Michael D'Arcy (Wexford, Fine Gael) | Oireachtas source

Capital allowances for intangible assets were introduced in the Finance Act 2009 to support the development of the knowledge economy and the provision of high-quality employment. This recognises the fact that growth in OECD economies is increasingly driven by investment in intangible assets. When the capital allowances were introduced, a restriction was provided to cap the amount of income that the allowances could be used against in any year at 80%. The cap was removed for a period between 2015 and 2017, to bring the tax treatment of intangible assets into line with the tax treatment of similar assets in other jurisdictions and to enhance the competitiveness of Ireland as a location for companies to develop intellectual property. Following a significant increase in the use of the capital allowances in 2015, the 80% cap was restored in the Finance Act 2017.

For the purposes of certainty, 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. Therefore, as the Senators are aware, this measure did not apply retrospectively. Senators will also be aware that the cap has no effect on the overall quantum of capital allowances available to use against the relevant trading income. Any amounts restricted in one accounting period as a result of a cap are available for carry forward and use against qualifying income in a subsequent accounting period, subject to the application of the cap in that period.

Revenue has advised that in the short term, there could be a large theoretical cashflow gain, tentatively estimated to be in the region of €720 million, from the introduction of an 80% cap on intangible assets onshored between 2015 and 11 October 2017. However it is important to be clear that such a change would not lead to more tax overall and this is simply a timing matter. To present this as additional tax for the Exchequer would not be correct. Senators may be aware that the Minister, Deputy Donohoe, made a commitment during debate on this Bill on Dáil Committee Stage, that the terms of reference for a planned examination of the sustainability of corporation tax receipts will include examination of the contribution of intellectual property to tax receipts into the future. Having regard to this commitment, in addition to the volume of discussion on record with regard to this issue, I do not believe a report would add further value, therefore I cannot accept the Senators’ proposed amendment.