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Finance Bill 2022

  • Ireland
  • Tax planning and consultancy

01-11-2022

On 20 October 2022, the Minister for Finance Paschal Donohoe T.D. published the Finance Bill 2022 (the “Bill”). The Bill gives effect to the measures announced in Budget 2023 on 27 September (“Budget Day”) as well as legislating for other tax policy changes, including the introduction of the Temporary Business Energy Support Scheme (“TBESS”).

The Bill will now make its way through the legislative process, to be finalised and signed into before the end of the year.

We have summarised below the key changes from a corporate tax perspective included in the Bill:

R&D Tax Credit

The Bill introduces several changes to the manner in which the R&D Tax Credit can be claimed, with such changes taking effect for accounting periods beginning on or after 1 January 2022. These changes are intended to align the credit with new international definitions of refundable tax credits, in particular, under the Pillar Two Global Anti-Base Erosion (GloBE) Rules. This includes the replacement of the current offsetting system against corporation tax liabilities with a new three-year fixed payment schedule and removal of existing caps on the payable element of the credit. The first €25,000 of a claim on R&D expenditure will now be payable in full to provide a cash-flow benefit for smaller R&D projects. Provision will also be made for pre-trading expenditure incurred on qualifying R&D activities to be claimed as a payable R&D Tax Credit.

Knowledge Development Box (“KDB”)

The Bill confirms the four-year extension to the KDB, which aims to encourage companies to develop certain assets such as patents and software through R&D activities in Ireland, as announced on Budget Day, meaning the regime will be available for accounting periods commencing before 1 January 2027. The Bill also proposes to increase the effective rate of the KDB from 6.25% to 10% with a view to preparing for the implementation of Pillar Two (and, in particular, the Subject to Tax Rule (STTR)). The rate increase will be subject to Ministerial commencement order which will be driven by the international progress on the implementation of the Pillar Two STTR.

OECD Transfer Pricing Guidelines

Following the passage of the Bill, Irish transfer pricing rules will need to be construed in accordance with the 2022 version of the OECD Transfer Pricing Guidelines, rather than the 2017 version which is currently the case. It is expected that the relevant amendments will apply to chargeable periods commencing on or after 1 January 2023.

Foreign exchange movements on relevant monetary items

The Bill confirms that any gains or losses arising from foreign exchange movements on ‘relevant monetary items’ will be treated as part of the gains and or losses of a company’s trade and, as such, subject to corporation tax rather that capital gains tax.

Council Directive (EU) 2021/514 amending Council Directive 2011/16/EU on administrative cooperation in the field of taxation (“DAC7”)

DAC7 requires digital platform operators in the EU to report certain information to the relevant tax authorities each year. The Bill builds on Finance Act, 2021 in transposing DAC7 into Irish domestic law. The implementation date for DAC7 is 1 January 2023.

Interest Limitation Rules (ILR)

The Bill introduces a number of technical changes to the ILR as introduced in Finance Act, 2021. This includes amendments relating to the operation of preliminary tax top-up rules for accounting periods between 1 January 2022 and 31 December 2027 in respect of chargeable gains on the disposal of assets after the date for the payment of preliminary tax and for profits, gains or losses accrued and not realised in the accounting period on financial assets or liabilities. The rationale for these amendments is to ensure that the ILR and associated preliminary tax rules operate as intended. The definition of long-term infrastructure project has also been expanded to include large-scale residential developments with clarification also made to the operation of the exemption for interest on legacy debt to specify that the “first in-first out” basis applies where there is a repayment in respect of facilities which have a mixture of legacy debt and non-legacy debt.

Film Relief

The extension of Film Relief from the current end date of 31 December 2024 to 31 December 2028, as announced on Budget Day, is also included in the Bill. This amendment will be subject to Ministerial commencement order pending receipt of EU State Aid approval.

Digital Gaming Tax Credit

The Bill includes a number of amendments to the Digital Gaming Tax Credit introduced in Finance Act, 2021. These amendments are intended to ensure compliance with State Aid requirements and also make minor technical corrections to the operation of the tax credit.

TBESS

Finally, the Bill legislates for the TBESS as announced on Budget Day. The scheme seeks to assist businesses with the rising electricity and gas costs over the winter months. While the TBESS was initially intended to apply to businesses carrying on a trade, the Bill extends the scope of the scheme to include persons carrying on a profession as well as certain charities and approved sporting bodies. For more information, please see our briefing on the TBESS here.

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