 Act was amended to provide that all expenditure incurred on intangible assets from 14 October is fully within the scope of balancing charge rules. Assuming that the expenditure incurred from 14 October last has a similar profile to current claims, it is not expected that this change will result in significant additional tax revenue.

Revenue understands that the type of intellectual property typically suited in Ireland includes items such as patents and pharmaceutical products. Such assets generally have a limited life and decrease in value over that life, and are therefore less likely to give rise to a balancing charge on disposal. Nonetheless, this was an important change to better align our regime with international best practice. By introducing this as a financial resolution on budget day, I again signalled a commitment to taking action where needed to ensure our regime for intellectual property, together with the broader corporation tax regime, remains competitive, legitimate and sustainable.