TAX NEWS - DECEMber 2009

Ireland Tax: 2010 Budget announced

The 2010 Irish budget presented by the Finance Minister on 9 December 2009 is one of the toughest for a number of years, but does include some positive messages for companies operating in Ireland.

Corporation tax rate

We welcome the Minister's affirmation of Ireland's commitment to the 12.5% corporation tax rate, by stating that this rate is here to stay. This should provide certainty to new and existing companies of their future Irish corporate tax costs.

Innovation and R&D

In line with national policy of pursuing a knowledge economy, the Minister has again focused on this sector. Approximately EUR 1.75 billion of grant aid has been provided between 2006 and 2009. During these years, there have also been significant improvements to Ireland's R&D tax credit and intellectual property regimes. The Minister has indicated that he will consider further recommendations for this area, which are included in the report from the Innovation Taskforce, expected to be issued before the end of 2009, for the upcoming Finance Bill to be published in early 2010.

Given that U.K. government has announced positive measures in the area of the taxation of intellectual property in its pre-Budget report, it is hoped that the Minister will further enhance Ireland's intellectual property regime in the Finance Bill to sustain and encourage the continued growth of Ireland's smart economy, particularly in the areas of technology, pharmaceuticals and energy.


International financial services

Over the past 20 years, Ireland has become a hub for financial services activities. The Minister announced that measures will be introduced in the forthcoming Finance Bill to exploit opportunities arising in the international financial services sector, particularly in the centralization of high value added activities, further to restructuring arising from the global financial crisis. We welcome this announcement, along with the Minister's statement that measures will be introduced to strengthen Ireland's competitive edge in the international funds area, further to recent European legislative changes.


Green agenda

There is a further focus on the green agenda in the 2010 budget with the introduction of a carbon tax, effective in some cases from midnight tonight. The funds raised through this measure will be used to boost energy efficiency and other measures.

The accelerated tax depreciation for energy efficient plant and equipment is being extended to items of plant typically used in the food, drink, retail and distribution sectors, such as electro mechanical systems, refrigeration and cooling systems and catering and hospitality systems with a view to improving energy efficiency in sectors that are currently under competitive pressure, both in Ireland and in their export markets.

It is also positive that the areas of focus for investment projects in 2010 listed by the Minister included energy efficient projects. This should create employment in the green economy and have positive domestic and international spin off benefits.


Tax rates

The standard rate of VAT will decrease from 21.5% to 21% as from 1 January 2010.

It is also positive that there will be no increases to personal tax rates or to PRSI (social insurance) at this time, though there will be reform of the tax and social insurance system for 2011 to broaden the base of taxpayers.

Instead, the budget deficit will be addressed through public sector pay and spending.

Further details on all of the above measures and any additional measures will be included in the Finance Bill to be issued issue in January/February 2010.