Mortgage interest relief discontinued in respect of any home loan in place over 7 years.

No Ceiling

No Ceiling

Legislation was passed in 2011 covering chargeable periods commencing on or after January 01, 2012. The regime will not apply to contracts or terms and conditions agreed before July 01, 2011. Any new arrangements or amendments to existing arrangements after this date will be within the scope of the new regulations.

Small and medium enterprises (broadly defined as enterprises with less than 250 employees and either a turnover of less than €50m or assets of less than €43m on a global consolidation basis) are excluded from the scope of this legislation.

The larger companies to whom transfer pricing will apply should maintain sufficient documentation to show compliance and must ensure that such documentation is made available on request.

• The company must be incorporated on or after 14 October 2008,

• The company must commence to trade during 2011 or 2012,

• The trade must be a new trade, and

• Professional services companies cannot qualify for exemption.

In order for the equipment to qualify, it must be maintained on a list published by the Sustainable Energy Authority of Ireland.

Deloitte said in Feb 2012 that the Finance Bill has introduced a relaxation of the incremental nature of the scheme by removing the first €100,000 per annum of qualifying spend from being referenced to the base  year of 2003.  This is a positive step to address concerns relating to the relevance of the 2003 base year as time progresses and greatly assists smaller companies.

An additional key change is the relaxation of the restriction on sub-contracted R&D expenditure. Where a company pays an unconnected third party to carry out R&D, the qualifying expenditure is to be the greater of €100,000 or the existing 5% and 10% of total internal R&D qualifying expenditure.

Both of these new features to the scheme are clearly focused on assisting the smaller technology companies improve their financial position and to invest in future technology. These changes are relatively straight forward and will be easily accommodated in practice.

Some further detail contained in the Finance Bill introduces some restrictions in relation to payments to or from third parties for carrying out R&D activities. Claimants must consider the points below when making their R&D claims and as such may have to update their methodology or take additional steps to comply with the legislation.

• The requirement on the company to notify the sub-contractor that the payment is subject to an R&D tax claim and that this will preclude that company from making a claim in their own right for that work. This may have the effect of reducing R&D claims in companies which are paid to undertake challenging work.
• The Finance Bill excludes any payments to third parties for R&D activities which are not classified as sub-contracted R&D. For example a payment for a specialist test which is not an advance in science or technology in itself will no longer be claimable as R&D expenditure.
• Expenditure met by the State or grant funding which does not qualify for relief has been extended to include other Member States.

A further change enables a company to surrender R&D tax credits to key employees. This will enable companies to reward employees who have in excess of 75% of their duties relating to qualifying activities and that 75% of their emoluments qualify, to reduce their personal income tax liabilities to a minimum of a 23% rate. To be eligible for this reward there are some additional conditions to be met:

• The employee must not be a director nor have, or be connected to a person who has, a material interest in the company,
• The company must have made the PAYE payments to Revenue for the employee, and
• The amount of credit that can be surrendered must not exceed the corporation tax of the accounting period which would be chargeable if no claim were being made.

Although the above restrictions place some limitations on the scale of the benefit and the number of personnel who can avail, the potential reduction in income tax payments for an individual is a highly attractive mechanism for reward and recognition. For more detail on the impact from an employee’s perspective, please see our analysis in the Income Tax section. 

The changes will take effect for accounting periods starting after 1 January 2012, except for the introduction of the increased limit for sub-contracted expenditure which will apply to periods ending after 1 January 2012.

In summary, the changes are a reflection of the positive approach the Government is taking towards the R&D tax credit scheme and a number of companies are expected to benefit greatly from the changes. Companies with large and complex claims should ensure that their 2012 R&D tax credit claim process takes some of the more subtle changes into consideration.

A credit of up to 25% of a company’s expenditure on qualifying research and development activity can be offset against a company’s corporation tax liability.

The method of calculating the relief is on an incremental basis using a base year threshold amount to determine the level of incremental expenditure.

The base year is fixed at 2003 until 2013.

Partial relief is also available to companies for the cost of sub-contracting research and

development work to unconnected parties.

Cash Rebates of R&D Tax Credits

For accounting periods commencing on or after 1 January 2009, it is possible to claim a rebate of excess R&D tax credits over the corporation tax liability of a company for the same and previous accounting period.

The rebate is payable in three installments and is restricted to the greater of the following two amounts:

• the aggregate corporation tax paid by the company for the previous 10 accounting periods;

or

• the aggregate Irish payroll tax liabilities accounted for by the company for the accounting period in question.

Any rebate due will be paid in three instalments over a period of 33 months from the end the accounting period in question. The relevant dates and amounts are as follows:

• 33% of the refund will be payable by 9 months from the end of the accounting period;
• 50% of any remaining excess credit will be payable by 21 months from the end of the accounting period;
• the remaining excess credit will be payable by 33 months from the end of the accounting period.

Note that the second and third instalment must be offset firstly against any corporation tax arising in respect of the company’s subsequent and next subsequent accounting period respectively, with any remaining balance being refundable in the manner specified above.

Finance Act 2011 introduced the concept of a geographical R&D centre. Where a company carries out qualifying activities in a fixed base during 2003 and subsequently the base ceases to operate, subject to meeting certain criteria, the amount of expenditure incurred at that base can be excluded from the base year threshold amount for the purposes of calculating the current year R&D tax credit.

Capital allowances are available in respect of capital expenditure incurred in relation to the acquisition/internal generation of intellectual property assets on or after 7 May 2009.

The tax deduction allowed is equal to the amount of accounting amortisation or impairment charged in the annual financial statements of a company. Alternatively, a company may elect to claim the tax deduction over 15 years (7% per annum and 2% in year 15). The 15-year period applies to all capital expenditure incurred on that asset and the election, if availed of, is irrevocable.

The definition of IP assets is broad and includes the acquisition of, or the licence to use:

• patents and registered designs,
• trademarks and brand names,
• know-how,
• secret processes, formulae or other secret information concerning commercial, industrial or scientific experience (effective from 4 February 2011),
• domain names, copyrights, service marks and publishing titles,
• authorisation to sell medicines, a product of any design, formula, process or invention (and any rights derived from research into same),
• certain computer software and or right to use/deal with computer software (effective from 4 February 2011), and
• goodwill, to the extent that it directly relates to the assets outlined above.

The tax deduction is only available for utilisation against trading income generated from the exploitation of the IP assets and is subject to certain other restrictions.

The minimum period of ownership of an intangible asset that a company must have in order to avoid a clawback of capital allowances on the disposal of said asset has been reduced from 15 years to 10 years.

There is cap of €115,000 for 2013  and 2012 on the amount of earnings on which tax relief may be obtained for contributions by individuals to Retirement Annuity Contracts and Personal Retirement Savings Account. This cap also applies for employee contributions to occupational pensions schemes.

The earnings limit for 2011 will be deemed to be €115,000 for the purposes of contributions paid by an individual in 2012 which are to be treated as paid in 2011.

The Standard Fund Threshold is capped at €2.3 million with effect from 7 December 2011

Budget 2013 announced that changes will be put in place in 2014 to reduce the Standard Fund Threshold further to achieve their commitment to cap taxpayer’s subsidies for pension schemes whichdeliver pension income of more than €60,000.

The overall life-time limit on the amount of tax-free retirement lump sums that an individual can draw down from a pension remains at €200,000. The excess of this amount will be liable to income tax at the standard rate up to €575,000 (i.e. 25% of the SFT). Any further excess will be taxed at the individual’s marginal rate of income tax. . A higher threshold may apply if the value of an individual’s pension rights is greater than €2.3 million and lower than €5,418,085, i.e. the current SFT value.

Note 4.
A registration threshold of €nil also applies to certain persons acquiring certain services in Ireland from abroad.