Budget 2024 Analysis - Corporate Tax

Whereas last year the Irish Government had been looking to assist the public with general costs of living this assistance will also be required against the backdrop of rising interest rates. The Irish Government has made it clear that this forthcoming budget will be “cost of living budget”. As mentioned in previous articles issued for individuals this means possible energy credits along with perhaps some form of relief on mortgage interest payments. For companies, however, this year’s budget may have the opposite effect of increasing compliance costs with the introduction of new laws and regulations. However, for the most part, these new compliance requirements are targeted at large Multi nationals rather than domestic SME’s.

As detailed in last year’s article, the Irish Government is focusing on diversifying its corporate tax receipts away from large multinationals. The reason for this focus was made clear in August where corporate tax receipts fell €1 billion on the same month last year. The Government has confirmed this week that corporate tax receipts in the third quarter of the year have dropped by 23% on last year’s amount with corporate tax receipts now expected to undershoot forecasts for the year. Obviously this volatility in tax receipts makes it difficult to budget for future years. This level of volatility is in part due to the top 10 companies accounting for 57% (up from 53% in 2021 and 51% in 2020) of corporate tax receipts in 2022 based on Revenue figures. Corporate tax receipts were the second largest after income tax and overtaking VAT, with receipts accounting for 27% of tax receipts (€22.6 billion). Therefore, the importance of corporation tax to the Exchequer cannot be overstated.

It’s been a couple of years since Ireland confirmed it would enter Pillars I and II of the OECD International Tax Agreement, after agreement was reached that Ireland could retain the 12.5% headline corporation tax rate on companies with a group turnover of less than €750 million (with 15% rate applying thereafter). Ireland must, by 31 December 2023, transpose into Irish law the rules of Pillar 2 which will affect multinational groups with a turnover in excess of €750 million in at least two of the previous four years. As mentioned above Pillar 2 will be an administrative burden for those groups that are caught by the new legislation. The Minister for Finance at the time had estimated that the cost of Ireland entering the agreement would be in the region of €2 billion annually. Even with the increase in the corporation tax rate for certain businesses and other external forces, Ireland can continue to attract business with the use of reliefs such as the R&D tax credit.

While not strictly speaking relevant to this budget, the Minister recently announced a roadmap for the introduction of legislation to exempt foreign sourced dividends from Irish corporate tax. If it is introduced this could be very beneficial to businesses in Ireland that have foreign subsidiaries as it would reduce the administrative element of claiming relief along with making it easier for businesses to bring wealth back into Ireland. This may, in turn, lead to increased capital investment in Ireland. This roadmap was recently announced and the legislation is not planned to be introduced until Finance Bill 2024 and take effect from 2025.

Other areas that the Government should focus on, especially for domestic SME’s, are to incentivise investment and support businesses. One option here would be to improve the EII scheme. The process for company’s hoping to avail of the scheme to attract investors can be very costly and this is mainly due to the ungainliness of the application process. Companies are unable to complete the process themselves and generally need third party advisers to assist them. This coupled with the process itself being very time consuming can divert much needed time and funds away from growing the business. This can be especially difficult for those businesses still in their infancy. Its reliefs like EII that will assist the Government in their aims of reducing dependency on a small number of large multinationals.

It’s not just individuals that are struggling with the increase in interest rates in combination with high inflation, many SME’s are struggling with debt repayments and increased costs that they may be finding difficult to pass on to the final customer. It would be important that the Government consider cost alleviating measures not just for individuals but for struggling businesses as well, especially if the Government wants to diversify its corporate tax receipts away from large multinationals which is a definite requirement given the volatility detailed above. 

RBK will be holding its annual Breakfast Budget Briefing as a hybrid event in person at the Shamrock Lodge Hotel in Athlone and streaming live online on Wednesday 11th October. Mike Scanlan, Senior Tax Manager, RBK will be analysing the tax measures announced in Budget 2024 and Oliver Mangan, Chief Economist with AIB will look at the economic outlook. In the lead up to the Budget, RBK’s Business and Tax advisors will look at potential tax measures that the Government could consider and areas of concerns that are facing our clients.

Click here to register.

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Should you wish to discuss any aspect of Corporate Tax, please contact our team:

  • Richard McAufield: +353 1 6440100
  • Jackie Masterson: + 353 90 6480600

Richard McAufield

Tax Director

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