R&D Tax Credits - A Step Forward but not a Leap

By Derek Henry, Tax Director and Head of R&D team.

The Minister for Finance, Michael Noonan, in his budget speech re-affirmed his commitment to supporting Irish companies carrying on Research and Development (R&D) activities in Ireland by announcing a range of measures aimed at enhancing the regime and increasing its international competitiveness. While the legislation which was published last Wednesday does include the legislation in support of the announcement, some of the measures have a more limited effect than was hoped for.

By way of background under the R&D Tax Credit Regime, companies are entitled to a tax credit of 25% of the incremental R&D expenditure incurred in excess of the base year spend. The base year is 2003. In simply terms if you spend more on R&D in the current year than you did in 2003 a tax credit is available.

Since this credit is in addition to the normal 12.5% corporation tax deduction for the expenditure, in an effect those who qualify can receive an effective tax deduction of 37.5%. In addition, this credit can be offset against a company’s corporation tax liability or, where the company does not have a corporation tax liability, be claimed as a refund from Revenue over a three year period subject to certain limits.

Packaged together this has been extremely popular since its introduction and has been in certain cases a lifeline to cash strapped start-ups and early stage development companies. Interestingly, R&D is actually broadly defined and in this regard, qualifying activities can be found in a wide range of industries and sector, areas that may not be generally perceived as carrying on R&D.

So what has been changed by Finance Bill 2012 to bring more benefit to the scheme?

Use of Credit to reward employees

The first significant change has been to enable companies claiming the credit to reward employees for their part in the R&D process by passing the benefit of the R&D credit directly to the employees. Thus for the first time an employee involved in R&D can then use the credit to reduce their income tax liability for the year which should result in a refund from Revenue.

In order to qualify the employee must be a “key employee”. To be regarded as a key employee the individual:

• Must not be, or have been, a director of the company or a connected company,
• Must not have a material interest (greater than 5%) of the company or a connected company,
• 75% or more of the individual’s duties must be involved in the conception or creation of new knowledge, products, processes, methods and systems, and
• 75% or more of the employment cost for that individual must be eligible as qualifying R&D expenditure.

There are a number of other conditions that must be met, in particular; the amount of the credit available is limited to the extent that it cannot be used to reduce the individual’s effective tax rate below 23%., the amount which the company may surrender is limited to the amount of corporation tax payable by the company for the period and to claim the relief the employee must submit a tax return.

Any element of the credit unused in a particular year can be carried forward to future periods by the individual until they cease to an employee of the company, at which stage any unused credit is lost.

Importantly, if the relief is found not to apply to the employee any tax relief received may, in certain circumstance, have to be repaid to the Revenue by the employee.

The introduction of this concept into the legislation is welcomed. However, the stringent qualifying conditions means in practice that it will only be an option for rewarding some employees in some of the large multinationals. The problems with the mechanism for SMEs (and indeed some multinationals) are as follows:

• In practice, given resource constraints, key staff in SMEs who are responsible for the R&D element of, for example product design, are also responsible for the post R&D phases, including commercialisation of the product, business development and other management functions. As a result, very few SMEs will have staff members who spend 75% of their time on the pure “knowledge conception and creation” side of the business. Also, it is typical that the key drivers of R&D in SMEs would be at the owner/director level of the organisation.
• Many companies carrying R&D are in the pre-revenue phase of development and are therefore not paying significant corporation tax. The inclusion of the corporation tax related cap on the incentive will mean that many companies will not qualify even if they have qualifying employees.
• The fact that the relief is limited to the extent that the employee’s effective tax rate cannot fall below 23% will also limit the effectiveness of this relief. Running some very quick numbers take a €80,000 salary for a single person (assuming basic personal tax credits), the maximum relief that can be achieved in a year is circa €4,212. If the individual has any tax deductible items such as medical expense, other credits (e.g. married credits) or other tax relief such as film relief or EIIS/BES then the amount of the relief reduces significantly. In order to ascertain the value of the relief for the employee, the employer is going to need to understand the employee’s full income tax circumstances, potentially, including that of their spouse. Some employees may be uncomfortable with sharing this information.
• The idea behind this scheme is that the credit surrender would reward the employee in lieu of a bonus. However, given the fact that the credit could be lost at some stage in the future if Revenue find that the employee was not entitled to the credit it will be hard to convince employees that this is a viable alternative to a cash bonus.

Incremental base relaxation

As discussed above, the Irish R&D Tax Credit Regime is an incremental system. Under the new rules, a full volume base will apply to the first €100,000 of qualifying expenditure with the incremental base applying for amount in excess of €100,000. This will be beneficial to companies who are carrying on R&D activities but have a base year amount either greater or marginally less than current year expenditure. In such instances these companies will now be able to claim a minimum of €100,000 as qualifying expenditure where they would otherwise have been entitled to no credit.

Limit on outsourcing

Under current legislation, where a company outsources some of its R&D activities to third parties or universities, the amount of related costs eligible for the credit were limited to a percentage of internal R&D expenditure- 10% if paid to a third party or 5% if paid to a university. The new legislation provides that these limits will be amended to the greater of €100,000 or 10%/5%. These measures will be particularly important for SMEs who rely heavily on external resources and capabilities to assist their internal R&D functions.

The legislation also includes a requirement that the company outsourcing the R&D activities write to the third party provider to inform them that they will be claiming a credit on the cost. This is to ensure that the third party provider does not also receive a credit in relation to that work.

Expenditure incurred by the company on the management of outsourced R&D activities will not now regarded as qualifying R&D expenditure.

EU Grants

Where R&D activities are funded by EU or EEA grant assistance, the expenditure will not now qualify as R&D expenditure. A similar provision was already in place where companies received grant assistance relating to the activities from the Irish State so these new provisions simply extend this to grants received from other EU/EEA jurisdictions.

Group companies

Amendments included now permit any unused credits of a dissolved company to be carried forward into a successor company when certain conditions are met.

Penalties

The new legislation also details various penalty and interest measures aimed at ensuring companies only claim an appropriate level of R&D credit under the regime.

Effective date

In general, the new legislation is effective for accounting periods commencing after 1 January 2012, however, the increased limit for outsourced R&D applies to accounting periods ending after 1 January 2012.

Conclusion

It is encouraging that the Minister is continuing the focus on this valuable relief for corporate and attempting to enhance the regime. This ongoing commitment is essential to ensuring that the Irish R&D Tax Credit Regime continues to be internationally competitive. The relaxation in the base year and the increase in the limit on outsource activities are very welcomed, however, in terms of the employee reward scheme the legislation needs to be revisited in advance of the Finance Act to make it more broadly applicable, in particular to SMEs.

• Tax
• Services

Valuations

Identifying the true value of a business, whether for the purposes of an acquisition or a fundraising requires considerable experience and measured, independent judgement. We have a depth of knowledge and experience in this area which allows us to provide objective and balanced valuations that endure both commercial and regulatory scrutiny.

Our valuations experience covers a wide range of transactions, purposes and sectors. This experience has been developed in providing regular and once off valuations for a range of clients of all sizes.

Our valuations team is lead by Katharine Byrne who draws on the appropriate expertise from within other departments such as Corporate Finance & Recovery, Litigation Support, Tax and Real Estate.

Our team have provided valuations to support the following:

• M&A transactions
• Tax planning and structuring
• Accounting and financial reporting
• Litigation support and expert witness reporting
• Far value opinion
• Options and employee share schemes

For further information on any of our services, contact
a member of the Corporate Finance and Recovery team.

Related:

Our publications
Recent deals

• Tax
• Services

Recent Tax Deals

Recent Tax Deals

• Tax
• Services

• Read more

Key tax dates

Import calendar: iCAL (for Outlook 2007), or XML (copy & paste into your feed reader).

Use the forward button, below, to view next month's dates.

View fullscreen in a new window.

Click here for:

Indirect Tax
Our clients
Tax Bites archive
Publications

Talk to us, contact a member of our Tax team.

• Tax
• Services

Tax - Useful links

Below are some links that you may find useful. Please click on each of the links to be brought to their website.

• Revenue Commissioners
• HM Revenue & Customs
• Social Welfare
• Irish Taxation Institute
• Association Chartered Accountants
• Association Certified Chartered Accountants
• Certified Public Accountants
• Chartered Institute of Managament Accountants
• Enterprise Ireland
• Department of Trade, Enterprise & Employment
• Companies Registration Office
• The Central Statistics Office
• Chambers Ireland
• Central Bank
• Department of Finance

Click here for:

Key tax dates calendar
Tax Bites archive
Publications

Talk to us, contact a member of our Tax team.

• Tax
• Services

Tax Bites - Planning Strategies

Realising shareholder value

For shareholders that have worked hard on building the value in their business when an opportunity arises for them to obtain a return on their investment it is essential that it is structured tax efficiently. This may mean realising the value at the capital gains tax rate. Examples of where this can occur include:

• The rearrangement of share ownerships giving rise to a disposal liable at capital gains tax
• Sales/Purchase of companies
• Opportunities to make return more tax efficient through use of pension planning, ex gratia payments etc.
• Forming a holding company to acquire shares of a company for bona fide commercial reasons
• Reorganisation of business out of existing company and leaving company to be liquidated
• Sale by shareholders and not by company of target business owned by a company
• Forming a holding company and issuing shares at market value. Holding company buys shares back.

Protecting shareholder value

In the current economic environment it is very important that business owners ensure as far as possible that they protect the assets from possible threats. This includes ensuring the any tax liabilities are reduced or at least deferred on income and gains of the company. Examples of planning opportunities include:

• Transferring target trade to new subsidiary and selling subsidiary at a later date tax free through holding company regime.
• Transferring business to sister company on a tax free basis to protect it
• Forming a group or merging of 2 activities by way of share for share swap
• Patent structures
  • Opportunity to maximise return on processes that have patent protection
  • Can produce tax free dividends for company and shareholders depending on circumstances.
• Non filing structures – Reorganise shareholding in order to impose confidentiality on commercially sensitive information.

Employee equity participation

In order for a business to succeed, it is very important that key employees are incentivised. Equity participation is useful tool in order to help in this process.

• Consider issuing shares to key employees at low valuations due to economic position.
• Use share scheme which cap value of business today.

Reducing income liable to income tax, PRSI and levies

With high income earned by individuals now liable to substantial tax and levies exceeding 50%, taxpayers need to investigate what can be done to reduce this substantial cost. Some strategies that can be used include:

• Change in accounting periods. In commencement situations this can produce drop out of profits. Where profits have fallen in the last year, a change in accounting period could result in fall out of profits liable to tax.

• Transfer business to company. Consider transfer of a business to a company to avoid high personal tax and PRSI/Levies. Gives access to substantial pension benefits. Use opportunity of obtaining low valuation of business to limit stamp duty.

• Individuals obliged to trade personally. Consider transfer to company of parts of business not requiring individual service. Pay salary to spouse for services and provide pension benefits to maximise tax deduction.

Retirement planning

With the reduction in the value of all asset classes over the last 2 years or so, it is fundamental that any tax arising on providing for retirement are minimised.

• Use pension planning to maximise retirement provisions and provide tax free lump sum.
• Consider pensions as wealth generator and preserver.
• Consider disposal of shares in family company to obtain cash at capital gains tax rate.

Residential land ownership

Unwinding residential land personal ownership is an issue for development land owners due to the high level of personal taxes that would arise on any future profits.

• Potentially transfer sites to company in total or piecemeal.
• Cease the business and claim terminal loss relief.

Crystallisation of capital losses

Individuals that own assets that have fallen in value substantially should consider realising those losses so that they may be offset against any gains that may be chargeable gains.

• Consider realising losses and reinvesting in shares to cover potential gains or carry forward future losses.
• Capital distributions from companies in liquidation which are liable to capital gains tax may be covered by other losses.
• Consider negligible loss claims for assets in particular shares that are now worthless.

Succession

Owners of family businesses that are considering the succession of the business should consider putting a structured plan in place for the transfer of ownership and providing for retirement.

• Unprecedented opportunity to pass value to next generation due to low valuations of assets in particular property.
• Retirement relief and business asset relief available which allow business to be transferred tax free.
• Transfer assets early to maximise reliefs while available. If held for more than 6 years (10 years for Development land), a claw back is avoided and asset value uplifted for tax purposes in relation any subsequent sale.
• Other reliefs available on succession, for example dwelling house exemption.
• Utilise the €750,000 tax free amount for disposal to non family members.

Corporation tax savings/refunds

There are substantial benefits available to companies that plan for corporation tax liabilities.

• Research and development credit. Substantial gross deduction of 37.5 % of incremental costs available. For 2009 accounting period possibility of refund of tax.

• Capital allowances Plant capital allowances available to landlords and owner occupiers. All company premises have an element of plant. Allowance available on purchased and internally generated intellectual property.
• Plan for future tax liabilities of company in particular rental companies and plan for tax shelters.



Talk to us, contact a member of our Tax team.

• Tax
• Services

Current Revenue Investigations

As a result of recent tribunals, freeing up of Revenue staff as taxpayers increasingly use online services and the incentive to maximise tax revenues without increasing tax rates, the number and depth of investigations increases.

Current investigations:

Credit Unions Interest Reporting (Extension of Voluntary Disclosure Initiative)

Taxpayers who had €100,000 or more in aggregate in credit union accounts (which included funds not previously declared for tax) at any time between 1 January 2005 and 31 December 2008 have until 31 March 2010 next to make a voluntary disclosure under an initiative announced by the Revenue Commissioners. The deadline date for the submission of a full disclosure and payment of all due tax, interest and penalties is 31 March 2010.

Voluntary Disclosure Initiative – Deposit Interest Reporting

Taxpayers who had €100,000 or more in aggregate in DIRT liable deposit accounts (which included funds not previously declared for tax) at any time between 1 January 2005 and 31 December 2007 had until 15 September 2008 to make a voluntary disclosure to the Revenue Commissioners. Full disclosure with all tax due, interest and penalties must have been made by 15 January 2009. Revenue has since received names and address of account holders where interest in excess of €635 was paid for 2005, 2006 and 2007.

Life Assurance – Undisclosed Funds Invested in Life Assurance Products

In April 2005 Revenue launched an investigation to identify persons who invested untaxed funds in single premium insurance policies. Following on from an examination of the information received from the initial phase of the investigation Revenue have decided to look for further High Court Orders in respect of policies where the total amount invested was greater than or equal to €20,000 but less than €50,000. Policyholders with outstanding tax liabilities who receive a letter from an insurance company should be aware that the Revenue Commissioners notified all relevant insurance companies in a letter dated 8th June 2009 that Revenue are prepared to accept from defaulting taxpayers a full and complete disclosure in lieu of initiatiting any criminal proesecution.

Offshore Assets – Offshore Related Tax Defaults

The Offshore Assets Group is now investigating taxpayers who failed to come forward in the qualifying disclosure campaign during 2004. Revenue has, on foot of High Court Orders, obtained transaction information from financial institutions, which is assisting in identifying those individuals who held offshore accounts or financial products and who have not brought their tax affairs up to date. The Offshore Asset Group is currently issuing letters to these individuals inviting them to make contact with a view to regularising their tax affairs.

Trusts & Offshore Structures

The Revenue investigation of the tax treatment of property, assets and funds settled by persons on trusts and offshore structures commenced 1 September 2009. The investigation is focused on persons who have undeclared tax liabilities in respect of transfers and settlements of property, assets and funds to / on trusts and offshore structures, such as, foundations, establishments, trust enterprises and offshore companies or have tax issues in relation to profits or gains arising within, or disbursements out of, such trusts or structures.

Investigations can be stressful, focusing taxpayers’ attention away from the success of the business. At BDO we have a team of people who have many years experience working in this area.

Talk to us, contact a member of our Tax team.

• Tax
• Services

Revenue Audits

In order to police the self assessment system Revenue employs the use of random investigations so that a tax return under any tax head may be selected for audit. There may be a specific reason why a return is selected or you may be chosen at random.

Should this happen the return will be subjected to detailed examination by Revenue officials who will try to ensure that all profits, income and chargeable gains are correctly calculated, that there are no omissions and that credits and reliefs have been correctly claimed.

A Revenue audit will usually cover one year or accounting period, however in certain circumstances the examination can be extended to several years.

At BDO we recognise that Revenue Audits can be very stressful for the taxpayer, at best they are time consuming and can detract from the day to day running of the business, at worst they can result in large bills and possible court appearances. In order to reduce the stress levels as much as possible we have a team of people who have many years experience working in this area.

We deal with all types of investigations carried out by Revenue and work hard to ensure that:

• The taxpayers rights are respected at all times
• The taxpayers stress is minimised by accompanying him/her at all meetings and as far as possible dealing with Revenue on his/her behalf
• The legislation is correctly applied in all cases
• The tax and interest being demanded is minimised
• The lowest penalty is negotiated
• Phased payments are arranged where necessary
• Prosecution is avoided in the more serious cases
• Improvements to accounting and tax compliance systems are suggested
• Future tax planning opportunities are discussed with the taxpayer.

Talk to us, contact a member of our Tax team.

• Tax
• Services

High Earners Restriction

Finance Bill 2010 amended the restriction of reliefs for High Earners for 2010 and subsequent tax years in order to achieve a 30% effective rate of income tax for those subject to the full restriction. This represents a 10% rise in the effective rate which currently applies.

The entry level threshold for the restriction will now occur at adjusted income levels of €125,000 and the full restriction will apply at €400,000. Previously, only those individuals with incomes in excess of €500,000 were fully impacted by the restriction. Individuals earning between €250,000 and €500,000 were partially affected.

The restriction will apply to an individual for a tax year whose “adjusted income” is equal to or greater than the “threshold amount” and the aggregate of the specified reliefs used by the individual in the tax year is greater than the threshold amount.

If the individual’s adjusted income is less than the threshold amount or the amount of the specified reliefs being claimed is less than the threshold amount, the restriction will not apply.

The calculations of applicable restrictions and tax liabilities for those affected are complex and detailed.

At BDO we have the skilled professionals who will assist in this area.

Talk to us, contact a member of our Tax team.

• Tax
• Services

Remittance Basis of Taxation

With effect from 1 January 2010, the remittance basis of taxation relating to foreign income will now only apply to individuals who are not domiciled in Ireland.

This amendment will affect Irish citizens taking up residency in Ireland after a period of time abroad.

Prior to this proposed amendment, Irish individuals who were not ordinarily resident (i.e. not tax resident for three consecutive years in Ireland) were only taxable on Irish source income and foreign income to the extent it was remitted during the first three years of their residency.

These individuals will now be taxed on their worldwide income from the first year they become Irish tax resident.

At BDO we have a team of experts in assessing your tax status with regards to:

• Residence
• Ordinary Resident
• Domicile.

Talk to us, contact a member of our Tax team.

• Tax
• Services

Domicile Levy

As announced in December 2009, an annual domicile levy will come into effect from 1 January 2010.

This levy applies to individuals who are Irish domiciled and are citizens of Ireland and who have:

• Worldwide income exceeding €1,000,000
• An Irish income tax liability of less than €200,000, and
• Irish property with a valuation in excess of €5,000,000 as at 31st December in the relevant year. In estimating the value of the asset, no deduction is allowed for debts or encumbrances.

Irish property is broadly defined for the purposes of this section to cover rights and interests of every description.

Assets that are specifically excluded from the definition of Irish property are shares in a company which exists wholly or mainly to carry out a trade or a holding company that derives most of its value from trading subsidiaries.

Shares in foreign corporate entities may also come within the definition of Irish property if the shares derive the greater part of their value from Irish situated assets, namely land or buildings in the State.

An individual subject to this levy will be entitled to a credit against this levy for Irish income tax already paid in Ireland in the relevant year.

The levy applies irrespective of the individual’s tax residence status and it will be payable on a self assessment basis.

At BDO we have a team of professionals who will analyse your position regarding the domicile levy.

Talk to us, contact a member of our Tax team.

• Tax
• Services

Self Assessment

Virtually all of the Irish Tax system is based on self assessment. This means that the onus is on the taxpayer to ensure that they have complied with all the tax obligations arising from any transaction they enter into.

The tax laws are many, varied and complex in nature and unfortunately ignorance of these laws is not an excuse when it comes to arguing interest and penalties when the taxpayer gets it wrong.

At BDO we have a large, skilled and experienced tax team, many of whom are ex Revenue officials. They can assist with all aspects of tax from cradle to grave and everything in between.

At BDO we offer a comprehensive compliance service which includes the timely preparation and submission of your various tax returns, calculation of your liability, ensuring that you are in receipt of all allowances and deductions that apply to your specific circumstances and dealing with correspondence with Revenue on your behalf.

For multinational companies who require cross border service, BDO’s international network provides a global compliance service.

• Income Tax
• Corporation Tax
• Capital Gains Tax
• Capital Acquisitions Tax

Click here for Indirect Tax.

Talk to us, contact a member of our Tax team.

• Tax
• Services

Treatment of Termination Payments

At BDO we recognise the decision made by employers to terminate employees is stressful in the current climate. The task at hand is striking the right balance of payments for both the business and the employee.

Statutory Redundancy

The statutory redundancy payment that an employee is legally entitled to under employment legislation is exempt from tax. In order for an employee to qualify for a statutory redundancy payment, the employee must be making PRSI contributions under the A class and have worked continuously for the employer for at least two years.

The amount of redundancy payment is determined by the employee’s length of continuous service and weekly earnings. The weekly earnings include gross weekly wages and benefits in kind. Currently the maximum weekly amount for a statutory redundancy payment is €600. If an employee is eligible for a redundancy payment, they are entitled to two weeks pay for each year of service and a bonus weeks pay.

The employer is entitled to a rebate claim in relation to statutory redundancy payments.

Non Statutory Redundancy Payments

The amount payable by an employer to an employee which is in excess of the statutory redundancy payment, although not exempt from tax, does qualify for tax relief. On a first redundancy payment, the higher of the following amounts will be exempt from income tax:

• Basic exemption
• Increased basic exemption
• Standard Capital Superannuation Benefit (SCSB).

The employer can give the basic exemption or SCSB without the prior approval from Revenue. However, if the employee is due an increased exemption, the employer or employee must apply to Revenue in advance of the payment date to get approval for the increased exemption.

In addition there is a further relief from income tax (top slicing relief) available in relation to lump sum payments but this is made by the employee after the end of the tax year.

Please be aware that health contributions are due on a taxable part of a lump sum but there is no PRSI liability thereon. In addition, please note that redundancy payments are also exempt from the Income levies.

The calculations of exemptions and reliefs can be complex and detailed.

BDO can help you structure any termination payments in an efficient manner helping to minimise the tax cost.

Talk to us, contact a member of our Tax team.

• Tax
• Services

Foreign Employment Issues

At BDO we recognise that in the current economic climate successful businesses require a flexible, mobile, highly skilled workforce.

In these challenging times, successful businesses may need to explore new markets in order to grow. Exploring new markets may involve the need to second employees to foreign jurisdictions to carry out employment duties for a period of time.

There are various issues associated with temporarily assigning employees abroad including those noted below:

PAYE Exclusion Orders

When an employee is posted outside of Ireland for a period of time they may no longer be tax resident in Ireland for a certain tax year. This could mean that the employee is no longer liable to PAYE on his salary even though the salary payment is still made in Ireland i.e. lodged to an Irish bank account. BDO can assist in obtaining a PAYE exclusion order from Revenue in cases where there is no longer an obligation to operate PAYE on employee’s salary payments. PAYE exclusion orders reduce unnecessary administrative burden and costs associated with incorrect operation of PAYE.

PRSI Collection

For employees who have earnings which are subject to PRSI, but which are not subject to the PAYE system of taxation, PRSI is paid directly to the Department of Social Welfare through the PRSI Special Collection System. When an employee is seconded abroad it is important that they continue to remit PRSI during the period of absence from Ireland so that there contributions remain at the levels required to claim certain State benefits in the future/on retirement. BDO can assist in correctly remitting PRSI contributions during a period where a PAYE exclusion order is in place.

Return to Ireland

Once an employee returns to Ireland many questions may arise, such as:

• Does a PAYE exclusion order need to be cancelled?
• When does the employee become tax resident in Ireland again?
• How are remittances of income and savings to Ireland taxed?

BDO can assist in understanding what obligations arise on the employees return while also assisting the employee with any their personal tax affairs.

Foreign Taxation Issues

Once the employee is seconded the employer may encounter foreign tax issues in the country of assignment. For example, the destination country may require that payroll taxes are deducted on payments made to the employee even though the salary payment is still made in Ireland i.e. lodged to an Irish bank account. With BDO’s extensive network of partner offices we can provide timely advice on any foreign tax issues that may arise.

Permanent Establishment/Taxable Presence

When employees are seconded it is important that care is taken to avoid the creation of a permanent establishment in the jurisdiction they are assigned to. The creation of a permanent establishment can lead to a company/employer becoming liable to foreign tax on business profits deemed to be earned by employers/foreign assigned employees. At BDO, we have experience in advising on what roles secondees can and cannot undertake in order to limit the threat of permanent establishment creation.

Tax Equalisation

Employees do not need to suffer either a financial hardship or experience a financial windfall, all being the result of the tax consequences of an international assignment - principles behind a "tax equalisation policy". The employee should pay no more or no less tax than he would have paid had he never left his former home. Such policy will put the assignee in a tax neutral position during the assignment. At BDO, we have extensive experience in advising on tax equalisation policies to fit your needs.

Talk to us, contact a member of our Tax team.

• Tax
• Services

Incentivising Employees

At BDO we understand that staff motivation lies at the core of successful business therefore we understand the importance of retaining key employees, attracting new employees and rewarding long term employees. Staff incentives may take many different forms depending on the needs of the business, the age of the staff and the motivation issues to be addressed.

BDO can assist you in maximising the tax efficiency of employee remunerations through the creation and implementation of tailored tax efficient remuneration packages.

BDO has the expertise to assist on the following:

• Share incentive schemes
• Remuneration structuring.

Share Incentive Schemes

Rewarding employees with shares will give them a focus on increasing the value of the business. Share incentive schemes can be a very tax efficient method of rewarding employees particularly in the current cash restricted environment. In addition, the current low value of shares may also offer the opportunity to make equity awards to new or existing employees.

BDO can work with you to design the most suitable share scheme that will achieve the desired objectives in the most tax efficient manner.

Remuneration Structuring

Employers often face difficulty in determining the most tax efficient methods of structuring remuneration packages for new or existing employees, especially when there is to be a mixture of salary, bonus, pensions and other benefits (company car, medical insurance premiums) likely to be present.

BDO can analyse your requirements and tailor a tax efficient remuneration package for any new or existing employees.

Talk to us, contact a member of our Tax team.

• Tax
• Services

R&D Tax Credits

Introduced in Finance Act 2004 and significantly enhanced by Finance (No. 2) Act 2008, the Irish Research and Development Tax Credit Regime offers a very valuable relief to companies undertaking qualifying research and development activities.

Companies can now get an effective tax deduction of 37.5% for qualifying expenditure.

There is also the facility for companies to receive a cash refund from Revenue in relation to qualifying expenditure where the company does not have sufficient corporate tax profits against which the credit can be used.

At BDO we have advised a wide range of clients in relation to the Research and Development Tax Credit Regime. We have the expertise in the Research and Development Tax Credit Regime to help you successfully avail of the benefits of the regime.

BDO can assist you in identifying the qualifying activities and related expenditure in relation to these activities. We have experience in dealing with the Revenue Commissioners on the Research and Development Tax Credit Regime and can help prepare your Research and Development claim in a format that is acceptable to Revenue.

Talk to us, contact a member of our Tax team.

• Tax
• Services

Intellectual Property Regime

The Governments’ strategy of building a “smart economy” includes a commitment to invest heavily in research and development, incentivise multinational companies to locate for R&D capacity in Ireland and ensure the commercialisation and retention of ideas that flow from that investment.

Coupled with this, Finance Act 2009 introduced a tax incentive regime for the acquisition of intangible assets through the provision of capital allowances on capital expenditure incurred by companies on specified assets.

Allowances are available for capital expenditure incurred after 7 May 2009 on the acquisition of qualifying assets including:

• Patents and registered designs
• Trademarks and brand names
• Know-how (definition extended by Finance Bill 2010)
• Domain names, copyrights, service marks and publishing titles
• Authorisation to sell medicines, a product of any design, formula, process or invention (and any rights derived from research into same)
• Goodwill, to the extent that it directly relates to the assets outlined above.

Finance Bill 2010 (with effect from 04/02/2010) extends the list of specified intangible assets that qualify for the regime to applications for the grant and registration of some of the existing specified intangible assets.

Companies carrying a trade will be entitled to claim a tax write-off for the capital cost of acquiring Intellectual Property (“IP”) assets. Allowances are available for offset against income generated from exploiting IP assets or as a result of the sale of goods or services that derive the greater part of their value from the IP. To the extent that a company carries out other activities, it will be necessary to treat those activities as a separate trade, with ring-fencing of deductions.

The IP regime is seen as a stepping stone that provides Irish based companies with the opportunity to extract value from their IP assets and is in general welcomed by multinationals to locate here.

At BDO we can advise on the appropriate IP structures that may be used, relocating IP to Ireland and maximising returns from the exploitation of IP.

Talk to us, contact a member of our Tax team.

• Tax
• Services

Inward & Outward Investment

Ireland’s tax regime has many features which has made Ireland a key part of the overall group structure of many large multinational groups. Overseas companies continue to invest in Ireland as a European base in relation to various industries not least for its corporate tax rate of 12.5% but also in relation to Ireland’s access to an extensive treaty network, tax relief for R&D, capital allowances on intellectual property, together with participation exemption.

A key feature of the Irish corporate tax regime is the 12.5% corporation tax rate which applies to all trading income (with a small number of exceptions). This 12.5% rate applies to a wide range of activities including Intellectual Property (“IP”) development activities. Also, Ireland has become a location of choice for managing, developing and exploiting IP assets.

With the 12.5% corporate tax rate seen as a ‘global brand’ for Ireland we can advise companies that are investing into Ireland.

Trading in other jurisdictions outside of Ireland can be daunting not least dealing with the tax issues.

At BDO we can advise on an appropriate tax structure and will assist in order that local taxes payable are minimised.

With trading outside Ireland we can liaise with BDO tax specialists in overseas countries to identify planning opportunities which will minimise global tax together with tax and social security issues for international assignees, the repatriation of the profits and planning for double tax relief.

For tax related services on inward investment:

Click here for Intellectual Property.
Click here for R&D Tax Credits.

Talk to us, contact a member of our Tax team.

• Tax
• Services

Mergers & Acquisitions

It is important for companies seeking to grow by acquisition to make sure they look at the full range of issues in any contemplated transaction.

Potential tax liabilities can arise across a whole range of taxes from corporation tax, capital gains tax, stamp duty, VAT, withholding taxes and PAYE/PRSI.

Where a sole trade business goes into partnership, takes over another business or is being sold we will ensure that the shareholders / partners receive the necessary tax advice in particular in relation to maximising the potential returns available and limiting as far as possible the tax exposures arising from entering into such transactions.

With our cross functional team we can ensure that clients get access to expert advice. Our tax team works closely with our corporate finance and consulting teams, advising on merger and acquisition opportunities and conducting necessary due diligence.

The tax areas that we at BDO can assist in include the following:

• Structuring the deal in a most tax efficient manner which may include possible restructuring before the sale.
• Acquisition and vendor due diligence reviews identifying material tax exposures and making recommendations.
• Assistance with the legal agreements in relation to tax matters.
• Advising on tax efficient remuneration for departing executives / employees of the target company to include incentive schemes for staff retention.

For related services on mergers and acquisitions:

Click here for Corporate Finance and Recovery.
Click here for Consulting.

Talk to us, contact a member of our Tax team.

• Tax
• Services

Reconstructions & Reorganisations

Often the need for a reorganisation is as a result of change of ownership or part of a business is changed or due simply a need to ‘streamline’ or a tidy up a group structure.

Reconstructions are often implemented to facilitate the following:

• The introduction of new investors
• The sale of specific business carried on by the company or by the group
• The partition of the company/group between two or more shareholders
• The acquisition of another company or part of another company in exchange for shares
• Extracting value out of the company for shareholders.

With all transactions which involve the transferring of a business or shares there are a number of tax implications such as capital gains tax, stamp duty, corporation tax, VAT and income tax together with Company Law issues.

With tax planning such transactions may be carried out with a minimum of tax cost.

At BDO we can help to structure your company/group tax affairs in an efficient manner helping you to minimise the tax cost if you are contemplating any of the above.

Talk to us, contact a member of our Tax team.

• Tax
• Services

Marital Breakdown

Marital Breakdown

The rules applicable to informal or formal separation and divorce can be complex and may not even be considered during a stressful time.

At BDO we can assist and advise you on the tax issues that arise during marital breakdown.

Tax Services

Our services in this area include advices on:

• Maintenance payments
• Inheritance tax and succession planning tax issues
• Property tax issues including transfer of family home

Related Services

With our cross functional departments we can ensure clients get access to expert advice. Our tax team works closely with Family Business and Corporate Finance and Recovery in relation to the following areas that may be required:

• Statement of Affairs
• Forensic accounting

For related services in this area:

Click here for Family Business Services.
Click here for Corporate Finance and Recovery.

Talk to us, contact a member of our Tax team.

• Tax
• Services

Pension planning

The area of Pensions has created many challenges for companies providing pension benefits for employees together with individuals providing for their own ‘nest egg’ when they reach retirement age.

Pension funds should be seen as an investment vehicle to earn tax free income together with claiming an allowable tax deduction in relation to contributions made to the fund along the way.

Income tax relief is available for individuals for pension contributions made. The amount of tax relief depends on one’s age and net relevant earnings. There is a current cap of €150,000 of net relevant earnings. Earnings in excess of this amount will not be taken into account in calculating allowable contribution.

However with appropriate pension and tax planning, opportunities may arise for the self employed to claim tax relief over and above the relevant limits.

Opportunities may also exist in relation to accessing cash in the Pension fund before retirement age.

With our cross functional departments we can ensure that clients get access to expert advice. Our tax team works closely with our Wealth Management department advising on pension opportunities to enhance tax relief available or extract available cash from funds earlier.

For related services in this area please click here for Wealth Management.

Talk to us, contact a member of our Tax team.

• Tax
• Services