PwC Speakers Tell Council How They Can Avail of Irish Tax Advantages PDF Print E-mail

Terry O'Driscoll, Tax Partner with PwC, gave the May Council meeting a macroeconomic overview of the Tax landscape for Irish exporters. He started his presentation by covering the area of corporate tax. He stated that Ireland moved to a single Corporate tax rate for trading profits in the early 2000s, which is very attractive and gives Irish companies a lot of advantages.

He said that companies should avoid creating an overseas tax presence or they should plan to minimise profits attributable to overseas operations. The 12.5% rate, he said, is as good as it gets regarding corporate tax.

He moved onto Transfer Pricing and gave a definition of the term. He stated that Irish headquartered companies need to be proactive to maximise profits taxable at 12.5%. Transfer Pricing is a very topical area and tax specialists in this area are at a premium. He went through the lessons learnt over the last ten years re Transfer Pricing.

There are now Irish Transfer Pricing rules that create some administrative hassle for Irish companies but this was necessary due to accusations from certain quarters that Ireland was a tax haven and our determination to protect the 12.5% rate. Regarding the future of the 12.5% rate, the difficulty, he said, is that any change, however small, will have knock on effects as larger companies plan ten years ahead. It’s been a key plank of FDI strategy and it was never meant to have a timing limit.

The government have a bit of a crisis, he said, with pressure from Germany and France. Regarding Consolidated Corporate Tax Base which, he said, is attacking the 12.5% rate by the back door, this is in play as well but no one knows what will happen.

He said there’s quite a bit of value in bringing Intellectual Property into a country as there’s a belief that jobs will follow, as well as short term tax revenue. Corporations are taxed here at 2.5% for IP, rather that 12.5% to keep us competitive. The rules are very complex and the definition is too narrow as IP keeps changing, he said.

Mary Douglas, Tax Director with PwC then spoke on a couple of tax incentives. Firstly, she mentioned the R&D Tax credit. She said this was one of our main tax benefits along with the corporate rate. It’s a further 25% credit in addition to the 12.5%, she said and it is claimed when tax returns are submitted.

Chairman Bernard Coyle asked what constitutes R&D. Mary said that the costs being incurring must be to achieve some sort of technological advancement or to try to solve some sort of scientific or technological uncertainty. She said if you employ scientists or quality control personnel to produce new or improve existing products or processes, the salary costs and overheads attributable to this should qualify for additional tax credits.

BC asked if tweaking existing products qualified. Mary stated that it depended on what the tweaking was doing. She said if you were tweaking the bacterial content to improve shelf life of the product, that should qualify but tweaking the packaging for visual effects wouldn’t. It must be technical to qualify, MD stated, and can’t be marketing related.

BC said there was real confusion across the industry on this issue and what constitutes a technical improvement. He said that if you make a claim for credits and you are turned down, you are also liable to penalties.

Peter Cullen (PC) stated there were 3 areas in the process. The first was the routine quality control stuff where tweaking would not qualify; the second was ‘research’ which involved something new, innovative, or changing the character of the product; the third was ‘development’ which enhances the value of product to the customer and this relates to the product and processes (e.g. changing equipment, processes etc). He said this final area was the greyist area and caused the issues. PC said companies should properly record and cost the processes as they go along and this makes it easier to stand over in the event of a query from Revenue.

Pat Higgins gave a number of recommendations regarding how companies should tackle the area of R&D and said it had to part of the culture of the company. Jennifer Melia (JM) of Enteprise Ireland raised the issue of cash refunds and the time involved. Mary said it was hard to generalise but the results are mixed.

Mary went on to mention that the area of energy efficient equipment, where companies can avail of an upfront write off of 100% in the first year. She stated that companies should maximise what they can treat as plant and machinery out of buildings and structures as this can give good tax savings. She mentioned advance planning with regard to the tax issues in the area of employing an overseas sales force or person and the Section 13A VAT authorisation form with regard to companies that export over 75% of turnover.

To view the full presentation, please click here.