Mr. Rónán Hession:

Effectively, capital allowances are conceptually equivalent to depreciation. If one has an asset which reduces in value, that is a cost which one offsets against one's profits. It is exactly the same, for example, if one buys a car for €10,000. If one made a profit of €1,000 in that year, one could write it down by €1,000 because one's car is only worth €9,000 after a year. The €1,000 is offset against one's profit. It is an equivalent scenario here where a company buys an intellectual property asset which depreciates and it is written down in the accounts over time. That depreciation in the form of capital allowances is offset against the income for that asset.

One of the changes in the Finance Bill, which came from Seamus Coffey's recommendations, is that one does not have a scenario where capital allowances are written off against income in full and then one has a period where one has a big change in one's corporation tax receipts later on because there are no more capital allowances to use up. From a sustainability point of view, it is preferable to smooth this over time. What Mr. Coffey recommended is that the extent to which these capital allowances can be used against income should be limited and an 80% cap introduced.