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How the Irish Finance Bill will benefit the financial services industry

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The Irish Finance Bill has signalled the introduction of targeted tax provisions aimed at improving the competitiveness of Ireland’s financial services industry, as well as enhancements to the R&D tax credit scheme.

Finance Minister Michael Noonan said in his December budget speech that the Finance Bill would include measures to improve the financial services sector’s competitiveness, and he has kept to that promise.

“The budget contained a number of targeted supports for employment for both the foreign direct investment and the small and medium sized enterprise sectors and the Bill provides additional details of the support for financial services flagged in December,” said Noonan.

However, the announcements are viewed by some as falling slightly short.

“Perhaps not everything which the industry was looking for, but a positive signal that Ireland wants to retain and improve its impressive global standing in this area,” said Fergal O’Rourke, of PwC.

“The Irish Government reinforced its commitment to the industry in last week’s Finance Bill when it introduced a package of 21 measures to help improve the attractiveness and competitiveness of the international financial services industry,” said a spokesperson for the Irish Fund Industry Association.

“Most of the measures were aimed at simplifying how complex financial transactions are treated for tax purposes to make it easier to do business in Ireland.”

Among the measures introduced were new provisions to enable the Revenue Commissioners to formulate rules requiring periodic reporting of certain information, including the tax reference number, by Irish funds.

The grandfathering of certain domestic and international bonds has also been scrapped, for the purposes of the EU Savings Directive, said Yvonne Thompson of PwC.

For funds re-domiciling to Ireland, a provision has been enacted that allows such funds to declare that unitholders are non-residents, thereby ensuring no tax liability arises. Any Irish residents must be identified in any declaration, and subsequent tax accounted for.

Further, for mergers involving an Irish fund and a fund located in an EU, EEA or OECD member country with which Ireland has a double tax treaty, no tax liability will arise in respect of Irish resident investors.

Exemptions from stamp duty charges were also outlined. Exemption will apply when assets are transferred on merger of an Irish fund into a foreign fund, or where Irish assets are transferred on merger of two foreign funds located in treaty jurisdictions.

R&D

The R&D tax credit scheme has been updated, with the first €100,000 ($133,000) of qualifying expenditure now benefiting from the 25% R&D tax credit. Sub-contracted R&D expenditure is also now brought under the scope of the R&D tax credit, in cases where it accounts for less than 10% of total R&D expenditure.

Noonan said the targeted enhancements to the R&D tax credit scheme were “to encourage the productive, high value-added sectors of our economy in order to work our way out of the current downturn”.

The R&D changes have been welcomed.

“The Finance Bill has introduced changes to the R&D tax legislation which are very welcome,” said Gerry Vahey, partner at Mazars. “The introduction of a volume based R&D tax credit calculation for the first €100,000 of qualifying expenditure is to be warmly welcomed.”

“Essentially, this introduction has eradicated the administratively difficult incremental basis of calculation for claims up to €100,000,” he added.

O’Rourke said the updated R&D scheme removes one of the weaknesses of the old system, and will be of particular benefit to SMEs.

“One of the weaknesses of the R&D regime has been the requirement to compare the R&D expenditure in the current year with the spend in 2003, with a view to claiming a credit for the incremental spend,” he said.

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