2014 Number 4
Finance Act 2014: Key Corporate Tax Measures
87
Finance Act 2014: Key
Corporate Tax Measures
Fiona Carney Senior Manager, PwC
Introduction
Section 26 FA 2014 provides for a complete removal of the base-year
Finance Act 2014 was signed into law by the President on
spend for the purposes of calculating the R&D tax credit available
23 December 2014. As anticipated, this Finance Act represents the
for accounting periods commencing on or after 1 January 2015.
most significant change in Irish corporate tax law in recent years,
with the well-signalled changes to the corporate residence rules,
coupled with the significant current (and proposed) enhancements
to our intellectual property (IP) and research and development
(R&D) offerings. This article considers these provisions, together
with some other key corporation tax aspects of the Act.
The section also includes a technical amendment to the provisions
introduced in FA 2010 to provide flexibility to the base year where
an R&D centre closes under certain specific circumstances. (This
change impacts only on R&D tax claims made for accounting
periods commencing before 1 January 2015.)
The incremental basis had acted as a barrier to Ireland’s attracting
Research and Development Tax Credits: s26
new R&D investment. The removal of the base year therefore repre-
The R&D tax credit regime previously operated on an incremental
sents the most significant enhancement made to the R&D tax credit
basis, meaning that the 25% tax credit was available on qualifying
regime to date. It should increase Ireland’s cost competitiveness
current-year expenditure only to the extent that it exceeded the
for R&D investment, particularly for long-standing companies that
qualifying R&D expenditure incurred in 2003 (known as the “base
have been restricted by the incremental nature of the regime. This
year”).
will allow such companies to re-establish themselves in Ireland as
cost-effective R&D centres.
88
Finance Act 2014: Key Corporate Tax Measures
Capital Allowances on Intangible Assets: s40
or indirectly” and “going concern” in the context of the extension
Section 40 FA 2014 introduces a number of enhancements to the
of the relief to customer lists. It will be interesting to see how this
existing regime for capital allowances on intangible assets.
progresses.
Firstly, s291A TCA 1997 (“Intangible Assets”) is amended as follows
Furthermore, there are some overall significant issues with the
with effect for accounting periods beginning on or after 1 January
attractiveness of our current IP amortisation regime. The capital
2015:
allowances will ultimately expire, making it difficult for companies
›› The definition of “specified intangible asset” is extended to
include customer lists. However, the acquisition of a customer
list will qualify only to the extent that it is acquired otherwise
than “directly or indirectly in connection with the transfer of a
business as a going concern”.
to maintain a consistent effective tax rate on their IP profits in the
longer term. It is hoped that the “knowledge development box”
regime announced in the Budget will address these issues.
Company Residence: s43
The Finance Act introduces amendments to the corporate tax
›› The cap on the aggregate capital allowance and related
interest expense that can be claimed in any one accounting
residence rules contained in s23A TCA 1997 designed to address
concerns about the “double Irish” structure.
period has been increased from the current 80%
of the related IP profits for the period to 100% of
Section 40 FA 2014
those profits.
introduces a number
Secondly, s288 TCA 1997 (“Balancing Allowances
and Balancing Charges”) is amended as respects any
of enhancements to
“event” as defined in sub-section (1) occurring on or
the existing regime
after 23 October 2014 that gives rise to a balancing
for capital allowances
charge on a specified intangible asset. The amendments provide that:
on intangible assets.
The amendments provide that an Irishincorporated company will be regarded as
Irish tax resident. To ensure alignment with
the treatment of company residence in double
taxation agreements (DTAs), there is one
exception to this incorporation rule. If, under
the provisions of a DTA, an Irish-incorporated
company is regarded as tax resident in another
territory, the company will not be regarded as
Irish tax resident.
›› No balancing charge will arise where the “event” occurs more
than 5 years after the beginning of the accounting period in
The amendments also clarify that a non‑Irish‑incorporated company
which the asset was first acquired. (Previously, a clawback
that is managed and controlled in Ireland is not prevented from
period of up to 15 years applied depending on when the
being regarded as Irish tax resident.
expenditure was incurred.)
The new provisions have effect from 1 January 2015 for companies
›› Where the above event “or any scheme or arrangement which
incorporated on or after 1 January 2015. For companies incorporated
includes that event” results in a connected company incurring
before that date, the new provisions apply only from the earlier of
capital expenditure on the specified intangible asset and the
either:
capital allowances available to the acquirer would exceed the
unclaimed capital allowances on the asset at the date of
transfer, the capital allowances available to the acquirer are
limited to those unclaimed capital allowances.
The above measures are a welcome step forward in enhancing the
Irish IP offering. However, the measures themselves are limited in
their effectiveness. The increase in the cap on the tax deduction
will enable many companies to access tax relief for qualifying
›› 1 January 2021 or
›› the date, after 1 January 2015, of a change in ownership of the
company in circumstances where there is also a major change
in the nature or conduct of the business of the company within
the period that begins one year before the date of the change
of ownership (or on 1 January 2015, whichever is later) and
ends five years after that date.
spend on intangible assets over a shorter time period. There are
This means that all of the current corporate tax residence provisions
concerns over the meaning and application of the terms “directly
contained in the legislation (including the “stateless companies”
2014 Number 4
Finance Act 2014: Key Corporate Tax Measures
89
companies incorporated before 1 January 2015 until 31 December
Capital Allowances – Energy-Efficient Assets:
s38
2020 at the latest.
Section 285A TCA 1997 provides for accelerated capital allow-
provisions introduced in F(No. 2)A 2013) will continue to apply to
In the period to 31 December 2020, all groups
ances for capital expenditure incurred on the provision of certain
will need to monitor carefully the corporate
Section 623 TCA 1997
tax residence position of Irish-incorporated,
is amended to clarify
non-resident companies that do not satisfy the
energy-efficient equipment for the purposes
of a company’s trade. The scheme effectively
allows full tax relief for qualifying expenditure
exception contained in the new provisions. This
the period in which
includes, for example, considering the impact of
tax becomes due and
any proposed mergers or acquisitions involving
payable on a chargeable
The scheme was due to expire on 31 December
gain arising to a
to 31 December 2017. In addition, the descriptions of the 10 classes of technology within
Capital Gains Tax – Degrouping
Charge: s41
company that leaves
a CGT group within
are amended to keep pace with technological
Section 623 TCA 1997 is amended to clarify the
10 years of having
developments in the field.
a chargeable gain arising to a company that leaves
acquired an asset from
Both of these measures will be welcomed by
a CGT group within 10 years of having acquired an
another company.
both a change in ownership and business
changes/integration measures.
period in which tax becomes due and payable on
asset from another company.
in the first year in which the asset qualifies for
capital allowances.
2014. Section 38 FA 2014 extends the scheme
which assets may qualify under the scheme
suppliers and purchasers of “green” plant and
machinery.
Any tax payable on a chargeable gain arising on the earlier intra-
Capital Allowances – Aviation Services: s33
group transfer (which was previously deferred) is treated as due and
Finance Act 2013 introduced provisions to grant industrial buildings
payable in respect of the accounting period in which the company
allowances on capital expenditure incurred on the construction
leaves the group. The rate of tax applying to the disposal is the rate
of buildings or structures employed in a trade that consists of
that applied at the time of the original intra-group transfer.
the maintenance, repair or overhaul of commercial aircraft or the
dismantling of commercial aircraft for the purpose of salvaging or
Capital Gains Tax – Closely Held Groups: s44
Section 590 TCA 1997 provides that, if a non‑Irish‑resident company
(which would be a close company if it were Irish resident) disposes
of certain assets, the gain arising can be attributed back to
Irish-resident participators in the company, both individuals and
companies. In the case of an asset comprising shares in another
company, the substantial shareholdings relief (SSR) provisions
recycling parts or materials.
Section 33 FA 2014 provides that the allowances will be available
only to enterprises that construct qualifying buildings in regionally
assisted areas and comply with EU Regional Aid Guidelines. Certain
information must also be provided to Revenue before making any
claim for allowances.
contained in s626B TCA 1997 can apply to exempt the gain if the
The commencement of the relief remains subject to Ministerial
relevant conditions are met.
Order.
Section 44 FA 2014 amends s626B TCA 1997 to prevent the SSR
Relief for Start-Up Companies: s39
provisions from exempting the gain in the hands of a non-corporate
participator. The position remains unchanged where the participator
is a company. The amendment applies to disposals made on or after
18 November 2014.
Section 486C TCA 1997 provides for relief from corporation tax on
trading income for new companies in the first three years of trading.
The relief takes the form of a reduction in the corporation tax liability
relating to the new trade (including chargeable gains on assets
used in the trade) and is capped at the amount of the employer’s
PRSI contributions paid by the company in the relevant accounting
90
Finance Act 2014: Key Corporate Tax Measures
period. The corporation tax liability relating to the new trade can
standards” are either double-counted or fall entirely out of the
reduce to nil where that liability does not exceed €40,000, subject
charge to tax. The net transitional adjustment as computed is
to any restriction imposed by the cap. Marginal relief applies where
treated as a trading receipt or a deductible trading expense for tax
the corporation tax liability is between €40,000 and €60,000.
purposes. The adjustment is required to be spread over a five-year
The relief previously applied only to trades set up and commenced
by a new company in the period from 1 January 2009 to 31 December
2014. Section 39 FA 2014 extends this period to 31 December 2015.
The Minister has also indicated that a review of the operation of the
measure will take place in 2015.
period starting in the first accounting period in which the company
begins to prepare its accounts in accordance with “relevant
accounting standards”. Specific computational rules apply to bad
debts and financial instruments.
Revenue had previously confirmed the view that the definition
of “relevant accounting standards” included FRS 101 and that
Taxation of Short-Term Leases of Plant and
Machinery: s36
the transitional rules covered a move from Irish GAAP to FRS 101.
Section 80A TCA 1997 contains special provisions relating to the
FRS 102. However, there is an element of doubt over whether FRS
taxation of short-term leases of plant and machinery. Broadly,
102 is in fact within the revised definition of “relevant accounting
certain lessors can elect to claim tax relief on the cost of acquiring
standards”, and further clarity is being sought from Revenue in this
short-life assets in line with accounting depreciation rather than
regard. While this is the clear intent of the amendment, whether it
under the normal capital allowance provisions.
is achieved is open to debate.
Up to 2010, only finance lessors could benefit from s80A TCA
The amendment applies to “any accounting period beginning on
1997. Finance Act 2010 extended the section to operating lease
or after 1 January 2015”. For companies that adopt FRS 102 from
portfolios. The extension was designed to apply to new operating
2015 onward, the net transitional adjustment should therefore
lease portfolios, and a limitation applied to existing asset portfolios.
be taxable/deductible over five years. Questions have been
In effect, the deduction available for existing portfolios could not
raised regarding the precise application of the provisions for any
exceed the capital allowances claimed in the period immediately
companies that adopt FRS 102 in an earlier accounting period.
before the extension of the regime. Section 36 FA 2014 removes
The Guidance Notes issued by Revenue state that the transition
this limitation for accounting periods ending on or after 1 January
rules contained in the Schedule will be applied administratively as
2015, meaning that the amount deductible will instead be set at the
appropriate to early adopters.
Section 42 FA 2014 is intended to amend the definition to cover
accounting depreciation charge for the period. This should bring
parity to the treatment of operating lessors established before and
Real Estate Investment Trusts: s29
after 2010.
Section 29 FA 2014 introduces a number of amendments to the Irish
real estate investment trust (REIT) regime.
Accounting Standards: s42
Section 42 FA 2014 amends Schedule 17A TCA 1997. This schedule
provides transitional rules for tax purposes for companies that
make certain changes to the accounting standards under which
they prepare their accounts – defined as moving from preparing
accounts in accordance with “standards other than relevant
accounting standards” to preparing accounts in accordance with
“relevant accounting standards”. This currently covers the transition
from Irish GAAP to IFRS.
The rules seek to ensure that no items of trading income or
deductible trading expenses that would be taken into account
in computing profits in accordance with “relevant accounting
Firstly, if chargeable assets are transferred to a REIT, this typically
crystallises a CGT charge for the transferor. Section 29 FA 2014
amends s617 TCA 1997 to ensure that this charge arises for the
transferor even where the transferor and the REIT are part of the
same Irish CGT group. The amendment provides that a REIT or a
member of a group REIT cannot be a transferee company for the
purposes of CGT group relief for any disposals occurring on or after
23 October 2014.
Secondly, the Finance Act introduces a DIRT exemption for deposits
of a REIT or group REIT. This should ensure that the current
exemption for profits from the investment of cash raised by the
2014 Number 4
Finance Act 2014: Key Corporate Tax Measures
91
issue of ordinary shares or the sale of rental properties for a period
Anti-Avoidance Provisions: s87
of 24 months operates as intended.
Section 87 FA 2014 amends the general anti-avoidance rules to
Finally, the Finance Act provides that the principal REIT must notify
Revenue on each occasion that a new company is added to the REIT
group within 30 days of that date.
(a) provide that the existing s811 and s811A TCA 1997 apply only
to transactions commenced on or before 23 October 2014 and (b)
to introduce s811C and s811D TCA 1997, applying to transactions
commenced after that date. While a detailed analysis of the new
Compliance and Administrative Matters
The Finance Act introduces a number of amendments to compliance
provisions is outside of the scope of this article, there are a number
of noteworthy aspects to the new provisions that merit comment.
obligations and administrative matters contained in Parts 38 and 48
Transitional provisions are added to s811A TCA 1997 to provide
of TCA 1997, including the following.
a “mini-amnesty” for transactions entered into on or before 23
October 2014. Where a taxpayer makes a full disclosure to Revenue
Record retention period
with full payment of tax and interest due on or before 30 June 2015,
Section 886 TCA 1997 requires taxpayers to keep certain records
the taxpayer will not be subject to the surcharge provided for in
and other documentation for a specified time period, generally
sub-section (2) and any interest payable will be reduced by 20%.
six years. The requirements apply to persons
chargeable to tax under Schedule D or Schedule
Finance Act 2014 extends
F in respect of any trade, activity or other source
the retention period for
of income or chargeable to CGT in respect of
chargeable gains. The records to be retained are
records and documents
those that are necessary to enable correct returns
in cases where an inquiry,
to be made on those profits or gains.
Finance Act 2014 extends the retention period for
records and documents in cases where an inquiry,
investigation, appeal, judicial process or claim is
The new s811C TCA 1997, applying to transactions commenced after 23 October 2014,
is significantly different from the existing
provisions in a number of respects. Under
the existing provisions, it is necessary for a
nominated officer to form the opinion that
investigation, appeal,
a transaction is a tax-avoidance transaction
judicial process or claim
such that the tax advantage could be
is ongoing.
withdrawn. The new section permits any
officer of the Revenue Commissioners to
ongoing. The records must be held until such time
withdraw the tax advantage. The requirement
as the inquiry, investigation, appeal, judicial process or claim is
for the officer to “form the opinion” is also scaled back to its being
concluded and the time limits for instigating further appeals or
“reasonable to consider” that a transaction is a tax-avoidance
proceedings have expired.
transaction. No guidance has been provided by Revenue to date in
relation to the interpretation of the term “reasonable to consider”.
Tax clearance and e-filing
Although “reasonableness” tests are included in the anti-avoidance
The Finance Act provides for the introduction of an electronic
rules in other jurisdictions such as the UK and Canada, there are
tax clearance system to improve the efficiency and effectiveness
sufficient contrasts between these tests and the new Irish provi-
of the existing tax clearance process. The tax compliance status
sions to make it difficult to draw analogies. We await clarification
of taxpayers may be reviewed by Revenue on an ongoing basis,
on this point.
and tax clearance certificates previously issued may be rescinded
depending on the taxpayer’s current tax compliance status. The new
Revenue Sanctions: s94
tax clearance procedures will come into operation by Ministerial
Section 1084 TCA 1997 (“Surcharge for Late Returns”) is amended
Order.
to provide that a taxpayer will be liable to a surcharge where the
Amendments are also made to the e-filing and self-assessment
provisions to bring them up to date with the current requirement
to submit accounting information in electronic format when filing
the tax return.
taxpayer deliberately or carelessly submits a timely but incorrect
return and does not rectify the error before the return filing
deadline. However, this surcharge will not be applied where the
taxpayer pays the full amount of any penalty due for making the
incorrect return.
92
Finance Act 2014: Key Corporate Tax Measures
The section is also amended to substitute the terms “deliberately”
and should provide certainty to existing FDI investors. However,
and “carelessly” for the terms “fraudulently” and “negligently”
groups will need to monitor the corporate residence status of these
where relevant. This update brings the terms into line with those
companies carefully for the duration of the transitional period.
currently used in the penalty provisions.
Disappointment has been expressed by those in the private
The amendments are effective for returns delivered on or after the
business sector that the Finance Act did not go further in addressing
date of the passing of the Finance Act.
their “wish list”, including measures to assist with an increasing
cost base, the ability to raise finance, and the ability to attract,
Conclusion
retain and reward key talent. The Finance Act does contain some
The corporate tax measures introduced in the Finance Act are
positive measures in these areas, including those outlined above,
broadly positive for companies doing business in Ireland.
together with enhancements to the Employment and Investment
The improvements to the tax incentives for IP and R&D activities
demonstrate the Government’s commitment to enhancing our
offering in this area. Coupled with this, other non-corporate tax
measures such as the extension of both the Special Assignee
Relief Programme (SARP) and the Foreign Earnings Deduction (FED)
should support Irish companies in attracting and maintaining senior
talent.
The changes to the corporate residence provisions were well
signalled. The transitional rules for existing companies are welcome
Incentive and CGT entrepreneur relief. However, while the changes
are welcome, there continue to be some drawbacks to the attractiveness of these incentives for investors.
Read more on
soon to
Finance Bill Tour Notes 2014; coming
FINAK – Finance Act 2014 Explained