2023 budget measures affecting businesses

03 October 2022

Ireland’s Minister for Finance presented the Budget 2023 on 27 September 2022. As we move past the COVID-19 pandemic and the final supports from that crisis make their way through the system, the budget focus is on the economic backdrop of an inflation rate unseen for many years, which is driving up the cost of living, in particular, the cost of energy due to geo-political events. For these reasons, the Minister referred to this budget as a "Cost of Living Budget" and, while the purpose of this budget is to provide assistance now, it is also intended to be mindful to ensure that Ireland has "sufficient reserves for what the future may yet bring".

Economically, Ireland faces the above issues with close to full employment, bumper exchequer returns and a EUR 1 billion government surplus. However, these optimistic domestic indicators are tempered by the inflation rate and aggressive monetary policy that will likely trigger a global recession.

The Minister outlined concerns in relation to the sustainability of some of the government tax revenues, in particular, corporation tax and some VAT receipts and plans to ensure that these potentially non-recurring "windfall" tax receipts are not used on permanent expense items but rather split between temporary measures and the replenishing of the National Reserve Fund. He also announced reviews of various tax measures and approaches, including:

Further analysis of the Tax Strategy Group report with respect to introducing an intermediate or third rate of income tax;
The commitment to the development of a medium-term roadmap for tax reform following the Report of the Commission on Taxation and Welfare; and
A review of the institutional real estate sector focusing on Irish real estate investment trusts (REITs), Irish Real Estate Investment Funds (IREFs) and Section 110 securitisation companies,” i.e., companies that are eligible for special tax treatment.

Following are highlights of the budget proposals that would affected businesses.

Business tax

The highlight of the proposed changes for business is the introduction of the Temporary Business Energy Support Scheme (TBESS) to assist businesses with the rising cost of energy. Eligibility for the TBESS would be based on a 50% increase in the average price unit for the relevant period in 2022 as compared to 2021.The support would equate to 40% of the amount of the increase subject to a monthly cap of EUR 10,000 and an as-yet-unknown overall cap.

Other proposed changes affecting businesses include the following:

The Minister confirmed that Ireland remains committed to the two-pillar agreement and has engaged intensively with the OECD and EU to follow through on this commitment. If implemented, Pillar Two will require a 15% minimum effective tax rate for groups with turnover of EUR 750 million and above. The agreement is in line with Ireland’s position that coordinated multilateral action is the best approach to ensuring that the international tax system keeps pace with changes in how business is conducted internationally. In conjunction with the continuing work to develop the elements to give effect to Pillar Two’s minimum effective tax rate, the Department of Finance is also considering and working on options for a move to a territorial tax system.
The knowledge development box regime—due to expire in 2022—would be extended for an additional four years (to accounting periods commencing before 1 January 2027). The effective rate of the knowledge box regime may be increased from 6.25% to 10%, although the implementation of such a change would be subject to a date set by a commencement order (expected to occur in 2023).
Modifications would be made to the timing of repayable R&D credits to align with new international definitions of refundable tax credits. The current system of payment in three instalments would be changed to a new fixed three-year payment system, with the first EUR 25,000 of a claim being payable in the first year, which should provide a cash-flow benefit for smaller companies. A company would also be able to request that the credit be offset against other tax liabilities or have the option to call for payment of their eligible R&D tax credit, with existing caps on the payable element of the credit being removed.
The Key Employee Engagement Programme (KEEP) would be extended to 31 December 2025. KEEP is a tax-efficient share option scheme under which a participant is given an option to acquire shares at a future date at a fixed price. However, the participant does not have to pay tax when they exercise the option even if the shares have increased in value. There are a number of conditions to qualify for the KEEP scheme. In addition to extending the time frame for the KEEP scheme, companies would be permitted to buy back the shares from the participant, which would enable participants to more readily dispose of the shares. The lifetime company limit on the value of KEEP shares that could be issued would be increased from EUR 3 million to EUR 6 million.
The bank levy, due to expire at the end of 2022, would be extended for another year to 31 December 2023.
The rate per tonne of CO2 emitted for petrol and diesel would increase from EUR 41 to EUR 48.50 as from 12 October 2022, which would result in an increase of just over 2% in the VAT-inclusive price per litre of petrol and diesel. However, this increase would be offset by a corresponding reduction in the National Oil Reserves Agency levy. The overall result would mean no price increase at the pumps.
The temporary 9% VAT rate for the supply of electricity and gas would be extended to 28 February 2023. The rate, which had been reduced from 13.5%, was due to expire on 31 October 2022. The temporary 9% VAT rate applying to the hospitality and tourism sector would not be extended beyond the current expiration date of 28 February 2023.
VAT on newspapers and news periodicals (including digital editions) would drop from 9% to 0% as from 1 January 2023.

Comments

Finance Bill 2022 is expected to be released on 20 October 2022. Click here to read BDO’s full budget commentary.

Derek Henry
dhenry@bdo.ie

Kevin Doyle
kdoyle@bdo.ie