Tuesday, 13 October 2020
Financial Resolution No. 4: Corporation Tax
I will try to address some of the issues raised by Deputies. Following on from what the Tánaiste has said, these measures are in the context of wider reviews of corporate tax regimes and the wider process of ongoing corporate tax reform in recent years. This has been taking place internationally and at a European and OECD level. A part of those endeavours has involved an examination of capital allowance measures.
In that context, Revenue officials here conducted an informal review of the publicly-available information and data concerning tax bases in different jurisdictions, and examining, in particular, tax reliefs for intangible assets in 15 other countries. That was designed to ascertain a degree of best practice across those countries, and it identified that the Irish IP allowance regime was more restrictive in comparison with other jurisdictions in some respects. Regarding the operation of the balancing charge mechanism, however, which we are talking about this evening, it was identified that the Irish regime in this regard was less restrictive than most, but not all, of the comparator countries. The main reason for that was that, at present, where an intangible asset is disposed of after more than five years, it is then outside the scope of a balancing charge.
The Minister is moving to address that situation through this resolution and to ensure that Ireland's IP allowances are consistent with international best practice. As a result, section 288 of the Taxes Consolidation Act 1997 is to be amended to provide that all assets acquired after tonight will be fully within the scope of the balancing charge rules. The measure we are introducing, therefore, will bring certain disposals into the charge to tax, so this is broadening out that applicability.
Deputy Paul Murphy asked if this will lead to a significant increase in revenue. It is not expected that there will be, given the current profile of claims demonstrated by Revenue data. The Revenue understands that the type of intellectual property typically situated in Ireland includes items such as patents on pharmaceutical products, and the value of those types of assets declines as the patent runs out and the asset is depreciated in the company's accounts. As we are extending this measure to IP older than five years, the values of those patents probably will have declined at this stage and that is why it is understood that there will not be a significant financial revenue windfall from this measure. The primary reason this measure is being introduced, however, is to ensure that our tax regime for intellectual property, as part of our broader tax regime, will remain competitive, legitimate and sustainable.