The recent Finance Bill, which mostly escaped media scrutiny, came as a pleasant surprise to SMEs (Small to Medium Enterprise) in the midst of uncertainty around Brexit and its implications on international tax and intra-group transactions. The Bill postponed the introduction of complicated transfer pricing rules which were due to be implemented, in compliance with OECD guidelines from 2017, which many Irish SMEs had been fearing.
These complex regulations have been relaxed for SMEs, in a bid by government to prudently manage the impact of Brexit on smaller businesses in Ireland. The Bill gives companies extra time to assess the future significance of Brexit on the way international tax rules are applied to companies with ties to Britain.
SMEs will also welcome changes to KEEP, EIIS and the R&D Tax Credit regime which encourage entrepreneurship and innovation, by lessening the tax burden on the average business. The changes to the R&D regime will benefit companies with less than 50 employees and an annual turnover of no more than €10 million. These amendments will see the R&D tax credit rate increase from 25% to 30% as well as increased flexibility for SMEs when calculating the level of tax credit that they can monetise. The Bill makes many desirable changes to the Employment Investment Incentive. It raises the maximum investment relief from €150,000 at present to €250,000 and €500,000 in the future, depending on the investment length. This change is indicative of the government’s astute use of tax policy to reduce risk for SMEs in periods of macroeconomic volatility.
The Bill also dealt subtly with the threat of climate change and sought to promote the idea of an environmentally friendly economy. Carbon tax was increased to €26 euro per tonne in compliance with the government’s commitment to raise the price of carbon from €20 to €80 a tonne by 2030. The Bill ensures that capital allowances on business cars as well as the tax deductions for the cost of hiring business cars will be decided by the CO2 emissions threshold. Moreover, electric cars and vans with a market value of less than €50,000 will maintain their exemption from the benefit in kind rate until at least 31st December 2022. These decisions were taken amid debate between Minister for Finance Paschal Donohoe and rural TDs over the impact of increases in carbon tax on rural communities with no viable alternatives to carbon. The Finance Bill hopes to stimulate entrepreneurship within Ireland, as stricter regulations on corporate taxation (which has been criticised as uncompetitive in Ireland) loom ominously on the horizon. In doing so, the government are hoping to maintain Ireland’s international status as a leader in tax.
Patrick Doherty – Business Writer