In the Finance Bill 2017, I introduced an 80% cap on the relevant income against which capital allowances for intangible assets may be deducted in a tax year. This reinstated the cap which had been in place but which was lifted in the Finance Bill 2014 and therefore did not apply to assets onshored between 1 January 2015 and 10 October 2017. On the recommendation of the Review of Ireland’s Corporation Tax Code undertaken by Mr. Seamus Coffey, the 80% cap was reinstated to ensure some smoothing of corporation tax receipts over time. For the purposes of certainty, changes to tax law are generally made on a prospective basis such that they apply only from the date on which they have legal effect. This measure, therefore, does not apply retrospectively.
It should be noted that the operation of the cap is simply a timing matter, and to present tax paid in current years as a result of the cap as additional tax for the Exchequer would not be correct. The measure has no effect on the overall quantum of capital allowances for intangible assets available to use against the relevant trading income. Any amounts restricted in one accounting period as a result of a cap are available for carry forward and use in a subsequent accounting period, subject to the application of the cap in that period. Income generated by assets onshored during the period when the cap was not in place will therefore be taxed going forward when the capital allowances have been fully used. The allowances are one of a number of measures designed to enhance the competitiveness of Ireland as a location for companies to develop intellectual property. This recognises the fact that investment and growth in OECD economies is increasingly driven by investment in intangible assets.