By Doug Connolly, MNE Tax
The Irish government’s 2022 budget, announced on October 12, provides for an increase in the corporate tax rate to 15% in line with last week’s OECD tax treaty. The budget also extends the relief for startups, adds a new tax credit for the digital gaming sector, and includes planned rules to combat tax avoidance on hybrids and interest caps.
Regarding the OECD agreement, which Ireland joined just last week, Irish Finance Minister Paschal Donohoe said: “Because of our efforts, the effective minimum rate for large multinationals has been set at 15 percent. It could have been a lot higher. It could have been more uncertain. We avoided these risks. That is why it is in our interest to be there. “
Accordingly, Ireland will apply the new effective minimum rate of 15% as agreed in the Declaration of the OECD Inclusive Framework of October 8th. Donohoe noted that the rate will still be lower than many of Ireland’s “major competitors”. Ireland’s current corporate tax rate of 12.5% continues to apply to companies with sales below EUR 750 million (approximately $ 865 million) that are outside the scope of the OECD deal.
With regard to the implementation of the EU directives on combating tax avoidance, the budget contains a new interest rate cap and anti-reverse hybrid rules. The Irish government held consultations on these rules over the summer.
The interest cap rule limits the deductible interest expense to 30% of earnings before interest, taxes, depreciation and amortization (EBITDA). Companies will be able to carry unrecognized interest forward for deduction into eligible future years. Certain exceptions, including a de minimis rule, apply.
Under the anti-reverse hybrid rules, certain tax-transparent (i.e. pass-through) entities such as partnerships will become taxable in Ireland if, due to hybridity, there is double non-taxation resulting from being 50% or more owned or under Control is by legal entities residing in a jurisdiction that the company does not consider tax transparent.
On the incentive side, the budget extends the corporate tax breaks for certain start-up companies in accordance with Section 486C for another five years until 2026. Additionally, the budget would expand this incentive so that eligible companies could benefit from the relief up to their first five years, not just the current three.
With the aim of improving Ireland’s competitiveness in the fast growing digital gaming industry, the budget also provides for a new refundable corporate tax credit for expenses related to the design, production and testing of digital games. The loan is valid at 32% up to an upper limit of EUR 25 million per project (approx. USD 28 million). The proposed digital gambling tax credit would require EU aid approval.
Doug Connolly is the Editor-in-Chief of MNE Tax. He has more than 10 years of experience in tax law developments and previously worked for both a Big Four law firm and a leading legal publisher. He holds a law degree from the American University’s Washington College of Law.