Ireland: Budget 2018 maps route for tax modernisation

October 26 2017

The Irish Minister for Finance made his annual budget announcement on October 10 2017. The budget contained a number of measures proposing amendments to domestic Irish tax law, most of which were in line with pre-budget expectations. In addition, as part of the budget package, the minister also published a paper on Ireland's international tax strategy and corporation tax review (the strategy paper), which provides valuable insight into the Irish tax policy agenda for the coming years.

Impact on corporation tax

In delivering the budget, the minister highlighted the importance of tax certainty in the current international climate, noting that Ireland has a stable, transparent and competitive tax system. In particular, the minister confirmed that the 12.5% rate "is, and will remain, a core part of our offering".

As expected, the budget contained proposals to limit the annual value of tax amortisation available in respect of acquired intellectual property (IP) to 80% of the annual profits generated from the exploitation of the acquired IP. The 80% limit will, of course, only impact on the timing of amortisation given that the entire value of the IP remains available for amortisation.

It is expected that the 80% limit will apply prospectively to IP acquired after midnight on October 10 2017. The proposed implementation of the measure will become clearer upon the publication of the Finance Bill on October 19 2017.

International tax strategy

In the strategy paper, the minister confirmed that Ireland will continue to take the actions needed to meet the highest standards in international tax while ensuring that the tax offering remains highly competitive to support economic growth. The strategy paper outlines Ireland's position on a number of ongoing international developments, including:

The OECD Multilateral Instrument (MLI): Ireland's ratification of the MLI will be provided for in Finance Bill 2017;
Taxing the digital economy: Ireland is opposed to moving away from the global consensus at OECD level to taxing the digital economy, which would result in double tax and significant uncertainty; and
Unanimity at EU level: Ireland will continue to insist that all tax measures at the EU level require unanimous approval of all member states.

Consultation on modernisation

Following the recommendations of independent expert Seamus Coffey, which were detailed in the recently published 'Review of Ireland's Corporation Tax Code', the strategy paper invites public consultation on the implementation of a number of international modernising measures into domestic Irish tax law. Among the modernising measures within the scope of the consultation are:

The transposition of the EU Anti-Tax Avoidance Directive into Irish law;
The incorporation of the 2017 OECD Transfer Pricing Guidelines into Irish domestic law;
The expansion of domestic transfer pricing rules to non-trading transactions, capital transactions, and arrangements agreed prior to July 1 2010; and
The move to a territorial corporation tax base in respect of income from foreign branches and foreign source dividends.

The public are invited to comment on the modernising measures on or before January 30 2018. Comments submitted will be taken into consideration by the Department of Finance in the implementation of the modernising measures over the coming years.

Comment

The budget package comprises the latest measures in the ongoing modernisation of Ireland's tax system. Importantly, the budget and strategy paper are further evidence of the commitment by Irish tax policy makers to ensure the tax system offers certainty and stability to taxpayers despite widespread uncertainty internationally. Furthermore, it is clear that Ireland remains strenuously committed to maintaining a competitive corporate tax offering of which the 12.5% rate is the bedrock.