Ireland Budget 2020 released

By Warren Novis, Head of Transfer Pricing, BDO Ireland

On 8 October, the Irish government announced its Budget 2020 measures. Brexit and climate change are core themes of new revenue measures and expenditure commitments.  Brexit remains the foremost immediate concern for the Irish economy, whereas tackling climate change requires long-term commitments to tax and spending policies.

The government previously signaled the budget would provide funding to support businesses under pressure in the event of a no-deal Brexit come 31 October or later. 

For international business, Budget 2020 continues to implement measures to tackle base erosion and profit shifting (BEPS) and to introduce the European Union’s Anti-Tax Avoidance Directive (ATAD), which Ireland is obligated to enact.  Many such tax measures will take effect 1 January 2020. 

Transfer pricing rules will be modernised to align with OECD-standard rules and to require formal documentation. New anti-hybrid tax rules implement specific EU ATAD provisions and the dividend withholding tax rate increases from 20% to 25%. Significant exemptions from this tax remain through domestic legislation and double tax treaties.

Four targeted tax measures announced on Budget Day are to take immediate effect. Stamp duty applicable on non-residential property transactions increases to 7.5%. Irish real estate funds will be subject to further limits on the deductibility of excessive interest payments on highly leveraged arrangements.  Real estate investment trusts (REITs) will need to comply with amendments to existing rules. These amendments are to facilitate greater taxation on capital gains by REITs.  Finally, the Irish government legislated amendments to exit tax provisions introduced last year in-line with ATAD requirements.’

Ireland’s Finance Minister re-enforced Ireland’s 12.5% corporate tax rate on trading profits. The Irish government is committed to ongoing reforms for taxation of digital business within a consensus-based approach led by OECD. This is often referred to as BEPS 2.0.

Budget Day announcements included broad measures, including: a Brexit support funding package of €1.2 billion to help manage consequences of a no-deal outcome, carbon taxes to increase gradually by 300% over a 10-year period, special employee tax incentives are extended until 2022, such as the Special Assignee Relief Programme (SARP) and Foreign Earnings Deduction (FED), and funding of €1.5 billion to aid the construction of social housing.

 The Department of Finance will publish Finance Bill 2019 in the coming weeks. The Finance Bill details the legislation to implement measures announced in Budget 2020.  It is common that the Finance Bill includes ancillary legislation not specifically cited in Budget Day announcements.  Businesses operating in Ireland should stay informed of further tax developments that could affect them.