(1) THAT section 288 of the Taxes Consolidation Act 1997 (No. 39 of 1997) be amended, in subsection (3C), by substituting “incurred before 14 October 2020 on the provision” for “incurred on the provision”.
(2) THAT paragraph (1) of this Resolution shall have effect as on and from 14 October 2020.
(3) IT is hereby declared that it is expedient in the public interest that this Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act 1927 (No. 7 of 1927).
Financial Resolution No. 4 ensures that Ireland's tax regime for intellectual property, IP, is consistent with international best practice with effect from tonight. As Deputies are aware, tax relief for the cost of capital assets used for the purpose of a trade is generally provided through the capital allowances regime. Like many other countries, Ireland has since 2009 granted capital allowances on certain intangible assets which a company manages, develops or exploits. These IP allowances encourage substantive activity and high quality employment in Ireland.
The IP allowance rules are more restrictive than normal capital allowance rules and similar reliefs in other countries in some respects. However, the operation of the balancing charge mechanism has been identified as being less restrictive than most, but not all, other jurisdictions with similar reliefs. At present, no clawback of capital allowances arises where an intangible asset is disposed of after five years and the disposal proceeds exceed the cost not yet relieved through IP allowances. This differs from the treatment of a disposal within five years where any such excess would be treated as a taxable receipt to a company. Therefore, the Minister is moving to address this issue by amending section 288 of the Taxes Consolidation Act 1997 to provide that all intangible assets acquired from tonight will be fully within the scope of balancing charge rules.
It is not anticipated that this amendment will give rise to significant additional tax revenue, given the current profile of claims as shown in Revenue data. Revenue understands that the type of intellectual property typically situated in Ireland includes items such as patents on pharmaceutical products. The value of this type of asset declines as the patent runs out and as the asset is depreciated in the company's accounts. Nevertheless, this is an important change to bring our rules in line with those applying internationally. It signals our commitment to taking action where it is needed and, given the type of measure, it is logical to implement it by way of financial resolution. This financial resolution will allow this change to take legal effect after tonight to ensure Ireland's tax regime for intellectual property, together with the broader corporation tax regime, remains competitive, legitimate and sustainable. I commend the resolution to the House.