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2021 Irish Budget: key tax measures

The Irish Minister for Finance, Paschal Donohue, and the Irish Minister for Public Expenditure and Reform, Michael McGrath, made their respective speeches to the Irish Parliament on Tuesday 13 October 2020. The Budget has been shaped in the context of the COVID-19 Pandemic and in the midst of a potential "No Deal" Brexit on 1 January 2021. Further detail in respect of the measures announced, apart from those introduced with immediate effect by way of Financial Resolution, will be contained in the Finance Bill 2020 which will be published on 22 October 2020. This should be signed into law by 25 December 2020.

Given the current health, economic and geopolitical environment, the majority of measures focus on reacting to and dealing with the COVID-19 Pandemic in addition to Brexit. At this stage, the key points of interest for the international business community include:

Irish corporation tax rate remains at 12.5% - the Minister for Finance reaffirmed Ireland's commitment to the 12.5% corporation tax rate.

IP depreciation clawback tweaks – to ensure Ireland's tax regime for intellectual property is fully consistent with international best practice, all intangible assets acquired after 13 October 2020 will be fully within the scope of the tax depreciation balancing charge rules. This measure will be implemented with effect from Budget day by way of Financial Resolution. While full details on this change will not be available until the Financial Resolution is published, it is understood that this change will ensure that a potential balancing charge can arise if the IP is sold at any time in excess of its tax written down value (rather than falling outside the balancing charge rules if disposed of after a certain period of time from its acquisition).

Exit Tax – specific Exit Tax provisions introduced last year as part of implementation of the Anti-Tax Avoidance Directive (ATAD) will be amended with respect to the calculation of interest on instalment payments of Exit Tax. This measure will be implemented with effect from Budget day by way of Financial Resolution.

Knowledge Development Box extension – a company qualifying for Knowledge Development Box relief (i.e. qualifying R&D activities for computer programmes, patent protected inventions and small company patentable IP) may be entitled to a deduction equal to 50% of its qualifying profits. This relief is to be extended for a further two years until the end of December 2022.

VAT rate reductions – there is no further extension to the temporary reduction in the VAT rate from 23% to 21% which will expire at the end of February as originally envisaged. In line with other jurisdictions and as a response to the impact of the COVID-19 Pandemic on the tourism, hospitality and entertainment sectors, the VAT rate for those sectors will be temporarily reduced from 13.5% to 9% with effect from 1 November 2020 until 31 December 2021. 

Anti-Tax Avoidance Directive (ATAD) implementation delay – particular omissions from this Budget relate to the pending transposition of the Interest Limitation and Anti-Reverse-Hybrid Rules pursuant to the EU Anti-Tax Avoidance Directive. In line with the recent Budget 2021 Tax Strategy Group papers published in September 2020, further progress is to be made on consultation and transposition of these measures during 2020 and 2021 with a view to legislation being introduced in Finance Bill 2021 (to take effect from 1 January 2022).

Stamp duty changes – although not specifically referred to in the Budget, the associated documents also confirmed that changes will be included in the Finance Bill 2020 to ensure that stamp duty on transfers of Irish shares will continue to be collected after the Brexit related migration of the settlement of Irish share trades from CREST to Euroclear.

Corporation Tax Roadmap update – Minister Donohue made a commitment to updating Ireland's Corporation Tax Roadmap, which will reflect on the actions taken to date on corporation tax reform and outline further areas for consideration, consultation and action. This Roadmap will also consider the reports published recently by the OECD BEPS Inclusive Framework on the taxation of the digital economy (see Tanja Velling's post).


pfahy, a&lgoodbody, irish tax, budget, corporation tax, vat, stamp duty, atad, intellectual property, patent box