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

I was not lecturing the Deputy yesterday. We were engaged in a debate. Each of us was making political points on an important section of the Finance Bill. It was not a lecture.

With regard to the amendment, the costs of assets used to generate taxable trading profits are recognised as legitimate business expenses. While these costs are not fully tax-deductible in the year they are incurred, tax relief is available through capital allowances that spread the cost of the asset over a number of years. This gives a fairer reflection of the performance of the business for accounting and tax purposes, which is why capital allowances are a well-established feature of most OECD tax codes.

By the early to mid-2000s, it was clear that the development and exploitation of intangible assets had become a significant driver of economic growth in OECD economies, some of which had introduced specific tax schemes to address the particular features of these assets. Therefore, the Finance Act 2009 introduced capital allowances for certain intangible assets that a company manages, develops or exploits. These intellectual property allowances encourage substantive activity and high-quality employment in the management and exploitation of intangible assets, such as patents, trademarks, know-how, customer lists and research rights.

The success of our approach to encouraging genuine substantive investment is clear from Revenue analysis that shows that claimants of intellectual property allowances accounted for 24% of net corporate tax payments in 2019. In addition to corporation tax, claimants of intellectual property allowances are making a significant contribution to the Exchequer in the form of payroll tax receipts. When intellectual property allowances were introduced, the maximum deduction available for such allowances and related interest was restricted to 80% of income from the relevant trade. No such cap applies to other capital allowances so the cap was removed in the Finance Act 2014 to bring the tax treatment of intangible assets into line with the tax treatment of other assets and similar assets in other jurisdictions. The 80% cap was reintroduced in budget 2018. It was in response to a recommendation in the Coffey report with the aim of smoothing corporate tax receipts and helping to support their sustainability.

As the Deputy is well aware, changes to tax law are generally made on a prospective basis such that they apply only from the date on which they have legal effect. The cap does not affect the overall quantum of relief; it merely extends the period over which intellectual property allowances are used, with any restricted amounts carried forward for use in later periods, subject to the 80% cap in those periods. It is relevant to note IDA Ireland's assessment that Ireland offers a strong and growing research, development and innovation environment and its finding that one third of multinationals in Ireland have had operations here for more than 20 years. These companies have long-established and deep-rooted links to the Irish economy, which are supported by our stable and transparent approach to corporate tax policy. Having regard to the volume of discussion on record with regard to this issue, I do not believe a report would add further value. What I have sought to do in finance Bills in this area was make the changes I believe are important to ensure our tax code is in line with the kinds of standards needed in Europe and across the world. I have also sought to make the changes in such a way as to strike the right balance between competitiveness and certainty in our tax code. The change I made in the relevant Finance Bill and in budget 2018 got that balance right. Even since then, we have seen continued growth in corporate tax receipts, which shows that the foreign direct investment in our economy and companies that have been located here for so long continue to be so important from employment and income points of view. It is a question of making changes that bring our method of taxing intellectual property into line with standards in this regard across the world. Also, it is appropriate that we do so in a way that continues to respect the fact that stability within our tax code is important. That is what I have sought to do in making changes in this area and others, and I do not believe a further report is merited.

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