Pearse Doherty (Donegal, Sinn Fein)
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315. To ask the Minister for Finance further to Parliamentary Question No. 352 of 14 October 2025, to provide further detail on how the legislation was functioning in relation to balancing allowances arising in respect of intellectual property asset; the cost to the exchequer of the ring-fencing and 80% not being applied to balancing allowances in 2020, 2021, 2022, 2023, 2024 and 2025 as a result of allowances being used at a faster rate than was intended; and if he will make a statement on the matter. [57262/25]

Paschal Donohoe (Dublin Central, Fine Gael)
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Under general rules for capital allowances and balancing allowances, that is the rules as they apply to assets other than specified intangible assets, such as plant and machinery, capital allowances and balancing allowances are treated as trading expenses in computing a company’s trading profits assessable to corporation tax. This means such capital allowances and balancing allowances can create or increase a trading loss in certain circumstances. Loss relief provisions can allow the offset of a trading loss against other income of the company or within the corporate group, subject to satisfying the necessary conditions.

The ring-fencing and 80% cap provisions applicable to capital allowances arising from specified intangible assets provide that it is not possible for companies to generate deductions that are in excess of the income arising from the relevant trade of managing, developing and exploiting such intangible assets. However, it was recently identified that the ring-fencing and 80% cap provisions did not apply to balancing allowances arising on specified intangible assets. Without the application of these provisions to balancing allowances arising on specified intangible assets, such balancing allowances were treated the same as balancing allowances arising on assets other than specified intangible assets, such as plant and machinery.

Following a Financial Resolution passed by the Dáil on Budget Day, the ring-fencing and 80% cap provisions will apply to any balancing allowance in respect of specified intangible assets which arise on or after 8 October 2025, and this is now being confirmed in the Finance Bill.

It is important to note that the application of the ring-fencing and 80% cap provisions to balancing allowances affects the timing of relief only, it does not affect the overall quantum of relief and it does not disallow such allowances permanently. This is because any amounts restricted in one accounting period as a result of such provisions would be available for carry forward and use in a subsequent accounting period, subject to the application of the ring-fencing and 80% cap provisions in that period.

Statistical information is not available for balancing allowances that arose on specified intangible assets between 2020 – 2025 as companies are not required to separately report such information in their corporation tax return. It is therefore not possible to ascertain the amount of trading losses that may have been created or increased by virtue of balancing allowances arising on specified intangible assets.

I am however advised that, while it would depend on the facts and circumstances of each specific case, in general, it is less likely for a balancing allowance to arise in respect of a specified intangible asset than a balancing charge, due to the method by which capital allowances on specified intangible assets are calculated.

Allowances available under section 291A are by default based on the amount charged to a company’s Profit and Loss account or Income Statement for the accounting period in respect of the amortisation or impairment of the specified intangible asset (“accounts basis”). Alternatively, companies may also opt for a fixed allowance over 15 years (“fixed basis”).

Where the accounts basis is adopted, the tax written down value of the specified intangible asset will be equal to the cost of the asset, less any amortisation or impairment amounts recorded in the accounts of the company. As certain decreases in the value of the asset will already effectively be reflected in the tax written down value, by virtue of capital allowances being determined based on the amortisation and impairment amounts recorded the accounts of the company, this decreases the likelihood that the proceeds received on a balancing event will be significantly less that the tax written down value and give rise to a balancing allowance.

Companies would generally opt for the fixed-rate basis where the amortisation rate is uncertain or expected over a longer period than 15 years. For this category of assets, where allowances are claimed on a fixed basis, it unlikely that a balancing allowance would apply on a balancing event, as the sales proceeds would be expected to exceed the tax written down value.

Notwithstanding the above it was considered important, once the gap in the ring-fencing and cap provisions was identified, to make immediate moves to address the issue, and for this reason corrective legislation has been introduced via Financial Resolution and Finance Bill 2025.