BDO Corporate Tax News

Ireland - Business measures in 2024 budget include minimum tax and increase in R&D tax credit

Budget 2024 announced by the Irish Minister for Finance on 10 October focused on measures to assist with the cost-of-living and inflation issues being experienced by individuals and businesses in Ireland. The Budget did not include significant changes for the financial services industry, although there are several areas worth noting. The following are the most significant changes that affect businesses (click here for an analysis of the full budget 2024 announcement prepared by BDO in Ireland).
International tax reform
As expected, the Minister announced that Finance Bill 2024 (to be released the week of 16 October) will contain the legislation to implement the 15% minimum effective tax rate for large companies, as provided for under the OECD Pillar Two agreement and to transpose the EU minimum tax directive into domestic legislation.

This means that a minimum effective corporate tax rate of 15% (Pillar Two) will apply to the profits of “large” enterprises, i.e., those whose annual turnover exceeds EUR 750 million as from 2024. However, due to the expected delay in global agreement on Pillar One, it will be 2026 before there is any impact on government receipts. As Ireland’s existing headline corporation tax rate of 12.5% is below the Pillar Two 15% rate, the legislation will provide for a Qualified Domestic Minimum Top-up Tax (QDMTT) to apply from 1 January 2024. Companies/groups outside the scope of Pillar Two will remain subject to the 12.5% rate and the existing tax regime in Ireland.
R&D tax credit regime
In a welcome announcement for companies claiming the R&D tax credit, the Minister announced that  the R&D tax credit is increasing from 25% to 30%. The purpose of the increase is to maintain the net value of the existing credit for those businesses subject to the new 15% minimum effective tax rate, while also delivering a real increase in the credit to those smaller companies that will not be within the scope of Pillar Two. The Minister also announced a doubling of the first-year payment threshold for EUR 25,000 to EUR 50,000 to provide valuable cash-flow support to companies engaged in smaller R&D projects.
Territoriality / participation exemption
The Minister referenced his recent announcement that a participation exemption for foreign-sourced dividends will be legislated for in Finance Bill 2024 (see our previous article on this roadmap).

While the introduction of a participation exemption for dividends is to be welcomed, it is disappointing that it is not being introduced now in conjunction with the introduction of the Pillar Two rules, as was indicated in last year’s budget speech.  
Reform of interest deductibility rules
In other welcome news, the Minister announced his commitment to engaging with stakeholders on Ireland’s current regime for interest deductibility, noting its complexity. Hopefully this engagement can take place soon with a view to seeing some simplifying measures in Finance Bill 2024.
Bank levy
The banking levy was due to expire in 2023, and currently yields in the region of EUR 87 million. The Minister announced his intention to put in place a revised bank levy in 2024 to raise EUR 200 million. The levy is then to be reviewed again to ensure that it remains “appropriately calibrated.”
Fund Sector 2030
The Funds Sector is currently undergoing a review. The Minister commented on this in his speech, noting that the review is on track to report to him in Summer 2024 and following the completion of the review, he will consider whether any changes to the current taxation framework are appropriate. There was a sense that there may be some changes in Finance Bill 2024 notwithstanding that the review is ongoing, but this seems unlikely now based on these comments.

Angela Fleming
BDO in Ireland