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Finance Act 2012 Keeps Ireland Competitive
The Finance Act 2012 (The Act) was enacted on 2 April 2012. The Act provides for a number of changes designed to attract multinational investment and improve the current position of multinational companies operating in Ireland. Taxand Ireland explores some of the key changes which will be relevant for multinational companies considering or currently investing in Ireland.
The Act contains a welcome development in relation to the enhancement of the current group relief provisions for losses. Previously, the availability of group relief for losses between Irish companies was subject to a requirement whereby members of the group needed to be companies resident in Ireland, or another EU/EEA member state. Two companies are members of a loss group if one is a 75% subsidiary of the other, or both are 75% subsidiaries of a third company. The Act cites that a loss group can now include companies which are tax resident in a country with which Ireland has a tax treaty, and any company which is quoted on a recognised stock exchange (or 75% subsidiaries of such companies). This change applies to accounting periods ending on or after 1 January 2012 and is therefore retroactive.
The Act has amended the provisions relating to the tax treatment of dividends received by Irish resident companies from foreign companies. Previously, the legislation stated that the rate of tax on the dividend be capped at 12.5% where dividends were received out of the trading profits of a company which is resident in an EU member state or a country with which Ireland has a tax treaty. The Act extends this relief to dividends received from trading companies resident in countries with which Ireland has ratified the OECD Convention on Mutual Assistance in Tax Matters. This change is aimed at encouraging investment by Irish resident companies in new markets, such as Brazil.
The Act has inserted a new form of pooling of foreign tax deductions suffered in respect of royalties. The Act provides that where such foreign tax cannot be offset against the royalty income, where this income is insufficient, it can be used to reduce other foreign source royalty income which is taxed as trading income.
There have been further changes to the research and development (R&D) tax credit regime. These changes are designed to encourage investment in R&D and allow multinationals to retain and attract the highly qualified staff required to expand R&D activities. Some of these changes include:
- A provision allowing a company to surrender part of their R&D credit as a means of rewarding key employees. A key employee must meet certain criteria in order to qualify for the reward.
- A new relief for the transfer of R&D tax credits in the context of a group reorganisation. Where a trade is transferred between two group companies the transferee company may claim any R&D tax credits not previously used by the transferor company, subject to certain conditions.
- Some significant restrictions in relation to payments to or from third parties for carrying out R&D activities. Multinationals will have to bear these new restrictions in mind when claiming R&D tax credits and may have to take additional steps to comply with the legislation.
The Act also made a number of changes to stamp duty legislation which will be relevant for multinationals. For example the rate of stamp duty on non-residential property transactions has been reduced to a flat rate of 2% effective from 7 December 2011.
Overall, the measures contained in the Act should benefit multinationals located in Ireland. The changes introduced, along with Ireland's 12.5% corporation tax rate, should be taken into account by multinationals when considering a suitable location for investment. With proper tax planning, multinationals located in Ireland can benefit from significantly lower tax liabilities than in many other potential holding company locations.
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