New tax relief to encourage research and development spending and measures to encourage the establishment of corporate holding companies in Ireland are expected to be the highlights of next week's Finance Bill.
The Bill, to be published next Wednesday, enacts the measures announced on Budget day. This year the main focus will be on the terms of the research and development tax credit, with business lobby groups and tax experts trying to persuade the Department of Finance to frame the legislation to allow a significant amount of spending to qualify for the relief.
The Minister announced on Budget day a tax credit for R&D spending by companies, under which up to 20 per cent of such spending would be permitted to be set against corporation tax in any given year.
But crucially he said that the credit would apply only to "incremental" spending, in other words spending exceeding that currently taking place here.
Industry is concerned that the Department could decide on a restrictive interpretation of what is "incremental" which would severely limit the relief available to major multinationals already conducting research and development here.
It now appears likely that the Bill will set a base year against which the spending increase qualifying for tax relief will be calculated.
This is likely to allow some scope in terms of calculating qualifying spending, probably by allowing a period of years when additional spending will be calculated, using a 2003 base.
Other areas of interest will be how the legislation deals with research which is "outsourced". particularly to third-level institutions here and whether the Bill puts a firm end date on the relief.
In the Budget, the Minister said that the relief would be "reviewed" after five years, but it remains to be seen whether any time limit is written into the legislation.
More than 15 pages on the R&D relief is understood to be included in the Bill, with a similar amount on holding companies.
On Budget day the Minister said that he would exempt the disposal of subsidiary companies from capital gains tax and expand the scope of double taxation relief for dividend income paid to parent companies.
This is designed to help Ireland compete internationally for headquarters and holding companies.
Previously, many such investments were lost to countries such as the Netherlands for tax reasons.
Close attention will be paid to the framing of this legislation and how it deals with the sale of subsidiaries in Ireland.
The relief was primarily designed to attract international investment here , for example getting US companies to establish European headquarters here which holds their EU subsidiaries.
It remains to be seen whether it will be possible for the Department to exclude benefiting Irish parent companies selling Irish subsidiaries. Any suggestion that one group of companies was being treated differently would be questioned by the EU Commission.
