The Budget announced the introduced of Anti-Hybrids rules as required by the EU Anti-Tax Avoidance Directive (“ATAD”). Section 30 Finance Act contains the relevant legislation and detail.
The rules are an anti-abuse measure designed to prevent arrangements that exploit differences in the tax treatment of an instrument or entity under the tax laws of two or more justifications to generate a tax advantage. These provisions will apply to associated entities (through ownership of shares, voting rights or rights to profits in that other entity), but they will also apply to “structured arrangements” between non-associated entities.
The following is a summary of the main provisions:
The legislation applies to payments made or arising on or after 1 January 2020.
Finance Act 2018 introduced anti-avoidance legislation which provided for a broad-based exit tax charge on certain disposals. This was part of Ireland’s continued effort to become compliant with the EU Anti-Tax Avoidance Directive (ATAD). The exit tax charge applies on all unrealised gains of migrating companies and assets transferred abroad, including transfers between a head office and its permanent establishment. The new rules introduced last year replaced existing anti-avoidance exit tax provisions that were subject to generous exemptions.
Finance Bill 2019 has introduced a number of technical amendment to ensure that the rules function as they were intended to. The amendments address three issues:
As part of Ireland’s commitment to ongoing global tax reform, The Minster set out in his Budget speech that he would be reforming Ireland’s transfer pricing provisions to ensure they are in line with OECD standards.
Section 26 of the Finance Bill introduces a new Part 35A TCA 1997 which updates existing transfer pricing rules and extends their scope and application as follows:
The rules will be operational for chargeable periods commencing on or after 1 January 2020 and, in respect of claims for capital allowances, where the related capital expenditure is incurred on or after 1 January 2020. The extension of the provisions to SME’s is subject to the making of an order by the Minister.
The Minister made a number of changes to the R&D tax credits in the Finance Bill 2019, which are subject to a commencement order by the Minister for Finance pending State aid approval from the European Commission. These amendments are being made on foot of a lack of take-up of the R&D tax credits since their first introduction, especially among Irish owned micro and small companies The following measures were introduced to make the relief more appealing to micro and small entities:
Separately, there are several other changes which will apply to all companies, as follows:
The Finance Bill 2019 included an additonal amendment regarding expenditure on buildings or structures, which are for scientific research. These buildings/structures will qualify for a scientific allowance. The Finance Bill 2019 confirms that where a company may qualify for a scientific capital allowance and the R&D tax credit, then both reliefs cannot be claimed in respect of the same expediture.
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