Ireland offers new incentives for businesses

Ireland has introduced tax relief for capital expenditure by companies on the acquisition of a wide range of intangible assets. The new provisions are designed to encourage companies to acquire, enhance and develop intangible assets, such as intellectual property, from an Irish base.

The scheme applies to intangible assets which are recognised as such under generally accepted accounting practice and which are specified in the new legislation, introduced in May this year. It does not apply to all intangible assets, but the list of qualifying intangible assets is widely drawn.

Under the accounting standard an intangible asset may be recognised in company accounts where the cost of the asset can be reliably measured and it is probable that future economic benefits attributable to the asset will flow to the enterprise.

A writing-down allowance may be claimed in accordance with the accounts-based depreciation charge on the intangible asset. Alternatively companies may opt for a fixed write-down period of 15 years for intangible assets that have an indefinite useful life and are not depreciated.

Writing-down allowances are available where the expenditure is incurred on the acquisition, development or enhancement of an externally acquired or on an internally created intangible asset. Relief is available whether the intangible asset is acquired from a third party or from a connected person, subject to certain conditions. An “arm’s length” provision applies where the intangible asset is acquired from a connected party.

For the intra-group transfer of an intangible asset, the allowance is not available to an acquiring company where the transfer is made under the capital gains tax group relief provisions. In such cases the companies involved may jointly elect not to avail of CGT group relief. If that election is made, the acquiring company may claim the allowance and the transferor company may be subject to CGT on the transfer.

Routine anti-avoidance measures are included to prevent abuse of the relief. There is a general restriction whereby the aggregate amount of allowances and related interest expense claimed for a period shall not exceed 80% of the trading income of the relevant trade excluding such allowances and interest. Any unused allowances and interest costs may be carried forward and used in future accounting periods.

The existing reliefs available for capital expenditure on patent rights and know-how are being discontinued for companies as they are included in the new scheme. The allowances currently available for capital expenditure on computer software continue to apply as the new scheme does not apply to computer software.

Tony Kenney
Copsey Murray
Part of the MGI association
www.mgi-uk.com