Corporation tax
The Budget and Finance Bill 2020 includes a number of measures relating to corporation tax and foreign direct investment. In his Budget speech, finance minister Paschal Donohoe reaffirmed Ireland’s commitment to the 12.5% corporation tax rate, and said the Department of Finance will shortly publish an update on Ireland’s corporation tax roadmap.
The Finance Bill provides for a two-year extension to the knowledge development box (KDB) regime for taxing income from intellectual property. It makes legislative amendments to transfer pricing, controlled foreign companies (CFCs) and the disposal of certain intangible assets. It also refines the anti-hybrid rules and the regime for mandatory disclosure of certain transactions.
Given the impact of Covid-19 restrictions on the film production process, the peak 5% ‘regional uplift’ (where production is undertaken outside Dublin, Wicklow or Cork) has been extended by a year until December 2023. A tax credit regime is to be developed for the digital gaming sector, to improve Ireland’s competitiveness in this growing market.
Remote working
It had been hoped that the Budget would include further measures to support employees with the costs associated with working from home. However, there is no change to the amount (€3.20 per day) employers can pay their employees to offset those costs without a benefit-in-kind charge being incurred. If an employer does not provide such an allowance, employees can continue to claim a tax deduction for a portion of their vouched utility expenses, such as light and heat.
Following the Budget Day announcement that certain broadband costs would be deductible, Revenue has published an updated manual on e-working and tax to cover the topic. Where an employee makes a tax expense claim, 30% of the cost of broadband, apportioned on the basis of the number of days worked from home over the year, may also be claimed. This concession will commence in 2020 and apply for the duration of the pandemic.
Brexit
Over recent weeks, Revenue and the government have continued to emphasise the need for businesses to prepare for a ‘no trade-deal’ Brexit and issued correspondence to all businesses on the preparations required. Revenue also hosted two days of webinars for business on preparing for customs and other requirements. Recordings of the webinars are available on the Revenue website.
Since the publication of a draft UK Internal Market Bill 2019–21, public exchanges and statements by the UK and the EU have increased and negotiations intensified. The outcome of the discussions and the type of deal, if any, that can be reached is, as yet, unclear.
Apple state aid
On 25 September, the European Commission confirmed it would appeal the judgment of the General Court of the European Union (GCEU) in the Apple state aid case to the Court of Justice of the European Union.
In July 2020, the GCEU annulled the commission’s August 2016 finding that Ireland had granted illegal state aid to Apple through selective tax breaks on the basis that the commission had not sufficiently demonstrated that that was the case. The commission had until 25 September to lodge an appeal – which can only be made on points of law.
The Department of Finance has reiterated that the correct amount of Irish tax was paid by Apple, and that Ireland did not provide the company with illegal state aid. Ireland appealed the commission’s decision on that basis, and the GCEU judgment has vindicated its stance.
The Apple funds held in escrow to repay that ‘aid’ will be released only when there has been a final determination in the European courts on the validity of the commission’s 2016 decision. The appeal is expected to take up to two years to complete.
Digital tax
The OECD has released a series of consultation documents on its ongoing work on digital tax. Reports on the ‘blueprints’ for its tax base erosion and profit shifting (BEPS) digital tax project detail the technical design and features, identify areas that require further technical work, and highlight aspects where political agreement will be necessary.
The papers acknowledge that no agreement has been reached on the blueprints, but describe the reports as providing a ‘solid foundation for a future agreement’.
The public consultation closes on 14 December and will be followed by virtual public consultation meetings in mid-January 2021. The OECD wishes to bring the process to a successful conclusion by the middle of 2021.
